Trust the market: government underspends mean we can afford tax rebates

Government spending is taxation, and government spending is not the be all and end all of growth promotion.

Time to make a withdrawal from the bank of government
On 23 July 2012 10:21

Across the variegated strands of conservative thought as of late, you’d be hard pushed to find anyone calling for tax refunds or rebates – in part for fear of falling foul of the ‘Occupy’ types, but also because while government is attempting to plug the deficit gap, it can be argued that this isn’t a ‘sound’ use of public money.

Let's get something straight: government is about as likely to return your money to you as a pickpocket who finds no more immediate use for your recently stolen cash. But if we park the populism and drill down into what tax rebates could mean, it is surely more useful for growing the economy than having government sitting on stock piles of cash.

While The Times (£) today reported on ‘Whitehall’s unused £6bn, I would not go as far as to say that ever single penny of this should land, equally, back in the pockets of Britons - but that in some way shape or form, our money should be returned to us to allow for more natural growth. Isn't this just an economic argument for democracy?

While £85 each may be a nice little earner (a few nights out or maybe half a tank of petrol - I don’t drive, excuse my ignorance) – even if you were to target income tax payers (some 30 million), you’d end up with around £200 per person. That’d be a nice cheque to land through the door.

But I don’t really think that the highest earners need an extra two hundred quid, so we can scratch them off the list for a start. Furthermore, you’d be hard pressed to make the case that government should part with 100 percent of its underspend, so for the sake of argument let’s deal with half of the £6 billion instead.

To present 29-odd million income tax payers with just over a hundred pounds each (excuse the maths if I’m off by a bob or two) would not only send the increasingly important message that government isn’t the be all and end all of growth promotion, but also that government spending, as Art Laffer put it, is taxation. Quite often is seems the public have forgotten that government money is no such thing at all. It's our money.

“When you look at this, I’ve never heard of a poor person spending himself into prosperity; let alone I’ve never heard of a poor person taxing himself into prosperity,” Laffer said.

The lesson here is that the market is far more likely to drive quick and effective growth than government spending programs. While supply side spending and infrastructure projects that are necessary are important, government has developed an approach to growth that establishes it as the sole proprietor of such a thing.

Detractors will argue that after the administrative costs involved, the spending of the £100 per person, and factoring in those that choose to save – it may be far less effective than if the British government just decided to build a £3 billion white elephant in East London.

But growth is scarcely predicated on one-off projects that bolster very limited industries. While there is a tangible trickle down effect to such things, part of the economic problem we are suffering through currently is the risk factor that businesses associate with investing and attempting to grow.

Allowing the public to spend tax rebate money wherever the public chooses is a far better way of boosting consumer and business confidence – allowing companies to grow in the ways they wish to – investing in capital projects, staff, outlets or otherwise. Dividends will then (literally) be paid.

It’s clear from the vernacular we hear and the mood music that we dance to that government has farcically established somewhat of a monopoly in the area of growth. Even conservative stalwarts like Boris Johnson are arguing for highfalutin government projects to usher in economic prosperity. It was never thus in peacetime. 

This Keynesian fallacy is now reaching the end of its tether, with the US Economic Stimulus Act of 2008 and American Recovery and Reinvestment Act of 2009 (ARRA) failing quite decisively.

It is time, if you’ll pardon the nostalgia; to encourage growth in one of the best ways possible – by putting the cash back in your hands. If government is allowed to continue as the sole proprietor of growth, you can expect centralised spending to double again over the next ten years, without the requisite or proportionate GDP growth to burnish such frivolity.

50 percent spending to GDP? Please. We’ll be lucky if we can keep it below 75 percent. 

Raheem Kassam is the Executive Editor of The Commentator. He tweets at @RaheemJKassam

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