Tuesday, April 10, 2007

The Challenge - Finance and Taxation Policy

As the evil overlordship of the Smirking Cyclops of Presbyterian Doom hurtles rapidly towards the benighted denizens of these unfortunate islands, let us first consider finance and taxation policy. (I apologise to those of you not resident in this once glorious land for boring you about UK politics and our forthcoming election.)

I will make it clear, right up front, that I believe we currently have too much government. This is a bad thing. However, no matter how much government we have, the costs of it need to be shared out in a fair and reasonable way. Hence this post will not be about how much money we should spend but about how we should collect it.

The current tax system is too complicated: too many exemptions, too many accountants, too much ability for the seriously rich to avoid paying their dues. Most tax allowances need to go. The current system of 'tax credits' is a statist attempt to pretend to be doing something while ruining the lives of far too many of what used to get called the "deserving poor". Both need to be radically changed.

Changing the core tax system will need to be done in a careful and sympathetic manner. Gordon has already moved us to a 2 tax band system, now we can abolish NI (don't you think it strange that the only tax hypothecation the pols of all parties are willing to accept is the one that allows them to pretend income tax is 11p in the £ lower?); and steadily increase the tax threshold until it is comparable with the National Minimum Wage.

We need to sort out the confusion about spending versus saving - if pensions saving is a good thing (yes), then the pension fund dividend rebate should be restored. Inheritance tax: do we keep it? There are some arguments for this (apart from the socialist envy-fuelled ones) - money spent (call it trickle-down or whatever) is a different force in the economy than money saved (which tends to become capital available for investment) - but, overall, I am not in favour.

Oh, the current method of funding local government is broken. This needs to be fixed.

Tax credits - the main problems here seem to be the complexity of the system (which makes it difficult to claim) and the lag in assessing benefits (as it is based on last year's earnings). It is the latter that leads to the most egregious failings, with large claw-backs hitting the still poor because the system fails them. Now (mostly) if you earn £10000 one month and £100 the next, over the two month period, you will pay the correct tax for 2 months earnings of £10100 - how, if tax credits are so bad, can this work? The miracle of PAYE.

So, a modest proposal for whichever Brown-nosing weasel Gordo makes Chancellor. How about the tax credit people issue everybody who applies for a tax credit with, let me see, a new P2 (PAYE Coding Notice). This can include an additional code which expresses the base entitlement. As the actual entitlement drops off with earnings, it would not require the work of
any mathematical genii for the credit to be automatically calculated and added to basic pay.


1 comment:

Roger Thornhill said...

Yes, tax is too complex. Yes, tax credits are evil.

Flat tax and a fat personal allowance (I prefer £12k to lift min-wagers out of it).

As for NI, I am in favour of a Swiss-style healthcare system (govt regulated, multiple competing private health insurance with safety net, minimum cover plus top-ups.) This will take much of the spending out of the concept of "tax", so making NI easier to melt.

I am for Rule of Law, and this includes the same treatment for all, so tax credits for certain people and not others goes against this (and why should people have to ask for their own money back?).

Enough for now.

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