Tax isn't all bad

Posted on: 14 December 2010 by Alexander Hay

While the current orthodoxy says paying more tax is bad, it may let us maintain public services and reach a fairer settlement with each other.

It is time for us to share just a little bit more of our money

As media pundits like to say these days, we live in an age of austerity. True, you can still buy venison from Tesco and a wide screen digital TV can cost as little as £100. But yes, we live in an age of austerity. Why? Because the media says so...

In fact, this is just shorthand for government cuts. We find ourselves in the bizarre situation where we're still well off enough to fly abroad but nationally we're so poor that libraries and hospital wards are being shut down. It's a curious kind of poverty indeed.

So expect slashed spending and so less funding for hospitalspolicefire servicesnational infrastructurepublic transport and social services. Say goodbye to a lot of the things you've grown used to and dig in for a long hard decade.

Education is similarly in trouble. School budgets are now in stasis for the next four years, while school buildings are often in dire need of repair, with an uneven distribution of funds only worsening the problem. 

At a local level, things are scarcely better. Some councils will see their budgets slashed by 17% with 74000 public sector jobs to be cut, often in poorer areas where local government is the main source of employment. Needless to say, strikes have already broken out and a major legacy of the cuts will be considerable social unrest.

The problem with this program of cuts, however, is twofold. Firstly, there is only so much you can cut before the economy becomes a false one - as the previous Conservative government learnt to its cost. Secondly, even if expenses are slashed to the proverbial bone, it may still not be enough to alleviate our debt burden and the social costs emerging from this sudden slowdown in state support.

We might then consider the slaughter of some sacred cows. That said, the most biggest sacred of all is the one we're most reluctant to face: a rise in taxes. Keeping tax low has become a national obsession. The problem, however, is that while too much taxation kills off what it's taxing, too low taxation creates false economies. We live in a ramshacklepoorly maintained country in part because of prevailing social and political attitudes but also because we do not have the money to invest.

We need now to accept that the laws of thermodynamics do, in a way, apply to economics and politics too. You don't get something for nothing and spending money from taxpayers who haven't been born yet makes no sense either. We have to accept that in order to get something, we need to pay for it, and this applies to council tax too.

And there are many in sore need of paying. Take the £7 billion in bonuses to be paid to bankers this year - it wouldn't hurt if they could pay a little more to the country they nearly ruined, which schooled them, gave them the opportunity to succeed and, ultimately, bailed many of them out. Harsh penalties and a proactive approach would also be needed to recoup taxes many large companies have become experts in avoiding, though a simpler, more transparent tax system would be helpful too. 

Middle income earners will have to pay more tax also, but deserve some honesty. The 22% rate of tax (after allowances and so on) is almost beyond criticism, but in many ways it is a mirage. The 'squeezed middle' saves on tax but pays a high price for university educationhousinglong term care and transport, these 'backdoor taxes' making them much poorer than a more honest and evenly distributed rise in general taxation would. Middle England has to accept that as both main contributor and beneficiary, it has a responsibility to pay a proper rate for what it needs and wants. 

Low income earners, meanwhile, should be spared. The least we as a society can do is ensure low paid work actually benefit those who have it, and if we cannot free them from income tax altogether, then a much lower rate should be introduced. Making work pay would have many economical and social benefits, but again our penny-pinching natures cause more harm than good.

With a rise in taxation must come a greater level of engagement. We mustn't forget that the primary responsibility for delivering good public services must lie with the government – we cannot allow it to shirk its responsibilities. Neither should we - it's time to pay the bill.

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Alexander Hay

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