Archives for August 2012

“Petrol hits £3 a litre!”

Come October, don’t be surprised if you see this headline. Right now, the chances of it happening are very real indeed. Why? Because in September Israeli Prime Minister Netanyahu is going to attack Iran. This will be followed by the Iranians blocking the Straits of Hormuz, and a standoff between the US Navy and the Iranian Navy. As tensions escalate, oil prices are going to hit the roof. The price for Mr Netanyahu’s little escapade is going to be paid for by the likes of you and me in the form of higher fuel prices and an even deeper recession.

How do I know Mr Netanyahu’s intentions? Well of course I don’t, but he’s been threatening to attack Iran for nearly two years now, and those in the know are putting their money on September. Why September? Because Netanyahu wants to deliver the Obama presidential bid a fatal blow. Not only do they hate each other’s guts, Netanyahu thinks the Republicans are going to be easier to manage than the Democrats – despite the Jewish vote being traditionally Democrat.

Netanyahu already controls Congress in matters concerning Israel and US Middle East policy. Every Congressman and woman being ‘scored’ by the all powerful Israeli lobby on how well they support Netanyahu and his policies. Dare to utter a critical word or not do Netanyahu’s bidding, and thousands of re-election donations mysteriously evaporate.

Back home Mr Netanyahu’s coalition is in trouble. Kadima has decided to leave the coalition. Netanyahu’s grasp on power is looking tenuous. A convenient crisis to focus on ‘the great leader Netanyahu’ is just what the doctor ordered.

And don’t be fooled by the argument that it’s the threat of Iran with a nuclear bomb that’s motivating Mr Netanyahu. Not a bit of it. It’s all about the balance of power in the Middle East. Israel is the only ‘nuclear power’ in the region at the moment. If Iran had nuclear weapons it would change the whole dynamic in the Middle East, and that’s something Netanyahu is not prepared to accept.

So what are the Americans saying to Netanyahu? Are they just going to let him do what he wants and pour petrol on the Middle East fire? Defence Secretary Panetta says he genuinely doesn’t know what his intentions are, which is a pretty bizarre state of affairs. Maybe they know and are afraid to say anything lest they upset the Jewish vote. Who Knows?

And what of the British Government, where do they stand? William Hague has said he thinks an attack on Iran by Israel ‘would be unwise’. Good that he’s spoken up, but as September draws closer it might be wise for him to voice his disapproval in more forceful and unequivocal terms – for all our sakes.

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“Get by with a little help from your friends – you listening George?”

I have always argued that the ‘Osborne’s austerity’ would do huge and lasting damage to the British economy. Austerity unaccompanied by any measures to promote growth, is a recipe for disaster. ‘No medicine without tonic’ my mantra. A simple rule all businessmen understand, but one politicians have never been able to grasp. We’re now in a rut and going nowhere fast. Ideas anyone?

Enter the ‘mighty Clegg’ who today stuck his head above the parapet to suggest that those who have significant personal wealth should pay more. Few would disagree with the sentiment of his argument. It would be a measure that would have populist appeal, but would be unlikely to make a significant contribution to the reduction of the deficit.

Clearly everyone in the coalition is casting about for ideas. The dilemma now is how to stimulate demand and generate growth. Unless something is done the tax take will disappear through the floor and the deficit will increase. There is also the issue of fairness. The burden of the ‘Osborne austerity’ has fallen on those who have the least to give and the most to lose. What is needed is a temporary tax which will ensure that he burden is more fairly shared. The tax I have in mind is a tax similar to the one he Germans introduced in the early nineties to pay for reunification. They called it a ‘solidarity tax’. The term ‘solidarity’ would be appropriate for us to use too.

The German ‘solidarity tax’ has generated nearly £200 billion since it was introduced. The tax is based on the amount of tax that you pay. The initial level was set at 7.5%, so if your tax bill is €10,000 you would pay €750. As far as taxes go, this is as fair as they get. The wealthier you are, the more tax you pay (or should pay!) and therefore the greater your contribution. The tax also applied to corporate taxes and capital gains – and we could extend this to inheritance tax as well.

A tax of this nature would allow VAT to be reduced which would have the effect of stimulating demand and generating a higher tax take. Initially, the effect  might be neutral, but it would be a fairer and more intelligent way of dealing with the problem. A fair tax, a temporary tax and a tax with a purpose. Makes sense.

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