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.