Tuesday 22 June 2010

My Budget Summary

Lots of minor tinkering, some good, some bad, but with 20% VAT we are f***ed.

What is the point in not increasing Employer's NIC and promising to reduce corporation tax, while at the same time increasing a tax on total 'value added' (i.e. total wages + rent + interest paid + net profits for shareholders) by 2.5p in the £1?

As the 2.5p in the £1 increase applies to the sum total of (wages + rent + interest paid + net profits for shareholders, with no reduction for losses) for most productive businesses (i.e. anything not land-based) the overall burden on business will be far higher, notwithstanding that the tax rate on that small slice of net profits for shareholders is set to go down by 1p in the £1 every year for four years?

In fact, I have some sympathy with the view that VAT is a regressive tax (notwithstanding that this is based on the erroneous assumption that the consumer bears the tax, which is only the case where demand is price inelastic but supply is price elastic, i.e. tobacco, alcohol and fuel duties).

4 comments:

Tim Almond said...

There's a few people around saying "well, at least he didn't raise taxes", but a 2.5% VAT increase is probably not far off an effective 1.5-2% income tax increase.

Mark Wadsworth said...

JT, it's roughly equal to a 2% increase in income tax and corporation tax.

Mathematically you might think it's slightly less, but there is an assymetry (there's no relief if shareholders' net profits turn into net losses) so in some cases it will be much more.

And of course Home-Owner-Ist profits and gains aren't affected by VAT.

Anonymous said...

I was just going to read and pass by but with "bored" as the word verification word of the moment, how could I ... I especially like it when, as I have I believe heard today, someone justifies using the "soft option" of VAT as a way of increasing the government tax take because "after all, it only applies if you buy things attracting VAT" i.e. by implication VAT only applies to "luxury goods" ... perhaps it was someone as old as wot I am who can remember "purchase tax" and thinks VAT is the "modern, simpler equivalent". Purchase Tax was a mare, that I do agree, all those different rates for different types of goods, I believe you could get a BA in "understanding Purchase Tax"

James Higham said...

Opening line of this post sums it up for me.