Cut or Tax?

Ed Balls, the proxy Chancellor, has been doing the rounds today continuing the lie that the Tories are cutters, whereas Labour by some mysterious alchemy can defy economic rationality and continue to increase spending.

His whole approach seems something of a shambles, and has already needed a response from Liam Byrne to tone it down. Balls, presumably egged on by G.Brown, sees to believe that if you utter a lie often enough people will somehow give up and accept it, even if they know it to be false.

Let us assume that we do not already have the massive public debt mountain, - this is unrealistic, as we know that we are close to losing our AAA credit rating which will make our problems really build up, and consider the alternatives.

Assuming that the cut necessary in public expenditure, as identified in the official (Darling) budget recently, is of the order of 7% across the board, than we are looking at cuts in services of perhaps £50 billion.

Balls-Brown will tell you how many teachers we would have to lose, how many police officers. They produced a dossier recently to this effect.

Assume, however, that the £50billion would have to be met by higher taxation, we would be looking at a basic rate of tax of about 40 extra per cent, i.e. take it to over 60%. Of course, Balls-Brown, in their strange world, would raise tax on the highest incomes, but as they are so few we would finish by driving most of them out of country, as their tax rate approached 100%.

Taxation is not the answer on its own, although it may have to be part of the answer at some point, and if Balls-Brown point out that cuts in spending will cause difficulty for some, then increases in tax will cause massive economic problems.

If you were going to decide on tax changes versus spending changes, you wouldn't want to begin from where we are, - with massive public debt even before the recession and now growing to a record level. With rapidly rising and massive government budget deficit, neither spending cut nor tax increase is attractive, but at the very least we should expect a government to do what the opposition and people are doing, - to take the matter honestly and seriously.