Are tax cuts the cure for the economy?
Ed Balls, back from his mysterious period of absence, confirmed Labour’s right-ward drift on economy on the Andrew Marr program this morning. He called for a 3p cut in income tax and a slashing of Value Added Tax. On the second measure we can agree, VAT is a tax hammers the poor and economically cuts consumption to the bone. Although nominally it doesn’t affect prices on food and clothing etc it actually does because increased production and transportation costs etc are passed onto the consumer.
Income tax is however a different matter. Cutting income tax is a favourite hobby of the right because it cuts state revenue and therefore acts as a bar on the role of the state. It also disproportionately benefits the rich because they are unaffected by service cuts and can still trouser the tax cut. Meanwhile, for middle and low income earners, the tax cut is gobbled-up by service cuts, increased prices, etc and they see little to no benefit. What is the point, for example, of taking a families tax credits away but cutting their income tax? Its therefore more a placebo than a sound stimulus – something designed to make people feel better off when they actually aren’t. Its an expensive placebo at that as well.
Furthermore, as unemployment rises through the roof the actual number of those paying income tax is decreasing – and the number who will benefit from it falls further. It’s no accident Balls is now in support of Conservative back-bench right-wingers. A cut in income tax would actually accelerate the austerity agenda. It would also be a sly way of quashing the 50p rate – something that Balls nominally is supposed to support.
One of Labour’s great failings in government was the horribly low amount of tax revenues it collected. It thought aping the Conservatives low-tax agenda would be the route to paradise and it turned out to be the road to hell. Sadly, all Mr Balls has confirmed today is that rather than offering a real alternative his economic policies are determined to reinforce the status quo – a tragedy for Labour for sure and one for the country too which needs a real alternative.