11 aug 2011

Why Spending Cuts are No Cure for Ailing Economies: what the experts say (2)

There are many alternative approaches that do not involve deep, rapid and unfair cuts in spending. We do not set out a detailed policy mix, we simply want people to realise that there are alternatives so that they can work together to get the government to change its policies. But the alternatives do have some things in common. The government is wrong when it says that there is no alternative.Source:

www.falseeconomy.org.uk

They start by saying that we should not try to get rid of the whole deficit in four years. A longer timetable allows economic growth to do more of the work of deficit reduction. This is because growth will reduce the amount the government needs to spend on unemployment and increase the amount it gets from tax (even without changing tax rates).

If growth does more of the work, then we need to raise much less from cuts or tax increases.

However we cannot pretend that the recession never happened. The banking crash showed that some of what was thought to be real economic growth was an illusion. As we have explained, part of the deficit is structural and won't disappear even when the economy is growing strongly again.

And at any time there are genuine debates to be had about how we should spend and what on; and how much we should tax and who should pay it.

But there is nothing that says the split between cuts and tax has to be £4 of cuts for every £1 of tax rate increases. This choice means that deficit reduction is hitting the poor and those on middle incomes rather than those who can easily afford it..

A sensible timescale, policies for growth and fair tax

So alternative, fairer approaches will start with a timescale and policies that give growth the major role in cutting the deficit. They continue with policies that put much more emphasis on raising money from a fair, progressive tax system.

There are many different policies that can stimulate growth and create jobs. It even makes sense to borrow more in the short-term if that encourages enough economic growth in the longer-term to make that worthwhile.

Policies that stimulate growth include:

  • A new green investment bank that can help move the economy away from over-reliance on finance to generating growth and jobs in a low-carbon economy.
  • Direct policies to create jobs, such as the Future Jobs Fund ? which was one of the first things this government cut.
  • Policies that get banks lending again to small and medium-sized businesses.
  • A state investment bank based on the nationalised RBS and Lloyds banks.

A fairer tax system would include:

  • Closing the £40 billion UK annual tax gap  ? this is the amount of tax that could be raised by more efficient enforcement and by closing loopholes.
  • A Robin Hood tax on financial transactions that could raise £20 billion a year.

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