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March 03, 2006
Polly Toynbee: Economic Illiterate
A stunning comment from La Polla today:
This is a low-tax country still.
Compared to where? The US? India? China? Australia?
March 3, 2006 in Taxes | Permalink
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» What is a low-tax country anyway? from Web of Contradictions
Tim Worstall questions whether Polly Toynbee was correct to call Britain a low-tax country. His commentators attempt to answer this by comparing corporation taxes and OECD figures for the tax burden.
No-one on the thread has yet remarked ... [Read More]
Tracked on Mar 3, 2006 7:57:14 PM
Comments
The US, certainly; we have a lower rate of corporation tax and no less generous allowances.
Posted by: dsquared | Mar 3, 2006 10:42:58 AM
And it's pretty low-tax for Philip Green, Lakshmi Mittal & dear old Rupert Murdoch.
Posted by: dave heasman | Mar 3, 2006 11:18:01 AM
Dquared, taxes vary on a state by state basis. In some states there is no income tax at all.
Posted by: Andrew Paterson | Mar 3, 2006 2:09:04 PM
Andrew, there are Federal taxes.
Posted by: Matthew | Mar 3, 2006 3:02:05 PM
I know, but it's a given they're lower than those in the UK:
http://taxes.yahoo.com/rates.html
Posted by: Andrew Paterson | Mar 3, 2006 3:41:37 PM
It's Polly, so probably somewhere in Scandinavia. When the taxman's shafting you, lie back and think of Sweden...
Tim adds: To follow on form D@’s point...I believe that business taxes are actually lower in Sweden than the UK.
Posted by: Andrew Zalotocky | Mar 3, 2006 4:12:01 PM
The Swedes keep voting for their high tax regime.
A handy way of making fairly dependable international comparisons between affluent countries on tax burdens and much else is with: OECD in Figures, although the latest data therein are always a couple of years behind because of the time needed to collate the figures. The edition for 2005 can be downloaded here:
http://213.253.134.29/oecd/pdfs/browseit/0105061E.PDF
Posted by: Bob B | Mar 3, 2006 4:38:51 PM
I specifically said corporation tax. In the UK this is 30% marginal rate. In the USA, federal corporate income tax is 35% marginal rate for corporations with turnover above a very low level and state corporation taxes are on top of that. There is no big difference in the payment arrangements or definition of the tax base which would reverse this difference. The UK has lower corporate taxes than the USA, this is just a fact.
while we're at it, Australia has a 30% rate of corporate tax (same as the UK, although I don't know enough about the totality of the tax regime to make a full comparison), a top rate of personal income tax of 47%.
Indian corporation tax is 30% but there are a couple of special levies which mean that Ernst and Young reckon the effective tax rate is 34%. Again not sure of how the base is defined but it looks higher than the UK. Top rate of income tax is 30% but the allowances are very ungenerous.
All in all, none of these countries have all that much lower taxes than the UK if they do at all. Japan, Germany, France, Canada and Italy, however, which many might consider to be a more relevant group for comparison since it is the G7, all have higher tax rates than us. sheesh.
Tim adds: The phrase is "low tax country" not "low tax rate country". UK taxes as %ge of GDP from the OECD figures: 35.8%. Australia, 31.5%, USA, 26.4%. Selected others, Canada, 33.9%, Ireland, 28.4%, New Zealand, 34.9%.
Those would seem to be a useful selection of our peers (the Anglosphere members of the OECD, share things like Common Law etc etc).
India, from another source, 17.1%, China, 14.2% (year 2000).
So compared to the countries I mentioned we are not a low tax country. Compared to those I would argue are our peers we are not a low tax country. And compared to those places growing at 7-10% a year we are not a low tax country.
Posted by: dsquared | Mar 3, 2006 4:48:14 PM
"When the taxman's shafting you, lie back and think of Sweden..."
Or Massachusetts.
Posted by: Kim du Toit | Mar 3, 2006 5:25:03 PM
Tim, we are a low tax country compared to the rest of the EU.
According to IFS figures;
This year the tax burden is 38.3% of GDP.
The average tax burden since 1997 is 38.4% of GDP.
The average under the Tories from 1979 to 1997 was 40.6% of GDP
Looking at international comparisons our low tax burden is even more stark.
