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If Higher Taxes Are Necessary To Fund Government Then There’s No Austerity, Is There?

The IFS tells us that higher taxes will be necessary if we’re to end this unceasing austerity the public finances are all suffering from. But if that’s true then we can’t actually be having any austerity, can we? This is true of either meaning of austerity that we might use. The economic one, talking about the size of the deficit, or the one more common among screaming harpies, the idea that there’s just not enough government going on. The necessity of an historically high tax share of the economy shows that neither definition can be used to explain what we’re suffering from:

Taxes will have to rise to highest level since the end of WW2 to meet the £19bn cost of Theresa May’s pledge to end austerity, the Institute for Fiscal Studies has warned.

Chancellor Philip Hammond would have to hike income tax, National Insurance and VAT by one penny in order to find the money to pay for the promise, the body warned.

Doing so would take the overall tax burden on the British public close to the highest level it has been since 1945 and the end of the Second World War.

The economic definition is something along the lines of not having a deficit large enough for the economic conditions we face. Simon Wren Lewis has said that any level of deficit which allows a recession to even happen is austerity – an extreme position but logically one that follows from the basics. Deficits are stimulatory, austerity is insufficient stimulus.

But if taxes must rise to fund spending then that’s not stimulatory spending, is it? For by stating that we must raise taxes we’re already insisting that we shouldn’t be increasing the deficit. Thus such increased spending is not about ending austerity precisely because we are increasing taxes to do it.

The other meaning is common to The Guardian’s pages. There’s less money to spend on the snowflakes’ favourites projects, this must be Tory austerity. Not something that’s actually greatly in evidence:

The problem, however, is that the numbers aren’t on Hutton’s side of the argument. The figures are available easily enough. Public spending is up in cash terms since before the crash, has risen each year. As a percentage of GDP it is roughly where it was before the crash. As good Keynesian policy would have it. Sure, blow out the deficit when in a recession but then start repairing that roof when the sun shines again. Tax revenue is up in cash terms and, again, is about where it was before the recession as a percentage of GDP.

This is not evidence of some desperate slash and burn of the state. Just of good, proportionate, expansion of the deficit in those times of need, a retraction of the stimulus as unemployment falls again.

That is, we’ve no good evidence of the state having shrunk. Thus we cannot have that austerity in this second sense. Again, the fact that we must raise taxes – no, not taxes upon the rich, the level of taxation taken from the economy and then fed through government as a whole – to historically high levels to pay for spending means that we must therefore be at historically high levels of taxation and spending already. Which isn’t austerity, is it?

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Quentin Vole
Quentin Vole
5 years ago

If we’ve got enough spare cash to piss away £100 billion on a pointless train-set to nowhere, I suggest that we’re not really undergoing ‘austerity’.

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