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Tuesday, July 19, 2005
The Flat Tax spreads to Italy

The Flat Tax revolution is spreading from Eastern Europe; the Spanish and German governments are considering the idea, and it is gaining ground in Italy. Recently a prominent Italian Minister endorsed it. Antonio Martino, Defence Minister, wrote:

"The expected benefits of the reform would be the simplification of the tax system, with enormous advantages for the taxpayer, a reduction of legal forms of tax avoidance (through evasion and tax relief), an increase in revenue, and the proper functioning of incentives to work, save and invest, with the consequent encouragement of economic growth. These advantages have already taken shape in those countries where the flat tax has been introduced, which explains why it is being adopted by so many other countries. Those who oppose what is happening throughout the world are not those who want tax reform and less taxation for everybody, but those who scorn and disdain this idea but are not able to offer an alternative proposal."

- Mario Chacon, TPA researcher

Posted by Matthew Elliott | Permanent Link

Saturday, July 16, 2005
Public service software manufacturer

Every year, each UK household with a television pays GBP126.50 to the BBC - the BBC tax - even if they don't watch BBC television, listen to BBC radio or visit BBC online. This revenue gives the BBC a tremendous competitive advantage over independent broadcasters and allows it to dominate the British media. In light of growing public dissatisfaction, the BBC continually portrays itself as a public service, embarking on projects too risky for the commercial sector but of benefit to the nation.

The latest example of this worthiness is the BBC's new Open Source website that outlines the broadcaster's contribution to the open source community and invites developers to contribute their own code to BBC-initiated and managed projects. These projects include the Dirac video codec, the Kamaelia testbed for network experimentation and modules for the Comprehensive Perl Archive Network, as well as a number of other projects related specifically to broadcasting technologies.

"For the BBC, open source software development is an extension of our Public Service remit," the broadcaster said. "Releasing open source software helps our audience get additional value from the work they've funded, and also get tools for free that they couldn't get any other way."

The website includes more warm words explaining that their Open Source policy is ultimately guided by "whatever gives the public the best value for their money". This sounds good for taxpayers, but it begs the question: should the BBC be expanding into Open Source programming and software development? The BBC dominates television and radio in the UK, it makes films and sells magazines - do we really want it to also be our main software developer?

The commercial sector has a much better track record of delivery what consumers want at a competitive price - this is why decrepit nationalised industries were privatised in the 1980s and why greater private provision of public services is being explored by politicians from all parties. Creating software is not an essential public service like defending our country is, so should the BBC - funded by taxpayers - be turning its hand to software?

Posted by Matthew Elliott | Permanent Link

How little of £100 you get to keep ...

The following nugget comes from the Tax Beater website:

Of GBP100 earned, 10% is paid in National Insurance contributions (nothing but a euphemism for an additional tax on income) and 22% is paid in Income Tax (40% for higher rate taxpayers). Of the remaining GBP68 of take-home pay let's say that over a week you spend it thus:

- GBP15 for a meal out
- GBP8 on cinema tickets
- GBP16 in petrol
- GBP3 put by for electricity
- GBP7 on some cigarettes
- GBP9 on a few drinks down the pub
- GBP4 paid out in insurance premiums
- GBP3 put aside for Council Tax
- GBP2 put by for Road Tax

Sound reasonable? Obviously 100% of the last two items are wholly tax. Five per cent of your electric bill goes to the taxman and 4% of any money you pay to protect yourself with insurance. Of the GBP23 you spend at the flicks and eating out, 17.5% goes to the government in VAT. While you're enjoying yourself, so is the Treasury; they take GBP4.03 from you for the evening.

35% of a well-deserved drink goes direct to our masters, and a recent AA campaign followed by the picketing of oil refineries serves to remind us that a staggering 85% of the money spent on petrol is snatched by the taxman.

Eighty five per cent! But even that is not the worst. The state loves a smoker, of course, and from the money spent on cigarettes an astonishing 88.9% enters its coffers. It brings tears to the eyes. Altogether, a full GBP32.31 of that week's expenses goes straight to the taxman.

Of the GBP100 earned, GBP64.31 will have been paid to the government in tax. At the end of the day, all you will have to show for it is GBP35.69 in goods and services. A higher-rate taxpayer will retain a miserly GBP21.69.

Oh, and we haven't even taken into consideration the host of taxes on business, employers national insurance contributions, airport taxes, capital gains tax ... and then there's stamp duty, where you hand over thousands just because you decide to move house! Somebody is taking us for a ride.

