Thursday, March 22, 2012

Tory think-tank comes over to The Dark Side

Principles for the Budget 2012

"A truly radical budget should therefore not only call for a revaluation of the property values unrevised since 1991 and introduce a [council] tax paid in proportion to the value of property; it should also introduce a land value tax to generate extra income. These wealth taxes would have added benefits of stimulating land and property markets, as well as addressing jarring social inequalities. In this context, it is worth being reminded that nearly 70% of the land in the UK is currently owned by 0.6% of population"

Posted by mark wadsworth @ 03:41 PM (2225 views)
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19 thoughts on “Tory think-tank comes over to The Dark Side

  • MW – did you see the 40-min LVT film I posted last week? http://realestate4ransom.com/

    Some pretty strong claims for the benefits of LVT.

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  • Damn commies! Phillip Blond almost rhymes with Karl Marx.And Stalin.
    Jokes aside, great to see that more of the political right are getting on board.

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  • Its amazing. People like Marx Wadsworth and the Chancellor are obsessing on how to best wring money from the people. But I saw nothing on any of the newspapers about cutting spending!!!! So I threw away the paper and realized that nothing had changed.

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  • mark wadsworth says:

    M, I’ve seen it before, good stuff.

    Libertoss, people like me are indeed obsessing about the best way to raise public revenue, and the answer is LVT. At the same time, I am deeply concerned about the fact that most taxes are raised in the worst possible way, i.e. taxes on income, output, private wealth etc etc. I think you’ll find that Osborne is very much in your camp on this one, so please don’t pretend that his way of thinking is anything like mine. Glad to have cleared that one up!

    Further, I also have strong views on public spengin (too much spent on the wrong stuff) but that is a separate issue. Allow me to give you a folksy example that perhaps even you can understand:

    1. You have a choice of whether to take Job A for salary £x or Job B for salary £y. That is a decision on how to RAISE money.

    2. Once you have your job, you have a choice of whether to buy Car A for £z or to buy an annual travelcard for local transport for £0.1z a year. That is a decision on how to SPEND money.

    Can you see a difference there between RAISING money and SPENDING money? They are two different things. But to be fair, you can;t even tell the difference between assets and liabilities, so telling the difference between income and expenditure is probably way beyond you.

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  • libertas – relax. Modern Monetary Theory says that in a closed system (no foreign trade) government spending and budget deficits add net financial assets to the private sector because the government has deposited more money into private bank accounts than it has removed in taxes. A government cutting spending and running a budget surplus has removed more money from private bank accounts via taxes than it has put back in via spending. Private net saving is possible only if the government runs budget deficits, while the private sector is forced to dis-save when the government runs a budget surplus. Some economists have argued/shown that over long periods government surpluses lead (with appropriate lead times) to recession while budget deficits have been associated with growing economies.

    Trade surpluses may enable a government to balance its budget AND increase private bank accounts (e.g. Germany, which has used the € to increase its trade surpluses with the PIIGs etc.) but trade is a zero-sum game

    In sum, budget deficits add net financial assets to the private sector and budget surpluses remove financial assets from the private sector. G-T) = (S-I) – NX (where G is government spending, T is taxes, S is savings, I is investment and NX is net exports). This identity is true by definition.

    The important issue is for the government to spend in a way that utilises all the economy’s productive resources. If it does that other problems tend to melt away. As MW says, governments can spend money badly and inefficiently, but that’s a different issue. What would you privatise – health, education, military, police, prisons….?

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  • umm, is that the same modern monetary theory which has wrecked the global economy?

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  • Icarus, just as your namesake got burned flying into the sun, so does government, printing money to the moon. Remember that this money printing and spending steals wealth from the productive. It is not a closed system. Inflation is a tax on wealth. It destroys production.

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  • @6 – I thought that wrecking was due to a banking collapse and/or to the west living on debt over a long period, followed by government support for wealth-extracting banks at all costs. Government deficits weren’t unusually large until economies imploded (more social security payments, less revenue) and banks were bailed out. Until then most government deficits were at a level that had in the past been associated with growing economies.

    @7 – In Thatcher’s time you could argue that government spending was competing with the private sector, but that’s not true today. When she was on the throne in the early ’80s IRs were far higher (so repaying expensive government debt through future tax rises would negate any boost to the economy through government stimulus), nationalised industries accounted for 10% of national investment, local authorities built a third of all houses, taxes took a larger share of output and were more punitive at the margin. But things are different when a financial crisis leads to retrenchment by lenders, investors and consumers, there’s lots of unused capacity and IRs are low. In these circumstances government spending can support, rather than compete with, the private sector economy. Martin Wolf wrote ‘fiscal deficits are not crowding the private sector out. They are crowding it in, instead, by supporting demand, which sustains jobs and profits”. This obviously depends on what the government spends the money on, but there’s no point in decrying deficits per se.

