Wat
At the risk of repeating myself (never!!) I recall a blog discussion about a year ago I had with a fan of Cameron when I maintained that Osborne's "sharing proceeds of growth" could lead to a higher percentage of GDP ending up in government hands.
My simple illustration made two assumptions: that the government takes 40% of present GDP in tax and that "sharing" means a 50/50 split (I am not aware of any contrary indications from Osborne to this assumption). Accordingly, if GDP in year 1 is 100 and GDP goes up 10% then in year 2 GDP = 110. If the increase is split 50/50 then of that 110, 45 goes to the government. Consequently the tax take is 45/110 = 40.9%. As an arithmetic fact the percentage will always increase as long as the "sharing" percentage exceeds the previous year percentage of GDP taken by the government.
I realise you can play around with the figures as much as you like but until the Conservatives make clear what "sharing" implies I think we're entitled to be highly sceptical that they have any intention of cutting the tax burden - long or short term.
Umbongo-
Yes, good point.
"Sharing" is such a vague concept, we could end up with precisely the result you describe.
Doesn't the above example break the fiscal rule that growth in public spending will be lower than the growth in the overall economy? An increase of spending from 40 to 45 in a nominal value represents a 12.5% increase. As the economy has only grown by 10% this would be in breach of the rules. As I understand it, a 50/50 split would mean that instead of growth in spending being the whole 10%, which in this example would mean a spending increased from 40 to 44, half of that increase of 4 would go on more spending and the other half on tax cuts. This would give you 42/110 which is 38.2%. As long as the increase in public spending is lower than the overall growth in GDP, spending as a percentage of GPD will reduce. The question is how big will this gap be, but at least the direction is correct.
"the fiscal rule that growth in public spending will be lower than the growth in the overall economy?"
Whose "fiscal rule"? Osborne's? Please refer.
In any event, if you impose a constraint that says you can't increase public spending by more than the increase in GDP then, by definition, an increase in GDP can never lead to a percentage increase in public spending more than GDP. All my example seeks to illustrate is that, arithmetically, if "sharing" means 50/50 then sharing produces an increase in the public take (as long as the public take starts out below 50%). It also reinforces Wat's point that "sharing" is a (deliberately?) imprecise description of what Osborne proposes.
"Sharing the proceeds of economic growth is what living with our means, actually means. Not spending everything we have. Not borrowing to spend beyond our means. But ensuring that, over time, the economy grows faster than the state, so spending falls as a share of national income and we can reduce taxes and borrowing. Those who criticise sharing the proceeds of growth have sometimes not appreciated that if a government actually did this, either taxes, or borrowing, or both would have to fall over an economic cycle. I stress: have to fall."
This is from David Cameron's "Living within our means" speech. I interpreted this as meaning that growth in spending will be slower than growth in GDP, although you are right that is is not very clear. Ideally I'd like to see spending growth limited to about 1.5% a year to leave room for large tax cuts. Don't get me wrong, I wish that the Conservatives would come out with more solid tax cutting plans as even the Lib Dems seem to have noticed that the winds have changed in the public's mood on tax. There is hope yet I think.
The notion of them sharing the proceeds of growth with us is odd.
Whose growth is it anyway? Whose proceeds are they anyway? The phrasing is a Con trick. Good of them to offer to share OUR proceeds of growth with US. Rather they should be saying, Please would you share the proceeds of growth with us.
But that sounds less commanding.
Conservatives.com have a video of Mr Cameron's 'Living within our means' speech. In it he was very clear that 'sharing the proceeds of growth' would lead to lower taxes/borrowing.
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