I ATTENDED Saturday evening’s “The Ayes Have it” Fringe show with Alex Salmond, Mick Lynch, David Davis and Mike Graham. They debated whether public-sector workers should have a right to strike. The Ayes had it when the audience voted. However, what was troubling was the oft-repeated refrain from Davis, Graham and even Lynch that taxpayers fund government spending. This is economic illiteracy.
A government isn’t like a household because it has its own bank, which means it can create as much money as it needs to achieve full employment with no inflation. The 1866 Exchequer and Audit Departments Act requires the Bank of England to obey the government’s instruction to pay, meaning the government can spend what it needs to, whether funding the health service or paying public-sector workers a living wage. Government debt represents people’s savings – that’s all.
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Government spending is constrained only by the economy’s productive capacity and inflation, which can be ignited if spending exceeds the economy’s ability to absorb it.
Spending comes before tax because the government has to create money and spend it before it can demand it back in taxes. The UK Government knows this, which is why it made it illegal for the Bank of England to ever refuse its demands to create money. If a government taxed back all the money it spent, the economy would grind to a halt.
Governments tax to give their currency value, to mitigate inflation by reducing income, to redistribute wealth/income, and to encourage/discourage behaviours – tax rebates on home insulation to increase energy efficiency or carbon taxes to reduce fossil fuel use.
The UK Government doesn’t want you to understand how money actually works because then there would be no reason for austerity.
Leah Gunn Barrett
Edinburgh
WHEN Selma Rahman (Letters, Aug 7) asks the question “How will the government pay for public services without tax revenue?” she is in danger of repeating the old Thatcherite falsehood that a currency-issuing government has to tax first before it can spend. The reality is that it spends first and then it may recover some of what it has spent through taxes, but it does not need to do so.
In that case, why does it tax? In general, people tend to speak of tax as a burden, and in one sense it is because we are obliged to pay it; but it should be framed as something we would be much worse off without. So, what are the positives about tax?
1) It ratifies the value of the currency we all use because the government requires us to pay our taxes in its currency.
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2) If the government stopped this requirement it would undermine its ability to provide the services we all need and expect. Fewer people would need pounds, so the government would find it harder to recruit medics, teachers etc.
3) It allows the government to control the inflation which would result if there was no limit to their spending.
4) It can be used to redistribute income and wealth.
5) Taxes can be used to encourage or discourage certain behaviours: “sin taxes” can discourage behaviours such as polluting, excessive speculation or the old favourites, smoking and drinking.
6) Tax encourages us to participate in democratic processes because we want to choose a government which acts in ways we approve of.
It should be apparent from this list why so many think the UK tax system is in need of reform.
Andrew M Fraser
Inverness
HAVE any of your readership been profoundly disturbed by the increasing and relentless “gating” of society that seems to be all around, and gaining momentum?
My recent experiences of my local supermarkets have been sad and depressing. There has a palpable and ongoing progression towards a very authoritarian “security” which leaves the customer feeling criminalised before he or she even enters the building.
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I encountered an elderly lady recently who, having completed her shopping, made the seemingly unpardonable error of exiting through the “in” barrier, which happened to be open at the time. This produced the most ridiculous racket of sirens, bells, whistles etc. The poor soul was bemused and intimidated. I went out to try to reassure her, and such was her fear that I could have put my arm round her to comfort her. But I realised in time that this would have been interpreted, as well, as a wicked act of aggression, probably caught on CCTV and stored deep in some annals!
What a dreadful state of affairs. I understand what drives all of this but, for Heaven’s sake, address it properly at source, which is to ameliorate people’s poverty, which causes them to steal goods in the first place. But don’t introduce authoritarian technology which makes customers feel like criminals for even stepping inside the store.
I will doing my shopping elsewhere in future.
Brian York
Dumfries
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