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  • mark wadsworth says:

    Icarus: “Government deficits weren’t unusually large until economies imploded…” Agreed, too big for my liking, but annual deficits of about 3% of GDP are par for the course in the UK, with our tradition of wealth cascading up the generations.

    “… (more social security payments, less revenue)…” Not true, welfare payments went up a few billion quid, tax revenues fell by 6%, the same as the contraction in the economy, i.f. fell by £30 billion. So that would have turned a 3% annual deficit into a 5% deficit, not good, but not the end of the world. It was other areas of government spending (mainly bungs to mates in the private sector and not just banks) which make up most of the deficit.

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  • MW – I didn’t quantify the increase in social security payments or the drop in revenue. The drop in revenue was the more important. While government spending plans are fairly inflexible the projected revenues to fund them were as follows: the pre-budget report of 2007 projected revenues of £581bn in 2008-9. The outturn was £530bn for that year and a further fall to £500bn in 2009-10 (original projection was over £600bn for that year). Most of the fall was in GDP-related income tax, NI, stamp duty and corporation tax (rather than VAT and duties on cigs and booze), as nominal GDP collapsed. The growth in expenditure outturn at that time was less dramatic but consisted mainly of growth in social security payments (about £12bn between pre-budget 2007 and 2008-9 outturn) and tax credits (the Treasury’s “Annual Managed Expenditures” – consisting of large, volatile items like those two).

    Of course the UK has a relatively large structural deficit too, i.e. a mismatch of expenditure and revenue which exists independently of economic cycles.

    ONS puts public sector net debt at £989bn (63% of GDP) but if financial sector intervention is included this goes up to well over 100% of GDP, so bank bailouts are very important contributors (tho’ not sure how this is calculated).

    ‘Bungs to mates’ I’ll leave to you to explain.

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  • mark wadsworth says:

    Icarus, in that case, their projections were wildly over-optimistic*, I’ve checked these figures before and as a matter of fact, GDP went down 6% and tax revenues went down 6% (I’m not convinced that such a fall amounts to a ‘collapse’); social security spending went up by a lot less than £12 bn when i checked, but maybe you are a using a different source, maybe it was £12 bn more.

    * If actual receipts were £100 bn lower than projections of two or three years earlier, at an overall average tax rate of 50% or so, that means their GDP projections were £200 billion higher than outturn.

    As to government spending, it shot up enormously from 2006-07 onwards, according to

    http://www.hm-treasury.gov.uk/psf_statistics.htm

    B1 Public expenditure 2006-07 £550 billion, 2009-10 £669.7 billion, up 22% in three years. Even if social security spending went up by £12 billion, that’s still less than a tenth of the total increase. Now, that strikes me as “dramatic”. A 6% in GDP or tax is not dramatic, a 22% in government spending is dramatic. Those are the facts.

    C1 Total receipts from taxes 2006-07 £519.2 billion, 2009-10 £513.2 billion, down 1% in three years.

    B8 has a line for social securit, but they don’t show historic figures.

    Bungs to mates = people like PFI, A4E, quangoes, bank bail outs, defence overspending on aircraft carriers which won’t be used, etc etc, HM Treasury did a breakdown showing that 40% or so of government spending is “private sector procurement and subsidies to private sector businesses” this is by far the largest single itms of spending, more than public sector wages, more than welfare and pensions put together etc.

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  • mark wadsworth says:

    Icarus, according to DWP, total spending on working age and child benefits went up from £41.2 billion in 2006-07 to £51 billion in 2009-10, up slightly less than £10 billion.

    We have to add increase in tax credits on top of that because they are paid out by HMRC, so your £12 billion figure is in fact correct (apologies for doubting you), possibly understated.

    Nonetheless, that £51 billion is still only one-fourteenth of total spending and the increase represents one-fourteenth of the increase in total spending.

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  • MW – I was looking at the immediate impact of the recession (2007-8 to 2009-10). Government revenue was indeed £519bn in 06-07, but it climbed to £549 in 07-08 before falling to £513bn in 09-10. So in the period I looked at revenues fell 6.6%, against a significant projected rise over that period.

    As for the 22% rise in public expenditure between 06-07 and 09-10 the lion’s share of that was due to ‘financial sector intervention’ (see resource departmental AME and capital departmental AME).

    As for bungs to mates – does this explain the overall level of expenditure or changes in expenditure over the period at which we’re looking? (Certainly it explains the ‘financial sector interventions.)

