tag:theconversation.com,2011:/global/topics/taxation-1425/articlesTaxation – The Conversation2024-01-17T11:22:18Ztag:theconversation.com,2011:article/2209882024-01-17T11:22:18Z2024-01-17T11:22:18ZSelling on Vinted, Etsy or eBay? Here’s what you need to know about paying tax<figure><img src="https://images.theconversation.com/files/569611/original/file-20240116-23-n91qw5.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7360%2C4902&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/woman-taking-picture-her-used-clothes-2179958417">Stock-Asso/Shutterstock</a></span></figcaption></figure><p>If you’ve sold clothes on Vinted or Depop, or something you’ve made on Etsy, you might have been alarmed or confused by <a href="https://www.gov.uk/government/publications/selling-online-and-paying-taxes/selling-online-and-paying-taxes-information-sheet">information recently published</a> by HMRC on paying taxes when selling items online. </p>
<p>It includes the information that from January 1 2024, online sales platforms enabling sales of goods or services – such as eBay, Depop and Vinted – will be required to collect information on the income generated by sellers on those platforms, and pass on this information to HMRC by January 2025.</p>
<p>This is not a new tax. The rules on what counts as taxable income haven’t changed. But it does mean that HMRC will have more information on cases when people selling online should pay tax and don’t. And because this information will also be passed to the person selling, it will be useful information if you need to fill out a self-assessment tax return. </p>
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<img alt="Quarter life, a series by The Conversation" src="https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><strong><a href="https://theconversation.com/uk/topics/quarter-life-117947?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">This article is part of Quarter Life</a></strong>, a series about issues affecting those of us in our twenties and thirties. From the challenges of beginning a career and taking care of our mental health, to the excitement of starting a family, adopting a pet or just making friends as an adult. The articles in this series explore the questions and bring answers as we navigate this turbulent period of life.</p>
<p><em>You may be interested in:</em></p>
<p><em><a href="https://theconversation.com/four-ways-to-tell-the-designer-fashion-items-worth-investing-in-from-the-ones-that-arent-215831">Four ways to tell the designer fashion items worth investing in from the ones that aren’t</a></em></p>
<p><em><a href="https://theconversation.com/is-someone-using-your-pictures-to-catfish-your-rights-when-it-comes-to-fake-profiles-and-social-media-stalking-214418">Is someone using your pictures to catfish? Your rights when it comes to fake profiles and social media stalking</a></em></p>
<p><em><a href="https://theconversation.com/how-to-make-your-clothes-last-longer-its-good-for-your-bank-account-and-the-environment-too-201823">How to make your clothes last longer – it’s good for your bank account and the environment too</a></em></p>
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<p>You may be wondering whether or not you need to pay tax on items you’ve sold. The key point is whether or not you are carrying out a trade. Here are three main questions to ask yourself to figure it out. These apply no matter your age – under 18s can be required to pay tax too.</p>
<h2>1: Am I making or buying the things that I am selling specifically to make a profit?</h2>
<p>You might be selling unwanted personal items, most likely for less than they were bought for, to make space or to recoup some money on something you needed, used, but don’t want any more. This is not carrying out a trade. </p>
<p>But if you bought clothes from thrift stores or made knitted gloves with the intention of then selling them for a profit, for instance, this is a trade, whether you sell the items in a physical shop or through an online platform. You may need to pay income tax. </p>
<h2>2: How much income did I generate in total during the year?</h2>
<p>This applies if you’re carrying out a trade – selling items to make a profit. If the total of all your sales, added up (not how much profit you made, once you take off the cost of materials, or the original cost of something you bought and sold on) is less than £1,000, you don’t have to pay any tax. There is a <a href="https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income">trade allowance</a> of £1,000, meaning that you can earn up to £1,000 without any tax implications. </p>
<p>But if it’s more, you will need to tell HMRC about it by filling out a <a href="https://www.gov.uk/self-assessment-tax-returns">self assessment form</a> and HMRC will consider what other income you earn to decide whether there is any tax to pay.</p>
<h2>3: Did I sell any item for more than £6,000?</h2>
<p>Even if you’re not carrying out a trade and so don’t have to pay income tax, you might still need to consider <a href="https://www.gov.uk/capital-gains-tax">capital gains tax</a>. In the UK, in addition to tax on our income, we are also required to pay tax when we sell a significant item for more than we paid for it. </p>
<p>If you sold something for more than £6,000, and sold it for more than you paid for it, then this is a separate declaration to HMRC. Again, there is no change to the regulations, and if you sold items for less than you paid for them, you do not have to pay tax. But if you inherited a vase that turned out to be an antique and you sold it on eBay for more than £6,000, for instance, you will have to declare this income. </p>
<h2>Paying tax</h2>
<p>If you made money through trade or by selling something of high value in the financial year which ran from April 2022 to April 2023, you will need to fill out your tax return and pay any outstanding tax by January 31 2024.</p>
<p>If you think you might have to pay tax, or you are worried or unsure, the <a href="https://www.gov.uk/government/publications/selling-online-and-paying-taxes/selling-online-and-paying-taxes-information-sheet">HMRC guidelines</a> may help you. There is also an <a href="https://www.gov.uk/check-additional-income-tax">online tool</a> which asks a series of questions to help you clarify your next steps.</p>
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<p>There is no new requirement for people selling online to pay tax. Anyone selling items online for profit with an income of over £1,000 should already be declaring this income to HMRC. But this new collection of information has sparked widespread anxiety and <a href="https://www.independent.co.uk/life-style/hmrc-tax-side-hustle-online-sellers-ebay-b2474542.html">significant media coverage</a>. </p>
<p>Perhaps you didn’t realise that you might have to pay tax. But we also have a <a href="https://www.sciencedirect.com/science/article/abs/pii/S0167487012000372?casa_token=FJEuNC5ti_4AAAAA:4sGNGwzW2HbL8c52ceQuEjoZqn9zh7uN4qsfTOBMJM8NTxcLpq1fr4PGY241rtPv8LSRXVgU">complex relationship</a> with our requirement to pay tax – between our natural selfishness and our desire to live in a fair society. Paying tax can feel like losing money, but that money goes towards supporting our society.</p>
<p>Fundamentally, the collection of this sales data has been positioned by HMRC as beneficial to those preparing their tax returns, to ensure that earned income (or capital gain) is appropriately taxed. If we trade from a shop front or via an app, we should be taxed in the same way and on the same basis – what could be fairer than that?</p><img src="https://counter.theconversation.com/content/220988/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Tyler does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The rules on what counts as taxable income haven’t changed.Richard Tyler, Senior Professional Tutor in Accounting and Finance, Liverpool Hope UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2063882023-06-06T16:12:19Z2023-06-06T16:12:19ZWhy we need to rewrite the script on corporate taxes<figure><img src="https://images.theconversation.com/files/530084/original/file-20230605-25-p7n0ak.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5184%2C3430&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The United Conservative Party demonized the NDP's proposals for a corporate tax rate increase during the recent provincial election campaign. But Calgary-based energy companies and other corporations have capitalized on tax rate decreases, firing workers instead of investing in them. </span> <span class="attribution"><span class="source">(Samson/Unsplash)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/why-we-need-to-rewrite-the-script-on-corporate-taxes" width="100%" height="400"></iframe>
<p>During the provincial election campaign in Alberta, the <a href="https://calgaryherald.com/news/politics/alberta-election-2023-live-updates-may-17">United Conservative Party (UCP) frequently criticized the NDP</a> for its proposed increase in the corporate tax rate from <a href="https://edmontonjournal.com/business/ndp-releases-costed-platform">eight per cent to 11 per cent</a>. </p>
<p>UCP candidate Brian Jean said <a href="https://globalnews.ca/news/9702907/ndp-economic-plan-kill-jobs-ucp/">the proposed NDP corporate tax increase would kill investment, jobs and economic growth</a> in Alberta. But University of Calgary economist Trevor Tombe <a href="https://edmontonjournal.com/business/ndp-releases-costed-platform">has argued an increased tax rate won’t necessarily erode employment</a> and that the impact would depend on how much the tax base shrinks in response to the higher rate.</p>
<p>By way of background, when the UCP came to power in 2019, it reduced the corporate tax rate from <a href="https://www.alberta.ca/taxes-levies-overview.aspx">12 per cent to eight per cent</a> in 2020 with the onset of the COVID-19 pandemic. </p>
<p>Consequently, <a href="https://www.cbc.ca/news/business/husky-kenney-sask-nfld-alta-alberta-1.5335823">Husky Energy</a> benefited from about $233 million in tax cuts, but laid off hundreds of workers. The company <a href="https://www.taxfairness.ca/sites/default/files/2022-07/canadians_for_tax_fairness_top_tax_havens_report_july_2020.pdf">used Luxembourg</a> as a tax haven. </p>
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<p>Likewise, <a href="https://www.cbc.ca/news/canada/calgary/oilsands-companies-boost-q2-net-incomes-by-2-billion-thanks-to-alberta-tax-cuts-1.5225041">Cenovus</a> saved $658 million from the tax cut but announced it would eliminate up to <a href="https://energynl.ca/2021/01/calgary-based-cenovus-energy-to-lay-off-upward-of-2000-workers/">2,150 jobs</a>.</p>
<p>This suggests that the script on corporate taxes needs to be rewritten. To borrow from economics Nobel Laureate Paul Krugman, such a script rests on <a href="https://doi.org/10.4337/ejeep.2022.01.12">“zombie ideas”</a> that pander to corporate interests, harm the public interest and refuse to die. </p>
<h2>Excludes citizens</h2>
<p>The public shouldn’t have to delve into the technical aspects of taxation to participate democratically on the issue of corporate taxes. According to the authors of <a href="https://doi.org/10.1080/05775132.2022.2156183"><em>The Econocracy</em></a>, the highly technical jargon of economics discourages citizen participation. But they argue economics are “too important to be left to the experts.” </p>
<p>Similarly, University of Cambridge economist <a href="https://www.theguardian.com/books/2010/aug/29/ha-joon-chang-23-things">Ha-Joon Chang</a> has argued that “good economic policy does not require good economists.” He adds that economics as it has been practised since the 1980s — in short, neoliberalism based on tax cuts, deregulation and liberalization — has been harmful. </p>
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Read more:
<a href="https://theconversation.com/what-exactly-is-neoliberalism-84755">What exactly is neoliberalism?</a>
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<p>This means that standard economics, while couched in sophisticated mathematical jargon, is based on a subjective world view. I noticed this in my work on <a href="https://doi.org/10.1504/IJPEE.2022.127215">teaching economic inequality</a>, a topic that’s not usually addressed in a routine Economics 101 course.</p>
<p>On the one hand, there is <a href="https://www.policyschool.ca/wp-content/uploads/2017/04/Corporate-Tax-McKenzie-Ferede1.pdf">standard research</a> that suggests that the cost of raising corporate taxes is borne by labour through wage reductions, and that <a href="https://www.policyschool.ca/wp-content/uploads/2019/09/Canada-CIT-Dahlby-Ferede.pdf">reducing provincial corporate tax rates </a> increases the growth rate and real per capita GDP. </p>
<p>But there’s also <a href="https://policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2015/11/Do_Corporate_Income_Tax_Rate_Reductions.pdf">a signficant body of research that indicates corporate tax cuts are associated</a> <a href="https://doi.org/10.1016/j.euroecorev.2022.104157">with lower investment levels</a> as large corporations stockpile cash — <a href="https://www.taxfairness.ca/en/resources/reports/corporations-making-record-profits-pandemic">used for</a> share buybacks, dividend payouts and higher CEO pay — instead of expanding industrial projects and employment. </p>
<p>These findings highlight that the post-1980s decades of corporate tax cuts are associated with anemic GDP and employment growth.</p>
<h2>Income inequality worsens</h2>
<p>Since the mid-1990s, <a href="https://policyalternatives.ca/newsroom/updates/income-inequality-canada-rising-faster-us">inequality has grown faster in Canada than the United States</a>. Canada’s <a href="https://publications.gc.ca/collections/collection_2016/dpb-pbo/YN5-90-2015-eng.pdf">tax-and-transfer system</a>, which relies on taxing income and providing Employment Insurance and other benefits, isn’t reducing inequality as much as it did before the mid-‘90s. </p>
<p>Specifically, despite increases in worker productivity, average real wages <a href="https://www.theglobeandmail.com/investing/personal-finance/retirement/article-real-wage-growth-stagnation-retirement/">have stagnated</a> while corporate profits have skyrocketed. </p>
<p>This inequality <a href="https://www.broadbentinstitute.ca/the_case_for_a_wealth_tax_in_canada">manifests through</a> middle-class household debt and significant personal savings of CEOs. A <a href="https://www.cbc.ca/news/business/canada-richest-ceo-average-salary-1.6701407">recent report</a> indicates that while an average worker’s salary was $58,800, the top 100 CEOs obtained an average compensation of $14.3 million. This means a top CEO makes 243 times the average worker’s salary in Canada.</p>
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<img alt="A homeless person's tent sits outside a tennis court where a man plays tennis." src="https://images.theconversation.com/files/530089/original/file-20230605-19-grgl25.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/530089/original/file-20230605-19-grgl25.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/530089/original/file-20230605-19-grgl25.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/530089/original/file-20230605-19-grgl25.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/530089/original/file-20230605-19-grgl25.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/530089/original/file-20230605-19-grgl25.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/530089/original/file-20230605-19-grgl25.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A man plays tennis next to a homeless encampment in Toronto in September 2020.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Chris Young</span></span>
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<p>Canadian economists like <a href="https://policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2015/10/How_Much_Tax_Could_Canadas_Top_1_Pay.pdf">Lars Osberg</a> and <a href="https://irpp.org/wp-content/uploads/2017/02/aots5-intro.pdf">David Green</a> argue that higher CEO compensation comes at the expense of other workers’ income. What’s more, higher top tax rates would dissuade CEOs from extracting a bigger salary since they’d have to pay higher taxes.</p>
<p>This viewpoint parallels that of economics Nobel laureate <a href="https://www.thehindu.com/news/national/abhijit-banerjee-interview-government-should-reverse-cuts-on-corporate-taxes-expand-pm-kisan-to-include-landless-labourers/article61972451.ece">Abhijit Banerjee</a>, who argues that governments should reverse corporate tax cuts. Likewise, other <a href="https://eml.berkeley.edu/%7Esaez/CSZ2021.pdf">U.S. academics</a> have proposed plans to end corporate tax evasion. </p>
<h2>Risks overblown</h2>
<p>According to Osberg, the risk of corporations leaving juridictions because of higher taxes are overblown. <a href="https://policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2015/10/How_Much_Tax_Could_Canadas_Top_1_Pay.pdf">He argues</a> that rich entrepreneurs shift to places with excellent public services including “pothole-free roads, nice parks and crime-free public spaces.” </p>
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<img alt="A tall grey stone building with an American flag." src="https://images.theconversation.com/files/530090/original/file-20230605-27-qho4uk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/530090/original/file-20230605-27-qho4uk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/530090/original/file-20230605-27-qho4uk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/530090/original/file-20230605-27-qho4uk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/530090/original/file-20230605-27-qho4uk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/530090/original/file-20230605-27-qho4uk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/530090/original/file-20230605-27-qho4uk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The New York Stock Exchange is seen in New York in May 2023. (AP Photo/Seth Wenig)</span>
<span class="attribution"><span class="source">(AP Photo/Seth Wenig)</span></span>
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<p>He points to New York and California, <a href="https://www.thebalancemoney.com/best-and-worst-states-for-business-3193240#:%7E:text=New%20York%20has%20the%20third,rates%20at%208.84%25%20for%20corporations.">which have among the highest corporate tax rates in the U.S.</a> yet a heavy corporate presence with Wall Street and Silicon Valley respectively.</p>
<p>In terms of the impact on the tax base, Osberg argues that the response of high earners to changes in the top tax rates is small because the importance of relative income, social standing and having high-status goods keeps them motivated to work hard. </p>
<p>Other influential academics in the U.S. have pushed a consensus viewpoint on combating inequality, arguing that economists <a href="https://doi.org/10.4337/ejeep.2022.02.09">should be at the forefront of tackling the wealth gap instead of making the usual naysaying arguments that these efforts aren’t affordable or that there’s no evidence to support taking action</a>. </p>
<p>It’s time to rewrite the script on corporate taxes. There is a multitude of evidence that shows raising corporate taxes can combat economic inequality, one of the most important issues of our times apart from climate change. </p>
<p>Doing so would empower citizens to fully participate in democracy.</p><img src="https://counter.theconversation.com/content/206388/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>I have in the past done research assistance work for the Parkland Institute. </span></em></p>The conventional narrative on corporate tax increases relies on ‘zombie ideas’ that pander to corporate interests, harm the public interest and refuse to die.Junaid B. Jahangir, Associate Professor, Economics, MacEwan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2038142023-05-14T11:19:12Z2023-05-14T11:19:12ZTaxing the wealthy to the hilt would make us all much better off<figure><img src="https://images.theconversation.com/files/524960/original/file-20230508-221323-dokyrv.jpg?ixlib=rb-1.1.0&rect=0%2C166%2C5044%2C2778&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Levying substantial taxes on the super-rich would lead to far more societal benefits than harms. What's taking us so long?</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/taxing-the-wealthy-to-the-hilt-would-make-us-all-much-better-off" width="100%" height="400"></iframe>
<p>In Canada today, one person — media magnate David Thomson — possesses roughly <a href="https://www.forbes.com/profile/david-thomson/?sh=200798055628">CA$73 billion</a> while <a href="https://www150.statcan.gc.ca/n1/pub/82-003-x/2021001/article/00002-eng.htm">more than 235,000 people are homeless</a>. In Toronto alone, <a href="https://www.toronto.ca/news/toronto-public-health-releases-2022-data-for-deaths-of-people-experiencing-homelessness/">187 homeless people died</a> on the streets in 2022.</p>
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<img alt="A shaggy-haired blonde man with a microphone in front of him." src="https://images.theconversation.com/files/524993/original/file-20230508-242259-mfeiu4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/524993/original/file-20230508-242259-mfeiu4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/524993/original/file-20230508-242259-mfeiu4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/524993/original/file-20230508-242259-mfeiu4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/524993/original/file-20230508-242259-mfeiu4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/524993/original/file-20230508-242259-mfeiu4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/524993/original/file-20230508-242259-mfeiu4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">David Thomson answers questions during a news conference in Winnipeg in 2011.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/David Lipnowski</span></span>
</figcaption>
</figure>
<p>What can be done to address these kinds of disparities?</p>
<p>Though most people naturally dislike inequality, <a href="https://www.bostonreview.net/forum_response/karl-smith-wealth-tax-will-hurt-economy-not-help/">it’s often argued that raising taxes on the rich</a> will do more harm than good by damaging incentives and investment, thereby slowing economic growth and ultimately hurting us all.</p>
<p>“Given five fat sheep and ninety-five thin, how [to] induce the ninety-five to resign to the five the richest pasture and shadiest corners?” the famous British philosopher <a href="https://archive.org/details/in.ernet.dli.2015.275419/mode/2up">R.H. Tawney</a> once asked. He continued: </p>
<blockquote>
<p>“By convincing them, obviously, that, if they do not, they will die of rot, be eaten by wolves, and be deprived in the meantime of such pasture as they have. Nor, indeed, hitherto has it been difficult to convince them, for there is nothing which frightens thin sheep like the fear of being thinner.”</p>
</blockquote>
<p>But is it really true that high taxes — even very high ones — are detrimental to societal well-being?</p>
<p>The last few years have witnessed an explosion of new evidence from economists, sociologists, political scientists and ecologists that suggests they’re not.</p>
<h2>Exaggerated concerns</h2>
<p>It’s accurate that high taxes on the wealthy bring real risks. But in general, the downsides are highly overblown. </p>
<p>For instance, a common worry is that rich people will respond to high taxes by working less. But there’s essentially <a href="https://www.aeaweb.org/articles?id=10.1257/jel.50.1.3">zero empirical support</a> for this claim. In fact, there is now close to consensus among researchers that while the rich do frequently try to avoid taxes, <a href="http://dx.doi.org/10.2139/ssrn.1136210">they don’t do so by working less</a>.</p>
<p>The most serious potential cost of high taxes is the reduction of private investment. This is <a href="https://www.nber.org/papers/w6374">definitely possible</a>.</p>
<p>But the key point to keep in mind is that such a reduction is only half the picture. It’s wrong to think of taxes as simply reducing investment, because states do not simply collect taxes — they also spend them.</p>
<p>Therefore it’s more accurate to regard taxes not as reducing investment but as rearranging it — from the private sector to the public. </p>
<figure class="align-center ">
<img alt="A sign reads Burn Capitalism during a protest. A woman wearing a mask stands next to the sign." src="https://images.theconversation.com/files/524955/original/file-20230508-266123-6zjfix.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/524955/original/file-20230508-266123-6zjfix.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/524955/original/file-20230508-266123-6zjfix.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/524955/original/file-20230508-266123-6zjfix.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/524955/original/file-20230508-266123-6zjfix.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/524955/original/file-20230508-266123-6zjfix.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/524955/original/file-20230508-266123-6zjfix.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">An environmental group takes part in a three-day demonstration against what they call France’s inaction on climate issues in Paris in April 2022.</span>
