I’m Not Following This Tax Malarky

Let me first say I have never studied economics and I am an indifferent mathematician ( C grade at O’level 1981) So may be I’m missing some point here.

Families face £60 rise in plane tickets to make up tax-shortfall from foreign holiday dip

Families face paying an extra £60 on flights to cover a tax-shortfall caused by fewer travellers passing through Britain’s airports.

The Government has predicted a £500million loss within four years as its predictions for passenger numbers decrease.

But treasury chiefs have drawn up papers to fill the gap by hitting exiting passengers with 25 per cent rises on air fare taxes.

Ok so here’s my thinking on this.

The Government (current & previous) needs to raise money for Quango’s and their friends, everything that can be taxed is and at the highest levels. Where to get the extra?

Some bright spark has an idea for Airline passenger taxes, it’s a luxury, so people complaining can be called ‘selfish’ plus if we can work a bit of ‘Green’ into it so much the better.

All goes well until we have a pesky recession, people are out of work, so they are not going on holiday, those in work have not had a pay rise in 3 years, but inflation is going up year on year, so their disposable income is less, so they are not going on holiday.

So your predicted revenues are going to be down.

The Government has predicted a £500million loss

No, the government has not LOST anything, you cannot lose what you never had, you may if you are government have already spent it, but it was never there.

Now here’s where my lack of  education in these things probably lets me down, what would I do?

Well perhaps I’d take a look and think, well less people are flying because its become more expensive. How about if I halve the tax, then instead of 1 person flying, I get 2 or maybe 3,  I still get the same revenue, everyone gets a nice holiday and everyone feels better.

But I obviously don’t understand properly because.

But treasury chiefs have drawn up papers to fill the gap by hitting exiting passengers with 25 per cent rises on air fare taxes.

So even less people will fly, revenues will drop more and the answer will be to raise the taxes again, to me it just does not make sense.

I guess that’s why I’m not in Government.

As a post script I would add that to me all of the above can be applied to the ridiculous decision to raise VAT to 20% in a recession when the obvious answer was to cut it, to kick start the economy

18 comments for “I’m Not Following This Tax Malarky

  1. nisakiman
    August 28, 2011 at 6:11 pm

    I think perhaps you should apply for the position of government chief economist. You seem to have a better grasp of the subject than the current incumbents.

    I am constantly reading that it is a well documented fact that the less onerous the tax regime, the higher the receipts. Obviously The Powers That Be in UK don’t read the same stuff as me. They all seem wedded to the “squeeze ’em till the pips squeak” approach. Perhaps they just enjoy making lives difficult…it’s a power thing.

    • Mintee
      August 29, 2011 at 10:17 am

      I suspect you’ll find the ‘loss’ is something invented entirely by the Daily Prole and nothing to do with the government at all.

      But actually thinking about the topic and the Daily Wail mentality never really go together.

  2. Fred Forsythe (not the)
    August 28, 2011 at 8:01 pm

    All this logic is confusing me!
    The British Government is my enemy.
    And all the rational won’t change it so why keep proving an established fact?
    Tsk, Simples eh?

  3. Sue
    August 28, 2011 at 8:20 pm

    Surely the Olympics will more than make up for any shortfall?

  4. Damo
    August 28, 2011 at 8:45 pm

    Once again it seems like the working class will suffer because of this tax.

    What is it with the elites? They really do despise the working classes, don’t they.

  5. August 28, 2011 at 9:19 pm

    Its easy really. The government have set a level of expenditure to which they have become accustomed. Lets call it their “comfort zone”.

    To reduce taxes would mean they would have to reduce their expenditure and therefore lose some of those perks, payrises and profligacy that makes up their comfort zone.

    Therefore taxes have to rise in order to maintain their comfort zone, long after we have lost ours. We are the kitten, bled to death by a host of parasites.

  6. nemesis
    August 29, 2011 at 12:01 am

    Its called a Laffer curve.
    I didnt pay attention in Maths class either but at least I’m ahead of the Socialists who believe it all comes from the money-tree orchard behind number 10.

    • August 29, 2011 at 6:12 am

      I think most politicians these days (of all parties) either don’t believe in the Laffer curve or don’t understand it.

      • August 29, 2011 at 10:30 am

        I had a quick look at this Laffer Curve of which you speak, I had seen the term bandied around, but thought it was some economic theory far beyond me.

        Yet it appears to be so simple, I almost derived it from first principles myself.

        It seems to be the kind of thing that used to win Nobel prizes.

        Is the problem that it is not sufficiently ‘proven’ the reason it is ignored.

        Or is it just Govt can never see taxes go ‘down’ which explains this willful ignorance.

        • August 29, 2011 at 11:27 am

          George Osborne recently acknowledged the existence of the Laffer Curve when he said that they need to look at whether the 50% rate has actually increased revenues or, more likely reduced them. There may be a glimmer of hope there yet.

          • August 29, 2011 at 2:59 pm

            Maybe, but will he be allowed to do anything about it or reined in for fear of rocking the LibDem boat, and if the latter has he got the principles and cojones to tell Cameramong that it’s a mistake not to and that he’d rather resign? Not holding my breath.

