Tough but fair?

BBC News - Budget: Osborne rejects Labour 'carping from sideline'.

But Mr Osborne told the BBC Labour were "carping from the sidelines".

 He is putting the case for the coalition's "tough but fair" Budget - which will leave households on average £400 a year worse off - in a series of media interviews on Wednesday

I Just do not understand at all.

What is fair about this budget? As this tweet illustrates: Twitter / Liz Kendall: Richest 10% pay £1 in evry ....

Richest 10% pay £1 in evry £25 on VAT, poorest 10% £1 in £7. Budget raises £13bn frm VAT, £2bn frm bank levy, £1bn frm CGT - that's fair?

Do they believe that people do not understand the basics of taxation and fairness?

VAT is a highly regressive tax. That means if you earn less money you pay a higher proportion of that money in VAT. It is exactly the opposite of a fair taxation system.

In terms of raising money to reduce the national debt (a principal that has some merit) we see three simple things:

• a tax that hits poorer people harder is set to raise 13x more money than one that raises money from those with more money (capital gains tax is not paid at all by most people, certainly not by anyone who could be considered poor). Not fair and bad for the economy and society. If you want to stimulate the economy then give more money to the poor, they are going to spend a much higher proportion of it so it will feed quickly into local economies having a multiplying effect. Give more money to the rich and it will be saved, "invested", spent abroad, spent of foreign luxuries all of which will have a minimal effect on our economy.
• A tiny tax on the banking sector which caused the recession through entirely reckless behaviour (essentially lending money they didn't have to people/organisations who would never be able to pay them back, all while paying huge bonuses to the people who did this). Again the tax that hits the poor hardest is to raise more than 6x the tax on those who caused the mess and who are still paying silly salaries and bonuses.
• By taking money from the poor and cutting both jobs and spending in the public sector there is going to be a huge multiplier effect (just as we saw with Maggie Thatcher's first budgets). The problem is that this is a negative multiplier. Tax incomes are going to go down as people are paid less and many lose their jobs. That gets multiplied as they don't just pay less tax, they don't spend money in the local economy on goods and services (everything from gardening services, builders, diy, eating out will get cut). That means others get less money, pay less tax and in many cases claim more benefit.

My summary of this budget

• We will go into another recession, the cuts are going to remove enough money from local economies that recession is inevitable.
• Due to the recession tax income will fall and benefit payments increase. As a result costs will rise faster than cost reductions (which are never as big as forecast and have a big time lag). Hence, national debt will not fall by the predicted amount and may even rise.
• Britain will become an even less equal place. It will become less happy and crime will rise.
• Through all this the rich will get richer and the poor poorer.

What a huge failure. Not "tough but fair" but "stupid and unfair".

Comments

[The Church Mouse]

Mouse is holding judgement for a little bit. I've yet to read a full analysis of the impact of this budget, and will wait for that. Whilst I take the point on VAT, there are many other changes in this budget (increasing income tax threshold for example) and we need to put them all together to understand the overall impact.

We should also take this budget in the context of those things which were announced by the previous Labour government which will be honoured.

As I said - I've yet to read a comprehensive analysis.

[Thechurchmouse]

Now seen the Treasury and IFS analysis, so have done a piece on my blog - will appear tomorrow!

[Dave]

I look forward to reading it.