France and Germany have tax burdens of 48% and 44% respectively. They consequently can afford to fund their public services properly.
Virtually every country in Europe has a higher tax burden than us.
This is a quote from the Bruges group (right wing Tory MPs). Even they admit the UKs tax rate is low!
"the UK is quite competitive in Europe with a lower than average tax rate"
Over the last 35 years the tax burden has varied between 36% and 48% of GDP. So we are at historically and internationally low levels of tax.
We hear a lot about Labour tax rises, but here is where Labour have cut taxes;
Labour tax cuts for the individual since 1997.
Income Tax basic rate REDUCED to 22%
VAT on utility Bills REDUCED from 8% to 5%
A Couple with 2 children pay NO net tax until earnings reach £21,000
Pensioners between £1,500 and £2,000 better off
Labour tax cuts for business since 1997
Corporation Tax REDUCED to 30%
(USA 39%, Germany 40%, France 35%)
Small Business rate REDUCED from 23% to 0%
Labour have SUBSTANTIALLY REDUCED the increase in fuel duty.
(over 8 year periods)
UNLEADED PETROL DUTY(Pence per litre)
TORY 1989-1997 17.7 to 40.3 (128% increase)
LABOUR 1997-2005 40.3 to 50.2 (25% increase)
DIESEL DUTY(Pence per litre)
TORY 1989-1997 17.3 to 40.3 (133% increase)
LABOUR 1997-2005 40.3 to 53.3 (32% increase)
Labour have even SUBSTANTIALLY REDUCED the increase in alcohol duty.
BEER DUTY (Pence per pint)
TORY 1989-1997 18.9 to 24.7 (31% increase)
LABOUR 1997-2005 24.7 to 27.9 (13% increase)
WINE DUTY (Pence per 75cl)
TORY 1989-1997 77 to 109 (42% increase)
LABOUR 1997-2005 109 to 123 (13% increase)
SPIRITS DUTY (Pence per 70cl)
TORY 1989-1997 442 to 548 (24% increase)
LABOUR 1997-2005 548 to 548 (NO increase)
IFS excise info
All this but what has happened to borrowing?
National Debt has been REDUCED from 44% of GDP to 32% of GDP.
Tim adds: Neil, look up. We are high tax compared to our culturarily similar societies.
At heart, this is an argument about which type of society we should be. Continental and high tax? Or low tax and free?
Your choice.
Posted by: Neil Harding | Mar 3, 2006 6:42:31 PM
Try Andre Sapir's paper on: Globalisation and the Reform of European Social Models which was circulated at the ECOFIN meeting in July last year during the British presidency of the EU:
http://www.bruegel.org/Repositories/Documents/publications/working_papers/EN_SapirPaper080905.pdf
There's a useful summary report of Sapir's paper at:
http://www.euractiv.com/Article?tcmuri=tcm:29-146338-16&type=News
Quote from Sapir: "the notion of 'European social model' is misleading. There are in reality different European social models, with different features and different performance in terms of efficiency and equity. Models that are not efficient are not sustainable and must be reformed. The combined GDP of countries with inefficient models accounts for two-thirds of the entire EU and 90 per cent of the eurozone."
That's what we really should be worrying about - just over half Britain's exports go to the EU!
Posted by: Bob B | Mar 3, 2006 9:47:55 PM
Whether or not Britain's current tax burden is excessive, recent trends in business investment in Britain are certainly not encouraging and suggest that business is rather losing confidence in the government:
"A SHARP fall in investment by businesses and news that Britain’s productivity is lagging still farther behind its international rivals inflicted a double setback yesterday on Gordon Brown’s ambitions to boost the country’s economic performance.
"Disappointing official figures showed that business investment by corporate Britain fell by 1 per cent in the final quarter of last year, its steepest decline for more than 2 years. . . "
http://business.timesonline.co.uk/article/0,,16849-2055662,00.html
Posted by: Bob B | Mar 3, 2006 10:04:36 PM
Well, from my point of view in Dubai, the UK is definitely not a low tax country. Hence the Isle of Man bank account. :)
Posted by: Tim Newman | Mar 4, 2006 5:20:54 AM
The OECD figures don't tell the whole story as they are gross figures, which doesn't take into account taxation of benefits, and tax breaks. The latter are especially important in the US.
