Taxation As Punishment

There is a profound dishonesty about Alistair Darling's pre-budget report. It didn't suprise anybody, but as usual with New Labour, anywhere there is substance, there is also obfuscation. Stealth is the norm.

But even the substance lacked substance. The big ticket items, i.e. a 1% increase in National Insurance and the freezing of personal allowances, will raise an estimated £4.4bn and £2.2bn respectively. Against a backdrop of a £178bn deficit, these are paltry. But the NI increase, to all intents and purposes an increase in income tax, can be disguised as omething else, and few will spot the freeze in personal allowances at all.

At the same time Darling has actually loosened the purse-strings in his ludicrous ring-fencing of what he calls 'front-line' spending, in a midly offensive military analogy.

But the high-profile items, such as a tax on evil bankers, are simply designed to please the electorate. And this is becoming a theme. The government has begun taxing unpopular people (mainly bankers and the rich) because they must be wicked and therefore they deserve to be taxed. Never mind if the new tax actually loses the exchequer funds, as is likely with the bank bonus tax.

Whether we like bankers or not this should worry us. Tax is for the purpose of allowing government to fufill its responsibilities. Full-stop. It should not be used as a punishment, or even worse, as social engineering (a tax on fizzy drinks is now being enthusiastically discussed. Save our teeth, Alistair!)

The electoral dividing line is whether VAT will go up or not. Labour have hamstrung the country by promising it will not. They have therefore committed themseleves to years of swingeing taxes on jobs and production.

But if there have to be tax increases, and the enormous debt mountain burgeoning under us mandate that, then wouldn't a tax on consumption be better? That would be green, right? And what's the best way to achieve this? A hike in VAT. It's the 'least bad option'.

But don't expect the debate to be honest. As we hit election season, truth is always the first casualty. The first real budget will be the one after the election, regardless of who gets in.