“If you take money out of the economy now, in a year when you’re beginning to see recovery, that is taking a great risk…”
That\’s Alistair Darling on the Today program talking about the Tories\’ plan to curtail the coming national insurance rise.
As Fraser Nelson rightly observes, not raising taxes is not taking money out of the economy. Money that is not raised in taxes does not disappear from the economy, it fructifies in the pockets of the populace.
Now whether it fructifies more in the government coffers than in those of said populace is a slightly different question. If we\’re to be honest about it (as opposed to being either ideologically or party politically rigid about it) it\’s a question of the margin. Even I, kitten skinning neoliberal that I am, would agree that the first 5 or 10% of national income going to the government produces higher returns than if it is left with the population. That Army and those courts do have to be paid for, they really are public goods and having them provided by the State really does make us better off.
There are of course those who say that the 45 th % to 50 th % of national income going through the government rather than sprouting, flowering and fructifying with the populace also increases the national wealth but then that\’s people like Richard Murphy and is obviously insane.
However, I do think that Fraser has missed a trick here.
Consider that the Tories do not raise NI. But also, they do not manage to find cuts in spending to fund such instead, they borrow to cover that gap. This really is putting money into the economy: it\’s fiscal stimulus. Increasing the gap between what the government collects in tax and what it spends is exactly that. It\’s absolutely no different than the cries from the Murphys and Compasses of the world that we must spend to support the economy.
Keynes, remember, is all about the gap between tax and spend, not the level of either.
Which leads us to a very amusing end note. Those screaming the most about the not rise in NI, those screaming the most about \”how will it be funded?\” are precisely those who should, from the other things they say, be most welcoming such a fiscal expansion if it is not funded by cutting spending.