<span class="attribution"><span class="source">(AP Photo/Francois Mori)</span></span>
</figcaption>
</figure>
<p>Whether this is a good or bad thing depends entirely on the details. In many cases, levying high taxes on the rich will mean money is no longer invested in foreign stock markets or spent on unproductive things like private jets and multiple mansions, but is rather spent on productivity-enhancing entities like schools, hospitals, roads, public research grants and so on.</p>
<p>Indeed, <a href="https://doi.org/10.1007/s10887-017-9150-2">critical research</a> shows that, all things considered, high inequality actually tends to reduce an economy’s overall growth rate.</p>
<p>The most sensible and cautious conclusion is that high taxes — very high taxes, in particular — could somewhat reduce economic growth, but these costs are likely to be only mild or moderate.</p>
<p>What about the other side of the ledger? What are the social and economic benefits from high taxes and reduced inequality? In my book <a href="https://global.oup.com/academic/product/against-inequality-9780197670408?cc=us&lang=en&"><em>Against Inequality: The Practical and Ethical Case for Abolishing the Superrich</em></a>, I note that five stand out:</p>
<h2>1. The environment</h2>
<p>It’s well-known that <a href="https://www.ledevoir.com/documents/pdf/chancelpiketty2015.pdf">the rich emit far more</a> carbon than the rest of us. <a href="https://oxfamilibrary.openrepository.com/bitstream/handle/10546/621341/bp-inequality-kills-170122-en.pdf">The wealthiest 20 people in the world emit 8,000 times more carbon than the poorest billion people on Earth combined</a>. </p>
<p>So imposing high taxes on the rich would be doubly effective from an environmental perspective. It would directly reduce the copious emissions of the rich. And it would provide the necessary resources to build the new <a href="https://www.versobooks.com/en-ca/products/2546-a-planet-to-win">low-carbon infrastructure</a> — including public transit, green energy grids, etc. — that we desperately need. That would indirectly help the rest of us reduce our emissions too.</p>
<h2>2. Our democracy</h2>
<p>The evidence is overwhelming that <a href="https://www.journals.uchicago.edu/doi/pdf/10.1086/714930?casa_token=Y28Akco8IIYAAAAA:L1uApOgMwzDv2W_IFi5pioNLRqaF5LX4yujtPuj56-ZO-yqWrv5f3HJBMQiW4gbUjpZy0GI2wv9L">inequality erodes democracy</a>. For instance, American scholars <a href="https://doi.org/10.1017/S1537592714001595">Martin Gilens and Benjamin Page examined</a> 1,779 public policy debates between 1981 and 2002 to see whose voices actually mattered in deciding important issues.</p>
<p>They found that:</p>
<blockquote>
<p>“The majority does not rule — at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites or with organized interests, they generally lose.”</p>
</blockquote>
<p>Such evidence demonstrates that significant inequality can actually break a democracy, transforming it into oligarchy, <a href="https://www.thenation.com/article/society/cbo-american-wealth-inequality/">as has arguably already transpired in the United States.</a></p>
<h2>3. Opportunity for all</h2>
<p>Inequality makes a mockery of the cherished aspiration of equal opportunity. To take one particularly egregious example, the poorest residents of Chicago today face a life expectancy <a href="https://www.theguardian.com/us-news/2019/jun/23/chicago-latest-news-life-expectancy-rich-poor-inequality">30 years shorter</a> than their richer neighbours down the street. </p>
<p>High redistributive taxes could reverse this most brutal of disparities. </p>
<p>We also know that countries with more equality <a href="https://www.aeaweb.org/articles?id=10.1257/jep.27.3.79">tend to have greater social mobility too</a>.</p>
<p>Richard Wilkinson, the famous British epidemiologist and inequalities scholar, <a href="https://www.ted.com/talks/richard_wilkinson_how_economic_inequality_harms_societies">likes to quip</a> that if Americans want to live the American dream and not just dream it, they should move to high-tax Denmark.</p>
<h2>4. Reduced xenophobia and racism</h2>
<p>Though right-wing populism has many complex causes, <a href="https://doi.org/10.1111/spsr.12332">research clearly demonstrates</a> that one of its main drivers is economic insecurity. That’s likely because insecurity increases fear that one’s already precarious position will be worsened by competition from “immigrants” and “others.”</p>
<p>The evidence shows that right-wing populism <a href="https://doi.org/10.1111/jcms.12310">can be effectively reduced</a> by enhancing economic security — for instance by taxing the rich to fund free public services — a stronger safety net and perhaps even a guaranteed basic income. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/a-guaranteed-basic-income-could-end-poverty-so-why-isnt-it-happening-182638">A guaranteed basic income could end poverty, so why isn’t it happening?</a>
</strong>
</em>
</p>
<hr>
<p>As <a href="https://www.france24.com/en/europe/20230508-french-police-under-fire-for-allowing-neo-nazi-rally-in-paris-on-ve-day">neo-Nazis once again march</a> in the streets, <a href="https://www.splcenter.org/news/2019/02/19/hate-groups-reach-record-high">hate crimes rise</a>, far-right political parties receive <a href="https://www.bloomberg.com/graphics/2017-europe-populist-right/">more public support</a> than any time since the 1930s, the benefits of reducing such terrifying threats are hard to overstate.</p>
<h2>5. Reduced social friction</h2>
<p>Reducing inequality also builds <a href="https://doi.org/10.1016/j.rssm.2012.06.002">community health and cohesion</a>. </p>
<p>It encourages greater levels of <a href="https://doi.org/10.1016/j.socscimed.2011.03.046">agreeableness</a> and <a href="https://doi.org/10.1111/j.1540-5907.2008.00352.x">tolerance</a>, better <a href="https://doi.org/10.1002/wps.20492">mental health</a> and <a href="https://www.longdom.org/open-access/income-inequality-and-crime-a-review-and-explanation-of-the-timeseries-evidence-2375-4435.1000103.pdf">reduces crime</a>. </p>
<p>All in all, the costs of high taxes and low inequality are likely to be only moderate. But the benefits are truly enormous — a different order of magnitude entirely.</p><img src="https://counter.theconversation.com/content/203814/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tom Malleson has received funding from the Social Sciences and Humanities Research Council. </span></em></p>The costs of high taxes on the rich are likely only to be moderate. But the democratic, environmental, and health benefits are truly enormous and could transform society and dramatically.Tom Malleson, Associate Professor of Social Justice & Peace Studies, Western UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2037072023-04-13T19:26:32Z2023-04-13T19:26:32ZWhy is Tax Day on April 18 this year? And how did early spring become tax season, anyhow?<figure><img src="https://images.theconversation.com/files/520926/original/file-20230413-28-prjdsv.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4000%2C2646&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A red-letter day? Hardly!</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/tax-payment-day-marked-on-a-calendar-april-18-2023-royalty-free-image/1461423007?phrase=tax%20deadline%202023&adppopup=true">iStock / Getty Images Plus</a></span></figcaption></figure><p>Mid-April has arrived. And along with the spring sunshine, that means the often dreaded civic duty of finishing off one’s taxes.</p>
<p>It’s an arduous time for many, characterized by navigating increasingly confusing rules to arrive at the best refund possible. For some, it means <a href="https://theconversation.com/i-tried-to-pay-my-taxes-in-cash-heres-what-happened-and-why-the-irs-should-make-it-easier-to-do-so-203282">writing a check</a> to the federal government. Not fun.</p>
<p>On a brighter note, the tax deadline has been pushed back to April 18 this year, giving those leaving it to the last minute a few extra days. Usually, the day falls on April 15.</p>
<p>But why is Tax Day in April anyway? Well, it hasn’t always been.</p>
<p>The federal individual income tax was permanently enacted by the <a href="https://www.reaganlibrary.gov/constitutional-amendments-amendment-16-income-taxes#:%7E:text=The%20Congress%20shall%20have%20power,to%20any%20census%20or%20enumeration.">16th Amendment in 1913</a>. Before that, the only federal individual income tax that existed was in place for <a href="https://guides.loc.gov/this-month-in-business-history/april/tax-day">about a decade beginning in 1861 to ease the financial burden of the Civil War</a> on the government.</p>
<h2>Extending the deadline</h2>
<p>The tradition of filing tax returns in early spring has historically been a practical one. Since individual tax returns encompass a calendar year, Congress sought to allow time for individuals to fully account for all of their income, deductions and credits.</p>
<p>The original due date for individual income tax returns was March 1, just over a year following the adoption of the 16th Amendment on Feb. 3, 1913.</p>
<p>Back then, not many taxpayers needed to file a tax return, since the filing requirement applied only to <a href="https://www.crf-usa.org/bill-of-rights-in-action/bria-11-3-b-the-income-tax-amendment-most-thought-it-was-a-great-idea-in-1913.html">single filers with income over US$3,000</a> and married filers with income over $4,000 – about $90,000 and $120,000 in today’s dollars, respectively.</p>
<p>In 1914, this threshold represented approximately the top 4% of earners, so filing a tax return was a burden reserved for the wealthy.</p>
<p>Quickly realizing that many taxpayers needed more time to complete their returns, Congress pushed the tax deadline back to March 15, effective in 1919.</p>
<p>And on that date Tax Day stood for over 30 years. </p>
<p>But with more taxpayers needing to file returns <a href="https://www.irs.gov/pub/irs-soi/02inpetr.pdf">as the filing threshold declined</a> and the tax laws grew in complexity, Americans needed even more time to correctly complete their returns.</p>
<p>So in 1954, Congress overhauled the tax system and adopted a major revision to the <a href="https://www.census.gov/history/www/reference/privacy_confidentiality/title_26_us_code_1.html">Internal Revenue Code</a>.</p>
<p>This change also came with another extension of the tax deadline for individuals, pushing the due date back again to the familiar April 15.</p>
<p>The intent of giving taxpayers an extra month to prepare their returns was to allow more people the ability to file on time – and often get refunds more quickly. Not only did this change assist taxpayers, but it also allowed the Internal Revenue Service <a href="https://taxprof.typepad.com/taxprof_blog/2017/04/weekly-tax-highlight-and-roundup-1.html">more time to spread out its workload</a>.</p>
<p>The April 15 deadline proved to be a more reasonable deadline, and it has stuck with U.S. taxpayers for almost 70 years.</p>
<p>Since 1955, the IRS has established earlier due dates for many information returns that provide numbers feeding into Form 1040, such as Forms 1099 and W-2, both of which are due Jan. 31, to ensure that most taxpayers are able to file by Tax Day.</p>
<p>In 2016, the IRS pushed the due date of <a href="https://www.journalofaccountancy.com/news/2015/jul/tax-return-due-dates-changed-201512746.html">other returns forward a month to March 15</a>, again in an effort to allow more individuals to timely file.</p>
<h2>So why later this year?</h2>
<p>The mid-April date seems to work for the majority of taxpayers – in most years, anyhow. According to the IRS, <a href="https://www.irs.gov/statistics/filing-season-statistics">about 90% of taxpayers</a> were able to file their returns by the deadline in 2021, with the other 10% requesting <a href="https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return#:%7E:text=Individual%20tax%20filers%2C%20regardless%20of,until%20the%20next%20business%20day.">a six-month extension to file</a>.</p>
<p>But for the tax year 2022, <a href="https://www.forbes.com/advisor/taxes/how-to-file-a-tax-extension-with-the-irs/#:%7E:text=Millions%20of%20Americans%20file%20federal,season%2C%20according%20to%20the%20IRS.">about 19 million taxpayers extended their returns</a>, a significant increase from prior years due to the increased complexity of the tax code brought on by temporary provisions relating to the COVID-19 pandemic.</p>
<p>So why is Tax Day this year April 18 instead of April 15?</p>
<p>Any time a deadline falls on a Saturday or Sunday, the IRS pushes the due date to the following Monday, which would be April 17, 2023. However, any federal holiday also pushes the date back by a day. Since <a href="https://emancipation.dc.gov/#:%7E:text=It%20is%20this%20legislation%2C%20and,April%2016%2C%20DC%20Emancipation%20Day.">Emancipation Day, which usually falls on April 16</a>, is observed in Washington, D.C., on April 17 this year, Tax Day was pushed back an additional day to Tuesday, April 18, 2023.</p>
<p>While having a tax deadline of April 18 happens only about every six years, the IRS occasionally pushes back the filing deadline for emergency situations like natural disasters, although these are often local. For example, the IRS extended the original due date of individual tax returns in disaster areas in <a href="https://tax.thomsonreuters.com/news/california-alabama-georgia-may-15-disaster-relief-deadline-extended-to-october-16/">Alabama, California and Georgia until Oct. 16, 2023</a>. Similarly, the IRS pushed the national deadline <a href="https://www.irs.gov/newsroom/payment-deadline-extended-to-july-15-2020">back to July 15, 2020</a>, in the early stages of the COVID-19 pandemic.</p>
<p>So use your extra days of tax preparation time wisely in 2023 and be sure to file your individual income tax return, or request an extension to file by April 18.</p>
<p>Although this time of year can often be <a href="https://www.cnn.com/2019/04/12/health/tax-day-money-stress/index.html">stressful and confusing because of complicated tax laws</a>, it will be over soon enough.</p><img src="https://counter.theconversation.com/content/203707/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thomas Godwin does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The federal government wanted to give taxpayers a couple months to prepare the year’s taxes. But as filing became more complex, the date was pushed back.Thomas Godwin, Assistant Professor of Accounting, Purdue UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2036162023-04-13T12:24:02Z2023-04-13T12:24:02ZAmericans spend more time and money filing their taxes than residents of other countries — but there are some benefits to a complex tax code<figure><img src="https://images.theconversation.com/files/520568/original/file-20230412-22-xymmgt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The average U.S. taxpayer spends 13 hours filing their return.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/forms-royalty-free-image/109504675">Mehmed Zelkovic/Moment Collection/Getty Images</a></span></figcaption></figure><p>Tax Day falls on April 18 in 2023. But if you’re one of the <a href="https://www.irs.gov/pub/irs-utl/filing-season-statistics-2009-to-current-year.csv">20%-25% of Americans</a> who wait until the last minute to file, don’t panic – you still have time.</p>
<p>The IRS estimates that the average taxpayer spends <a href="https://www.irs.gov/pub/irs-pdf/i1040gi.pdf">13 hours</a> to complete their return. If you own a business, the estimate increases to <a href="https://www.irs.gov/pub/irs-pdf/i1040gi.pdf">25 hours</a>. That said, filing can be tricky.</p>
<p>As <a href="https://scholar.google.com/citations?user=9MFrZwUAAAAJ&hl=en">accounting</a> <a href="https://scholar.google.com/citations?user=kR0qeI4AAAAJ&hl=en&oi=ao">professors</a> and hosts of the podcast “<a href="https://www.taxes-for-the-masses.com">Taxes for the Masses</a>,” we know the U.S. tax system is more complex than many other countries. That complexity, however, has benefits as well as drawbacks.</p>
<h2>Simpler tax systems abroad</h2>
<p>Although the U.S. income tax system asks individuals to devote their time to complete a tax return each year – or pay someone to do it for you – dozens of countries have found another way. </p>
<p>Some nations, <a href="https://www.taxpolicycenter.org/briefing-book/what-other-countries-use-return-free-filing">such as the U.K.</a>, offer return-free systems where taxpayers have the exact correct amount of income tax withheld from their earnings during the year. </p>
<p>Other countries, <a href="https://www.oecd.org/tax/administration/36280368.pdf">such as Denmark and Spain</a>, offer tax reconciliation systems whereby the tax authority fills out the return for the taxpayer using information from third parties, such as employers and banks, with knowledge of your financial goings-on. All the taxpayer must do is review the form and submit any corrections. These systems shift the costs of determining one’s tax bill – currently estimated to be over <a href="https://www.gsa.gov/cdnstatic/54121D%20Tax%20Preparation%20Services%20in%20the%20US%20Industry%20Report.pdf">US$11 billion</a> a year in the U.S. – <a href="https://www.jstor.org/stable/40913156">from taxpayers to the government</a>. </p>
<p>The goal of return-free and tax reconciliation systems is to withhold the exact right amount of tax during the year so there’s no need to true up these amounts to the actual tax liability. So why can’t the U.S. do something similar? Well, exact withholding is easiest to do when the tax code is simple. And the U.S. tax code is not simple.</p>
<p>In fact, when the Treasury Department reported to Congress in 2003 on the feasibility of a return-free system in the U.S., the report was titled <a href="https://home.treasury.gov/system/files/131/Report-Return-Free-2003.pdf">Tax Simplification is a Prerequisite</a>.</p>
<h2>What makes the US system so complex?</h2>
<p>A simpler system taxes each individual separately. The U.S., however, taxes single individuals and married couples differently. This approach makes it difficult to withhold the right amount of tax because the applicable tax rate depends on more than just your income. It includes, for example, that of your spouse, which your bank or employer may not know.</p>
<p>A simpler system would also have flat or fewer tax rates. Instead, the U.S. has numerous tax brackets, with the goal of ensuring that higher earners pay higher rates of income tax. Although progressive rate structures like this <a href="https://us.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/tax-policy-concept-statement-no-1-global.pdf">are aimed at fairness</a>, in that those who can afford to pay more do pay more, this type of tax system adds complexity. </p>
<p>Other countries retain progressive systems with fewer tax brackets. For example, the U.K. currently has <a href="https://www.gov.uk/income-tax-rates">four tax brackets</a>, compared with <a href="https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022">seven in the U.S</a>.</p>
<p>The U.S. also has different rates for ordinary income such as wages versus income such as dividends and capital gains, which are typically taxed at lower rates – in part to spur investment and also because investment income has arguably already been taxed. But the U.S. system adds complexity because capital gains on investments held for less than a year and some dividends are not taxed at preferential rates. These different rates – from different levels and types of income – reduce the chances of getting withholding right. </p>
<p>The U.S. system also adds complexity with the <a href="https://www.irs.gov/credits-deductions-for-individuals">sheer number of deductions and credits</a> available to taxpayers. Deductions reduce the amount of taxable income you have, thereby reducing your tax liability. Say a single individual has $80,000 of wage income and $15,000 of deductions. Their taxable income is $65,000. At 2022 rates, their tax liability is $9,617. Those $15,000 of deductions saved them $3,300 in taxes. </p>
<p>Fortunately, there are a lot deductions. Unfortunately, taxpayers often have to jump through hoops to qualify. You can deduct <a href="https://www.irs.gov/taxtopics/tc419">gambling losses</a> but only if you have gambling winnings, <a href="https://www.irs.gov/taxtopics/tc503">state income taxes</a> but only up to $10,000 each year, and <a href="https://www.irs.gov/taxtopics/tc456">student loan interest</a> but only if you make less than $85,000 or $175,000, depending on your marital status. </p>
<p>Further, these deductions come in different flavors: “above-the-line” deductions and “below-the-line” deductions, which themselves come in two flavors – itemized and standard. Taxpayers itemize deductions only if those amounts exceed the standard deduction. That means you might spend several hours tallying receipts for <a href="https://theconversation.com/whats-the-charitable-deduction-an-economist-explains-162647">itemized charitable donations</a> only to find you can’t deduct any of them because the total is less than your standard deduction. </p>
<p>Credits are another valuable element of the tax system because they reduce your tax liability dollar for dollar. Let’s go back to our single taxpayer with $65,000 in taxable income and a $9,617 tax liability before credits. A $1,000 credit – say for higher education or renewable energy – reduces their tax liability to $8,617. But credits also add complexity because they can be reduced as your income increases, and they can have extensive eligibility requirements.</p>
<h2>Benefits of a complex system</h2>
<p>One benefit of all this complexity is that it gives the tax system flexibility to provide economic stimulus and other responses to current events, like a global pandemic. For example, Congress allowed taxpayers to receive <a href="https://theconversation.com/a-300-charitable-deduction-explained-138247">guaranteed tax benefits</a> for some <a href="https://taxfoundation.org/charitable-deduction-tax-incentives/">charitable contributions</a> made during the pandemic as above-the-line deductions, instead of the usual requirement that taxpayers first determine whether they could itemize the charitable contribution as a below-the-line deduction. </p>
<p>Even if the U.S. could drastically simplify its tax system, a return-free or tax reconciliation system comes with its own problems. Transitioning would require a significant investment in IRS resources, and although in 2022 Congress passed an <a href="https://www.cbo.gov/publication/57444">$80 billion boost to IRS funding</a> over the next 10 years, much of this amount is needed to shore up the current system. </p>
<p>And estimates suggest that, at best, a return-free or tax reconciliation system in the U.S. would work for only <a href="https://www.taxpolicycenter.org/briefing-book/what-are-benefits-return-free-filing">62 million taxpayers</a>, meaning the majority of U.S. taxpayers would still have to complete a tax return because the withholding or pre-populated return wouldn’t be right. </p>
<p>Meanwhile, a simpler tax system potentially makes it more difficult for Congress to use tax policy to stimulate the economy or encourage certain desirable behaviors, such as investing in <a href="https://www.epa.gov/green-power-markets/inflation-reduction-act">renewable energy</a>. </p>
<p>Finally, exact withholding, when it works correctly, takes away the sizable refunds <a href="https://www.researchgate.net/publication/228272373_An_Investigation_of_Why_Taxpayers_Prefer_Refunds_A_Theory_of_Planned_Behavior_Approach">some Americans enjoy</a>. </p>
<p>In the end, no tax system is perfect. The U.S. must decide whether the complexity of its tax system is worth the time and the <a href="https://www.irs.gov/pub/irs-pdf/i1040gi.pdf">average $250 cost</a> taxpayers spend on filing their own returns instead of spending that on more pleasant activities.</p><img src="https://counter.theconversation.com/content/203616/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The co-hosts of the ‘Taxes for the Masses’ podcast explain the upside and downside of all those credits and deductions.Bridget Stomberg, Associate Professor of Accounting, Indiana UniversityLisa De Simone, Associate Professor of Accounting, The University of Texas at AustinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2032822023-04-07T17:29:51Z2023-04-07T17:29:51ZI tried to pay my taxes in cash – here’s what happened, and why the IRS should make it easier to do so<figure><img src="https://images.theconversation.com/files/519957/original/file-20230407-24-e52vep.jpg?ixlib=rb-1.1.0&rect=176%2C193%2C5431%2C3539&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It turns out paying taxes in cash ain't easy.
