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Time to REJECT “tax and spend” myths about the economy

By Steve Carne, Jun 20 2017 05:00PM

None of the three main parties’ 2017 Manifestos commits to funding the NHS adequately. This is because they are all still hung up on the “tax and spend” myths that the well-respected Cambridge economist Ha-Joon Chang recently called on voters to reject. Ha-Joon Article

These myths create the delusion that there is an inherent virtue in balancing the nation’s books. If you stop and think about it for a minute, this is clearly not the case.

If government cuts public spending, on the misapprehension that this will reduce the deficit, it shrinks the economy: the effect is to stop putting money in the pockets of public employees, who stop spending it in the private sector and to stop filling the order books of the public sector.

These are the facts that we need to get our heads around, in order to get rid of “tax and spend” myths:

There is no inherent virtue in balancing the nation’s books - it depends on the circumstances.

As Ha-Joon Chang explains,

“ in an overheating economy, deficit spending would be a serious folly. However, in today’s UK economy, some deficit spending may be good – necessary, even.”

This is because the economy is stagnating, although this stagnation has been masked by “an oceanic scale” of personal debt, funded by banks that have excess cash to splash around.

This economic stagnation is the entirely predictable consequence of successive governments’ “austerity” policy - since, as we have seen, cutting public spending shrinks the economy.

Austerity is about dismantling the welfare state; the 2008 financial sector collapse was the shock that enabled successive UK governments to impose it - justifying it by phony “tax and spend” myths.

The ConDem and Conservative governments have inflicted the huge costs of this bailout on the British public. The poorest citizens, in the poorest regions, are being hit hardest.

The British government spent at least £1trillion bailing out the corporate banksters whose unregulated greed caused the 2008 financial crash. This rescue package was equivalent to around 3/4 of the size of the entire GDP of the UK economy.

Gordon Brown’s Labour government then brought in McKinsey to tell it how to cut NHS spending.

None of the three main parties’ 2017 Manifestos commits to funding the NHS adequately. This is because they are all still hung up on the “tax and spend” myths that the well-respected Cambridge economist Ha-Joon Chang recently called on voters to reject in his very clear and simple GUARDIAN ARTICLE

McKinsey duly set out the cuts proposals that have led to NHS England’s 5 Year Forward View and the Sustainability and Transformation Plans. The advice formed the QIPP report, commissioned by Labour, used by the Coalition, QIPP is the basis of the ‘Nicholson Challenge’ which forced £20bn ‘efficiency savings’ on the NHS between 2010 – 2015. The advice has been described as ‘entirely without evidence’ by senior health policy analysts. (NHA LINK BELOW)

Small wonder then that the 2017 Labour Manifesto - written by Jon Ashworth, formerly a special adviser to Gordon Brown when he was Chancellor - continues the austerity mythology.

The UK welfare state isn’t especially large

As of 2016, the British welfare state (measured by public social spending) was, at 21.5% of GDP, barely three-quarters of welfare spending in other comparably rich European countries.

Welfare spending is not consumption

It is not a drain on the nation’s productive resources that has to be minimised. Far from being consumption, a lot of welfare spending is investment that pays back more than it costs, through increased productivity in the future.

Expenditure on education (especially early learning programmes such as Sure Start), childcare and school meals programmes is an investment in the nation’s future productivity. So is investment in the NHS - an unhealthy population is not going to be a productive worksforce. Unemployment benefit, especially if combined with good publicly funded retraining and job-search programmes, such as in Scandinavia, helps people to hang onto their health, self-respect and skills that would otherwise be lost.

Tax is not a burden

In return for paying taxes, we get an array of public services, from education, health and old-age care, through to flood defence and roads to the police and military.

However, all mainstream parties promulgate the false idea that tax is a burden. Ha-Joon Chang points out that this is as daft as claiming that paying for a curry or a beer is a burden. In each case, we get something in return, that is worth the price paid. The proof of the pudding is in the eating - if tax really were a burden, as Ha-Joon Chang says,

“all rich individuals and companies would move to Paraguay or Bulgaria, where the top rate of income tax is 10%. Of course, this does not happen because, in those countries, in return for low tax you get poor public services...

Japanese and German companies don’t move out of their countries in droves despite some of the highest corporate income tax rates in the world (31% and 30% respectively) because they get good infrastructure, well-educated workers, strong public support for research and development, and well-functioning administrative and legal systems.”

New Labour was complicit in the austerity lie. But Labour is now an officially anti-austerity party with a leadership that was elected on the basis that austerity is a political choice. So now is the time that the Labour Party needs to reflect that in its entire policy approach - including its NHS and social care funding commitments.


We Wont Stand for More Austerity - our first post on this theme

NHA Article on McKinsey

McKinsey Consultants in Everything!

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