structural deficit is a myth

[telsa]

Anyone seen this article by John Ross: The Fallacy of Osbornomics
www.guardian.co.uk/commentisfree/2011/jan/10/george-osborne-tories-deficit-cuts

because if I hear another person talking about the 'need to make cuts because of overspending by Labour' I'll go crazy.

In sort, any deficit is a result of 'inadequate tax take' - which I guess explains this bizarre phrase I keep hearing - 'competitive tax regimes'.
Ross puts it succinctly:
"When he was justifying the VAT increase on the Today programme, Osborne neglected to mention that during this parliament a series of taxes will be cut ? benefiting high earners, corporations and banks. These are roughly equal to the estimated revenue from the VAT hike ? rubbishing the claim government policy is driven by a "structural" requirement to cut the deficit. Osborne's argument that the urgent task is deficit reduction is therefore false. Even worse, the logic of his "voodoo budgeting" is not deficit reduction but income transfer from poor to rich."

dems the tories for ya!

get the 'working man/woman' to pay more so their pals pay less - this is the basic premise of tory economics and was always so

This is ineresting data - % of public spending from Thatcher years to the end of the Labour Government. Most instructive - as it actually reaches a peak under Thatcher.

1979 42.75
1980 44.54
1981 45.29
1982 45.56
1983 43.20
1984 42.59
1985 41.71
1986 40.76
1987 38.40
1988 36.28
1989 34.25
1990 35.23
1991 36.45
1992 37.97
1993 39.84
1994 39.90
1995 40.76
1996 39.58
1997 38.35
1998 36.96
1999 35.33
2000 34.75
2001 35.41
2002 35.82
2003 36.43
2004 37.53
2005 38.94
2006 37.91
2007 38.89
2008 39.75
2009 44.54
2010 44.84

www.ukpublicspending.co.uk/uk_20th_century_chart.html

"In sort, any deficit is a result of 'inadequate tax take'"

The deficit is caused by the Government spending more than it earns.

Labour only managed to earn enough to cover their spending for 4 years out of their 13 years in office, the rest of the time they were running up debt and funding their spending through loans.

And before anyone thinks the Tories did any better they only managed balance the books for 2 out of their 17 years.

That is the problem, successive Governments spending more than they earn.

So either tax has to go up or spending has to come down, to do anything else is fiddling while Rome burns and leaving the debt mountain for some future generation to tackle, by when it will be even more substantial.

Surely in the good years there should be a surplus so that the bad years can be covered without needing spending cuts?

I don't think there is a particular problem with - at the same time as spending less overall - the mix of tax/spend decisions to achieve that is adjusted to suit the political vision of the coalition.

When Labour was in charge and had bountiful quantities of tax revenues at its disposal it chose to spend the money on areas that met their ideological ambitions.

All the main parties agree that there is a deficit and that it should be reduced. Timing and specific choices about where and how are principally what divides them. I don't think that's dishonest - which is what you seem to be implying.

"When Labour was in charge and had bountiful quantities of tax revenues at its disposal it chose to spend the money on areas that met their ideological ambitions."

But the problem is that those "bountiful" tax revenues weren't enough to fund their spending plans. Even in those good years they were having to borrow money to fund their spending. And if you can't balance the books in the good years how can you hope to do it in the bad?

I'll also mark my place because I'm at work on my iPhone.

But I almost spat my coffee out reading the "Any deficit is caused by inadequate tax take"

I'm going to by boss later and will tell him that "any overdraft I have is caused by inadequate pay"

Let's see what happens?

'So either tax has to go up or spending has to come down'

quite - tax rises for the wealthy is indeed one solution -is the one I favour, rather than condemning millions to miserable poverty.

Anyway have any of you critics actually read the article to which I was pointing, because you are just regurgitating the same rubbish you've been saying before.

I'm with you on this one, Telsa.

The cuts are ideological, and I don't see what is achieved by putting vast numbers of (often middle income) earners out of work.

I have read the article and if John Ross is certain there's no structural deficit he should tell Alan Johnson and Ed Milliband. They seem pretty convinced it exists...

Chil1234 - just because Alan and Ed have bought into the idea doesn't mean they're right. This need not be a party political issue.

have never understood how throwing loads of people out of work thereby leading to lower tax revenue, decreased spending power for hundreds of thousands of people and increased benefits claims is supposed to help the deficit

anyone?

@Chaotica... but if neither the sitting government nor the opposition have bought John Ross' argument then maybe he's the one that's got it wrong?

chaotica- the tories want their to only be enough jobs for one male breadwinner per household

"quite - tax rises for the wealthy is indeed one solution -is the one I favour, rather than condemning millions to miserable poverty."

Well they're only a "solution" if there genuinely is a problem, after all if there's no problem you don't need a solution.

"Anyway have any of you critics actually read the article to which I was pointing"

Yes I did.

And it doesn't actually say that there isn't a deficit but that George Osborne in particular isn't dealing with it but instead has other goals in mind.

