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UK Budget 2020: How to Deliver on Promises Without Breaking the Bank
Nobody likes paying taxes, that’s understood.
But sometimes, in order to fulfil the promises made during an election — the promises that were made to appease and please those who voted the present government into office! — taxation levels must accordingly increase to provide the things that voters have hired the government to accomplish.
The trick for governments is how to keep their election promises without losing the confidence of voters, and I therefore offer the following well-meant suggestions using the proven example of Canada’s economic miracle during the 1994-2015 timeframe:
- As in Canada, the national GST rate in the UK should be set to 7% and should always hover between 5% and 10% in order to arrive at a zero-deficit budget, year-in and year-out. The GST shouldn’t be required to do anything else except to balance the budget, or, in the best-case scenario, to paydown some amount of government debt during any subsequent economic ‘boom years’ for the economy. That keeps it simple. (Although Canada has strayed from this plan recently and is now beginning to pay a price for its lack of committent to it’s formerly strict budgetary goals).
- The national GST should apply to every single transaction in the UK and only medical items should be exempt, such as female hygiene products, emergency medical kits, plasters/band-aids, prescription medications, and diagnostic imaging equipment like MRI’s and Cat Scan’s etc.
- Other than those exceptions, not one thing should be exempt from the national GST which would raise the total tax take for the government by a significant amount. (This plan worked wonders for Canada when it was in an economic tailspin) See: Jean Chretien: Lessons from Canada’s ‘basket case’ moment.
- Things like fuel (any kind of fuel, such as fuel for aircraft, cars, pleasure boats and ships, locomotives, home heating fuels like kerosene or natural gas, coal, firewood, wood pellets, etc.) and every other thing that is sold in the UK should be GST taxable, including financial transactions of any kind, including fees paid for legal or financial advice, and on the fees to purchase mutual funds, bonds, and other financial instruments, and on homes, cars, lumber, kitchen gadgets, and every item or service sold in the UK.
- Also, part of Canada’s economic miracle which began in the 1990’s was to lower corporate tax rates to 15%, then 14.5% and finally to 14% over a number of years, with a special tax rate of 10% for small-cap companies. This stimulated SME growth in the country that continues to this day, Indeed, Canada barely noticed the global financial crisis of 2007-2009, and it remained the fastest growing G7 economy before, during, and for a time after the U.S. subprime mortgage crisis.
- The other important part of Canada’s economic miracle of the 1990’s and early 2000’s is that the government got rid of wasteful and overlapping government programmes — basically telling every government department that they had 5% “fat” built-in to their annual budgets and that each department (except for the Department of Defence) would be required to submit budget proposals for the next 3-years showing a 5% spending cut from planned spending levels — or the government would simply lop 5% ‘right off the top’ from said department without any further warning or consultation.
- Not only did these things work well, but Canada also managed to make significant payments to paydown the government debt which was negatively affecting the economy and was costing a fortune in annual debt servicing costs. This in turn, allowed the Canadian government more room to manoeuvre from a federal budget perspective in subsequent years as less government revenue was required to service the accumulated deficits (debt) of Canada’s federal government.
- The next government that came into power after Liberal Party of Canada’s Jean Chretien and Paul Martin, was Stephen Harper’s Conservative government which in 2015 implemented a brilliant stimulus package (a home renovation tax credit) that boosted the Canadian economy with only a tiny amount of stimulus. Which, as it happened, put every available tradesperson in the country to work for a full 3-years just to meet the demand. So many Canadians decided to spend more than the allowable $5000. tax credit amount to renovate their homes… that home building centres, home decorating centres, and car dealerships that sell tradesman vans and trucks could barely keep up with demand. It was the perfect solution to boost the economy after years of budget cuts designed to balance the federal government budget.
Rather than trying to reinvent the wheel, the new Chancellor of the Exchequer, Rishi Sunak might consider following the tried-and-true Canadian example of ending the many complicated and difficult to administer taxes throughout the UK economy and roll them into a simplified GST with a 7% rate that taxes everything except medical supplies and equipment, followed by a plan to lower government deficits to zero over 5-years (with legally-enforceable punishments for the government if it fails to meet its zero deficit targets) and by lowering the corporate tax rate to match Canada’s corporate taxation rates to stimulate the economy over the medium term, and by stimulating the economy with a modest tax credit for home renovations where better home insulation is a part of that programme which works for homeowners to lower their electricity bills and further stimulate the economy over the short term.
In this way, the UK government can begin its Brexit year on a sound financial footing, losing some confusing and overlapping smallish taxes while dramatically increasing its total taxation revenue, while at the same time it attracts new businesses to the UK and supports existing UK businesses with lower corporate tax levels, and by employing every single tradesperson in the country for at least the next 3-years.
Congratulations and best wishes to the new and highly-esteemed Chancellor of the Exchequer, Mr. Rishi Sunak!