Posted by Matthew Elliott | Permanent Link

Wednesday, July 13, 2005
The new Conservative economic vision

George Osborne made a thoughtful and positive speech to the Centre for Policy Studies last night on the four objectives for a "modern economic policy". He rightly said that "a taxation policy does not equal an economic policy" and identified macroeconomic stability, increased productivity, reduced demand on the state and lower taxes as his four aims.

The shadow chancellor argued that lower taxes are essential to Britain's competitiveness in the global economy. "We need to make not just the moral case for lower taxation, powerful as that is, but also the economic case. The global economy will not tolerate high tax systems of the kind Gordon Brown is building."

In order to lower taxes, the Conservatives must produce "a number of significant, real and credible reductions in the long-term demands on the state." That should start with the chancellor's tax credits system and particularly the benefits paid to well-off families, he said. "We should ask ourselves whether taxpayers earning incomes of, say, GBP15,000 should really be providing means-tested benefits to people earning up to GBP66,000 a year."

Public sector pensions are a second area in which the Tories should look to make cuts, he suggested. "When millions of people in the private sector have seen their pensions reduced and their final salary schemes closed, how can we justify making them pay taxes to support generous, unfunded public sector pensions?"

Osborne also identified paying for new roads through tolling as another way of shrinking state responsibilities.

The most encouraging part of the speech was when the shadow chancellor acknowledged that they "need to make the case for lower and simpler taxes from the beginning of the Parliament, not in the last weeks before polling day." If Osborne continues to reiterate the case for lower taxes between now and the next general election, there is every chance that the Conservatives will feel confident enough to have a more taxpayer-friendly economic policy in four years time.

Posted by Matthew Elliott | Permanent Link

Monday, July 04, 2005
The Olympic spending race

With the eyes of the world are focused on the UK for two successive weekends - first for the Live8 gig in Hyde Park and then for the G8 summit in Gleneagles - attention will briefly turn east to Singapore on Wednesday for the International Olympic Committee's decision regarding the 2012 Games.

One overriding question regarding the bids which has been under-reported is the crippling cost of hosting "the greatest show on earth". A very interesting 'Focus' in the Sunday Times yesterday provided all the facts and figures. Here's a precis of the key Olympic facts:

  • So far, taxpayers have provided GBP20m for London 2012, the company organising the British pitch, and GBP10m for supporting activities. If London wins the Games, the government estimates that it will cost taxpayers GBP5bn. Others say it could be double that.
  • Montreal, which hosted the Games in 1976, is still repaying its Olympic debts. It made a profit on the operation of the Games, but capital expenditure on infrastructure projects spiralled out of control, causing the government to slap a USD2bn (about GBP909m) tax on tobacco to recoup its losses. Nearly 30 years later, 17 cents from every packet of cigarettes goes to repay the debt.
  • The Sydney bid for the Games in 2000 estimated the cost would be less than GBP500m, with only GBP154m coming from public funds. The actual cost was more like GBP3bn, with taxpayers paying about GBP1bn. The cost of the most recent Games in Athens also spiralled from GBP750m to more than GBP3.5bn.
  • The last British Games in London in 1948 relied largely on existing facilities: Wembley stadium, built in 1923, was the centrepiece and many competitors were housed in barracks or schools. The cost was just GBP750,000 - about GBP18m at today's prices.

The key to understanding Olympic finances is the difference between operating costs and capital costs. The Games often make an operating profit, but this is usually outweighted by a much greater capital loss. The article breaks down the costs:

The bid budgets GBP1.5 billion for operating the Games. "It's made up of sponsorship, ticket sales, TV rights and merchandise," said Coe. "Not a penny of this will be drawn from the public purse." Stadiums and transport, however, do not come free. The facilities and links would be funded by GBP2.375 billion of public money, including GBP1.5 billion from the national lottery and GBP550m from London council tax. That, though, is far from the end of the money marathon. The bid relies on billions more being poured into the infrastructure not directly related to the Games. This includes road and rail schemes costing GBP7 billion paid out of general taxation; GBP800m largely from central government for redevelopment of the Lower Lea Valley in east London where the Olympic village would be sited; and GBP650m of private funding for a housing development."

This is why Michael Liebreich, a member of the British team in the 1992 Winter Olympics and now a Harvard-trained financier, is cautious. "We must be honest," he said. "If London did win, it would cost between GBP10 and GBP12 billion to stage the Games, not the GBP5 billion the bid suggests."