By slashing government spending, by making half a million people in the public sector and as many again in the private sector redundant, he might be claiming to cut government cost but what he is actually doing is something much more sinister and dangerous. What he is doing is deliberately sucking demand out of our economy.
That is 1.6 million people won’t be paying tax any more. But they will be claiming benefits. Even if they are the new, reduced ones. So far from saving money, George Osborne’s so-called cuts will actually increase spending whilst massively reducing his tax income. The consequence is obvious. The deficit will go up, not down.
Which, according to that Keynes bloke, magically puts demand back into the economy.
So, if Osborne has cocked up, the seeds of the solution are in that very cock up that Osborne has made.
Most odd for a self-proclaimed Keynesian to be arguing that an increased deficit is a bad thing to have in a recession really, isn\’t it?
That is 1.6 million people won’t be paying tax any more.
I know he’s including the private sector redundancies in there as well, but I’ve seen this a lot from lefties on the internet recently: they seem to think that making people redundant from the public payroll will deprive the government of tax revenue. They don’t seem to understand that the tax revenue from public sector workers is simply government money circling back again.
“making half a million people in the public sector redundant,”
And there is probably no need for ANY redundancies. Natural turnover/retirement can achieve such a reduction over the planned timescale.
The idea that 500,000 are going to be thrown out of work is just a scare story – one repeated by the ignorant and/or biased [eg Andrew Marr on BBC this morning].
Government workers don’t pay income taxes. It’s just an accounting trick.
It would be better if govt workers didn’t pay tax or pension payments. Nothing would change, except the structure would be clearer to the Ricies of this world.
If the benefits paid out are smaller than the net wages a saving will result. I would guess that in many cases you will have two income households becoming one income households but still not being worse off enough to receive much in way of cash benefits.
It is also utterly wrong to think all the people to retire/be sacked/whatever will be unemployable or become self-employed in the truly private sector.
However, I do think the Government is going about it completely arse first. Cut away at the interference from Government, the duties and responsibilities that have been wrestled from individuals to justify an ever greater plundering of private pockets, and cost savings will be the natural outcome. As it is they are hoping to save money (though not really and not a lot in the grand scheme of things) without asking ‘Is this duty really necessary?’.
I think the argument is more that we could go to a lower level of output and growth and more unemployment for a similar deficit.
“If the benefits paid out are smaller than the net wages a saving will result.”
But that’s the first order effect. The second order effect is the fiscal multiplier. The govt might make a saving here but still be worse off because of the contractionary pressure created by massive spending cuts.