January 31, 2015

ALL ANGLOSPHERIC POLITICS IS THE SAME:

Cutting spending would boost the economy and raise living standards (Ryan Bourne, 31 January 2015, The Guardian)

It is both necessary and desirable that this adjustment comes on the spending side. The receipts any government has obtained from taxes have averaged around 35% over the past 50 years, with an absolute maximum of 38%. Recent changes to GDP have revised down our tax-to-GDP figure, but we are certainly above the historic average and not far off the historically implied maximum taxable capacity of the UK.

Cutting spending would be better for the economy. There is much evidence that countries with smaller government sectors enjoy faster productivity growth in the medium term. This raises living standards. Extra spending and tax hikes impose significant deadweight losses from distortions to working, investment and other activities.

Many commentators are concerned, though, that cutting back to a state of around 35% of GDP (which has wrongly been compared with the 1930s) is infeasible without hugely adversely affecting the quality of public services. This may well be true for remaining services if we say we cannot touch health, pensions, aid, schools and other areas outlined for ring-fencing, and it is absolutely essential for government to undertake everything it currently does. But there's no reason for it to be true in general.

Australia, Ireland, Korea, Japan, Switzerland, Singapore, Hong Kong and the US have all had overall government spending levels around or below 35% of GDP in recent times. It is true that all have a degree of private funding for health, pensions or both. But they are perfectly reasonable and pleasant places to live, and in many cases have services and outcomes demonstrably better than our own.

Posted by at January 31, 2015 8:11 PM
  

blog comments powered by Disqus
« HIS THEORY OF THE CASE ALWAYS REFLECTED AN UNBALANCED MIND: | Main | NOW PICK JINDAL AS YOUR RUNNING MATE: »