But it does make a point that I do strongly agree with, the comparisons to the Thatcher years. And the point of that is that successive Governments have been ignoring the problem of the shortfall between income and spending and letting the debt mount up for future generations to deal with.

There is a deficit.

We have become accustomed to a lifestyle that the Government cannot afford after years of funding spending, even in the "good" years, by borrowing.

So something has got to give.

We either become accustomed to a life of higher taxation, or we reduce public spending. A discussion of either is productive.

Ok I have a few mins spare.

The author's first point is that the US have not made cuts whilst Ireland & Greece have and look at what happened to them. Therefore cuts are bad for us.

Except the US have the biggest economy in the world to trade their way out of recession. Ireland & Greece havent. Plus as a proportion of GDP their deficit is tiny compared with ours, the Irish & the Greeks. In short, they overspend less as a proportion of income.

His 2nd point is that our deficit forecast was lower. Than expected. Therefore all is fine. Erm....no. We THOUGHT we'd overspend by £178 billion but then later it turns out that it's only £155 billion!!! That's still a lot more money than we spend on education, defence etc.

Try telling your bank manager that because you thought you owed him £20,000 but in fact it's only £18,000 so there's no problem and mind awfully if he will lend you some more?

As for deficit is caused by not enough tax. I overspent at Xmas and like many went into overdraft. Is the problem that I bought stuff I could not afford or was it because my employer didn't pay me enough?

Oh and as for the line that Labour spent less than Thatcher. They BOTH overspent. Two wrongs do not make a right. And Labour had 13 years to correct anything they thought was wrong. Not make things worse!

"have never understood how throwing loads of people out of work thereby leading to lower tax revenue, decreased spending power for hundreds of thousands of people and increased benefits claims is supposed to help the deficit"

Well in theory....

People in the public sector are paid for by the Government, the actual "cost" for the Government is "Salary - Tax" as they get the tax back.

People on benefits are also paid for by the Government.

Benefits are lower than salaries and, more importantly, they're lower than "Salary - Tax", which as said is the actual cost to the Government of a public sector worker.

So it costs the Government less to pay someone benefits than it does to pay them a salary.

The Government's spending therefore reduces as it reduces the number of people that it employs.

That's the theory anyway...

"have never understood how throwing loads of people out of work thereby leading to lower tax revenue, decreased spending power for hundreds of thousands of people and increased benefits claims is supposed to help the deficit"

And to give an example....

Someone on JSA costs the Government £65 a week.

The average pay for someone in the public sector is meant to be about £554 per week (www.statistics.gov.uk/cci/nugget.asp?id=285)

Let's for example call total deductions due to tax to be about 40%, so the actual cost to the Government for that employee is about £330 per week because it gets some straight back into it's pocket from the tax the employee pays.

So it's about £270 a week cheaper to pay someone to be on JSA than it is to pay them to be in an averagely paid public sector job.

Public sector workers are paid from the taxpayer. Any tax they therefore pay doesn't really count.

If you give you son £10 pocket money then he gives you £2 back, you didn't gain £2

hmm
but what if that unemployed person claims housing benefit too? that's going to cost more than 65 quid a week isn't it? what if their kids need to get free school meals? other benefits? i mean, the government are always banging on about the huge welfare bill, right?

and when people become poorer they will have less money to spend on stuff thus generating less VAT for the government...

"but what if that unemployed person claims housing benefit too? that's going to cost more than 65 quid a week isn't it? what if their kids need to get free school meals? other benefits? i mean, the government are always banging on about the huge welfare bill, right?"

Well the savings for an average salaried employee are about £270 a week, so that allows a fair bit of room for other benefits to be paid and for the Government to still save money.

"they will have less money to spend on stuff thus generating less VAT for the government."

But the Government gave them that money in the first place.

Getting £20 back in VAT on a £120 purchase still leaves the Government having paid that £120 in salary so all told it's down by £100.

"Well the savings for an average salaried employee are about £270 a week"

Sorry the average savings will be about £330, it's £270 after paying the now redundant worker JSA.

And even if it costs about the same to keep someone on benefits as it does to keep them in an averagely paid public sector job the Government will hope that an unemployed person will eventually find a private sector job and end up contributing towards the Government rather than taking from it. If the person remains in a a public sector job there's a very slim chance that they'll give it up and move into the private sector, so they'll keep on costing the Government for many years to come.

This isn't meant to sound harsh by the way, just explaining from the beancounters point of view why this will save money.

The thing is those wages are spent, in the main, on goods and services, creating more private sector employment, more tax revenue.

any commentary that starts by holding up the US as an example of fiscal success is deeply suspect.

Bond investors may accept the US' massive deficits, FOR NOW, but they would not accept the UK's and the US' day of reckoning will come too.

"The thing is those wages are spent, in the main, on goods and services, creating more private sector employment, more tax revenue."

But the alternative is for the Government to borrow the money to pay the worker meaning that the total cost to them out of some future tax revenue becomes not only the worker's pay but also the interest upon it.

But yes the long term and wider effects are both complex and debatable.