Saturday, June 24, 2006

Lib Dems and tax - only a 173% rate makes their numbers work!

The LibDems new tax policies weren't even worked out on the back of a fag packet, unless it was the type of fag packet that got dropped on Oaten.

To be fair, they ain't all bad. Taking 2 million people out of the tax net, and reducing the basic rate to 20p are very worthwhile measures, they should have been in the Tories 2005 General Election Manifesto . Unfortunately, but less than coincidentally the LibDems subscribe to the Cameroonian illogic that tax cuts mean less tax revenues. Remember the Aussies have cut income taxes 4 times since 2000, yet raised more revenues every single year, and kept the budget in surplus.

Taking 2 million people out of the charge to tax might go some way to dealing with the nearly 4 million of people Labour have brought into the tax net. Although, by my reckoning, the LibDems would take at least a million people out of the tax net by making them unemployed when exercising their longheld but all too conveniently forgotten policy of joining the fixed exchange rate mechanism called the Euro.

As for the remainder of the policies - can anyone in the LibDems use a calculator....

The LibDems say they will raise an extra £13bn from capital gains tax on 2nd homes and shares on the rich? Yet Capital gains tax did not even raise £3bn last year despite a soaring stock market. And that includes all gains, not just investing in UK business and making more rental accomodation available. For higher rate taxpayers the current tax rates on assets on which the LibDems wish to increase the tax charge already range from 24% to 40%. To raise £13bn the Lib Dems would need to increase the rates to 104% - 173%. Capital gains tax receipts are also highly volatile, so this is a taxrise that would bring about economic instability.

£7bn will be raised by taxing planes on emissions when they take off, and increasing Vehicle Excise Duty on car. There are already 2 taxes that discourage car use, being VAT and Fuel Duty, both of which you pay more of, the more fuel you consume. What the Lib Dems really want to do is implement illiberal measures to stop you choosing what car you own - in which case they should say so. There's 32.3 million licenced motor vehicles in the UK, so this proposal means up to a £217 average increase in Vehicle Excise Duty per vehicle. Therefore, for anyone earning less than £10,835 above the threshold for income tax but owning a car, ie poorer workers, they will actually be worse off under the LibDems total measures.

Where do these new ideas come from. Well, the Lib Dem Tax Commission has been in progress since last summer and per the LibDems website....

"The group will in general make recommendations on the direction of tax reform rather than being expected to produce a full schedule of tax rates, thresholds and exemptions"

What's the point of having a year long commission if all it will do is recommend directions - does it really take even the LibDems more than a year to realise that UK taxes are too complex, too high and often unfair. Precise thresholds might be a bit much, but rates are pretty fundamental and its a poor study that won't recommend what level of rates it favours. And if there were no recommendations on rates, then howcome Ming has announced cutting the key one by 2%?


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