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August 27, 2007

Hypothecation

An excellent example of why the hypothecation of tax revenues is such a bad idea:

Traffic police in Belgium are making so much money in fines they are having to invent new ways of spending it.

In the first eight months of this year, police in Flanders collected €100 million (£68 million) in traffic fines, compared with €40 million in the whole of last year.

The money is distributed to police for road safety projects. But if they fail to come up with ideas, the revenue can be used in a variety of other ways.

This has led to one force in Bruges spending some of the cash on 6,000 lottery tickets for drivers who complied with traffic regulations, although it is not clear if anyone profited through their careful driving.

Another used the revenue to buy cuddly toys for children in road accidents, while one station bought 10 motorcycles, even though none of its officers were qualified to ride them and they are now unused.

...


"It's slightly embarrassing having so much money that I have to admit we're running out of ways to spend it," he said.

Remember this the next time some bright spark posits that if only we taxed this, or that, we could reserve the money to go and be spent on this other desirable item. The truth is, that the amount that we can raise from the taxation of some activity (even if it is, as above, something really rather desirable to tax, like speeding, in and of itself producing the desired end of less speeding) bears no relation to the amount we might want to spend on some other item or activity.

It's far, far, better to raise the money where we can and put it all into one pot, to then be spent as we think is needed. Why should money raised from speeding fines be spent on fluffy toys? Wouldn't anti-Alzheimer's drugs be a better societal investment? Discuss.

(None of this changes my view that the pot is far too large of course.)

August 27, 2007 in Your Tax Money at Work | Permalink

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Comments

Agreed. Hypothethecation is shit. It's useful for making comparisons, but that is all.

Posted by: Mark Wadsworth | Aug 27, 2007 10:27:42 AM

Fines != taxes.

Posted by: Thon Brocket | Aug 27, 2007 11:27:15 AM

There is one case in which I think hypothecation is a good idea - if you want to make an explicitly revenue-neutral tax (everbody's favourite green levy of the month, perhaps) then I'd support hypothecating all the income from that tax to be redistributed to the people (probably an X quid tax credit for everyone). That lets you (in principle) divorce attempts at constructing Pigou taxes for environmental damage (or even Livingstonesque punitive envy taxes) from stealthy attempts to raise taxes without touching the headline numbers.

Posted by: Sam | Aug 27, 2007 3:51:02 PM

even if it is, as above, something really rather desirable to tax, like speeding, in and of itself producing the desired end of less speeding

I suppose it might be... Except, of course, as has been conclusively proven in the UK, it contributes precisely f*ck-all to road safety!

Posted by: pogo | Aug 27, 2007 5:43:29 PM