By Dennis John, December 2019
Whenever you get an income for your work, you think of it as a reward. So, it pains most people to see their hard-earned money being cruelly stolen away from them, be it in the form of income tax, property tax or National Insurance contributions. But today, I would like to tell you why taxes are vital to the running of society.
So firstly, what is a tax? A tax is a compulsory financial charge levied on an individual to fund various public expenditures by a governmental organization. So why do we need taxes in the first place?
It is important to recognise that taxes serve to carry out many functions, particularly in the UK economy. For example, currently, in the UK, of course, we have the NHS. What this means is that we get free healthcare. Of course, despite many complaints of the NHS’ waiting times and others, it is important to realise that we are fortunate to be provided with such a service in the first place. Just ask any American if you don’t believe me.
Along with this is the importance of public spending. Currently, the UK is considered to have a style of economy mirroring that of a welfare state, which is one with high levels of public spending. The government is the one who spends on vital spending for the infrastructure of our economy. The government is the one who spends on the roads, and public transport, for example. If no taxes were paid, then the UK’s government budget would be considerably smaller than it is in real life today. As a result, the UK government would spend reduced amounts of money on infrastructure, which begs the question of whether the UK economy would really become as advanced as it is today. Because if the UK spends reduced amounts on infrastructure, infrastructure is obviously going to become weaker across the whole of the UK. As a result, there is likely to be an increase in the costs of production for firms, as costs like transport costs are going to increase. Poor roads and public transport would also mean that people would take longer times to get to work, and as a result of this would get more tired by completing their commute, decreasing overall UK productivity levels at work. What this means is that there will be an increase in the cost of producing goods within the UK, and as a result firms are likely to start leaving the UK as it is unprofitable for them to produce goods within the UK. The number of jobs in the UK will crash, so household incomes will decrease, and as a result, the overall standard of living in the UK will fall. This is one of the major reasons to support the use of taxes.
Many people have said that if there is not any corporation tax then firms are likely to stay within the UK. However, then we can see from real-life examples what is likely to happen. In 2015, Irish GDP rose by an incredible rate of 34.4%. However, most of this growth was artificial, and in 2018 the government confirmed that Apple was the source. Leprechaun economics meant that in 2016, Apple executed a USD 300 billion tax inversion of its non-U.S. business to the Republic of Ireland, and at this point, Ireland was recognised as the world's largest tax haven. As a result of this, the Irish economy has been affected in many ways. Leprechaun economics meant that figures on the government's fiscal spending were distorted. GDP was considered to no longer be a suitable measurement of the level of economic growth in the economy, and so in 2017, the government introduced a form of measurement known as modified GNI. Furthermore, there is now a massive reliance of US corporates now, as they pay 80% of corporation tax and employ a quarter of all Irish labour. As a result, the Irish economy can’t really raise their corporation tax rates for fear of multinational companies leaving Ireland.
Another important reason to support the use of taxation is the problem of income and wealth distribution. As of 2019, the UK’s Gini coefficient is 33.1, which puts it in the medium grouping of inequality when compared with the rest of the world. However, the story does not end there. It has been well documented by the press that the UK, and England in particular, has severe regional inequality, with the term “The North-South Divide” coming up very frequent. This is even though many progressive taxes are being collected currently in the UK. A progressive tax is one where the greater your income, the greater the amount you get taxed on, for example, income tax. Tax revenue is partially used to give out benefits payments to the poorest in society. Therefore, a reduction in tax revenue would see a fall in benefits payments. This would mean income inequality in the UK economy would be greater than it currently is today. Inheritance tax also exists currently, which is a tax paid by a person who inherits money or property from a person after they have died. Wealth inequality would be greater in the UK as a result, since the UK economy would experience a lot of rich parents passing on their wealth to their children, while poor people, who are likely to have less assets of their own, passing on less. As a result, it would become a society where people are not given jobs or opportunities on merit or talent, but rather how rich their parents are. This relates to the problem I discussed earlier about the lack of a welfare state if there were no taxes, as there would no longer be free healthcare or education, and as a result, those who can afford more, get the better resources.
As we are talking about this, of course we know that the General Election is taking place soon, with people casting their ballots as I am speaking now. Both main parties, the Conservatives and Labour, have had questions posed to them based on public spending. While the Conservatives have seen barely any reforms in their taxation schedule according to their manifesto, (which has raised many complaints from the public as a continuation of austerity) Labour proposes a staggering increase in taxes, which will be close to £83 billion by 2023-24, with the bulk coming from higher levies on business investment.
After reviewing all the evidence available to us, in my opinion it would not be in the best interests of the UK economy to go tax-free. Despite initial increases in economic growth, it is likely to leave the UK economy in a tough situation in the future. Furthermore, decreases in tax revenue for the government will lead to lower current expenditure on public services, which would result in a fall of the standard of living of UK residents. This is why the UK, in its current state, cannot become a tax-free state.
Comments