Some time ago I read that the problem with the Greeks is that they regard paying their taxes in rather the same way as many people regard the collection plate at church: you put on what, if anything, you happen to feel like at the moment.
When I repeated this to a young Greek student he responded, rather indignantly, that "ordinary " Greeks, such as his family, do pay their taxes: it is the wealthy Greeks who evade and avoid their obligations.
Confirmation of this view comes in a letter to the Guardian last Friday (04/11/11) from a Professor Greg Philo of Glasgow University. He points out that "...the $43bn funding gap of Greece's government is matched by about the same amount going offshore..."
Professor Philo goes on to quote the head of Italy's biggest bank as saying that "Italy's $2,750bn debt could be resolved by a tax on Italy's private wealth. This is five times the size of its debt."
(The difference in scale of the Greek and Italian public debts is worth noting.
Incidentally, a graphic in yesterday's Guardian gave the following figures of the debt to GDP ratios of selected countries as:
Greece, 144.9%;
Italy, 118.4;
Germany, 83.2% (sic);
France 82.3%;
UK, 79.9%.
When will we realise that we are being taken for a ride by the Tory claim that the UK's public debt is so outlandish that immediate public austerity is unavoidable. This is a Con/con tick to justify the implementation of the Tory ideology of shrinking the state. Wake up, Liberal Democrats in government.)
Later in his letter Professor Philo suggests a "wealth tax" on the richest 10% as an immediate solution to governments' financial problems. I warmly support this and, although I am nowhere near being one of the "richest 10%", should have no objection to its applying to me. In the longer term governments, including ours, need to close tax loopholes, abolish tax havens and pursue avoiders and evaders with the same vigour and enthusiasm that our government currently applies to so called "benefits cheats."
In short, there is no financial problem, just a failure in fairness and a lack of political will to ensure that we really are "all in this together."
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And when will people get the message that the crisis is in the DEFICIT and not the raw value of DEBT, i.e. our problem is the rate at which we ADD to our DEBTS.
ReplyDeleteThe UK is running a deficit of 6.5% compared to Germany's 2.5%.
Add to the fact that Germany has growth of 3.5% and we have barely any at all, and NEXT year their debt/GDP ratio will FALL while ours will RISE.
As a Keynesian you no doubt recognise that it is correct to run a deficit during a downturn (the CYCLICAL element of the deficit), but that this should be reduced as the economy recovers.
Which is what the government is trying to do.
Keynes' whole economic scheme is based on running a surplus and paying back the debts during the boom years. That means cutting spending and raising taxes.
Labour's cardinal error was to run spending higher than income throughout the boom, spending more than we can ever hope to get in in tax income. This is the STRUCTURAL element of the deficit which is where the government's cuts have to be aimed.
Also, it's just as "dogmatic" to say that there is no size to which the state cannot grow as it it is to demand it shrink in all circumstances.
There has to be a balance between the benefits of public services and how much we can actually afford to spend on them.
When the state is taking more than half of what the country earns, then there is a good case that that balance is out of whack and good Liberal and small state Conservative instincts will align.
Thanks for your comments Millennium Dome. You are quite right that the level of current government borrowing is very high, but surely those who have less accumulated debt (in this context the National Debt) can afford to borrow more. I also agree that, given 3.5% growth, Germany's debt/GDP ratio will fall whereas the UK's will rise.
ReplyDeleteThe UK's current debt is high, not because of Labour profligacy, but because of the fall off of government revenues as a result of the recession. As Jonathan Freedland's article in yesterday's Guardian (09/11/11 - sorry I don't seem to be able to give a link in a comment) says:"This was a deficit created by crisis, not be profligacy."
The problem is that the cuts in government expenditure are likely to make the deficit worse, rather than cure it. This is indeed, and sadly for those who lose their jobs and the businesses that go bankrupt, what seems to be happening.
It is true that "honest" Keynesianism would run a budget surplus in the "good" years in order to balance the budget over the cycle. In fairness Brown did run a substantial surplus in the first few years of his Chancellorship and the National Debt was reduced. Sadly, however, both Labour and Conservative governments since 1945 have used Keynesian policies to win elections rather than to balance the economic cycle.
Simon Wren-Lewis's pamphlet (see post of 20th October, 2011) clearly makes the case for more public expenditure now and reining in of public expenditure once growth and full employment are restored.
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