</span> <span class="attribution"><span class="source">nikom khotjan/Moment via Getty Images</span></span></figcaption></figure><p><a href="https://www.irs.gov/newsroom/filing-season-statistics-for-week-ending-december-30-2022">About two-thirds of all U.S. residents who file</a> federal income taxes typically get a refund. Unfortunately, this year I am among the other third who owe the Internal Revenue Service money. </p>
<p>So I tried something I’ve never done before and few people do: I wanted to <a href="https://theconversation.com/is-doing-your-taxes-making-you-crazy-heres-why-it-shouldnt-114572">pay my tax bill</a> in cash – that is, with real paper currency. </p>
<p>In our <a href="https://www.pcbb.com/bid/2023-02-15-is-the-us-moving-toward-a-cashless-society">nearly cashless society</a>, this might sound like a hassle.</p>
<h2>Why pay taxes in cash</h2>
<p>For one thing, I’m an economist <a href="https://blogs.bu.edu/zagorsky/">writing a book</a> explaining the <a href="https://theconversation.com/in-defense-of-cash-why-we-should-bring-back-the-500-note-and-other-big-bills-85880">advantages of using cash</a>, and I was simply curious what might happen. </p>
<p>But beyond my own <a href="http://businessmacroeconomics.com/">book-related</a> interest in paying taxes in cash, I had other reasons for wanting to do so. For years while teaching students about money, I noted the front of every piece of U.S. currency declares: “This note is legal tender for all debts public and private.”</p>
<p>The statement seemed ironic since I couldn’t <a href="https://theconversation.com/if-cash-is-king-how-can-stores-refuse-to-take-your-dollars-63516">figure out how to pay</a> income taxes, one of people’s most significant public debts, with currency. </p>
<p>I also wondered how difficult it is for the unbanked to pay taxes. <a href="https://www.fdic.gov/analysis/household-survey/index.html">Federal Deposit Insurance Corp. data shows</a> about 6 million households have no connection to the formal banking system.</p>
<p>The IRS does not publish data on the methods people use to pay their taxes, but several IRS employees I spoke with told me almost no one pays the IRS in cash. </p>
<figure class="align-center ">
<img alt="a one dollar bill" src="https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=277&fit=crop&dpr=1 600w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=277&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=277&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=348&fit=crop&dpr=1 754w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=348&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=348&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Every U.S. bill declares that it can be used to pay any debt.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/one-us-dollar-bill-royalty-free-image/87243724?phrase=close%20up%20of%20dollar%20bill">Peter Dazeley/The Image Bank via Getty Images</a></span>
</figcaption>
</figure>
<h2>How to pay in cash</h2>
<p>The IRS certainly doesn’t make it easy to do so.</p>
<p>Recently, a student of mine pointed out where the <a href="https://www.irs.gov/payments/what-to-expect-when-you-pay-cash-at-an-irs-office">instructions for paying the government with paper money</a> are buried, so I gave it a try. The five-step set of instructions hinted that paying cash directly is a time-consuming process and that I needed to start a month or two before taxes are due.</p>
<p>Following the instructions, <a href="https://theconversation.com/why-most-of-us-procrastinate-in-filing-our-taxes-and-why-it-doesnt-make-any-sense-39766">I completed my taxes early</a> and learned I owed a bit more than US$1,000. Then I called on the phone to <a href="https://www.irs.gov/help/contact-your-local-irs-office">schedule a face-to-face appointment</a> with the IRS to see when and where I could pay.</p>
<p>The operator, who told me her name was “Ms. Johnson,” was cheerful and helpful – but tried her very best to dissuade me from paying in cash. She offered to walk me through the steps on the phone so that I could <a href="https://www.irs.gov/payments/direct-pay">pay online</a> and not have to come into my local IRS office.</p>
<h2>Alternative ways to pay ‘in cash’</h2>
<p>For example, the IRS suggests cash payers can “<a href="https://www.irs.gov/payments/pay-your-taxes-with-cash">Buy a prepaid credit card and pay online</a>.” </p>
<p>This sounds easy but turns out to be costly. For example, Walmart, one of the largest U.S. retailers, offers a <a href="https://www.walmartmoneycard.com/">reloadable basic debit card</a>. The <a href="https://www.walmartmoneycard.com/legal-info/fee-plan">card costs</a> $1 to buy, $6 per month in fees and $3 to load with cash. Once the card is loaded with money, the <a href="https://www.irs.gov/payments/pay-your-taxes-by-debit-or-credit-card">businesses the IRS uses to accept debit card payments charge</a> around $2.50 for each payment, with payments <a href="https://www.irs.gov/payments/frequency-limit-table-by-type-of-tax-payment">limited to two per year</a>.</p>
<p>The <a href="https://www.irs.gov/payments/pay-with-cash-at-a-retail-partner">IRS also has partnered with national chains</a> like CVS, Walgreens, 7-Eleven and Family Dollar to accept cash on its behalf. Their service fees are less, either $1.50 or $2.50 per payment. However, the steps needed to <a href="https://fed.acipayonline.com/index.jsp">navigate the online program</a> before you can show up at a retailer seemed almost as difficult as filling in the tax forms.</p>
<p>More importantly, this program has a $500 per payment limit and a $1,000 maximum amount accepted per year. This made the method impractical for me and for most people who owe the IRS money. <a href="https://www.irs.gov/pub/irs-soi/20in33ar.xls">The latest IRS figures</a> show people who owe income taxes on average pay over $6,000.</p>
<p>Or, I could <a href="https://www.irs.gov/payments/pay-by-debit-or-credit-card-when-you-e-file">use a credit or debit card</a>, but these methods charged around 2.5% more for the convenience. </p>
<p>After I declined all of Ms. Johnson’s alternative payment offers, she told me I was lucky. There was an appointment available at the downtown Boston <a href="https://apps.irs.gov/app/office-locator/">taxpayer assistance center</a> in a few days. Her schedule showed many other centers around the country were booked until May, long after taxes were due.</p>
<figure class="align-center ">
<img alt="a stone block has the letters internal revenue service carved into it behind the green leaves of a tree" src="https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The author had to go to an IRS assistance center to try to pay his taxes in cash.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/TaxSeasonBegins/98cf9ddeb9214107ad0fd1318e7bb74b/photo?Query=irs&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=2485&currentItemNo=43">AP Photo/Patrick Semansky</a></span>
</figcaption>
</figure>
<h2>An arduous process – but a successful one</h2>
<p>I had cash at home, but not enough. I went to the bank and made sure I got exact change in crisp new bills to make the transaction as easy as possible.</p>
<p>My goal was not to cause pain like the Virginia man who <a href="https://www.bbc.com/news/world-us-canada-38603615">used 300,000 coins to pay his motor vehicle bill</a> or the California man who pushed in <a href="https://abcnews.go.com/blogs/headlines/2013/01/california-man-pays-off-13000-property-tax-bill-in-coins-dollar-bills">wheelbarrows filled with $1 coins to pay his $13,000 property tax bill</a>. Nor was I interested in recreating the famous but fictional <a href="https://cap-press.com/sites/pj/articles/ThePractice2.htm">British case of Board of Inland Revenue v. Haddock</a>, in which Haddock tried paying his tax bill by writing a check on the side of a cow. <a href="https://www.snopes.com/fact-check/check-on-side-of-cow/">Although it never happened</a>, the case is still cited in legal circles.</p>
<p>I made it to the IRS building, went through airport-style screening and checked in on time. The receptionist was polite and again told me all the ways to pay without cash. After I declined, he asked me to take a seat in the waiting area filled with people clutching paperwork. As I walked away, the receptionist did a facepalm while shaking his head, which was not a positive sign.</p>
<p>After a 30-minute wait, another polite IRS worker came out and told me they could not accept cash that day because no courier was scheduled. Current IRS rules require that a courier take all cash immediately to the bank because they said “holding cash was not safe.” This is surprising given the federal office building was swarming with armed guards and required screening to enter.</p>
<p>I came back a week later when another cash payer was showing up. This time I had more success. It took 30 minutes, but after completing a multipart carbon form by hand, I got a receipt that said my taxes were paid.</p>
<h2>A simple solution</h2>
<p>Paying the IRS with cash is possible, but it turned out to be onerous and time-consuming. </p>
<p>I believe there is a simple solution. The <a href="https://www.law.cornell.edu/uscode/text/26/6302">Code of Federal Regulations</a>, which governs the IRS and other agencies, allows authorized banks to accept tax payments. The law doesn’t specify payment only by check or other methods. This means if procedures existed, taxpayers could walk into major banks, hand the teller cash and have the bank inform the IRS of the amount paid.</p>
<p>For people without bank accounts, their only option for paying taxes shouldn’t require paying fees to credit card processors or retailers – especially since they are likely among the poorest taxpayers.</p>
<p>If the government wants everyone to pay their taxes, why doesn’t it make it as easy as possible?</p><img src="https://counter.theconversation.com/content/203282/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As the US increasingly becomes a cashless society, it’s getting harder to use currency to pay for things – including taxes. One fearless economist gave it a try.Jay L. Zagorsky, Clinical Associate Professor, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2020152023-03-30T12:19:37Z2023-03-30T12:19:37ZWhat to know about tax-free savings before the April 5 ISA deadline<figure><img src="https://images.theconversation.com/files/518233/original/file-20230329-18-83vp2o.jpg?ixlib=rb-1.1.0&rect=131%2C62%2C4407%2C2993&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There's a better way to save.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-african-american-woman-piggy-bank-2167062557">Kikujiarm/Shutterstock</a></span></figcaption></figure><p>The window for making the most of your savings this tax year is closing. As the final day of the 2022-23 tax year, April 5 is your last chance to make full use of this year’s tax allowances. </p>
<p>You can pay as much as <a href="https://www.gov.uk/individual-savings-accounts">£20,000 into a tax-free individual savings account</a> (ISA) before this date. This annual limit has been frozen since 2017 and, unlike some other forms of tax relief, you cannot carry forward any unused ISA allowance. </p>
<p>So, it’s a case of use it or lose it, but why the rush to make the end of tax year deadline?</p>
<p>ISAs were introduced in April 1999. If you’d saved the maximum allowed each year since then you would have paid in over a quarter of a million pounds by now. And when you put your money in an ISA it grows free of income and capital gains tax, and can be withdrawn without any tax charges. If you were to add in the tax-free interest and investment growth you can get with an ISA, maybe you could even have become one of an estimated <a href="https://investingreviews.co.uk/blog/isa-millionaire-numbers-fall-amid-stock-market-volatility/">1,480 ISA millionaires</a>.</p>
<p>If you have missed that chance, there’s no reason why you can’t catch up on some tax-free savings now. And by opening an account before the April 5 deadline, you could still make use of this year’s allowance and then continue contributing afterwards under next year’s. So what do you need to know?</p>
<h2>The different types of ISA</h2>
<p>There are several types of ISA, and you can choose to pay into just one type each year, or open a mixture and spread your annual allowance among them. The most popular are cash ISAs, where your money goes into a savings account with a bank, building society or the government-backed National Savings & Investments (<a href="https://www.nsandi.com/">NS&I</a>). </p>
<p>As the charts below show, in 2020-21 (the most recent tax year for which data is available), cash ISAs accounted for two-thirds of the 12 million ISA accounts people paid into, and half of the value of the money they paid in.</p>
<p><strong>How many ISAs are being used?</strong></p>
<figure class="align-center ">
<img alt="A bar chart showing the number of accounts paid into so far during the 2022-23 tax year, and another showing the number of accounts paid into since 2019." src="https://images.theconversation.com/files/518275/original/file-20230329-23-g5dbko.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/518275/original/file-20230329-23-g5dbko.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=325&fit=crop&dpr=1 600w, https://images.theconversation.com/files/518275/original/file-20230329-23-g5dbko.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=325&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/518275/original/file-20230329-23-g5dbko.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=325&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/518275/original/file-20230329-23-g5dbko.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=408&fit=crop&dpr=1 754w, https://images.theconversation.com/files/518275/original/file-20230329-23-g5dbko.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=408&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/518275/original/file-20230329-23-g5dbko.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=408&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.gov.uk/government/statistics/annual-savings-statistics-2022">Author provided using HMRC data.</a></span>
</figcaption>
</figure>
<p><strong>How much is going into ISAs?</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/518239/original/file-20230329-27-nl1q38.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A bar chart with one bar showing the amount paid into ISAs in the most recent tax year and another showing the amount paid in since 2019" src="https://images.theconversation.com/files/518239/original/file-20230329-27-nl1q38.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/518239/original/file-20230329-27-nl1q38.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=322&fit=crop&dpr=1 600w, https://images.theconversation.com/files/518239/original/file-20230329-27-nl1q38.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=322&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/518239/original/file-20230329-27-nl1q38.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=322&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/518239/original/file-20230329-27-nl1q38.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=405&fit=crop&dpr=1 754w, https://images.theconversation.com/files/518239/original/file-20230329-27-nl1q38.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=405&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/518239/original/file-20230329-27-nl1q38.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=405&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.gov.uk/government/statistics/annual-savings-statistics-2022">Author provided using HMRC data.</a></span>
</figcaption>
</figure>
<p>If you are comfortable taking a bit more risk – with the potential to make more of a return – a stocks and shares ISA allows you to invest your tax-free savings in the stock market. These kinds of accounts are offered by fund managers and investment platforms, for example. They are usually set up as an “empty box” that you fill up with funds, company shares, corporate and government bonds, and similar investments from the selection offered by your ISA provider. Unlike cash ISAs, you will have to pay various fees to the provider.</p>
<p>Innovative finance ISAs also involve risk. These accounts offer a way to access the “<a href="https://www.unbiased.co.uk/discover/personal-finance/savings-investing/peer-to-peer-lending-is-it-a-safe-investment#:%7E:text=P2P%20lending%20is%20also%20known,from%20malpractice%20by%20the%20provider.">peer-to-peer lending</a>” market. This is where you lend your savings directly to individuals or businesses through an online platform. While this can seem like an interesting alternative to a bank or building society deposit, it carries a higher risk of losing your money and there is no protection against losses as there would be with a <a href="https://www.fscs.org.uk/what-we-cover/banks-building-societies/">savings account</a>.</p>
<p>In 2017, the government also introduced lifetime ISAs (LISAs) as a way for <a href="https://www.gov.uk/lifetime-isa">people aged 18 to 39</a> to build up savings. Unlike other types of ISA, the government adds an annual 25% bonus to the amount you have saved over the year in a LISA. You can save up to £4,000 annually in these accounts, so with the extra £1,000 from the government you could sock away up to £5,000 every year until age 50.</p>
<p>The money you pay in to a LISA forms part of your overall £20,000 ISA allowance and you can only withdraw your money tax-free from age 60, although you can take it out early to buy your first home. This makes LISAs useful for retirement planning or for first-time buyers. You can still withdraw your money for other reasons, but there is a 25% withdrawal charge – which claws back the government bonuses and includes a 5% penalty charge on top.</p>
<figure class="align-center ">
<img alt="Two silver keys on an orange house keyring, on a yellow background." src="https://images.theconversation.com/files/518240/original/file-20230329-26-3zr1sz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/518240/original/file-20230329-26-3zr1sz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=442&fit=crop&dpr=1 600w, https://images.theconversation.com/files/518240/original/file-20230329-26-3zr1sz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=442&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/518240/original/file-20230329-26-3zr1sz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=442&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/518240/original/file-20230329-26-3zr1sz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=555&fit=crop&dpr=1 754w, https://images.theconversation.com/files/518240/original/file-20230329-26-3zr1sz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=555&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/518240/original/file-20230329-26-3zr1sz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=555&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Lifetime ISAs are designed to people save for retirement or for a first home.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/house-on-yellow-background-minimal-creative-1009691047">nednapa/Shutterstock</a></span>
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<h2>Should I open an ISA?</h2>
<p>If you don’t mind locking up your money until at least your mid-50s, saving through a pension plan could be a better choice because the tax reliefs for pensions are more generous than those for most ISAs. However, LISAs can be just as tax-efficient if you pay income tax at no more than the basic rate.</p>
<p>And ISAs are just one of several government tax concessions for savers and investors. In fact, you may have questioned whether they were worth opening given that some other allowances seemingly do the same job:</p>
<ul>
<li>a personal savings allowance lets you have up to £1,000 a year (for basic-rate taxpayers) or £500 (for higher-rate taxpayers) of <a href="https://www.gov.uk/apply-tax-free-interest-on-savings">interest tax-free</a></li>
<li>a dividend allowance allows you up to £2,000 of share <a href="https://www.gov.uk/tax-on-dividends">dividends tax-free</a></li>
<li>the <a href="https://www.gov.uk/capital-gains-tax/allowances">capital gains tax allowance</a> stands at £12,300 for 2022-23.</li>
</ul>
<p>But while your ISA will be forever, these tax concessions only apply on a year-by-year basis; they can – and do – change. </p>
<p>In the government’s <a href="https://www.gov.uk/government/collections/autumn-statement-2022-tax-related-documents">2022 autumn statement</a>, UK chancellor Jeremy Hunt announced that the dividend allowance will be halved from £2,000 to £1,000 from 6 April 2023, and cut again to £500 from April 2024. Similarly, from this April the capital gains tax allowance will be reduced to £6,000 and then fixed at £3,000 from April 2024 onwards.</p>
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<a href="https://theconversation.com/autumn-statement-2022-experts-react-194829">Autumn statement 2022: experts react</a>
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<p>In contrast, once you have paid money into an ISA, the returns remain tax-free indefinitely. That makes a strong case for getting your skates on and using your 2022-23 ISA allowance before it runs out on April 5.</p><img src="https://counter.theconversation.com/content/202015/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonquil Lowe is affiliated with the Women's Budget Group.</span></em></p>ISAs are an easy way to boost your savings but they do have rules, some of which change every year.Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2013032023-03-27T15:47:02Z2023-03-27T15:47:02ZGhana’s e-levy is unfair to the poor and misses its revenue target: a lesson in mobile money tax design<figure><img src="https://images.theconversation.com/files/516007/original/file-20230317-3164-vqytnx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ghana's e-levy has hit traders in the country's informal sector the hardest.
