Demand side measures
Included raising the income tax allowance to £9,205 from next April. This is effectively cutting income tax and so increasing AD by raising consumption.
Indirect taxes have risen on tobacco and alcohol. This will reduce AD by raising prices, but there is a clear justification on this on the grounds of market failure.
The Budget deficit will continue to fall over the rest of the parliament reaching just £21bn bu 2017. This is a contractionary stance and will push AD down.
Corporation tax will fall from 26% to 24% from this April. This should boost profitability and so raise the incentive to invest, so raising AD.
Higher stamp duty and the closing of 'loopholes' means that really high earners are not as well off as tax cuts appear.
On the supply side there were a number of measures.
There is help in gaining finance for small businesses with a loan guarantee scheme.
The top rate of tax will fall from 50% to 45% from NEXT year. It is argued that this will increase incentives to work and will therefore increase output and benefit the economy. Combine this with the cut in Corporation tax and this can be seen as a clear attempt to make Britain appear a better place to locate your business than other countries.
Faster broadband speeds in the major cities to improve infrastructure.
The income tax and corporation tax measures listed in Demand side also have a supply side incentive effect.
Overall
There are a lot of measures! I have listed only a few and you should read the papers on this, but looking at them in a list does not really do them justice. Is there an overall philosophy behind the budget and does it make economic sense?
I think the Budget can be summarised as a mixture of short term details and long term vision:
In the short term the economy is growing, but slowly, and can manage with less fiscal support in the future. Some people are really struggling and the higher tax allowances and concessions of child benefit are designed at help them a little. Some people are too generously dealt with and they must pay more.
In the long term there is a need to re-balance the economy by reducing the deficit and encourage growth. The Chancellor has avoided short-term popular measures in favour of a long term view. The supply side measures really stand out here.
Of course some policy objectives are so low down the list they have pretty much dropped off. Can you order the priorities?
It's way more complicated than just listing in order of priorities - there is no 'correct' order of priorities.
ReplyDeleteThe government wants to help the poor, so they must take from the rich. Generally higher rate payers are some of the most hardest working, most intelligent assets to our economy and it's likely that if the rich keep being taxed highly they would leave the country, and that won't help the UK's economy at all.
A lot of people feel the 50% tax rate cut wouldn't seem as bad to the rich people if everyone was paying the same standard amount. But is it sensible or fair to make someone earning £60,000 pay the same tax rate as someone earning £1,000,000. No, it's not. One of the best ways we can try and get out of this economic mess is to get as much from the rich as possible, avoid giving benefits to those who don't really need it (a 35 year old mother with 2 kids and a four bedroom house who is perfectly capable of going out to work), and invest the money in other developments, like giving a help loan guarantee scheme to the promising small businessman who would contribute to the economy. But even still, we all know it's not that simple...
Overall I am quite pleased with the budget as I believe there are some good ideas with a lot of potential however I feel that some of the policies may be contradictory. The government's method of boosting aggregate demand whilst paying off the deficit still seems a bit ambitious however there is support from sources from the economist that the recovery is on track. I see their priorities as justifiable with the one exception that maybe we should still be concentrating on fiscal boosts as opposed to supply side policies as if the economy fails to recover in the short term all of these well intended ideas may be in vein. (All political views aside)
ReplyDeleteanother budget designed to hit the poor and tend to rich, cutting corporation tax and the top rate of tax to massage the bank accounts of wealthy. Further increases in taxes on alcohol, tobacco and petrol will hit the low earners far more than the rich, as a rise in tax will make an insignificant change in price to hand rolled Havana Cuban cigars and fine wines and whiskey compared with the tobacco and alcohol products consumed by the lower earners.
ReplyDeleteJust when I thought the politics of envy had been eliminated.
DeleteAs Yetunde already said, there is no correct order of priorities, because it always depends on your point of view. So a top banker in the financial district of London will have another view than an unemployed mother with 3 children for sure, they both should agree though, that the economy and therefore the possibilities and conditions in the UK have to become better. Moreover I think that it is necessary for the economy of the UK to cut the 50% taxes due to better conditions in other countries for companies and high-tax-payer. Giving the money only to those who are really in need is the best way to do it, but how will you be able to measure the need of the people exactly?
ReplyDeleteEvery time a new budget is proposed, there is criticism to the government on the basis of the government not taking everyone into consideration. There is no way to prioritise the government policies: it is simply a matter of maintaining a balance. This however, does not mean that a balance could help the situation at all; some sectors and people may still be at a disadvantage. Case in point would be the NHS cutbacks; look how well that has turned out.So in reality, the only thing to do is to pick and choose; how this is done is left to the government.
ReplyDelete