Friday, 3 December 2010

Where Will Your Tax Money Go? China?

Here is a fabulous tool to show how the UK Government spends our money. Here is a calculator showing where your own personal tax money goes. And, here is a forum to answer your burning questions around low cost government, waste and efficiency. These are all being developed in the course of the Open Knowledge Foundation's excellent Where Does My Money Go? project.

The forum has already settled a burning question of mine:
"What proportion of government revenue comes from personal income tax, as opposed to corporation tax?"
Answer: In 2008/09, the UK government collected £41.8bn in corporation tax and £149.6bn in income tax.

Together, we and the corporations paid about another £180bn in National Insurance (which of course corporations also pay for employing us) and VAT.

The government recently decided to lower the top-line corporate tax rate from 28% to 24%, and there have been protests about how large UK-based corporations like Vodafone minimise their tax. But I don't really begrudge them that. We need to incentivise private sector corporations to start here, and stay here to employ people and otherwise generate income.

I'm more concerned about how to incentivise ourselves. Corporations tax is a sideshow, compared to the fact that we individual taxpayers, who are effectively banned from incorporating, are supposed to aspire to pouring over 50% of our income into a leaky old public sector bucket - and then fund our own education, healthcare and "retirement" to the very considerable extent that the state cannot be relied upon.

The reason the economy struggles to grow is down to the horrific reality that over half of the country's economic output - and of our personal income - goes to support the public sector, which produces absolutely nothing. Civil servants should not feel slighted by that. As taxpayers they are in the private sector with the rest of us. And they have every right to feel just as alarmed as everyone else, if not more so - especially if they are sitting at a desk doing a non-job. Civil servants are citizens who are being overtaxed to pay for their own net incomes. Weird, huh?

Is this supposed to motivate each of us personally to stay in the UK and generate economic growth? Or is our declining share of income better spent on moving the family to, say, Hong Kong - or, indeed, to Singapore or China, as Jaguar advises, where people save half their income?

The reason that the current government's plans for how to stimulate growth are thin is because the government can't grow the economy. Only the private sector produces growth (though of course the government can be supportive... or not).

This coalition government can't and won't explain all this clearly, partly because it wants our taxes to keep rolling in so it can reduce the deficit in time for the next election, and partly because the Liberal Democrats in the ranks are almost as wedded to 'tax and spend' as their cousins in the Labour Party. Those people think that cutting taxes is "taking money out of the economy". But, of course, lower taxes merely leaves money in the hands of individuals - the private sector of the economy - where the public sector can't get at it.

Here's a growth hypothesis for you: If low income earners were to pay no tax, and others no more than 20% personal income tax/National Insurance plus 10% of income to a UK sovereign wealth fund that invested the money long term; and the administration functions in the public sector were halved, the UK would be growing faster by the next general election than under the current plan.


Image from Joystiq's coverage of tax relief campaign for UK games developers.

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