Tax cuts worth ?7,500 for every household in Britain could be achieved if Government spending was cut to 30pc of gross domestic product (GDP), according to a set of proposals for doing so from the Institute of Economic Affairs (IEA).
The right-wing think tank?s action list is published on the same day the Treasury is expected to reveal that every household in Britain will have to pay ?42,000 over the years ahead to subsidise final salary pensions promised to the public sector. Two views make a market, as they say.
Should the Government be spending more or less of your money? When all the froth is blown off the top of Parliamentary debate, that is the fundamental question voters will have to decide eventually. Tax is the point at which politics condenses into something more substantial than hot air and hits you in the pocket.
That process would be less painful if the IEA had its way ? but the obvious disadvantage is a much smaller state, lower safety nets and much more self-reliance. Such fundamental change might prove an uncomfortable challenge for generations weaned on the Welfare State.
Reforms proposed in Sharper Axes, Lower Taxes: Big Steps to a Smaller State set out how we could reform spending and tax policy. The IEA claims it is possible to ensure that everyone has access to decent health care, and providing a welfare system for the less well-off, could be achieved much more effectively with lower Government spending.
Some of the biggest spending cuts include: ?44bn from health reforms, ?46.5bn from reforms to the welfare state and pensions; ?17bn from defence; and ?12bn from foreign aid. Those are eye-stretching sums and could add up to a lot of disappointed expectations. On a brighter note, the IEA claims that ?40bn per annum could also be raised from asset sales.
The Institute was much more influential in the 1980s than it is now. Supporters point out that, back then, Margaret Thatcher won elections outright; unlike today?s timid Tories. The current crop of Conservatives? failure to make the moral case for lower taxation meant it was no surprise they failed to win an outright victory at the last election, as pointed out in this space before the event.
Now the IEA argues there is a renewed pubic appetite for lower taxes and more individual choice. A poll of more than 2,000 adults by ComRes found that 55pc of those who expressed an opinion said that public spending should be 35pc or less of GDP ? a measure of economic output.?Only 16pc want public spending to be more than the coalition is intending to spend; currently estimated at 45pc of national income or more.
Most surprisingly, an even more radical reduction in state spending is popular among the young. More than two thirds ? or 67pc ? of those under 25 and 69pc of those between 25 and 34 said Government spending should be reduced to less than 35pc of national income.
Perhaps that reflects growing awareness among the young that their generation will inherit massive bills because of the way their parents lived beyond their means. The baby boomer generation ran up public deficits across the Western world; a fundamental cause of the credit crisis. As a result, children who have not yet left school will suffer higher taxes through their adult lives to fund politicians? promises ? and public sector pensions are only one part of that systemic problem.
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