</span> <span class="attribution"><span class="source">Christophe Gateau/picture alliance via Getty Images</span></span></figcaption></figure><p>In May 2022, the government in Ghana introduced a <a href="https://theconversation.com/new-data-on-the-e-levy-in-ghana-unpopular-tax-on-mobile-money-transfers-is-hitting-the-poor-hardest-189671">deeply unpopular tax</a> on mobile money transactions, known as the e-levy. When it was introduced, the levy was structured as a 1.5% charge on all electronic and mobile money transactions over 100 cedis per day. </p>
<p>The e-levy was designed to raise more money for the government by extracting larger tax contributions from Ghana’s informal sector. About <a href="https://www.wiego.org/sites/default/files/publications/file/WIEGO_Statistical_Brief_N21_0.pdf">90%</a> of total employment in Ghana is informal and politicians have <a href="https://www.ictd.ac/blog/how-e-levy-impact-informal-sector-ghana/">explicitly stated</a> that the e-levy is targeted at the informal sector. </p>
<p>In January 2023, the government <a href="https://www.ictd.ac/blog/ghana-e-levy-rate-reduction-public-acceptance-increase-revenue/#:%7E:text=On%2011%20January%202023%2C%20the,well%20below%20the%20government's%20expectations.">reduced the rate </a> of the tax from 1.5% to 1%. The unique feature of the levy, an exemption threshold for transactions below 100 cedis a day, is expected to be <a href="https://allafrica.com/stories/202211260200.html">removed</a> but remains in place for now, although it’s real value has been eroded by inflation over the past 12 months. </p>
<p>The <a href="https://www.ictd.ac/event/webinar-ghanas-e-levy-two-months-in-what-do-we-know/">levy’s effects</a> – on Ghana’s public finances, its poor, mobile money usage –have been at the centre of intense and polarising public conversations, much of it without empirical basis. </p>
<p>In September 2022 we presented some <a href="https://theconversation.com/new-data-on-the-e-levy-in-ghana-unpopular-tax-on-mobile-money-transfers-is-hitting-the-poor-hardest-189671">early results</a> from a survey of 2,700 self-employed informal sector operators, carried out just before the introduction of the e-levy, where we showed the likely impact of the tax on Accra’s informal sector. </p>
<p>In <a href="https://www.ictd.ac/publication/mobile-money-tax-informal-workers-evidence-ghana-e-levy/">our recent paper</a> we assess how informal sector operators in the country’s capital Accra use mobile money. We also asked the views of informal workers on what they thought of the e-levy’s pending implementation. </p>
<p>Our findings suggest that the e-levy is highly regressive. In other words, our data show that the lowest earning informal sector operators pay a larger share of their earnings towards the levy than higher earners. We also show that most informal workers disapprove of the e-levy.</p>
<p>Our findings suggest that the government should reconsider the design of the e-levy to ensure that the most vulnerable workers in the informal sector are protected. We suggest further that the exemption threshold for low value transactions is an important tool in this regard and should be retained for the sake of equity. </p>
<h2>Lower rate brings relief</h2>
<p>What does the lowered rate of 1% mean for informal workers? In our recent study, we analysed information on the use of mobile money transactions among informal sector operators in Accra. We divided informal sector operators into five equal groups (quintiles), based on their reported earnings. Before the lower rate of 1% was introduced in January 2023, we calculated that e-levy payments would amount to about 4% of reported monthly earnings for the lowest earning quintile. The tax would amount to less than 1% for the two highest earning quintiles. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=312&fit=crop&dpr=1 600w, https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=312&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=312&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=392&fit=crop&dpr=1 754w, https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=392&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=392&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="source">Authors</span></span>
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<p>This shows that the levy takes more from the poorest. And the lowest earners pay a substantial portion of their already meagre earnings towards the levy. </p>
<p>The lower rate brings a small degree of relief for the lowest earners. When the new e-levy rate (1%) is mapped onto our survey data, the lowest earning quintile would pay about 3% (instead of 4%) of their monthly earnings towards this tax, all else remaining equal. </p>
<h2>Threshold an important tool for the poor</h2>
<p>If the protective threshold were to be removed–in line with the <a href="https://allafrica.com/stories/202211260200.html">recent budget statement</a>–the lowest earning quintile would pay, on average, 7% of their monthly earnings towards the e-levy. In other words, even at the new lower rate, the removal of the exemption threshold would more than double the liability of the poorest informal sector operators. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=340&fit=crop&dpr=1 600w, https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=340&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=340&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=428&fit=crop&dpr=1 754w, https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=428&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=428&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="source">Authors</span></span>
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<p>The transfer threshold therefore appears to be an important instrument for protecting the lowest earning operators, irrespective of the rate at which the levy is set. But due to inflation, the real value of the threshold, as of January 2023, has been eroded by more than 50%. In other words, the threshold is now only half as effective at shielding the poorest as it was to start with. </p>
<h2>Next steps</h2>
<p>As mobile money taxes gain popularity across the continent, their design requires very careful consideration. Currently there are at least <a href="https://restofworld.org/2022/how-mobile-money-became-the-new-cash-cow-for-african-governments-but-at-a-cost/">ten African countries</a> that are either considering, or have implemented, a similar tax. </p>
<p>Our research suggests that efforts to protect the poorest mobile money users (often the unbanked working in the informal sector) should be the priority. We further argue that Ghana’s use of a protective threshold is an important feature of the policy design–more important than, for example, simply lowering the rate–but that it doesn’t go far enough to protect the poor. </p>
<p>More fundamentally, we reflect on the effectiveness of the tax from a revenue perspective. The new tax measure has performed much more poorly in revenue terms than the government had hoped for. In first 8 months of the levy’s introduction, it raised only 11% of its <a href="https://www.ictd.ac/blog/ghana-e-levy-rate-reduction-public-acceptance-increase-revenue/">revenue target</a> of US $1 billion. </p>
<p>It is therefore worth asking what else the government can do to meet its pressing revenue needs. There is <a href="https://theconversation.com/african-governments-arent-taxing-the-rich-why-they-should-57162">substantial evidence</a> that focusing on higher income earners, including high net worth individuals and extractive industries, can be particularly productive. The development of a unit in the Ghana Revenue Authority that focuses on wealthy individuals is a promising step in this direction, though the outcomes of these efforts remain to be seen. </p>
<p>The experience of the e-levy so far offers important lessons to other countries considering similar taxes. Among the most important is that domestic resource mobilisation cannot be achieved by over-taxing the livelihoods of the most vulnerable workers in the informal sector.</p><img src="https://counter.theconversation.com/content/201303/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mike Rogan a Research Associate with the Urban Policies Programme in WIEGO (Women in Informal Employment: Globalizing and Organizing). The research described in this article was made possible by generous support from the Swedish International Development Cooperation Agency. </span></em></p><p class="fine-print"><em><span>Max Gallien Max Gallien is a research fellow at the Institute of Development Studies (IDS) and the International Centre for Tax and Development (ICTD). Through the ICTD, the research described in this article has also been supported by the UK Foreign, Commonwealth and Development Office, the Norwegian Agency for Development Cooperation and the Bill & Melinda Gates Foundation.</span></em></p><p class="fine-print"><em><span>Nana Akua Anyidoho is Associate Professor at the Institute of Statistical, Social and Economic Research (ISSER) and Director of the Centre for Social Policy Studies (CSPS), both at the University of Ghana. </span></em></p><p class="fine-print"><em><span>Vanessa van den Boogaard is a Research Fellow at the International Centre for Tax and Development (ICTD) and the Munk School of Global Affairs and Public Policy at the University of Toronto.</span></em></p>Domestic resource mobilisation cannot be achieved by over-taxing the livelihoods of the most vulnerable workers in the informal sector.Mike Rogan, Associate Professor, Rhodes UniversityMax Gallien, Research Fellow, Institute of Development StudiesNana Akua Anyidoho, Associate Professor & Director, Centre for Social Policy Studies, University of GhanaVanessa van den Boogaard, Research Fellow, Institute of Development StudiesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1994582023-02-08T03:58:27Z2023-02-08T03:58:27ZState of the Union: What experts have said about Biden’s proposed reforms on policing, guns and taxes – 8 essential reads<figure><img src="https://images.theconversation.com/files/508788/original/file-20230208-17-sinz9x.jpg?ixlib=rb-1.1.0&rect=0%2C458%2C5542%2C3134&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">President Joe Biden delivers the State of the Union address.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/StateoftheUnion/0793dd475cc34b48ac6cd1b296624993/photo?Query=biden&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=96897&currentItemNo=2">Jacquelyn Martin, Pool/AP</a></span></figcaption></figure><p><em>The speech lasted 70-odd minutes and was interrupted at least 70 times, mostly by standing ovations from supporters, but also from occasional interjections from less sympathetic lawmakers.</em></p>
<p><em>There was also policy to dissect in President <a href="https://apnews.com/article/state-of-the-union-biden-2023-b9bebd876a42a9510f068a04a3f2a348">Joe Biden’s State of the Union address</a>. Some of it was new, much of it wasn’t – which meant that The Conversation was able to pull from its archives articles that shed light on and provide context and analysis to some of Biden’s proposals. Here are what scholars had to say on three policy themes that emerged.</em> </p>
<h2>1. Reforming the police</h2>
<p>Biden may well have been planning to push for police reform in the State of the Union address before the recent release of footage showing police officers fatally beating Tyre Nichols. But that incident – the latest in a series of high-profile deaths of Black men at the hands of police – has again shined a light on the failure to address systemic problems in the nation’s policing.</p>
<p>In front of an audience that included Nichols’ mother and stepfather, the president called on Congress to “finish the job on police reform,” while referencing the George Floyd Justice in Policing Act – a bill that failed to pass into law amid gridlock in Congress.</p>
<figure class="align-center ">
<img alt="Two Black people stand with heads bowed as other people around them turn to face them and applaud." src="https://images.theconversation.com/files/508802/original/file-20230208-24-pi0z0b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/508802/original/file-20230208-24-pi0z0b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/508802/original/file-20230208-24-pi0z0b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/508802/original/file-20230208-24-pi0z0b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/508802/original/file-20230208-24-pi0z0b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/508802/original/file-20230208-24-pi0z0b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/508802/original/file-20230208-24-pi0z0b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The mother and stepfather of Tyre Nichols are applauded by other attendees at the State of the Union.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/StateoftheUnion/a50366a28afe4a7a81c35bc884ac3629/photo?Query=tyre%20mother&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=86&currentItemNo=2">AP Photo/Patrick Semansky</a></span>
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<p>The bill would have addressed some of the problems of U.S. policing. It includes a ban on racial profiling by all law enforcement agencies and an end to the “qualified immunity” that protects officers in civil lawsuits. It would also expand the powers of the Justice Department to hold departments to account over civil rights violations.</p>
<p>But, as <a href="https://law.rutgers.edu/directory/view/ak1444">Alexis Karteron</a>, associate professor of law at Rutgers University – Newark, notes, <a href="https://theconversation.com/tyre-nichols-death-prompts-calls-for-federal-legislation-to-promote-police-reform-but-congress-cant-do-much-about-fixing-local-police-159881">it isn’t a sufficient fix</a>. The problem is the federal government has only limited power when it comes to effecting change among the nearly 18,000 police departments in the U.S. </p>
<p>“For those looking to the federal government to solve what’s wrong with policing in America, federal legislation can’t ensure that every police department will make meaningful changes. That’s because the [George Floyd Justice in Policing Act] reflects the hard reality that the federal government has almost no control over state and local police departments,” Karteron writes. She adds that even if it is passed, the likelihood is some of those agencies would sue, “arguing that the federal government is attempting to coerce them into adopting policy reforms they do not need or want.”</p>
<p>Which is why some policing experts, such as <a href="https://scholar.google.com/citations?hl=en&user=rJXj1KEAAAAJ">Thaddeus L. Johnson</a> and <a href="https://scholar.google.com/citations?hl=en&user=w9JwJd8AAAAJ">Natasha N. Johnson</a> at Georgia State University, have suggested that <a href="https://theconversation.com/federal-police-reform-talks-have-failed-but-local-efforts-stand-a-better-chance-of-success-168630">reform is best undertaken at a local level</a>. That would leave the federal government to play “a clear role in regard to financing reform and addressing nonpolicing issues that contribute to crime, such as underlying poverty and the lack of green spaces.”</p>
<p>Federal money could also help police departments recruit and train police officers. Biden in 2022, announced plans to add 100,000 officers nationwide as part of his policing plan. <a href="https://theconversation.com/memphis-police-numbers-dropped-by-nearly-a-quarter-in-recent-years-were-staffing-shortages-a-factor-in-the-killing-of-tyre-nichols-199078">Research from criminologists</a> <a href="https://sc.edu/study/colleges_schools/artsandsciences/criminology_and_criminal_justice/our_people/directory/adams_ian.php">Ian T. Adams</a> of the University of South Carolina, <a href="https://www.unomaha.edu/college-of-public-affairs-and-community-service/criminology-and-criminal-justice/about-us/justin-nix.php">Justin Nix</a> of the University of Nebraska Omaha, and University of Utah’s <a href="https://scholar.google.com/citations?user=ypvpo1gAAAAJ&hl=en">Scott M. Mourtgos</a> suggests that adding officers would help reverse a trend that has seen many leave the profession since the protests that followed George Floyd’s death. In Memphis, where Tyre Nichols was killed, police staffing has dropped by nearly a quarter in recent years.</p>
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Read more:
<a href="https://theconversation.com/tyre-nichols-death-prompts-calls-for-federal-legislation-to-promote-police-reform-but-congress-cant-do-much-about-fixing-local-police-159881">Tyre Nichols' death prompts calls for federal legislation to promote police reform – but Congress can’t do much about fixing local police</a>
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Read more:
<a href="https://theconversation.com/federal-police-reform-talks-have-failed-but-local-efforts-stand-a-better-chance-of-success-168630">Federal police reform talks have failed – but local efforts stand a better chance of success</a>
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Read more:
<a href="https://theconversation.com/memphis-police-numbers-dropped-by-nearly-a-quarter-in-recent-years-were-staffing-shortages-a-factor-in-the-killing-of-tyre-nichols-199078">Memphis police numbers dropped by nearly a quarter in recent years – were staffing shortages a factor in the killing of Tyre Nichols?</a>
</strong>
</em>
</p>
<hr>
<h2>2. Tightening gun controls</h2>
<p>The State of the Union comes just 38 days into the new year, but already there have been 60 mass shootings in the U.S., according to the nonprofit <a href="https://www.gunviolencearchive.org/">Gun Violence Archive</a>. Brandon Tsay, who disarmed the gunman at the Jan. 21, 2023 deadly attack at Monterey Park, California, was among the attendees in Congress to hear Biden speak.</p>
<p>Biden detailed what his administration was able to do to promote gun control, notably through provisions contained in the Safer Communities Act. Hailed by Biden as “the most sweeping gun safety law in three decades,” the act was limited in scope, but experts believe its modest reforms will save lives.</p>
<p>Among other provisions, it gives support to states to pass so-called “red flag laws” that allow authorities to seize the firearms of individuals deemed to be a threat. Political scientist <a href="https://scholar.google.com/citations?hl=en&user=3y3BVcEAAAAJ">John A. Tures</a> of LaGrange College has <a href="https://theconversation.com/red-flag-laws-saved-7-300-americans-from-gun-deaths-in-2020-alone-and-could-have-saved-11-400-more-185009">examined the effectiveness of red flag laws</a>.</p>
<p>He found that states that passed such legislation saw significantly lower firearm death rates than states without them. </p>
<p>“In 2020, if there were no red flag laws, I estimate that 52,530 Americans would have died in gun deaths. The number actually recorded was 45,222, indicating red flag laws saved 7,308 American lives that year,” Tures writes.</p>
<p>Lives – mainly female ones – will also be saved by the closing of the “boyfriend loophole,” which had allowed some people with a record of domestic violence to keep and buy firearms. The Safer Communities Act extended the wording in a federal ban to “those who have or have had a continuing relationship of a romantic or intimate nature.” <a href="https://scholar.google.com/citations?hl=en&user=QHzNAqcAAAAJ">April Zeoli</a> at Michigan State University writes that <a href="https://theconversation.com/will-closing-the-boyfriend-loophole-in-gun-legislation-save-lives-heres-what-the-research-says-185481">closing the boyfriend loophole will save lives</a>. But she notes in a separate article that recent court rulings may <a href="https://theconversation.com/a-judge-in-texas-is-using-a-recent-supreme-court-ruling-to-allow-domestic-abusers-to-keep-their-guns-195273">allow domestic abusers to keep their guns</a>.</p>
<p>Meanwhile, Biden called for a ban on assault weapons “once and for all.” Such a ban once existed but was allowed to lapse. But do bans on assault rifles work? Yes, writes <a href="https://med.nyu.edu/faculty/michael-j-klein-1">Michael J. Klein</a> of New York University, who was part of a team that analyzed the impact of the federal ban on assault rifles in place for a decade from 1994. </p>
<p><iframe id="nnx1F" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/nnx1F/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>“We calculated that the risk of a person in the U.S. dying in a mass shooting was 70% lower during the period in which the assault weapons ban was active,” he writes.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/red-flag-laws-saved-7-300-americans-from-gun-deaths-in-2020-alone-and-could-have-saved-11-400-more-185009">Red flag laws saved 7,300 Americans from gun deaths in 2020 alone – and could have saved 11,400 more</a>
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</em>
</p>
<hr>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/will-closing-the-boyfriend-loophole-in-gun-legislation-save-lives-heres-what-the-research-says-185481">Will closing the 'boyfriend loophole' in gun legislation save lives? Here's what the research says</a>
</strong>
</em>
</p>
<hr>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/a-judge-in-texas-is-using-a-recent-supreme-court-ruling-to-allow-domestic-abusers-to-keep-their-guns-195273">A judge in Texas is using a recent Supreme Court ruling to allow domestic abusers to keep their guns</a>
</strong>
</em>
</p>
<hr>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/did-the-assault-weapons-ban-of-1994-bring-down-mass-shootings-heres-what-the-data-tells-us-184430">Did the assault weapons ban of 1994 bring down mass shootings? Here's what the data tells us</a>
</strong>
</em>
</p>
<hr>
<h2>3. Taxing the rich?</h2>
<p>Biden came to the State of the Union armed with economic data showing robust job growth and evidence that once-soaring inflation is beginning to fall.</p>
<p>With the United States’ increasing national debt as a backdrop, Biden outlined a plan to boost government revenues through a minimum tax for billionaires and a quadrupling of the tax on corporate stock buybacks.</p>
<p>Even if Republicans in Congress were to approve the measures, it is unlikely to set a course for a new era of progressive taxation. As <a href="https://www.econ.berkeley.edu/profile/1047593">Gabriel Zucman</a> and <a href="https://eml.berkeley.edu/%7Esaez/">Emmanuel Saez</a>, economists at the University of California, Berkeley, explain, similar plans eyed by Democrats in recent years <a href="https://theconversation.com/tax-the-rich-democrats-plans-to-make-the-wealthy-pay-a-little-more-will-barely-dent-americas-long-slide-from-progressive-taxation-168057">hardly amount to squeezing the uber-rich</a>; in fact, they do little to reverse the decadeslong trend toward regressive taxation, in which lower earners pay a larger percentage of their earnings in tax than wealthier ones.</p>
<p><iframe id="lW4lQ" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/lW4lQ/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>The two economists conclude that although it would “increase taxes on millionaires significantly,” the 2021 proposal put forward by Democrats would “largely leave billionaires off the hook, despite the explosion of their wealth during the pandemic.”</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/tax-the-rich-democrats-plans-to-make-the-wealthy-pay-a-little-more-will-barely-dent-americas-long-slide-from-progressive-taxation-168057">'Tax the rich'? Democrats' plans to make the wealthy pay a little more will barely dent America's long slide from progressive taxation</a>
</strong>
</em>
</p>
<hr>
