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22 July 2009

Tax: the next battleground

Focusing on spending cuts distracts us from the real issue

By Mehdi Hasan

Nice to see the Guardian’s economics editor, Larry Elliott, a man who I have a lot of time and respect for, pointing out the obvious today:

“…it seems perverse that the current debate is all about which bits of spending should be cut rather than which taxes should be raised. There are plenty of ways to raise revenues. Darling could delay the introduction of the 50% tax rate but lower the threshhold; he could prevent corporate tax avoidance by taxing companies on their turnover rather than their profits; he could deter speculative holdings of property through a land value tax.”

The Guardian, however, have come late to this debate. The New Statesman made a similar point in our leader a fortnight ago:

“There is no reason why Britain, a low-taxed country by European standards, cannot use taxation to help close the fiscal gap….Who, for example, would object to a tax on bank bonuses (apart from the greedy bankers themselves)? In the US, Congress passed a 90 per cent tax on bonuses paid out by the failed insurer AIG to its executives. Why not do the same here with the state-owned RBS and Lloyds? Unearned income is ripe for progressive taxation. How about cracking down on tax avoidance, too? The TUC and the Tax Justice Network argue that tightening tax loopholes and abolishing tax havens could raise roughly £25bn.”

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It’s high time lazy journalists and commentators moved beyond the simplistic Balls-inspired Labour investment vs Tory cuts argument, as well as the Mandelson-inspired gentle Labour cuts vs evil Tory cuts argument, and instead focused on tax rises vs spending cuts and the debate over what the appropriate balance between these two fiscal options should be in the coming years.

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One killer fact stands out from Elliott’s piece:

“In reality, the reason the deficit has ballooned has far more to do with a collapse in tax revenues than an increase in spending. In the year to June, the government’s real tax take was almost 10% lower than a year earlier, while spending has grown by little more than 1% once inflation is taken into account – a modest increase in the context of the steepest downturn since the war.”

Shouldn’t we be hearing more about this from Darling, Byrne, Balls et al?