As an example (albeit an extreme one) gross public social spending in Demnark is 37.6% of GDP, whilst in the US it is 17.1%, a gap of 20.5% of GDP. If you net off taxation and tax breaks (which if targeted are almost identical to government spending) then Denmark declines to 23.6%, the US rises to 17.5%, a gap of just 6.1%. Tax breaks for pensions would add about another 1% to the US figure (though in Britain these account for a huge 2%, mostly to higher-rate taxpayers).
I would also take issue with this line "At heart, this is an argument about which type of society we should be. Continental and high tax? Or low tax and free?" which is basically sub-taxpayer's alliance raving. Is it that obvoius the United States or the UK is a more 'free' country than France?
Tim adds: Yes.
Posted by: Matthew | Mar 4, 2006 10:26:53 AM
In terms of growth, Britain is unlikely to grow as fast as China or India, even under a Conservative government.
But in the years 1999 to 2004, the last 5 with full data, the UK grew at 2.7%, compared with the US's 2.8% and the Eurozone's 2.0%. In terms of GDP per head, which seems the most obvious measure of performance, the UK clearly grew the fastest, with the US and Eurozone the same. Not a lot of evidence low tax aids growth.
Posted by: Matthew | Mar 4, 2006 10:34:20 AM
'Tim adds: At heart, this is an argument about which type of society we should be. Continental and high tax? Or low tax and free?'
Really! 'Four legs good two legs bad', is that your level of reasoned debate?
Posted by: Peter | Mar 4, 2006 1:53:33 PM
I'm with Tim Newman on this - Isle of Man bank account and all - and thank you Neil Harding for emphasising how taxes are still rising under NuLab. After nearly twenty years in a low tax environment nothing would now get me back to the UK.
Posted by: Peter Spence | Mar 4, 2006 2:05:25 PM
By the way, what's with the 'this is to stop automated robots from posting' thingy? It hasn't stopped Neil Harding.
Posted by: Peter Spence | Mar 4, 2006 2:07:12 PM
Tim Harding (whose email address suggests he is a Labour party member) uses a barrage of statistics, in true Gordon Brown style, in an attempt to mislead.
He mentions the reduction in basic rate income tax from 23% to 22% but omits to mention the increase in National Insurance that more than cancelled this out, nor the effect of fiscal drag as Brown has failed to increase allowances in line with wages.
He claims that national debt has been reduced substantially. But most of the reduction came in the first 2 or 3 years of this government thanks to sticking to Tory spending plans and the economic growth (and tax revenues) they inherited from the Tories. They have since moved much national debt off the books (Network Rail, PFI, etc.) so it is hidden, and they have hugely increased unfunded public sector pension liabilities, which, according to several independent reports, now dwarf the official debt figures.
Neither does he mention the increases in borrowing in recent years - these are just deferred future taxation.
As Australia has shown, had not had Brown's profligate and incompetent policies, we would by now be in a position where national debt was close to being eleiminated.
As for his ludicrous claim that a couple with 2 children pay no net taxes until they earn £21k, this a blatent lie. I was put out of work when the mobile infrastructure development industry in this country collapsed following Gordon Brown's tax on 3G licences. During that year, we relied on my wife's income of around £14k. The tax she paid (not to mention NI) far exceeded any measly benefits we received (and trust me, having paid huge amounts of tax all my life, we tried to claim every benefit going). We still had to pay over £1900 in council tax (we didn't qualify for council tax benefit as her income was deemed too high), and, of course, we paid VAT on most of our purchases.
So I know from personal experience that the tax burden on low income families has increased under this government and no twerp from the Brighton Labour party with statistical lies is going to tell me otherwise.
Depending on your perspective, you can argue that Britain is not an especially high tax country (although the trend is clearly up), but there is no way that you can reasonably argue that it is a low tax country, simply because there are so many major economies with substantially lower tax takes.
Posted by: HJHJ | Mar 4, 2006 2:35:16 PM
'Tim adds: At heart, this is an argument about which type of society we should be. Continental and high tax? Or low tax and free?'
