Wednesday, 23 June 2010

Thoughts on VAT rising

In essence, I don't think the VAT rise was "unavoidable". As I've said ad nauseum, I can get us out of this recession without raising the overall tax burden at all.

But for all that, I remember when that towering economic genius Gordon Brown lowered VAT everybody moaned that lowering VAT by 2.5% was going to do fuck all to boost demand and so it turned out as well. Now everyone is saying that raising VAT by 2.5% is going to smash our fragile recession. I don't fucking believe that for a moment.

I don't agree with VAT. Mark Wadsworth has often and adequately pointed out, VAT is one of the worst taxes there is. But given that it's there, I don't think a VAT rise from 17.5% to 20% is going to beat the economy into a pulp any more than a fall from 17.5% to 15% boosted the economy.

End of.


Mark Wadsworth said...

Of course the cut from 17.5% to 15% didn't have some magical effect and of course it didn't boost demand. Demand is fairly fixed. No serious person expected it to.

What we expected was that business margins would improve, fewer businesses would go bankrupt and fewer people would lose their jobs.

VAT is not a tax on 'consumption'. It is a tax on gross profits (profits plus wages plus interest plus rents). It is a tax on 'value added', the clue is in the name. For mathematical reasons, a 2.5% VAT cut or hike is far better or worse for business that a 2.5% corporation tax cut or hike.

That's all.

Obnoxio The Clown said...

"No serious person expected it to."

But Gordon Brown sai ... oh!

Idle Pen Pusher said...

I'm sceptical that the incidence of VAT falls primarily on shareholders. Perhaps in the short term, and especially so for an explicitly temporary change in the rate, but over time surely the consumer will ultimately bear the brunt of the tax.

Bucko said...

I can't remember the tast time I bought a vatable item.
Apart from food, we buy clothes / shoes from the charity shop and everything else we need from ebay.
Thats beacause we have no children and work in the private sector.

Oh, booze. That has VAT on it doesn't it? Crap!

ray said...

HOW THE BUDGET WILL AFFECT YOUR POINTLESS, MONEY-OBSESSED LIFE - The Daily Mash is, as ever, helpful with budgets.

Roger Thornhill said...


What are your views on a true tax on consumption?

Mark Wadsworth said...

@ RT, VAT is not a tax on consumption, it is a tax on production or output or value added. That's simple maths.

The only 'consumption' spending (i.e. private spending that is of benefit to the individual to the exclusion of anybody else) that is not the equal and opposite of some other individual's (or business') 'production' is of course the money we pay for the right to exclusive occupation of land (or a few other state protected monopolies, like for example cherished number plates or mining or drilling rights - a fossil fuel can be consumed once and once only).

gitane said...

I did laugh at Vince Cable's reincarnation as the little deep throating frog. Any chance of sloppy seconds?