Sunday, 30 November 2014

Graph of the week - deficit is due to reduced taxation not too much spending

This week's graph of the week comes from The Resolution Foundation's report In The Balance: Public Finances in the Next Parliament. It is figure 15 on page 36.

What this graph clearly shows is:
  1. The massive deficit in public sector finances that happened in 2008 was not because of an increase in spending, but due to a huge fall in tax receipts because of the recession caused by the global banking crash.
  2. There has been a levelling off in spending in absolute terms, but given that this does not include inflation and increased demands due to an ageing population this actually amounts to massive cuts to services.
  3. The best way to fix the deficit is to increase tax receipts so they match spending.
The best way the government can do this is to:
  • have an economic plan that delivers good well paid jobs (as oppose to the zero hours low paid jobs that currently exist) so that workers then pay income tax and VAT and help build tax receipts.
  • reverse the cut to the 50p tax rate for high earners.
  • ensure that tax dodging companies like these pay their fair share
Spending cuts that hit the poor and the vulnerable are unnecessary and avoidable. There is a better way to close the deficit.

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