            • August 29, 2011 at 3:01 pm

              Neither am I, merely mildly amused that a politician has even acknowledged the existence of it.

        • August 29, 2011 at 2:57 pm

          Yep, very simple, and almost in a priori territory. Not even the most keen Keynesian or soak-the-rich socialist can argue with the amount of tax received when the rate is 0% and I can’t see many of them suggesting that most people would carry on working if it was 100% either. If it isn’t a curve between those two points I can’t imagine what it might be instead. Perhaps they think it’s a very lopsided one that keeps going up until about 90% or more and then drops like a rock but if I recall in the 80s Nigel Lawson found more tax came in when he reduced the top rate of income tax to 40%, so I think the evidence favours the conventional shaped Laffer curve rather than a weird one where people continue to work their arses off while the state takes nearly everything. Funny that.

          • August 29, 2011 at 7:34 pm

            In my reading there seems to be a wide variety of opinion about where the actual peak is. with some even suggesting 70% but I guess those are the Fabians.

            • August 30, 2011 at 6:45 am

              Probably. I wonder how many of them would actually carry on working beyond the point at which three quarters of what they make is taken from them. 😉

  7. John
    August 29, 2011 at 4:19 pm

    Unfortunately they can still raise the tax quite a bit and people like me will pay. Even though the equivalent tax in France and Germany and other European countries is very low, it’s still cheaper to fly to Australia from London than from Amsterdam or Zurich. Even excluding the cost of getting to the continent first.

  8. August 29, 2011 at 5:55 pm

    @Longrider @Angry

    I think I’ve got this now,But I may be wrong, I think from a bit more reading it has been decided that the UK Laffer Curve peaks at 40%. (IMHO it should be around 30-35% that just ‘feels’ right, I can’t give you numbers)

    However, as we have seen recently total average taxation if you add in NI, VAT etc. Comes in at 42% or there about’s, they (the Govt) are like surfers constantly teetering on the front of the wave. All it takes is a small increase and they will fall off. This gives them no margin to play with.

    People don’t have to be mathematicians, they can see for themselves and ‘feel it’ when things are inherently costing ‘too much’ and will change their habits accordingly.

    What the govt don’t seem to have grasped is the retraction always takes it back past what it was before, hence lower air passenger numbers, nearly stagnant retail sales growth. etc

    If they want an example look at Japan when they raised VAT from 2.5% to 5% for some easy money. the contraction in the retail economy was so severe i was abandoned after 6 months.

    To my mind every little extra bit of that adds to that 40% is self defeating

    • August 30, 2011 at 7:46 am

      I think it’s probably more important to look at the top marginal rate of personal taxation – how much is taken from the next pound you earn – rather than the total tax the government takes out of the economy. In the UK’s case the top rate of income tax is 50% and on top of that there’s the other income tax that still goes by the misnomer of NI. I think that’s tops out at 12%, though of course the employer also has to pay (slightly more I believe) and it’s not unreasonable to think that in the absence of NICs some of that would be paid to the employee. But let’s be conservative and just stick with the 12%, that makes the rate of direct taxation 62% already. And then there’s the change to pension tax relief which will hit nearly everyone paying 50%, er, I mean 62% tax since it’s pretty certain that most of the people on that highest rate will be paying into a pension. I don’t pretend to be on top of this but I’ve seen articles that claim that for some these changes push the marginal rate of taxation up to 80-90%.

      And as I understand it this is where the Laffer curve bites. Why would you bother to put in the effort to earn that extra pound if all you actually get is 10 or 20p (further reduced in value when you try to spend it by VAT)? Would you even bother for 38p? At this point you’re probably already working your arse off so you might well decide that you value your time more highly and simply stop working so hard. As you say, people kind of feel when things cost too much and begin to change their behaviour, and that includes the cost in time and effort to earn more money. Some will carry on and try to cheat the taxman, and even if they all get caught, which of course they won’t, chasing them costs money. Others will hire expensive accountants to find legal loopholes, which is fine except tax policy is not supposed to be a jobs programme for the accounting industry. Others will take great care to earn up to a certain amount and then simply down tools for the rest of the tax year rather than stay productive, and some may leave the country altogether. In any case the government lose the tax revenue those people would have paid.

      Where this point is probably varies. I’d guess it comes earlier in the UK than in Oz since British VAT is now twice the rate of Aussie GST, making that portion of the next pound you earn worth less in terms of what it can do for you than the portion of the next dollar I earn. I agree that 40% seems about right for the peak in the UK since I have a feeling that 50% may be an important psychological threshold because even if there were no sales taxes at all I reckon people are more prone to jumping up and down in rage if they think more than half of their work, even at the margins, is going to be for the government’s benefit rather than their own. In Oz with our lower GST it might be a little closer to 50%, though there are all sorts of state taxes as well as GST and a lot of variation in living costs, especially fuel, that probably means the peak is in different places around the country.

Comments are closed.