Please read Andre Sapir on that. Some high tax economies function a great deal better than others - eg what Sapir dubbs the Nordic model, which also includes the Netherlands. At the very least, there is an issue about why that is so.
Tim adds: Sure, small, mono-cultural....
Posted by: Bob B | Mar 4, 2006 4:41:37 PM
HJHJ:
The figures are from the independent Institute for Fiscal Studies (IFS). They show that the tax burden as % of GDP is lower under Labour than the previous Tory administration (Tim Worstall's figures suggest the tax burden is even lower than my figures). The IFS figures are 38.3% of GDP under Labour (1997-2005) compared to 40.6% under the Tories (1979-97). Not only that but National Debt has fallen from 44% of GDP to 32% under Labour, surely it's irrelevant that Labour did this in its first few years, they still did it!
Historically, the UK tax burden has varied between 48% of GDP and 35%, so at 38.3% we are at historically low levels of tax.
Internationally our tax burden is LOWER than the OECD average. We are much lower than the EU average. Comparable sized countries, France and Germany have 48% and 44% tax burdens, much higher than us.
Tim, as for Scandanavia being mono-cultural. You forget that Sweden (the largest country) has 10% ethnic minorities (higher than our 9%), and 25% of Swedes have a foreign born parent.
Posted by: Neil Harding | Mar 4, 2006 6:37:06 PM
As I've mentioned before in these comments, Polly thought that an opinion poll showing 56% in favour of the death penalty was a sure sign the public didn't want it. Her arithmetic is laughable, but then if her readership can't tell, good luck to her.
Posted by: simon | Mar 4, 2006 11:38:04 PM
"Tim adds: Sure, small, mono-cultural.... "
Good point IMO. European countries with smaller populations - like Sweden, the Netherlands, Austria - have found it much easier to generate a national consensus supporting restrictive incomes policies and the higher tax burdens needed to support generous state welfare systems. In the 1980s, the Netherlands managed to keep annual average wage increases to less than 1% to restore competitiveness - a feat virtually impossible in the larger west European countries.
It seems that one irresistible conclusion is that one economic theory - whatever it is - won't necessarily fit all countries, even all affluent, market economies.
Posted by: Bob B | Mar 5, 2006 1:57:08 AM
Neil Harding knows that when the Tories came to power in 1979 the % of GDP taken in tax was high and the deficit was large. They managed it down. It's not where you are, it's the trend that matters and for him to claim that Brown can take the credit for lower taxes and lower debt than the Tories demonstrates that he doesn't even understand the basics.
As I said, debt is, in reality, higher now because of huge public sector pension liabilities and PFI, even if Brown's fiddled figures don't show this. The PSBR also represents deferred taxation - any idiot can keep tax rates low as a % of GDP for a while if they borrow more. Bt eventually you have to pay it back.
And Labour didn't 'do it' in their first few years - they inherited the situation, which has widely been described as a 'golden economy' . And you think Labour should claim credit for it? Does this means you accept that the Tories were better at running the economy?
Spare us the spurious statistics - keep them for people who don't understand the real situation and who are easily mislead.
Posted by: HJHJ | Mar 5, 2006 5:20:22 PM
HJHJ. I suppose the recession in the early nineties after 12 years of Tory rule, was Labour's fault as well?
The Tories have never managed the economy well, all they have done is give tax cuts to the rich. When Thatcher left office, the GDP tax take was still around the same level as when she came into office. The difference was she had shifted the burden of taxation from direct taxes (which are progressive) to indirect taxes which hit the poorest the most (VAT from 8% to 17.5% and applied to utility bills for the first time).
Not only did the Tories cut investment in the NHS, education and public transport, they increased public borrowing.
The money saved went on tax cuts for the rich and was spent on defence and higher police salaries and numbers to control the increasing civil unrest and crime.
If this is the sort of 'low tax' economy you want you are welcome to it. Go and live in the US. The Tories thankfully can't win elections on that philosophy so they now claim they won't cut taxes and public services. Personally I hope people remember how the Tories have lied about this is the past.
Tim adds: Two quick questions Neil. 1) Do you think 98% tax rates on investment income were a good idea? 2) Do you think income tax at 83% was a good idea?
Posted by: Neil Harding | Mar 14, 2006 6:02:07 PM