<p><em>Editor’s note: This story is a roundup of articles from The Conversation’s archives.</em></p><img src="https://counter.theconversation.com/content/199458/count.gif" alt="The Conversation" width="1" height="1" />
President Biden outlined his achievements in key policy areas and sketched out his plans for the rest of his term in office.Matt Williams, Senior International EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1985542023-01-26T15:11:26Z2023-01-26T15:11:26ZNadhim Zahawi tax penalty: accounting expert on what it means when HMRC fines you for being ‘careless’<p>Although the news that Tory party chairman Nadhim Zahawi had paid a penalty for failing to file his taxes properly <a href="https://www.theguardian.com/uk-news/2022/jul/18/labour-challenges-nadhim-zahawi-over-tax-and-26m-business-loan">first surfaced</a> during his short tenure as chancellor from July to September 2022, his past tax affairs have come under scrutiny again more recently. </p>
<p>In July 2022, <a href="https://www.independent.co.uk/news/uk/politics/chancellor-nadhim-zahawi-tax-investigation-hmrc-b2119590.html">the Independent reported</a> that Zahawi’s tax affairs were under investigation by HMRC. More recently, <a href="https://www.thesun.co.uk/news/21046397/chancellor-nadhim-zahawi-tax/">the Sun reported</a> that the ex-chancellor, now Tory party chairman, had paid “several million” to “settle a dispute with HMRC” about whether he had used an offshore company called Balshore Investments to hold shares in YouGov. This the polling company he co-founded with help from his father <a href="https://corporate.yougov.com/about/timeline/">in 2000 and retired from in 2010</a>. Balshore is registered in Gibraltar and has been linked to Zahawi’s family, but Zahawi denies setting it up or using it.</p>
<p>Although the exact details have not been made public yet, Zahawi came to a settlement with HMRC after it found he was “careless” with his tax return. HMRC defines this as “<a href="https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch53400">a failure to take reasonable care in relation to your tax affairs</a>”. </p>
<p>On the subject of care and carelessness, <a href="https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch81140">HMRC’s internal manual Compliance Handbook</a> says:</p>
<blockquote>
<p>People do make mistakes. We do not expect perfection. We are simply seeking to establish whether the person has taken the care and attention that could be expected from a reasonable person taking reasonable care in similar circumstances, taking into account the ability and circumstances of the person in question at the time the irregularity was submitted to HMRC.</p>
</blockquote>
<p>The principle of carelessness is similar to that of “<a href="https://uk.practicallaw.thomsonreuters.com/9-107-6848?transitionType=Default&contextData=(sc.Default)&firstPage=true#:%7E:text=to%20its%20truth.-,Negligent%20misrepresentation,-%3A%20a%20representation%20made">negligent misrepresentation</a>” in a legally binding contract. This is when a person makes a false statement that they believe is true, but they don’t have reasonable grounds for believing that it is true.</p>
<p><a href="https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch53500">Examples of carelessness cited by HMRC</a> include haphazard record keeping, insufficient reading or understanding of HMRC guidelines and, most relevant in the Zahawi case, carelessness on the part of <a href="https://www.theguardian.com/uk-news/2023/jan/20/nadhim-zahawi-agreed-on-penalty-to-settle-tax-bill-worth-millions#:%7E:text=Zahawi%E2%80%99s%20representative">representatives</a> employed by the taxpayer in question. </p>
<p>HMRC will consider many factors when deciding what constitutes careless behaviour and the appropriate level of penalty when a self-assessment return is submitted. For example:</p>
<ul>
<li>Was the tax issue something that the person or business would be expected to have reasonable knowledge of? </li>
<li>What evidence exists that they took the time and care to look at the guidance when making a judgment on their return? </li>
<li>If an agent or tax representative was appointed to assist and complete the return, did the taxpayer thoroughly check the work, and advise and correct where necessary? </li>
<li>Importantly, did the person make HMRC aware of any errors or misdemeanors in their return if they were discovered later? </li>
</ul>
<p>The severity of any penalty can be reduced if someone is co-operative and confesses before HMRC discovers a problem.</p>
<p>To settle the issue with HMRC, Zahawi paid the additional amount owed, plus 30% of that amount as a penalty – <a href="https://www.theguardian.com/uk-news/2023/jan/20/nadhim-zahawi-agreed-on-penalty-to-settle-tax-bill-worth-millions#:%7E:text=Zahawi%E2%80%99s%20representative">reportedly millions</a>. This is the maximum percentage that can be imposed on a person for a lack of reasonable care. HMRC perhaps took the view that a person in Zahawi’s position has sufficient resources and support to get his returns correct. </p>
<p>More serious offences, such as fraudulent misrepresentation – when a person makes a statement that they know is not true – can carry a penalty of <a href="https://www.gov.uk/guidance/penalties-an-overview-for-agents-and-advisers">up to 100% of the tax due</a>). These penalties imposed by HMRC are for cases of tax evasion, that is when someone has clearly under-declared a tax liability (deliberately or not).</p>
<h2>Independent ethics investigation</h2>
<p>So what now for Zahawi? No government wants any indication of careless financial behaviour, much less tax avoidance, hanging around any of its representatives. And so prime minister Rishi Sunak has tasked the <a href="https://www.independent.co.uk/news/uk/home-news/laurie-magnus-ethics-adviser-rishi-sunak-b2267520.html">independent ethics adviser</a> Laurie Magnus to look into Zahawi’s recent interaction with HMRC. </p>
<p>Magnus will be looking for any possible breaches of the <a href="https://www.gov.uk/government/publications/ministerial-code">Ministerial Code</a>. This covers a wide range of transgressions but among the most relevant for this situation are: </p>
<ul>
<li><p>1.1: Ministers of the Crown are expected to maintain high standards of behaviour and to behave in a way that upholds the highest standards of propriety</p></li>
<li><p>7.7: Ministers must scrupulously avoid any danger of an actual or perceived conflict of interest between their Ministerial position and their private financial interests.</p></li>
</ul>
<p>But it is more difficult to understand what exactly Magnus can do. The government is unlikely to go over HMRC’s head and examine the tax position and penalty in detail. So this leaves the issue of investigating <a href="https://www.independent.co.uk/news/uk/politics/nadhim-zahawi-tax-row-timeline-b2268818.html">what and when</a> Zahawi has commented on the matter, and whether that includes any potential inconsistencies or contradictions.</p>
<figure class="align-center ">
<img alt="UK prime minister Rishi Sunak outside 10 Downing Street, London." src="https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=387&fit=crop&dpr=1 600w, https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=387&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=387&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=486&fit=crop&dpr=1 754w, https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=486&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/506491/original/file-20230125-14850-a5widk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=486&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">UK prime minister Rishi Sunak has tasked an ethic advisor with looking into Zahawi’s tax affairs.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-united-kingdom-october-25-2022-2219757061">I T S/Shutterstock</a></span>
</figcaption>
</figure>
<p>Whether Magnus will look at Sunak’s own involvement and how much he knew (or didn’t know) about this matter at certain points in the timeline is another key question. And this also highlights the shortcomings of the ethics adviser role when looking into issues such as tax discrepancies. The adviser cannot independently launch their own inquiries into ministerial matters but must wait for the prime minister to request any investigation. </p>
<p>Just one month after Magnus’s appointment, this ongoing story threatens to expose the weaknesses in the government’s ethical scrutiny, and more importantly for Sunak, affects his ability to present a stable style of premiership following <a href="https://theconversation.com/uk/topics/mini-budget-127482">the economic turmoil</a> of 2022.</p><img src="https://counter.theconversation.com/content/198554/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gavin Midgley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What is ‘careless behaviour’ in relation to UK tax and in what other ways can people fall foul of HMRC?Gavin Midgley, Senior Teaching Fellow in Accounting, University of SurreyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1957642023-01-08T08:45:57Z2023-01-08T08:45:57ZClimate change action could set off a copper mining boom: how Zambia can make the most of it<figure><img src="https://images.theconversation.com/files/501330/original/file-20221215-12-7qdic2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Batches of copper sheets stored in a warehouse at Mopani mines, Mufilira, Zambia. </span> <span class="attribution"><span class="source">Per-Anders Pettersson/Getty Images</span></span></figcaption></figure><p>At last year’s US Africa leaders summit in Washington the US signed an historic <a href="https://news.bloomberglaw.com/environment-and-energy/us-agrees-to-support-ev-battery-plan-by-congo-zambia">memorandum of understanding</a> with Zambia and the Democratic Republic of Congo to develop an electric vehicle battery supply chain. </p>
<p>At the summit, Zambian President Hakainde Hichilema also announced that Kobold metals, an exploration firm backed by billionaires Bill Gates, Jeff Bezos and Richard Branson, <a href="https://www.reuters.com/world/africa/billionaire-backed-kobold-metals-invest-zambia-copper-mine-2022-12-14/">will invest US$150 million to develop a new mine in Zambia</a>.</p>
<p>Zambia is particularly well positioned to supply what the world needs. It has substantial reserves of copper and cobalt, critical metals for the transition from fossil fuels to renewable energy. Due to their broad uses in wind and solar powered technology and electric vehicle production, these metals will play a <a href="http://hdl.handle.net/10986/28312">crucial role</a> in a low carbon future. </p>
<p>Copper demand is expected to <a href="https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions/mineral-requirements-for-clean-energy-transitions#abstract">increase</a> up to threefold by 2040 while cobalt demand is expected to rise over 20 fold. </p>
<p>Zambia has <a href="http://hdl.handle.net/10986/2772">6%</a> of the world’s copper reserves, and the metal accounts for up to <a href="https://www.aa.com.tr/en/economy/falling-copper-prices-hit-zambia-in-pocket/73273">80%</a> of its export earnings. </p>
<p>The coming copper boom presents Zambia with an extraordinary opportunity – to enable mining profits as well as to power inclusive growth. </p>
<p>But, as Zambia’s history shows, this is easier said than done. Successive rises in copper prices have not translated into reducing poverty or inequality. Zambia is still the <a href="https://worldpopulationreview.com/country-rankings/wealth-inequality-by-country">fourth most unequal country</a> in the world. </p>
<p>Based on our <a href="https://academic.oup.com/wbro/article/36/2/164/5813434">published</a> research and <a href="https://www.sciencedirect.com/science/article/pii/S0301420720309983?via%3Dihub">expertise</a> – including work with the <a href="https://www.theigc.org/">International Growth Centre</a> in the London School of Economics and engagement with the Zambian government on a research agenda for the country’s mining sector – we argue that Zambia can benefit from the energy transition underway. But it can only do so by harnessing the non-tax benefits of mining. </p>
<p>Non-tax benefits are the opportunities that stem from the mining activity itself. Most mining firms spend the bulk of their revenue on operational and capital expenditures, a larger share than goes towards either profits or government tax. </p>
<p>A non-tax benefit approach would mean that Zambian companies and workers would participate in mining’s value chain, and Zambian communities would benefit from the infrastructure needed to extract and move the bulk materials. </p>
<p>In the past, Zambia has been more focused on capturing tax benefits through changes to the fiscal regime. But a balanced approach of a stable mining taxation policy and the pursuit of non-tax benefits could deliver broader gains.</p>
<h2>Zambia’s unequal growth story</h2>
<p>Zambia’s track record for converting commodity booms into tangible benefits is mixed at best. </p>
<p>Take the last commodity cycle. Sparked by growing demand from China, copper prices began to <a href="https://www.ijstr.org/final-print/oct2015/Analysis-Of-Coppers-Market-And-Price-focus-On-The-Last-Decades-Change-And-Its-Future-Trend.pdf">increase</a> in 2004. From 2003 to 2006 the price of copper, Zambia’s main export, more than tripled. Zambia’s economic growth rate took off in response. (See Figure 1.)</p>
<p>Yet there was no corresponding impact on <a href="https://www.theigc.org/project/economic-growth-inequality-poverty-estimating-growth-elasticity-poverty-zambia/">poverty and income inequality</a>. Zambia’s Gini coefficient, a measure of inequality, actually rose slightly during the cycle. </p>
<p>Even Zambia’s poverty rate, as measured by the percentage of the population living on less than US$2.15 per day (in 2017 purchasing power parity dollars), rose through 2010 before starting to reverse. </p>
<p>That year, a stunning 68.5% of Zambia’s people were living in poverty in a country where annual GDP per person was a much more impressive US$3,125.52 (also in 2017 dollars) – four times the poverty rate. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=367&fit=crop&dpr=1 600w, https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=367&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=367&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=462&fit=crop&dpr=1 754w, https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=462&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=462&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Figure 1.</span>
<span class="attribution"><span class="source">Authors' computations from World Bank Data</span></span>
</figcaption>
</figure>
<p>During commodity booms, governments may be tempted to focus on capturing short-term gains, which are frequently understood in monetary terms and primarily as tax benefits. </p>
<p>For Zambia, this dynamic was overlaid on top of the disastrous advice the government had received on how to reopen its previously nationalised copper sector a decade earlier.</p>
<p>The Zambian government entered into unfavourable terms with new mine owners, offering generous tax incentives that led to a loss <a href="https://link.springer.com/chapter/10.1057/9780230115590_3">in tax revenue</a> just a handful of years before the copper price rose.</p>
<p>This fuelled a fixation on getting tax revenue from the sector.</p>
<p>In 2008, amid the boom, Zambia introduced a <a href="https://www.wider.unu.edu/publication/zambia%E2%80%99s-mining-windfall-tax-0">windfall tax</a> on mining profits in an attempt to capture more benefits from the sector. Less emphasis was placed on the largely untapped non-tax benefits. </p>
<h2>Why non-tax benefits?</h2>
<p><a href="https://unctad.org/system/files/non-official-document/unda1617ld03_mining_SA_en.pdf">Non-tax benefits</a> are where the real potential to drive inclusive growth lies, as we detail below. </p>
<p>Figure two is a hypothetical one that illustrates the point. For every $100 generated in revenue, imagine that $70 is spent on operational and capital expenditures, that is, running the mine and expanding operations. (This is not unrealistic: <a href="https://www.researchgate.net/publication/304909452_Doubling_Energy_Productivity_by_2030_-_Re-Energising_the_Mining_Sector_to_Improve_Its_Competitiveness_-_Full_Report">margins</a> in the sector are not very high most of the time.)</p>
<p>If more of this were spent within the country rather than being sent abroad to import the majority of goods and services, it could contribute to business opportunities for Zambian companies and high-paying jobs for Zambian workers. </p>
<p>In 2012, the costs of goods and services consumed “upstream” by the Zambian mining sector was valued at <a href="https://academic.oup.com/book/40396/chapter/347211221">US$2.5 billion</a> annually. Spending more of that domestically would have a much wider impact. It would create income and jobs directly. And that income would finance further consumption and investment through the local economy. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=337&fit=crop&dpr=1 600w, https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=337&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=337&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=423&fit=crop&dpr=1 754w, https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=423&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=423&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Figure 2.</span>
<span class="attribution"><span class="source">Authors’ illustration</span></span>
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<p>Non-tax benefits can also emerge from “sidestream” projects related to mining expenditure, adding value to the wider economy. The power, rail and road projects that enable mining activity can provide the backbone to make other economic activities competitive. </p>
<p>“Downstream” linkages are also possible – delivering the mining firm’s output to other firms that process it into intermediate goods and final products. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=342&fit=crop&dpr=1 600w, https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=342&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=342&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=430&fit=crop&dpr=1 754w, https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=430&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=430&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Figure 3.</span>
<span class="attribution"><span class="source">Lombe 2020, adapted from Fessehaieet al. 2015:53</span></span>
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<h2>What would non-tax benefits look like for Zambia?</h2>
<p>Figure three shows the breakdown of Zambian mining firms’ goods and services expenditure. </p>
<p>In 2012, 96% of all service were provided by foreign firms. Only 4% were provided by Zambian-owned firms. These were mostly supplying non-core goods and services such as catering, security and office maintenance. </p>
<p>Capturing more of mining’s upstream value chain in Zambia represents a major growth opportunity.</p>
<p>One way to make this happen is through a <a href="https://doi.org/10.1093/oso/9780198851172.003.0019">local content strategy</a> that would give a greater role to Zambian suppliers and workers in the mining sector. </p>
<p>Another growth opportunity is the side-stream linkages with the electricity generation sector. For example, a mining company could sell surplus renewable power to the grid.</p>
<h2>Zambia shouldn’t ignore mining taxation</h2>
<p>By advocating for non-tax benefits, we are not suggesting that taxation be ignored. Copper reserves over time will run out, or copper will be rendered obsolete by some new technology. This is the risk with all natural resources. A government must generate tax revenue from its mineral resources while it can.</p>
<p>Multinational companies can find ways to pay as little tax as legally possible. In the past, Zambia tried to stop this by tinkering repeatedly with the mining tax system – without getting results. </p>
<p>Better would be to leave the tax regime in place and instead focus on monitoring and collection. </p>
<h2>A governance dividend</h2>
<p>Zambia’s government must keep in mind that poor governance will be a constraint to achieving any future – tax or non-tax – benefits. </p>
<p>This was the case during Zambia’s last boom. But the country is currently reaping a governance dividend with a new investor-friendly president, restored donor confidence and a recently secured IMF deal. </p>
<p>The conditions are in place for Zambia to use this boom to generate inclusive development.</p><img src="https://counter.theconversation.com/content/195764/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The coming copper boom presents Zambia with an extraordinary opportunity – not only to enable mining profits, but to power inclusive growth.Twivwe Siwale, Head of Tax for Growth, International Growth Centre, London School of Economics and Political ScienceEric Werker, William Saywell Professor of International Business, Simon Fraser UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1969792022-12-21T18:42:24Z2022-12-21T18:42:24ZIs Donald Trump’s tax avoidance ethical or honorable? 4 essential reads<figure><img src="https://images.theconversation.com/files/502426/original/file-20221221-21-hy5n39.jpg?ixlib=rb-1.1.0&rect=535%2C329%2C5453%2C4239&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Is trying to pay zero taxes ok?</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/TrumpLegalTroubles/fffd6b35020448f0b19210b32b7a961f/photo?Query=trump%20tax&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=2949&currentItemNo=84">AP Photo/José Luis Villegas, Pool</a></span></figcaption></figure><p><em>The tax records of Donald Trump, <a href="https://www.reuters.com/world/us/trump-paid-no-income-tax-2020-reported-losses-office-records-show-2022-12-21/">details of which were released on Dec. 21, 2022</a>, show the former president <a href="https://www.bloomberg.com/news/articles/2022-12-21/jet-costs-sketchy-deductions-among-red-flags-in-trump-taxes?srnd=premium&sref=Hjm5biAW">used the same aggressive measures</a> to avoid paying high taxes while in office as he did during his business career. Indeed, he paid zero tax in 2020 – the last full year of his presidency – according to figures released by the House Ways and Means Committee in one of its last moves under Democratic control. The panel plans to release redacted versions of six years’ worth of tax returns soon.</em></p>
<p><em>The Conversation <a href="https://theconversation.com/us/search?q=trump+taxes&sort=relevancy&language=en&date=all&date_from=&date_to=">has been covering Trump’s taxes</a> since he <a href="https://www.politico.com/magazine/story/2019/06/14/donald-trump-campaign-announcement-tower-escalator-oral-history-227148/">began his run for the presidency in 2015</a>. These articles from our archive, all published in the run-up to the 2020 election, explore tax-paying ethics, problems with the U.S. tax code and why the working poor are audited almost as much as the rich.</em></p>
<h2>1. The honor of paying taxes</h2>
<p>Many wealthy Americans, including Trump, take great pains and spend a lot of money on accountants to minimize their tax bill, often by mining the tax code for loopholes or even filing fake tax returns. For some, <a href="https://www.ipi.org/ipi_issues/detail/tax-avoidance-is-patriotic">tax avoidance – which is different from illegal tax evasion – is even considered patriotic</a>, and rich people often boast paying little to no taxes. In contrast, ancient Athenians <a href="https://theconversation.com/only-the-richest-ancient-athenians-paid-taxes-and-they-bragged-about-it-147249">bragged about paying their taxes</a>, <a href="https://www.holycross.edu/academics/programs/classics/thomas-r-martin">Thomas Martin</a>, a professor of the classics at College of the Holy Cross, wrote in 2020. </p>