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  • MW – your post @13 appeared after my post @14 (or else I missed it). As I mentioned, the drop in revenue in the 07-08 to 09-10 period was a more significant cause of the increase in deficit than was the rise in soc sec and tax credits – I mentioned the latter because I was emphasing the recession-based section of the deficit increase – revenue fall, soc sec rise, some capital expenditure increase to attempt to alleviate the recession. Re my post @13 the year(s) (mainly 08-09) with big ‘financial sector interventions’ also had large (minus figures) ‘accounting adjustments’ which may have applied to those interventions, (dunno what those adjustments were). Those interventions, plus increased capital expenditure seem to have accounted for the bulk of the rise in expenditure between 07-08 and 09-10.

    Maybe those ‘bungs to mates’ are a large part of the ‘structural’ (non-recession-based) deficit.

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  • mark wadsworth says:

    Ic, I’m lost now.

    What source are you using for resource departmental AME and so on? The public sector finances databank, if so which tab?

    If you think it’s fairer to compare 07-08 with 09-10, then so be it. There was £36 billion fall in revenue, about a 6% fall, which is what I said originally at comment 9. So we appear to be agreed on that 6% initial fall in tax revenues, and it hasn’t recovered.

    The soc sec rise was £12 billion (we appear to be agreed on that).

    That gives us an increase in deficit of £48 billion, in addition to existing ‘structural’ deficit (i.e. endemic waste and overspend) of £30 billion-odd, gives us an expected deficit of £78, but it has been running at about £70 billion more than that each and every year since 2008 (or is it 2009?)

    Forget capital spending, that’s peanuts. The question is, Is that extra £70 billion spending the bank bail outs? AFAIAA, as the world’s second best accountant, they didn’t treat that as “expense” they treated is as “investments” (but if you can show me a source that says otherwise, I’d be glad to see it, perhaps I’m wrong). And even if teh annual extra £70 billion is bank bailouts, why are they giving them £70 billion each and every year? Northern Rock went pop four and a half years ago, isn’t that all sorted out by now?

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  • MW – This is getting complicated considering it started with a throwaway “more social security payments, less revenue” (I could have added ‘bank bailouts’) to encapsulate the idea that in the first two years after 2007 the deficit rose largely as a result of the recession (the structural bit of the deficit by definition is always with us, so probably wouldn’t account for a change over a couple of years). The other point I made was that revenue projections before the recession hit, projections which influenced future expenditure plans, were much greater than was achieved.)

    I used http://hm-treasury.gov.uk/d/pesa_2011_complete.pdf (Table1.1 – Total Managed Expenditure….) for the assertions that much of the increase in the deficit in 2008-9 was due to ‘financial sector interventions’ (which in later years faded away, in response to your final point @15). (I couldn’t find the explanations for big negative “accounting adjustments” in that year, adjustments which seem greatly to reduce the impact of the ‘interventions’ on total govt expenditure.

    I referred to the importance of capital spending because it doesn’t appear to be peanuts – see the rise, according to that Table, in 2008-9 in “Total capital departmental AME” or “Total capital AME” or “Public sector net investment”.

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  • mark wadsworth says:

    Icarus, thanks, that all makes perfect sense now.

    The “accounting adjustments” were because the bank bail outs are counted as “investments” (where the govt will get our money back) and not as “spending.

    In Resource DEL, we have Financial Sector Interventions in round billions from 08-09 onwards, £42, then income of £28, £15 and £2, so that looks like a small surplus over the four years.

    In Capital DEL, FSI spending is shown as £85, £38, -£3 and £1 in round billions.

    As to the accounting adjustments, if you go to Box 2A in Chapter 2, it explains quite clearly that this is pretty much all zeroed out again, and does not count as spending (expect where the government has made an actual realised cash loss). So against total Capital DEL FSI cash outflows of £120 billion, there are adjustments to reduce spending by approx. £120 billion before arriving at total govt spending.

    So in other words, the big increases in govt spending, up 22% in a short period, is NOT because of bank bail outs, that is not even counted as spending (whether it should be is a separate debate).

    So this new info merely confirms what I was saying all along, the bank bail out costs are IN ADDITION to the 22% spending increase.

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  • MW – thanks for that. I had looked at Box 2A, which applied to a different Table, but it was obvious from Table 1.1 that FSI was significantly reduced by the accounting adjustments. Even so, there was a fair hike, in the first year (08-09) of ‘bailouts,’ in total expenditure and in the sub-headings which contained bailouts and adjustments. Even so, as you point out, there was no rebound (downwards) in total expenditure in the years after 08-09, hmm.

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  • mark wadsworth says:

    Ic, hmm indeed.

    Box 2A talks about Table 2.1, but the split they give also ties in with Table 1.1.

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