Monday, 3 January 2011
Take a look at this article published in yesterday's Guardian about how apparently the government's welfare bill looks set to rise because of the "austerity cuts." The title is
Welfare Bill soars as coalition counts cost of austerity drive.
Right. Perfect example of a misleading title. When you ask most people what is meant by the Coalition's "austerity drive", I can guarantee that most people will refer to the cuts in public spending - those mild cuts that rags like the Guardian are telling us are evil and horrible and....gasp....Thatcherite! Therefore, this story sounds like a scoop - could it be possible that spending cuts are leading to higher public spending?? This would be quite a story if it were true.
But of course it isn't true - this isn't what The Guardian is reporting at all. What is it reporting quite correctly is that the rise in VAT from 17.5% to 20% that has just taken place, has cooled (or de-stimulated if you will) the economy. From that, they correctly list the VAT rise as one of a number of factors that may act as a disincentive for growth. The VAT rise means that the costs for businesses and private individuals goes up, which means less money being spent and circulated and less jobs being created.
For the record, I agree with The Guardian in that I disagree with the government's proposal to jump VAT at this time, without a significant drop in other rates of tax. Thatcher hiked VAT, but she did so by also slashing income taxes at the same time, meaning the de-stimulative effect that the hike in VAT caused was counteracted by the drop in income taxes. However this Coalition has not significantly dropped other rates of tax, meaning that this is only going to hinder economic growth.
My problem comes with the fact that The Guardian has all of a sudden remembered basic economic principles, now that it is the Tories who are raising certain forms of tax! They (rightly) point out that an increase in tax will lead to businesses having less money to spend on jobs and investment, they are right to point out that putting extra taxes (an average of an extra £389 a year) on families will have a de-stimulative effect on spending in the private sector, and they are right to point out that now is the wrong time to do it.
So why, when it comes to normal tax raises they magically forget all these principles? Why do they treat income taxes as taxes on "excess wealth", why do they start talking about redistribution and fairness? How come they condemn conservatives as "dogmatic" for opposing tax hikes for the same reasons their newspaper is now condemning the VAT hike? Why do they laugh at conservatives who say that tax hikes do not increase revenue but decrease it?
If anything good comes out of this VAT rise, I hope it is that people remember these arguments the next time lefty rags like The Guardian start blathering on about how we can't possibly reduce taxes on "the rich" and how we should be hiking taxes through the sky instead. The hypocrisy is immense, but will only be exposed if we call them out on it. Guardian! Consider yourself called out!