<p>“In ancient Athens, only the very wealthiest people paid direct taxes, and these went to fund the city-state’s most important national expenses – the navy and honors for the gods,” he explained. “While today it might sound astonishing, most of these top taxpayers not only paid happily, but also boasted about how much they paid.”</p>
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Read more:
<a href="https://theconversation.com/only-the-richest-ancient-athenians-paid-taxes-and-they-bragged-about-it-147249">Only the richest ancient Athenians paid taxes – and they bragged about it</a>
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<h2>2. The ethics of paying taxes</h2>
<p>Perhaps the well-to-do of Athens relished the prospect of paying their dues, but is it unethical to go out of your way to avoid them? </p>
<p><a href="https://scholar.google.com/citations?user=9wyT114AAAAJ&hl=en&oi=ao">Erin Bass</a>, who studies business ethics at the University of Nebraska, Omaha, <a href="https://theconversation.com/is-tax-avoidance-ethical-asking-for-a-friend-147967">addressed this question</a> from a philosophical perspective, exploring how different ethical thinkers would approach the topic. Deontologists like Immanuel Kant, utilitarians like John Stuart Mill and virtue ethicists like Aristotle all reach different conclusions about whether tax avoidance is ethical, Bass explained. </p>
<p>But she added: </p>
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<p>“When it comes to Trump and other public figures, there is an additional ethical concern at play here. Public leaders are evaluated not just on their own personal morality, but also by what influence their behaviors could have on others,” she wrote. “If a public leader avoids taxes, it might signal to the public to do the same, which could have greater consequences.”</p>
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Read more:
<a href="https://theconversation.com/is-tax-avoidance-ethical-asking-for-a-friend-147967">Is tax avoidance ethical? Asking for a friend</a>
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<h2>3. What’s wrong with the US tax code?</h2>
<p>While some say that Trump and others are smart for minimizing their taxes, critics say they’re amoral tax cheats.</p>
<p>To <a href="https://scholar.google.com/citations?hl=en&user=rmtYVssAAAAJ">Gary Winslett</a>, an assistant professor of political science at Middlebury, “it reveals just how much is wrong with the U.S. tax code, which Congress treats as a sort of policy Swiss Army knife to deal with innumerable desired social and economic policy goals, from homeownership to protecting the Maine blueberry industry.”</p>
<p>This has <a href="https://theconversation.com/trumps-ultra-low-tax-bills-are-what-happens-when-government-tries-to-make-policy-through-the-tax-code-147342">made the U.S. income tax system very complicated</a> for regular taxpayers. It led to the many loopholes and other means by which the wealthy can reduce their tax payments to levels others find unfair.</p>
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Read more:
<a href="https://theconversation.com/trumps-ultra-low-tax-bills-are-what-happens-when-government-tries-to-make-policy-through-the-tax-code-147342">Trump's ultra-low tax bills are what happens when government tries to make policy through the tax code</a>
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<h2>4. Auditing the working poor</h2>
<p>Another finding of the House panel is that the IRS didn’t audit Trump’s tax returns during the first two years of his presidency, even though it was required to do so. </p>
<p>This raises an important point: Although audits are often seen as mainly targeting the rich, the reality is the <a href="https://theconversation.com/trumps-decade-old-audit-illustrates-why-the-irs-targets-the-working-poor-as-much-as-the-rich-147313">working poor are audited at rates almost as high</a>, explained <a href="https://law.richmond.edu/faculty/hholdern/">Hayes Holderness</a>, an assistant professor of law at the University of Richmond. </p>
<p>“The IRS’s limited resources mean that auditors end up focusing their attention on cases with more straightforward issues and more accessible information,” he wrote. “That’s why lower-income individuals receiving the earned income tax credit were audited at a 1.2% rate in 2016, the most current year of mostly complete data, comparable to the audit rate of roughly 1.5% for individuals earning over $500,000.”</p>
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Read more:
<a href="https://theconversation.com/trumps-decade-old-audit-illustrates-why-the-irs-targets-the-working-poor-as-much-as-the-rich-147313">Trump's decade-old audit illustrates why the IRS targets the working poor as much as the rich</a>
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<img src="https://counter.theconversation.com/content/196979/count.gif" alt="The Conversation" width="1" height="1" />
A House committee released details of Trump’s tax returns from his time in office – and they show he paid zilch in 2020.Bryan Keogh, Managing EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1948292022-11-17T16:15:40Z2022-11-17T16:15:40ZAutumn statement 2022: experts react<p><em>UK chancellor Jeremy Hunt laid out his plans for the British economy today. The statement was made against a backdrop of a more than <a href="https://www.theguardian.com/business/2022/nov/16/uk-inflation-rate-energy-price-rises">40-year inflation high</a> and <a href="https://www.reuters.com/markets/europe/bank-englands-recession-warning-turns-spotlight-uk-budget-plan-2022-11-04/">recession warnings</a> from the Bank of England.</em></p>
<p><em>Hunt <a href="https://www.bbc.co.uk/news/live/uk-63591754?ns_mchannel=social&ns_source=twitter&ns_campaign=bbc_live&ns_linkname=6376067f49d9ef23494baaa2%26Chancellor%20appears%20outside%20Number%2011%262022-11-17T10%3A39%3A53.657Z&ns_fee=0&pinned_post_locator=urn:asset:0263a644-4497-4d45-a22b-8036cd5e4921&pinned_post_asset_id=6376067f49d9ef23494baaa2&pinned_post_type=share">skipped the usual photocall</a> with his red ministerial box, since this is an autumn statement rather than a full-blown budget.</em></p>
<p><em>The main aim of the statement is to <a href="https://theconversation.com/rishi-sunak-faces-a-very-different-economy-to-the-one-he-left-as-chancellor-heres-what-he-must-tackle-as-prime-minister-193150">restore government credibility</a> following the disastrous <a href="https://theconversation.com/mini-budget-2022-experts-react-to-the-new-uk-governments-spending-and-tax-cut-plans-191274">September mini-budget</a> from the previous chancellor Kwasi Kwarteng. To do this, Hunt said before the announcement that he would be making “<a href="https://www.itv.com/news/2022-10-17/jeremy-hunt-to-outline-mini-budget-tax-spending-and-plan-today">eye-watering</a>” decisions about tax rises and spending cuts.</em></p>
<p><em>We asked a panel of experts to analyse whether the government has achieved these twin aims of stabilising the economic picture and addressing a dire cost of living crisis.</em></p>
<h2>Stealth taxes and rising costs</h2>
<p><strong>Jonquil Lowe, senior lecturer in economics and personal finance, The Open University</strong></p>
<p>The government’s expected spending cuts and tax rises, set to reach £30 billion and £24 billion respectively, were difficult to spot. Instead, the chancellor appeared to be announcing more spending on health, social care and education, while promising continued help with energy costs and the cost-of-living crisis. </p>
<p>But in the shadows loomed stealth taxes and public service “efficiency savings” as inflation rates continues to bite, with the OBR <a href="https://obr.uk/">predicting</a> that living standards will fall by 7% over the next two years</p>
<p>Starting with income tax, the thresholds of personal allowance (£12,570) and higher-rate tax (£50,270) will now remain frozen until April 2028. So too will the threshold for national insurance (also £12,570). </p>
<p>This means that as incomes rise (even if not by enough to counter the impact of inflation) more people who were previously non-taxpayers will start to pay tax, and more basic-rate taxpayers will slip into the higher-rate bracket. More people will also pay the 45% rate as that threshold drops from £150,000 to £125,140.</p>
<p>From April 2023, households will also see a bigger rise in council tax bills, as local authorities are given the freedom to increase them by up to 5%, which includes 2% to meet social care costs. Plans designed <a href="https://theconversation.com/social-care-reform-lifetime-cap-on-costs-may-only-partially-protect-assets-167574">to protect individuals</a> from bearing catastrophically higher care costs have been delayed for two years.</p>
<p>Meanwhile, the energy price guarantee which shields households from the full impact of soaring global energy prices is set to be extended by 12 more months from April 2023. Although energy costs will still rise, the “typical” household will see their energy bills capped at £3,000 a year (up from the current £2,500). </p>
<p>Surprisingly the guarantee will continue to apply to all households, not just the most vulnerable. But the government is consulting on restricting this state support in the case of those who use very large volumes of energy. It has also said it will look into improving social tariffs for vulnerable households.</p>
<p>There will be a repeat roll out of cost-of-living payments in 2023-24, with £900 for households on means-tested benefits, £300 for pensioner households and an extra £150 for individuals on disability benefits. </p>
<p>Benefits and state pensions will go up by 10.1%, in line with September’s inflation rate. But the government is going ahead with plans to put pressure on working-age claimants to increase their hours or earnings. It is not clear whether this will include sanctions for those who don’t succeed.</p>
<h2>Filling ‘black hole’ will hit growth</h2>
<p><strong>Phil Tomlinson, professor of industrial strategy, deputy director centre for governance, regulation and industrial strategy, University of Bath</strong></p>
<p>The new chancellor has adopted the persona of <a href="http://micawberprinciple.com/the-micawber-principle-living-the-fundamental-law-of-personal-finance-45/">Mr Micawber</a> of Charles Dickens’ David Copperfield – whose happiness depended on living within his means. The chancellor wants to fill a <a href="https://www.msn.com/en-gb/money/other/what-is-the-uks-55billion-fiscal-black-hole-simon-lambert-on-why-we-face-a-wave-of-budget-tax-hikes-into-a-recession-based-on-a-forecast/ar-AA14d9wW">£55 billion “black hole”</a> in the public finances. This is the gap between the Office for Budget Responsibility (OBR) forecasts of national debt and the government’s own fiscal target to reduce public debt as a proportion of national income over the next five years. To do this, the chancellor has announced a combination of public spending cuts and tax rises. This is a political choice rather than one based on economics. The black hole arises from the government’s <a href="https://progressiveeconomyforum.com/publications/the-dangerous-fiction-of-the-fiscal-black-hole/#:%7E:text=The%20Dangerous%20Fiction%20of%20the%20%E2%80%9CFiscal%20Black%20Hole%E2%80%9D,highly%20uncertain%20forecasts%2C%20not%20tax%20or%20spending%20decisions">own accountancy rules</a> and highly uncertain forecasts.</p>
<p>Unlike ordinary households, the UK government has an infinite amount of time to repay its debts. And, as a currency issuer (exchange rate and inflation risks aside), it can always repay debts denominated in sterling. The UK’s <a href="https://www.statista.com/statistics/282841/debt-as-gdp-uk/">debt to GDP</a> ratio is also the second lowest among the G7 group of nations. So, the government actually has scope to invest in the economy.</p>
<p>The announced fiscal tightening will reduce demand in the economy and hit critical investment in public services and infrastructure. This is at a time when the UK is entering what is expected to be the <a href="https://www.bbc.co.uk/news/business-63471725">longest recession</a> since records began. Some might suggest the chancellor has joined the “<a href="https://www.theweek.co.uk/news/uk-news/958106/the-anti-growth-coalition-who-are-liz-trusss-new-enemies">anti-growth coalition</a>” because the measures announced today will hurt growth. These cuts will also feel like a betrayal to <a href="https://www.theguardian.com/politics/2022/jul/17/red-wall-tories-warn-honour-levelling-up-pledges-or-well-lose-the-next-election">Tory voters</a> who bought into the promise of levelling up.</p>
<p><a href="https://www.economist.com/leaders/2022/06/09/low-economic-growth-is-a-slow-burning-crisis-for-britain">Anaemic growth</a> has plagued the UK for more than a decade. Micawber eventually triumphed over adversity by borrowing to purchase a ticket to start a new (and successful) life in Australia. Public borrowing to invest in the UK’s dilapidated public services, research and development, green technologies and infrastructure would boost the supply side of the economy, increasing productivity and stimulating growth. Instead, the autumn statement is a return to austerity and <a href="https://en.wikipedia.org/wiki/Hard_Times_(novel)">hard times</a>.</p>
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<h2>Economy worse now than when austerity first introduced</h2>
<p><strong>Shampa Roy-Mukerjee, associate professor in economics, University of East London</strong></p>
<p>Spending cuts announced in the autumn statement have been widely dubbed “<a href="https://www.independent.co.uk/independentpremium/autumn-statement-uk-politics-latest-b2226977.html">Austerity 2.0</a>” since they follow 12 years of austerity measures implemented by previous Conservative chancellor <a href="https://www.cnbc.com/2016/07/14/osbornes-legacy-what-the-austerity-chancellor-leaves-behind.html">George Osborne</a>. But there are some major differences between the two and the impact they will have on UK households and businesses.</p>
<p>First, the 2010 austerity measures were introduced after public services had enjoyed <a href="https://www.irishtimes.com/news/brown-commits-britain-to-major-increase-in-public-spending-1.1088670">record levels of investment</a> by the previous Labour government, leaving more scope for cuts. With no real term investment in public services since 2010, many are already <a href="https://www.theguardian.com/society/2022/oct/25/how-spending-cuts-could-affect-uk-government-departments">cut to the bone</a>.</p>
<p>Second, when austerity cuts were introduced in 2010 the economy was growing, albeit slowly. But the Bank of England has announced a UK recession for the next eight quarters – one of the longest in recent history. More deep cuts to public services will negatively impact growth.</p>
<p>Third, in 2010 inflation was under control and interest rates were <a href="https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp">much lower</a> than today, hovering around 1%. This allowed the Bank of England to carry out quantitative easing (QE – increasing the money supply) to grow the economy after the 2007-8 global financial crisis. This is certainly not the case now as the bank has ruled out such measures and has steadily <a href="https://www.bankofengland.co.uk/monetary-policy-report/2022/november-2022">increased interest rates</a> to 3%, so far, to control inflation.</p>
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Read more:
<a href="https://theconversation.com/inflation-why-you-might-be-worrying-about-it-more-than-you-should-191816">Inflation: why you might be worrying about it more than you should</a>
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<p>High interest rates increase the cost of borrowing for households, businesses and the government, negatively affecting future investment in the economy. Labour markets are also tighter than ever and the shortage in skilled labour in public services and in private businesses is preventing economic growth.</p>
<p>The government’s ability to balance economic growth and commit to fiscal discipline amid one of the worst economic downturns in recent history will also depend on global events. Russia’s war in Ukraine, China’s COVID lockdowns, as well as the ability of the UK to forge trade and foreign investment deals post-Brexit will all affect the success of Hunt’s plans.</p>
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<img alt="Growing stacks of coins with blocks on top spelling out " src="https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495904/original/file-20221117-17-nrs4l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The autumn statement will affect the taxes people pay.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/tax-concept-wooden-block-on-stacked-313474802">enciktepstudio</a></span>
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</figure>
<h2>£2.3 billion support for education</h2>
<p><strong>Hilary Ingham, senior lecturer in economics, Lancaster University</strong></p>
<p>Keeping the <a href="https://www.gov.uk/government/speeches/the-growth-plan-2022-speech">goal of growth</a> promoted by his predecessor, Kwasi Kwarteng, Hunt’s autumn statement contained important statements on education and work.</p>
<p>Somewhat surprisingly, in the light of the <a href="https://www.reuters.com/world/uk/uk-faces-50-billion-pound-fiscal-hole-government-sources-say-2022-11-07/">£50 billion hole</a> in government finances, the chancellor <a href="https://www.gov.uk/government/speeches/the-autumn-statement-2022-speech">today announced</a> a strong support package for education, calling education a public service that determines all our futures. Referring to the UK rising nine places in global league tables for maths and reading, Hunt stressed the need for the country’s school leavers to have the skills needed for the modern economy when they enter the workforce.</p>
<figure class="align-center ">
<img alt="Children walking to school wearing backpacks." src="https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495952/original/file-20221117-20952-cc1n4t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption"></span>
<span class="attribution"><span class="source">MAD/Shutterstock</span></span>
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<p>The goal is that young people will match the achievements of their peers in Germany, Japan, and Switzerland. To achieve this, the chancellor said the government would invest an extra £2.3 billion in schools in 2023 and 2024. <a href="https://www.gov.uk/government/people/michael-barber">Sir Michael Barber</a>, a former adviser to the education secretary, will also be appointed to work on a skills reform programme.</p>
<p>At the same time, Hunt addressed the problem of the “great resignation” which has left the UK with more than 300,000 economically inactive people – those neither in work nor seeking paid employment. With businesses struggling to fill vacancies, the Department of Work and Pensions will be providing support to encourage these people back to work. At the same time, measures will be put into place to enable those on Universal Credit to increase both their hours and earnings.</p>
<p>So, amid the spending cuts, the government remains committed to growth and sees education, skills and a buoyant labour market as central to this.</p>
<h2>Subtle amendments to personal tax</h2>
<p><strong>Gavin Midgley, senior teaching fellow in accounting, University of Surrey</strong></p>
<p>One of the most difficult political manoeuvres a chancellor faces is the raising of personal tax while avoiding a move that will create immediate public anger. Hunt has opted for subtle amendments (or in the case of threshold freezes, non-amendments) that will gradually increase the public’s tax burden over time but not cause a sudden increase in the average citizen’s tax liability.</p>
<p>For the households more immediately concerned about changes to their standard of living, a reduction of the additional rate income tax bracket from £150,000 to £125,000 is unlikely to see people take to the streets. The proposed reduction of the annual exemption for capital gains tax to under a quarter of current levels (from £12,300 to £3,000 in April 2024) is also striking and may affect more than relatively wealthy individuals.</p>
<p>But should higher inflation persist beyond the next two years, the freezing of the upper tax bracket threshold at £50,270 to April 2028 may cause headaches. This means that for somebody earning just under £40,000 a year in 2022-23, should their wages increase at a rate of 5% per year (well below the current inflation rate) they will find themselves slipping into the 40% tax bracket by 2027-28. </p>
<p>So if inflation averages higher than 5% a year over this time, they may well see a reduction in their real level of disposable income while paying a higher effective tax rate. For households with a higher level of costs, this may give rise to resentment over time.</p>
<p>In some past budgets and fiscal statements, relatively smaller measures have ended up being those that the public rail against. Could it happen again this time? While £165 a year may not be considered a sizeable amount to many, it will be interesting to see how the government fully justifies its removal of the vehicle excise duty (VED) exemption for electric vehicles, also announced in the autumn statement, given their <a href="https://www.edfenergy.com/electric-cars/government-grants">previous promotion</a> of these vehicles.</p>
<h2>Extra £3.3 billion not enough to repair NHS</h2>
<p><strong>Cam Donaldson, Yunus chair and distinguished professor of health economics, Glasgow Caledonian University</strong></p>
<p>Healthcare was never going to be a big feature of Hunt’s statement. But as a former health secretary, he must know that health and the economy are intimately intertwined. </p>
<p>Not only is it well established that poverty and income are key determinants of population health, but we are also now seeing <a href="https://www.health.org.uk/news-and-comment/charts-and-infographics/is-poor-health-driving-a-rise-in-economic-inactivity">evidence</a> of the extent to which poor health affects the size of the UK workforce. </p>
<p>The safety nets of welfare, the NHS and social care have never been more important, and the major challenges they face continue. Previous NHS funding increases have been gobbled up by inflation and the system faces huge backlogs. An extra £3.3 billion added to a £200 billion budget will do little to repair either. </p>
<p>We have been promised two reviews. The first is to tell new “integrated care boards” how to operate more efficiently – something previous configurations of the NHS have not been good at. The second is a review of staff shortages when the need to retain nurses and stop overpaying for agency nurses is urgent and has an obvious solution – to pay existing staff more. This is necessary, but will not enhance NHS productivity.</p>
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<img alt="Ambulances outside A&E department." src="https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=320&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=320&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=320&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=402&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=402&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495953/original/file-20221117-25-vbtiiq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=402&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The NHS needs better care.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-uk-june-17th-2020-ambulances-1758285446">Shutterstock/chrisdorney</a></span>
