Anthony Peters, SwissInvest Strategist
It has been easy sitting here and pontificating on how the European peripherals should be managing their fiscal imbalances or what President O’Bama should be doing with the federal deficit but it is not until the issue fiscal tightening in this country ends up on the table do I really sit down and think and do some of the sums. However, the case is simple.
The last half of the last decade of the past century and the first half of the first decade of this century saw the government’s commitment to spend expand in line with the debt fuelled economic growth trajectory, only then to be met with gormless grins from the political elite when it came to the issue of how to recalibrate outgoings in line with the ensuing economic contraction.
…we must also all expect to be held up by Robin and his Merry Men when next passing through Sherwood Forest.
Robin Hood has become part of folklore by stealing from the rich in order to give to the poor. By and large, most of us have no problem with that but we struggle to understand what constitutes being poor. We are all amongst the most privileged and I’d be hard pressed not to believe that at least half the readers of this column are amongst the top 1% of earners in the country – I think I heard that with an annual income of £160,000 or above one is in that category – so to some extent we must also all expect to be held up by Robin and his Merry Men when next passing through Sherwood Forest.
Alas, the vote in the British parliament – we have one for Britain and also one each for Scotland, Wales and Northern Ireland but none for England – yesterday approved a capping in the increases in working-age benefits to 1% per annum for the next three years (which cannot but represent a cut in real terms) while the government also finally put universal benefits such as the £200.00 winter fuel allowance which all pensioners receive on the chopping block. I have had enough experience with this benefit – my ex was a recipient – to believe that it is not truly needed.
Household earnings
However, scrapping universal benefits also throws up some significant ethical questions with respect to social equality. It shouldn’t but it does. The search for equality has in fact caused significant trouble here in the UK when it comes to cutting universal child benefit payments. The means test which has been introduced has been set on a single parent earning £50,000 per annum or more. It has been rightly pointed out that if two working parents earn £49,500 each, the benefit remains in place but it there is only one working parent bringing in £50,500 it goes. When looking at the changes in personal taxation which were passed by Congress last week, the new higher marginal tax rate of 39.6% applies to single earners of over $400,000 or to households on over $450,000. The concept of household earnings appears not exist in this country because that might compromise the individual’s integrity or something nonsensical like that.
However, the key point is that, irrespective of the hows and whens of the implementation of cuts, the simple message which still usually fails to surface is that we simply cannot afford the benefit system we have created. Even if we were to tax the rich (that’s us) until (in the immortal works of former Chancellor Denis Healy) their pips squeak, it will never suffice to cover the excess in expenditure over income.
The question of redistribution of wealth extends beyond individual taxation as we can now see from the decision by the German states of Hesse and Bavaria to contest some of the inter-statal fiscal equalisation legislation, the so called “Länderfinanzausgleich”, in the Federal courts. Since 1990, Bavaria, Hesse, Baden Wuertemberg and Hamburg have jointly contributed €128bn to the fund and they are now questioning at which point the net beneficiaries – mainly the “new federal states” – must begin to seek to balance their own budgets without the unquestioned right to subsidies from the wealthier and economically more successful regions. This is an uncomfortable issue for the courts to face up to at a time when the German Federal whole is being tapped by all and sundry across the Eurozone too.
We continue to live in a world where the political leaders attempt to make us believe that they have the magic formula that will enable them to cut and stitch nine square feet of cloth so that it will cover a ten square foot hole. They know they can’t do it and we know they can’t do it and yesterday, for once, the government here finally called a spade a spade and instructed the Labour opposition leader, Ed Milliboy, and his cohorts to stop opposing for opposition’s sake and to make a constructive contribution to the process of balancing the budget.
Will common sense prevail? Oops, I think I just saw a pink beast with a curly tail fly by…