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</figure>
<p>With the better off spending more on private treatment, a tipping point leading towards complete breakdown feels imminent. Despite funding promises, major social care challenges remain unresolved, providing a good indication of where we are heading with a broken NHS – potentially ending up with a multi-tiered US-style system which is more expensive and less equitable. This is why a fresh vision is required for taxation that goes beyond simply trying to balance the books.</p>
<p><strong>Karen Bloor, professor of health economics and policy, University of York</strong></p>
<p>NHS performance reflects not only the pandemic but a decade of relatively <a href="https://www.health.org.uk/news-and-comment/news/uk-spent-around-a-fifth-less-than-european-neighbours-on-health-care-in-last-decade">constrained funding</a>. The chancellor announced real terms increases in spending for both health and social care. </p>
<p>He also (unsurprisingly but importantly) accepted the findings of the health select committee (where he was formerly the chair) on the health and care workforce; staff retention and productivity are key to getting performance back on track. Although he announced investment in social care, he avoided any real reform and again delayed implementing the <a href="https://www.lgcplus.com/services/health-and-care/dilnot-very-disappointed-by-social-care-cap-announcement-18-11-2021/">cap on care costs</a>.</p>
<h2>Taxes will reduce investment in energy</h2>
<p><strong>Adi Imsirovic, senior research fellow, Oxford Institute for Energy Studies, University of Surrey</strong></p>
<p>As expected, the chancellor increased the windfall tax on profits of oil and gas firms from 25% to 35% and extended it until March 2028. From January, he also introduced a temporary 45% tax on electricity generators. </p>
<p>Both taxes tend to reduce investment in energy, just as we need more of it. The biggest multinational energy companies also make most of their money overseas, making the policy limited in scope. But right now the UK needs the money, and these two taxes will raise around £14 billion next year alone. </p>
<p>Yet if the profits for energy companies caused by the war in Ukraine are the driver for these taxes, an opportunity was surely missed to tax other sectors of the economy which have also made huge profits from the war – such as arms manufacturers.</p>
<p>Elsewhere the chancellor set a target of cutting energy demand by 15% by investing £6 billion in insulation and efficiency, and creating an energy efficiency taskforce. These are good policies – increasing efficiency is the easiest and cheapest way to reduce energy bills and improve energy security – but probably amount to a case of too little too late. The continued ban on onshore wind and slow approvals of all energy projects remain major obstacles, but were not addressed at all.</p>
<p>The energy price cap was extended for one year beyond April, but the typical bill was capped at £3,000 a year, £500 higher. Capping prices is a bad policy, keeping demand high while funding despots like Putin. A better policy would be targeted measures to help households on means-tested benefits. </p>
<p>The chancellor will give them an extra £900 next year. Pensioner households will get £300, and those on disability benefits £150. But if the chancellor got rid of the price cap, which disproportionately subsidised the rich, he could have been far more generous towards those in need – and saved some cash for the government coffers at the same time.</p>
<h2>An eye on the election</h2>
<p><strong>Despina Alexiadou, senior lecturer at the school of government and public policy, University of Strathclyde</strong></p>
<p>The autumn statement was designed to win back the trust of international markets in a challenging economic climate - but also with a clear eye on the next general election. </p>
<p>Taxing the richer earners, for example, was the most progressive element, with its reduction in the highest tax rate threshold from £150,000 to just over £125,000. For while this might not be something we’d expect from a Conservative government, the majority of voters clearly favour higher taxes on high income earners. </p>
<p>According to a <a href="https://www.ipsos.com/en-uk/britons-most-oppose-raising-council-tax-and-vat-ahead-autumn-statement">recent survey</a>, 64% of British people support increasing the top income tax-rate from 45% to 50% for those earning over £150,000. The government did not go that far, but it increased the number of earners who will pay the current top rate of 45%. </p>
<p>There was also the halving of the capital gains tax allowance, from £12,000 to £6,000. But in reality this is mostly a blow to small investors rather than those whose main income comes from capital gains. A budget that genuinely asks those with the most to contribute more would have increased the tax rate from its current level of 20% to something closer to Germany’s 26% or the 34% rate in France.</p>
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<img alt="A black hole." src="https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=354&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=354&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=354&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=445&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=445&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495957/original/file-20221117-25-eqoykh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=445&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Filling the void.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/science-fiction-black-hole-into-space-1389012446">Shutterstock/Dima Zel</a></span>
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<p>The statement also mostly maintained current levels of benefits, which is what the vast majority of British people prefer. Only a minority (around 30%) were in favour of benefits not rising in line with inflation. </p>
<p>Amid those benefits, the government maintained the pension triple-lock, which ensures that pensions rise every year in line with inflation. This is fair and vital for poorer recipients – and also vital for the Conservative party, given that pensioners make up a <a href="https://yougov.co.uk/topics/politics/articles-reports/2019/12/17/how-britain-voted-2019-general-election">significant section</a> of their support when that general election comes around. </p>
<h2>Military investment</h2>
<p><strong>Peter Bloom, professor of management, University of Essex</strong></p>
<p>For those hoping to see a rise in defence spending, the statement was cautiously optimistic. Hunt said he would not allow it to fall under 2% of GDP – and there is still a chance of an increase at a review later on. The government has said it needs to spend more to “meet the threats we face”. </p>
<p>At the moment, the defence budget is planned to grow from £14.2 billion this year to £19.5 billion in 2022-2023. The following year it will be reduced to £16.6 billion. While these figures are projections, it does show an apparent desire for both investment and cost effectiveness.</p>
<p>And there are more fundamental questions to to be asked beyond numbers on a budget spreadsheet. While the government continues to link defence spending to the spread of democracy (and a desire to view the UK as a responsible global citizen), the facts are more complicated. </p>
<p>Putin’s invasion was completely unjustified, but it does not change the fact that heightened military build-ups, whether by Nato, China, Russia, or the US, breeds more conflict and less peace. Continuing to link economic growth and job creation to military investment should concern us all.</p>
<h2>Failure to address childcare costs</h2>
<p><strong>Jennifer Castaneda Navarrete, senior policy analyst, University of Cambridge</strong></p>
<p>Although the adoption of the pay recommendations of the independent pay review bodies for the NHS and teachers is welcome, there is no mention in the statement of the working conditions in social care and childcare. The <a href="https://www.coram.org.uk/sites/default/files/resource_files/Coram%20Childcare%20Survey%20-%202022.pdf">increasing cost</a> and unavailability of childcare is exacerbating the cost of living crisis and pushing many women out of the labour market. An estimated <a href="https://wbg.org.uk/wp-content/uploads/2022/03/Childcare-and-gender-PBB-Spring-2022-1.pdf">1.7 million women</a> are prevented from taking on more hours of paid work due to lack of affordable childcare, resulting in up to <a href="https://wbg.org.uk/wp-content/uploads/2022/03/Childcare-and-gender-PBB-Spring-2022-1.pdf">£28.2 billion economic output lost every year</a>.</p>
<p>Prioritising public services during difficult economic times is a sensible approach, however, the government could invest further in social care and childcare, recognising the <a href="https://wbg.org.uk/wp-content/uploads/2022/03/Childcare-and-gender-PBB-Spring-2022-1.pdf">long-term impact of these investments</a>, such as unlocking talent to address skills shortages in the labour market and contributing to the levelling-up agenda.</p>
<h2>Businesses will go under</h2>
<p><strong>Steve McCabe, associate professor, Institute for Design, Economic Acceleration & Sustainability, Birmingham City University</strong></p>
<p>The Conservative party knows that supporting entrepreneurship is essential. What’s crucial is that there’s financial stability to create the levels of confidence for investment that will stimulate economic growth and the well-paid jobs which will lead to future prosperity. </p>
<p>Investing in infrastructure, energy provision and in education is essential. However, as the OBR has warned, high energy costs, interest rates and corporate taxes also reduce business investment. </p>
<p>And the general environment for UK business looks really dreadful. Talk of “levelling up” coupled with a somewhat grandiose vision of Britain becoming the next Silicon Valley needs to be measured against quite how difficult things are going to be in the immediate future. </p>
<p>A massive drop in living standards will have a profound impact on discretionary spending. Retail and hospitality, already reeling from the effects of the pandemic and spiralling energy costs, will be hit hard. The businesses which do survive will undoubtedly emerge stronger. But far too many businesses will go under – at great cost to economic growth, the exchequer, and young people in need of opportunity.</p>
<h2>UK’s slower growth than eurozone</h2>
<p><strong>Supriya Kapoor, assistant professor of finance, Trinity College Dublin</strong></p>
<p>The UK economy has reported slower growth this quarter compared to the final quarter of 2019, which was 2.1% higher. The IMF has forecast that the UK will have the <a href="https://www.bbc.co.uk/news/business-62299490">slowest growth</a> of all G7 countries next year. This is in sharp contrast to eurozone, where output growth has already exceeded the pre-pandemic figures.</p>
<p>All European countries are dealing with the aftermath of the pandemic, inflation and rising interest rates, so the current economic situation and political instability in the UK are more likely due to a worsening of the country’s finances following Brexit. A recent YouGov shows 56% of Britons certainly think leaving EU was the <a href="https://yougov.co.uk/topics/politics/articles-reports/2022/11/17/one-five-who-voted-brexit-now-think-it-was-wrong-d">wrong decision</a>.</p>
<p>During his autumn statement, Hunt admitted the UK is in a recession and has promised billions of pounds worth of spending cuts and tax hikes, something that no other advanced economy is doing. This <a href="https://news.sky.com/story/pound-falls-as-markets-and-business-respond-to-autumn-statement-12749526">immediately resulted</a> in further depreciation of the currency against the dollar and a rise in gilt yields.</p>
<p>On the health front, the question is whether investing in social care and an increase of £3.3 billion in NHS funding will help UK health spending come close to EU countries. Currently the UK spends <a href="https://www.ft.com/content/f752a1ad-4a23-408f-a549-4909974c6a2c">about 20% less</a> than other European countries on per capita health spending</p>
<p>The Sunak government believes the UK’s £55 billion energy package will help businesses and households with energy bills, claiming this is the largest support plan in Europe currently. However, the introduction of the energy windfall tax has immediately reflected in a <a href="https://news.sky.com/story/pound-falls-as-markets-and-business-respond-to-autumn-statement-12749526">small drop</a> in energy company share prices.</p>
<h2>Regional inequality continues to grow</h2>
<p><strong>Tolu Olarewaju, economist and lecturer in management, Keele University</strong></p>
<p>Annual inflation rates up to April this year for the poorest and richest 10% of UK households were 10.9% and 7.9% respectively, with inflation rates <a href="https://ifs.org.uk/news/inflation-poorest-households-likely-increase-even-faster-richest-and-could-hit-14-october">expected to hit</a> 14% and 8% respectively by the end of this year. This is because energy and food costs, the major drivers of recent inflation, make up a greater proportion of household budgets for poorer households.</p>
<p>Inflation is also higher in the north than in the <a href="https://www.centreforcities.org/blog/northern-cities-hit-harder-by-cost-of-living-crisis/">south-east of the UK</a>. Burnley, Blackpool and Blackburn are the worst affected, with inflation above 11% in all three places. This is more than 2% points higher than in cities like London, Cambridge and Reading. There was no mention of this trend in the announcement.</p>
<p>Some regional disparities between poorer and richer areas of the UK were recognised by keeping investment zones, centred on universities in “left behind areas” to help build growth clusters. I expect further announcements on this will happen at the spring budget.</p><img src="https://counter.theconversation.com/content/194829/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Phil Tomlinson currently receives funding from the Engineering and Physical Sciences Research Council (EPSRC) for the Made Smarter Innovation: Centre for People-Led Digitalisation. </span></em></p><p class="fine-print"><em><span>Hilary Ingham has previously received funding from the Department for International Development, the Economics and Social Research Council (ESRC), Nuffield, Leverhulme and the Joseph Rowntree Foundation.</span></em></p><p class="fine-print"><em><span>Jennifer Castaneda Navarrete is affiliated with the International Association for Feminist Economics. Views expressed are those of the author and do not necessarily represent the views of her institutions of affiliation.</span></em></p><p class="fine-print"><em><span>Jonquil Lowe is affiliated with the Women's Budget Group where she is a member of its policy advisory group.</span></em></p><p class="fine-print"><em><span>Karen Bloor receives funding from the National Institute for Health Research, including funding to provide a fast-response analysis programme for the Department of Health and Social Care.</span></em></p><p class="fine-print"><em><span>Adi Imsirovic, Cam Donaldson, Despina Alexiadou, Gavin Midgley, Peter Bloom, Shampa Roy-Mukherjee, Steven McCabe, Supriya Kapoor, and Tolu Olarewaju do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Our panel of academics responds to the UK government’s latest economic plans.Phil Tomlinson, Professor of Industrial Strategy, Deputy Director Centre for Governance, Regulation and Industrial Strategy (CGR&IS), University of BathAdi Imsirovic, Senior Research Fellow, Oxford Institute for Energy Studies, University of SurreyCam Donaldson, Yunus Chair and Distinguished Professor of Health Economics, Glasgow Caledonian UniversityDespina Alexiadou, Senior Lecturer at the School of Government and Public Policy, University of Strathclyde Gavin Midgley, Senior Teaching Fellow in Accounting, University of SurreyHilary Ingham, Senior Lecturer, Department of Economics, Lancaster UniversityJennifer Castaneda Navarrete, Senior Policy Analyst (IfM Engage), University of CambridgeJonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open UniversityKaren Bloor, Professor of Health Economics and Policy, University of YorkPeter Bloom, Professor of Management, University of EssexShampa Roy-Mukherjee, Associate Professor in Economics, University of East LondonSteven McCabe, Associate Professor, Institute for Design, Economic Acceleration & Sustainability (IDEAS), Birmingham City UniversitySupriya Kapoor, Assistant Professor of Finance, Trinity College DublinTolu Olarewaju, Economist and Lecturer in Management, Keele UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1927422022-10-27T19:26:41Z2022-10-27T19:26:41ZHow taxing sugary drinks reinforces weight stigma<figure><img src="https://images.theconversation.com/files/491565/original/file-20221025-246-osvds4.jpg?ixlib=rb-1.1.0&rect=4%2C98%2C2972%2C2090&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Newfoundland and Labrador has implemented a tax of 20 cents per litre on sugary drinks.</span> <span class="attribution"><span class="source">(AP Photo/Jenny Kane)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/how-taxing-sugary-drinks-reinforces-weight-stigma" width="100%" height="400"></iframe>
<p>Newfoundland and Labrador made history in September as the first Canadian province to <a href="https://www.cbc.ca/news/canada/newfoundland-labrador/rethink-your-drink-campaign-1.6548570">implement a sugar-sweetened beverage tax</a>. Sugar-sweetened beverage taxes also exist outside of Canada, including in <a href="https://doi.org/10.1017/s1368980016003086">Mexico, Philadelphia, Penn. and the United Kingdom</a>. In Newfoundland and Labrador the tax amounts to <a href="https://www.gov.nl.ca/budget/2021/what-you-need-to-know/promoting-a-healthier-newfoundland-and-labrador">20 cents per litre</a> of sugar-sweetened beverage.</p>
<p>Sugar-sweetened beverage taxation is supported by many global and national health organizations, such as the <a href="https://www.who.int/europe/publications/i/item/WHO-EURO-2022-5721-45486-65112">World Health Organization</a>, <a href="https://www.diabetes.ca/advocacy---policies/our-policy-positions/sugar---diabetes">Diabetes Canada</a> and the <a href="https://www.heartandstroke.ca/-/media/pdf-files/canada/position-statement/liquidcandy-factsheet-en.ashx?la=en&hash=E21D8E5A8708FD82915931DEC2C768361D130CC7">Heart and Stroke Foundation</a>. Taxes are a popular public health policy because of associations between sugary beverage consumption and <a href="https://doi.org/10.2337/dc10-1079">Type 2 diabetes</a> and <a href="https://doi.org/10.3945/ajcn.113.058362">weight gain</a>. </p>
<p>Sugar-sweetened beverage taxes are excise taxes, or flat taxes, which also make them regressive taxes. This type of taxation has real potential to have <a href="https://theconversation.com/a-sin-tax-on-sugary-drinks-unfairly-targets-indigenous-communities-instead-of-improving-health-155108">harmful effects on equity</a> as lower-income populations will pay a higher proportion of their income through this tax. Previous critiques of sugar-sweetened beverage taxation also include the <a href="https://vocm.com/2022/09/06/opposition-fielding-questions-on-new-sugar-tax/">potential harm to small business</a> and First Nations communities.</p>
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Read more:
<a href="https://theconversation.com/a-sin-tax-on-sugary-drinks-unfairly-targets-indigenous-communities-instead-of-improving-health-155108">A sin tax on sugary drinks unfairly targets Indigenous communities instead of improving health</a>
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<h2>Weight stigma</h2>
<p>Notably absent from this list of harms is the potential of sugar-sweetened beverage taxation to create or exacerbate stigma, including weight stigma. Weight stigma in health policies has received global attention and there are <a href="https://doi.org/10.1038/s41591-020-0803-x">many calls to action</a> to end <a href="https://doi.org/10.1016/S2468-2667(19)30186-0">weight-stigmatizing policies</a>.</p>
<figure class="align-center ">
<img alt="Overweight parents walking outdoors with their child" src="https://images.theconversation.com/files/491963/original/file-20221026-21-c74v42.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/491963/original/file-20221026-21-c74v42.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=509&fit=crop&dpr=1 600w, https://images.theconversation.com/files/491963/original/file-20221026-21-c74v42.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=509&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/491963/original/file-20221026-21-c74v42.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=509&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/491963/original/file-20221026-21-c74v42.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=639&fit=crop&dpr=1 754w, https://images.theconversation.com/files/491963/original/file-20221026-21-c74v42.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=639&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/491963/original/file-20221026-21-c74v42.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=639&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Weight stigma includes stereotypes of laziness and stupidity, which are not supported by evidence.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>Stigma occurs, in part, when a label — such as “obesity” — is associated with negative stereotypes, <a href="https://doi.org/10.1146/annurev.soc.27.1.363">leading to discrimination and loss of status</a>. Weight stigma includes stereotypes of <a href="https://doi.org/10.1037//0278-6133.22.1.68">laziness and stupidity</a>. It can lead to <a href="https://doi.org/10.1038/oby.2008.636">discrimination in health-care and workplace settings</a>. </p>
<p>Weight stigma has negative effects on <a href="https://doi.org/10.1111/cob.12264">mental</a> and <a href="https://doi.org/10.1111/jan.13511">physical health</a>, including <a href="https://doi.org/10.1038/sj.ijo.0803105">health-care avoidance</a>, <a href="https://doi.org/10.1016/j.eatbeh.2020.101383">disordered eating</a>, <a href="https://doi.org/10.1186/s12889-021-10565-7">self exclusion from sport and exercise</a> and <a href="https://doi.org/10.1111/jan.13511">stress</a>. Contrary to what many people think, <a href="https://doi.org/10.2105%2FAJPH.2009.159491">stigma is not an effective strategy for weight loss</a>. </p>
<p>Even before Newfoundland and Labrador declared its intentions with sugar-sweetened beverage taxation, significant interest in Canada and globally led us to explore attitudes and acceptability of a tax in our province of Manitoba. We conducted an <a href="http://hdl.handle.net/1993/36863">interview-based study</a> with residents of many different locations, including a middle-to-upper class, liberal neighbourhood in the provincial capital, Winnipeg. </p>
<p>Our participants from this location were white, food secure and primarily highly educated. In our analysis, we specifically sought out instances of weight stigma in the interview transcripts. </p>
<h2>Stigmatizing messages</h2>
<p>We were interested in the language participants used because people absorb the messages they hear and the images they see. They may push back, change or repeat these messages. </p>
<figure class="align-center ">
<img alt="A hand pouring sugar out of a soda can" src="https://images.theconversation.com/files/491753/original/file-20221025-18-2ajurj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/491753/original/file-20221025-18-2ajurj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/491753/original/file-20221025-18-2ajurj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/491753/original/file-20221025-18-2ajurj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/491753/original/file-20221025-18-2ajurj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/491753/original/file-20221025-18-2ajurj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/491753/original/file-20221025-18-2ajurj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">People absorb the messages they hear and the images they see.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>In our analysis of the interviews, we found that many participants repeated weight-stigmatizing messages when discussing sugar-sweetened beverages. A more overt way this occurred was through the judgement of higher-weight individuals who were buying or consuming sugar-sweetened beverages. </p>
<p>Weight stigma also occurred in more covert or subtle ways. For example, some participants talked about their “disgust” and other negative emotions associated with their weight and others’ weight. Many participants also spoke of their “responsibility” to lose weight or to protect their children from becoming overweight by not consuming sugar-sweetened beverages and juice. </p>
<p>Weight dissatisfaction is <a href="https://doi.org/10.1155/2013/291371">harmful to one’s health</a>. Disgust also has justice implications for public health. Being disgusted by someone <a href="https://doi.org/10.1080/09581596.2014.885115">makes them seem less than human. It can contribute to blaming people</a> for conditions caused by multiple biological and social factors and can reinforce prejudice. </p>
<p>Participants also described higher weight individuals as a “burden” on the health-care system and that a tax on sugar-sweetened beverages would help offset these perceived costs. While this myth of obesity bankrupting the health-care system is pervasive, research suggests otherwise. In Manitoba, the health service usage for <a href="http://mchp-appserv.cpe.umanitoba.ca/reference/MCHP-Obesity_Report_WEB.pdf">individuals classified as overweight was found to be similar to those classified as normal weight</a>. Health-care usage was only marginally higher for individuals classified as obese. </p>
<h2>Policies and stigma</h2>
<p>Hearing these comments repeated in our interviews indicated to us how pervasive and widespread weight stigma was in participants’ attitudes toward sugar-sweetened beverage intake. Most importantly, these beliefs informed support or acceptability of sugar-sweetened beverage taxation. </p>
<p>This finding echoes <a href="https://doi.org/10.1016/j.socscimed.2013.09.023">existing research suggesting reciprocal processes</a> between stigma at inter- and intra-personal levels and policies. This indicates that interpersonal stigma may contribute to the creation of stigmatizing policies and that stigmatizing policies may in turn legitimize and worsen existing stigma. </p>
<p>Our specific research population was chosen because it was a good representation of the dominant social group in Canada — a white, middle-to-upper class, highly educated segment of the population. This dominant population is also likely to be similar to many policymakers, further supporting the perspectives of this group within Canadian policies. </p>
<p>Our findings demonstrate how weight-stigmatizing comments were used in support of sugar-sweetened beverage taxation. Weight stigma has <a href="https://theconversation.com/how-anti-fat-bias-in-health-care-endangers-lives-115888?">serious health consequences</a>. If Canadian <a href="https://www.canada.ca/en/public-health/corporate/publications/chief-public-health-officer-reports-state-public-health-canada/addressing-stigma-toward-more-inclusive-health-system.html">public health professionals</a> are committed to tackling weight stigma in health policies, we need to reconsider our support for this policy.</p><img src="https://counter.theconversation.com/content/192742/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anne Katherine Anderson Waugh received Canada Graduate Scholarship-Masters funding from CIHR. She has also received funding from the University of Manitoba, Faculty of Graduate Studies. </span></em></p><p class="fine-print"><em><span>Andrea Bombak receives funding from New Brunswick Health Research Foundation, Social Sciences and Humanities Research Council, and Banting Discovery Award. </span></em></p><p class="fine-print"><em><span>Natalie Diane Riediger receives funding from the Canadian Institutes of Health Research, Canadian Celiac Association, Social Sciences and Humanities Research Council, University of Manitoba, Mitacs, and Universities Canada. </span></em></p><p class="fine-print"><em><span>Patty Thille currently receives funding from Research Manitoba. </span></em></p><p class="fine-print"><em><span>Kerstin Roger does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Taxation of sugar-sweetened drinks is not only inequitable, but also has the potential to create or perpetuate weight stigma, which has negative effects on mental and physical health.Anne Katherine Anderson Waugh, Research Coordinator, Department of Food and Human Nutritional Sciences, University of ManitobaAndrea Bombak, Associate professor, Department of Sociology, University of New BrunswickKerstin Roger, Full Professor, Department of Community Health Sciences, University of ManitobaNatalie Diane Riediger, Assistant Professor of Nutritional Epidemiology, University of ManitobaPatty Thille, Assistant Professor in Physical Therapy, University of ManitobaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1926412022-10-18T12:46:24Z2022-10-18T12:46:24ZCorporation tax U-turn: why the latest change means more uncertainty for UK business<figure><img src="https://images.theconversation.com/files/490161/original/file-20221017-23-pbwr9a.jpg?ixlib=rb-1.1.0&rect=26%2C17%2C5964%2C3970&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The UK government is becoming adept at U-turns.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/businessman-black-shoes-standing-u-turn-1180695433">mantinov / Shutterstock</a></span></figcaption></figure><p>Before the new UK chancellor, Jeremy Hunt, <a href="https://theconversation.com/emergency-budget-announcement-expert-reaction-to-new-uk-chancellors-attempt-to-calm-financial-markets-192669">rolled back</a> almost all of September’s mini-budget measures, the first tax cut to go was Liz Truss’s plan to <a href="https://uk.news.yahoo.com/liz-truss-reverses-corporation-tax-134430756.html">scrap a corporation tax rise</a>. </p>
<p>The political turmoil caused by the mini-budget has had <a href="https://sotn.newstatesman.com/2022/10/conservatives-destined-catastrophic-election-defeat">a negative effect</a> on the public’s perception of this government, and it certainly hasn’t <a href="https://www.ft.com/content/69e50608-a817-4df2-bbfd-29260cfc1c2c">eased the concerns</a> that businesses have over its changing tax policy. While markets have started to recover some lost ground from the past few weeks, the corporation tax U-turn seemed to do little to quell <a href="https://www.reuters.com/markets/europe/uk-gilts-soar-reports-truss-u-turn-tax-plan-2022-10-14/">anxiety in the markets</a> when it was announced ahead of the full mini-budget reversal on October 17. </p>
<p>For businesses, the problem with corporation tax has been uncertainty and this is what they will want Hunt to address now he is chancellor.</p>
<p>Many business leaders <a href="https://www.pagekirk.co.uk/news/business-news/archive/article/2022/September/2022-mini-budget-the-business-reaction">welcomed September’s mini-budget</a>, seeing the measures as being the country’s best opportunity to grow the economy. The planned abolition of the rise of the corporation tax to 25% (that is, keeping the rate at 19% <a href="https://www.gov.uk/government/publications/rates-and-allowances-corporation-tax/rates-and-allowances-corporation-tax">as it has been since 2017</a>) was regarded as central to that, so the recent U-turn decision to continue with the increase has not been welcomed by business. </p>
<p>Indeed, the Confederation of British Industry (CBI) director general, Tony Danker, said after the U-turn that the government should “balance any rise in corporation tax with investment allowances” to “help achieve both stability and investment”. </p>
<p>Investment allowances are a form of tax relief that businesses can use to buy equipment. The UK introduced the Annual Investment Allowance (AIA) in 2008 to stimulate economic growth by allowing companies to deduct up to £1 million per tax year from taxable profits for equipment purchases.</p>
<p>And its not just corporation tax rates that have been subject to a lot of changes, the AIA claimable amount has been adjusted <a href="https://www.gov.uk/government/publications/temporary-increase-in-the-annual-investment-allowance/temporary-increase-in-the-annual-investment-allowance">multiple times</a> since the AIA was introduced, although the £1 million figure was <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-9643/#:%7E:text=Annual%20Investment%20Allowance">one of the few mini-budget items</a> not reversed by Hunt on October 17.</p>
<p>But whatever the rates, thresholds and allowances of any taxes are, companies must be able to plan ahead for investment, resource allocation and shareholder remuneration. This is not possible when the government keeps changing its tax policies. </p>
<h2>Downward trend</h2>
<p>The chart below shows the history of the main corporation tax rate since the mid-1970s. It has maintained a generally steady trend, with multiple minor changes, but has gradually dropped to its current level of 19%. By proposing, reversing and then reinstating an increase to 25% (which would have been its highest level for ten years), that stability is compromised.</p>
<figure class="align-center ">
<img alt="Graph showing multiple minor changes to corporation tax rate, but an overall downward trend between 1974 to 2024, as explained in the paragraph above" src="https://images.theconversation.com/files/490101/original/file-20221017-6604-v9djq4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/490101/original/file-20221017-6604-v9djq4.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=448&fit=crop&dpr=1 600w, https://images.theconversation.com/files/490101/original/file-20221017-6604-v9djq4.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=448&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/490101/original/file-20221017-6604-v9djq4.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=448&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/490101/original/file-20221017-6604-v9djq4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=563&fit=crop&dpr=1 754w, https://images.theconversation.com/files/490101/original/file-20221017-6604-v9djq4.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=563&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/490101/original/file-20221017-6604-v9djq4.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=563&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Corporation tax: main rate, small profits rate (for businesses producing profits between £50,000 and £250,000) and patent box rate (for certain firms with patented technologies).</span>
<span class="attribution"><a class="source" href="https://ifs.org.uk/taxlab/taxlab-data-item/ifs-fiscal-facts">Institute for Fiscal Studies</a></span>
</figcaption>
</figure>
<p>Comparing this with the recent changes in the annual AIA threshold (see table below), reveals further flip-flopping from the government.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/490343/original/file-20221018-24-ur5uy1.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph showing annual investment allowance repeatedly rising and falling between 2010 and 2020" src="https://images.theconversation.com/files/490343/original/file-20221018-24-ur5uy1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/490343/original/file-20221018-24-ur5uy1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=371&fit=crop&dpr=1 600w, https://images.theconversation.com/files/490343/original/file-20221018-24-ur5uy1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=371&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/490343/original/file-20221018-24-ur5uy1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=371&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/490343/original/file-20221018-24-ur5uy1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=466&fit=crop&dpr=1 754w, https://images.theconversation.com/files/490343/original/file-20221018-24-ur5uy1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=466&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/490343/original/file-20221018-24-ur5uy1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=466&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Changes in the Annual Investment Allowance.</span>
<span class="attribution"><a class="source" href="https://ifs.org.uk/taxlab/taxlab-data-item/annual-investment-allowance-over-time">Institute for Fiscal Studies</a></span>
</figcaption>
</figure>
<p>This also suggests short-termism and a lack of coherency. It makes it difficult for companies to predict what the AIA threshold in the future could be so they can plan their spending. The government is keeping the corporation tax rate at 25% and retaining Kwarteng’s mini-budget policy of keeping the AIA threshold at £1 million. </p>
<p>But it must also decide whether anything will be done regarding the <a href="https://www.gov.uk/guidance/super-deduction">“super-deduction”</a>. This is a temporary special rate of 130% allowances on expenditure, which is due to expire in March 2023. It allows a company spending, for example, £1 million on qualifying investments to deduct £1.3 million in taxable profits and therefore save 19% of that (£247,000) on its corporation tax bill.</p>
<h2>The impact on people</h2>
<p>It’s not only businesses that currently lack confidence. Much interest has centred around the public’s ability to deal with the current cost of living crisis. Rising energy and food prices have been the main concerns, and much of the backlash to September’s mini-budget was that it offered <a href="https://www.standard.co.uk/news/uk/martin-lewis-kwarsi-kwarteng-budget-2022-recession-stamp-duty-b1027641.html">small comfort to low and middle-income earners</a> who would be most affected by cost increases. </p>
<p>Confidence will now be further dampened by the new chancellor’s plans to <a href="https://www.telegraph.co.uk/politics/2022/10/15/jeremy-hunt-delays-1p-tax-cut-bank-england-backs-chancellor/">delay the proposed 1p income tax cut indefinitely</a>, keeping the basic rate at 20%. </p>
<p>But people also affect the revenue received from corporation tax in two ways. Firstly, a cut in the rate may have resulted in companies passing some of the benefits to their customers. The incidence of tax being borne on <a href="https://www.economicsonline.co.uk/definitions/incidence_of_tax.html/">producer and consumer alike</a> is a well-established economic concept. This might have stimulated consumer spending and subsequently increased tax revenues.</p>
<figure class="align-center ">
<img alt="Man with beard & groceries in a brown paper bag, receipt, glasses." src="https://images.theconversation.com/files/490175/original/file-20221017-26-f93og6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/490175/original/file-20221017-26-f93og6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/490175/original/file-20221017-26-f93og6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/490175/original/file-20221017-26-f93og6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/490175/original/file-20221017-26-f93og6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/490175/original/file-20221017-26-f93og6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/490175/original/file-20221017-26-f93og6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Rising costs and bills are causing consumers to spend less.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shocked-mature-man-looking-store-receipt-2145273441">Nenad Cavoski/Shutterstock</a></span>
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<p>Secondly, <a href="https://www.reuters.com/world/uk/uk-consumer-spending-lags-far-behind-inflation-brc-barclaycard-surveys-show-2022-10-10/">consumer spending is falling</a> due to inflation. When combined with rising interest rates potentially leading to significantly higher mortgage and rental payments, there is a real danger that a lack of disposable income will continue to hamper growth. This means revenues raised from corporation tax will fall short of the government’s targets.</p>
<p>The <a href="https://www.reuters.com/world/uk/uk-finance-minister-hunt-set-out-govts-fiscal-plan-oct-31-2022-10-14/">upcoming fiscal plan</a> to be announced on October 31 will include a full Office for Budget Responsibility forecast covering the medium term. To maintain credibility and offer the public and business any reassurance of economic stability for the rest of this time, the government needs to produce a clear, united fiscal plan and remain committed to it. </p>
<p>As this moment, we don’t know how the Truss premiership will weather the current political storm, or if her leadership will even survive until the end of October. Two weeks currently feels like an awfully long time in UK politics. But to help mitigate economic disruption over the next few years, it is clear that someone needs to take firm charge of their fiscal strategy. </p>
<p>With Hunt <a href="https://www.theguardian.com/politics/2022/oct/17/hunt-rips-up-most-of-mini-budget-and-scales-back-energy-prices-plan">scaling back most of the mini-budget</a>, he clearly hopes to signal the start of a new chapter for the Tory government. Let’s hope this provides the certainty businesses need.</p><img src="https://counter.theconversation.com/content/192641/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gavin Midgley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The UK government has not made things easy for businesses recently.Gavin Midgley, Senior Teaching Fellow in Accounting, University of SurreyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1926692022-10-17T15:06:05Z2022-10-17T15:06:05ZEmergency budget announcement: expert reaction to new UK chancellor’s attempt to calm financial markets<p><em>Newly installed UK chancellor, Jeremy Hunt, has unveiled <a href="https://www.bbc.co.uk/news/live/uk-politics-63278993">a raft of changes</a> to Kwasi Kwarteng’s September 23 mini-budget, which essentially amounted to a rollback on most of its headline points.</em></p>
<p><em>The September mini-budget, which included <a href="https://www.spectator.co.uk/article/breaking-kwasi-kwarteng-s-mini-budget-">£45 billion</a> in unfunded tax cuts, created <a href="https://www.aljazeera.com/economy/2022/10/3/uks-truss-drops-controversial-plan-to-axe-top-tax-rate">significant volatility in financial markets</a> in the weeks after it was announced. The resulting impact on the cost of borrowing for the UK also filtered through to consumer <a href="https://www.theguardian.com/money/2022/oct/15/pension-mortgage-rate-rent-isa-savings-uk-economy">mortgage rates and pensions</a>.</em></p>
<p><em>Hunt has indefinitely postponed a planned cut to the basic rate of income tax and rolled back most of the other taxation plans from the government’s growth plan. Only the repeal of the National Insurance increase and the cut to stamp duty remains because they are already in the process of being signed off by parliament.</em></p>
<p><em>We will be updating this article with more expert insight about the impact of the announcement and what else the government should do to restore the UK’s economic reputation.</em></p>
<h2>Rolling back energy price support</h2>
<p><em>Andrew Burlinson, Lecturer in Energy Economics, University of East Anglia and Catherine Waddams, Emeritus Professor of Economic Regulation, Norwich Business School, University of East Anglia</em></p>
<p>The new chancellor has a chance to ease the pressures facing some of the most vulnerable energy consumers in the UK. We welcome the continued promise of help for all until April 2023, and the opportunity to target help more to those who most need it after that. </p>
<p>The government is right to take time to explore how best to achieve this challenging combination of objectives, including protection of households in the most vulnerable circumstances. The £2,500 limit on the average bill under the energy price guarantee scheme is more than £1,000 less than the Ofgem price cap it replaced. But the energy price guarantee will still see the average household paying <a href="https://www.ofgem.gov.uk/publications/default-tariff-cap-level-1-october-2021-31-march-2022">twice as much</a> this winter compared to the same time last year.</p>
<p>More protection is needed for those households who struggled to afford the prices faced last year, never mind this year. By adjusting the current package, the government could move towards supporting those most in need with a new <a href="https://www.nea.org.uk/wp-content/uploads/2022/07/2022_Solving-the-cost-of-living-crisis_v02.pdf">social tariff</a>, by coordinating with Ofgem to rebalance the prepayment price premium, and establishing vital channels for advice and financial assistance to those in <a href="https://www.uswitch.com/gas-electricity/news/2022/08/09/uk-households-owe-over-a-billion-ahead-of-winter-bill-hikes/">energy debt</a>. </p>
<p>The Government must further reconsider imposing a windfall tax on energy companies to help pay for these measures, as well as considering how to bolster energy efficiency schemes to improve the warmth and comfort of homes and the health of those most in need.</p>
<p>On the other hand, all other households will become more exposed to the volatility shaping the energy market. Given other cost of living pressures, many may still need some help when the energy price guarantee is reviewed next spring. Government objectives should include consumer protection, inflation reduction, market confidence and an ambitious programme of carbon reduction.</p>
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<h2>Financial market reaction</h2>
<p><strong>Steve Schifferes, Honorary Research Fellow, City Political Economy Research Centre, City, University of London</strong></p>
<p>The government appears to have <a href="https://www.reuters.com/markets/europe/uk-gilts-rally-ahead-expected-new-u-turn-fiscal-plans-2022-10-17/">stabilised the financial markets</a> with an emergency statement by the new chancellor, Jeremy Hunt. The statement was brought forward by two weeks, in an unprecedented move designed to calm recent financial market turbulence in the weeks following ex-chancellor Kwasi Kwarteng’s September 23 mini-budget.</p>
<p>The interest rate on a key measure of government debt, 30-year gilts, had been rising sharply over the weekend to 4.8%, but fell back to 4.4% immediately ahead of Hunt’s statement. Such drops are uncommon in this market, which has now stablised. The cost of government borrowing has still not recovered to the 3.5% level of before the mini-budget, however. Similarly, the pound strengthened from US$1.11 to US$1.13, but remains 18% below its level one year ago.</p>
<p>In addition to scrapping £32 billion of the £45 billion in unfunded tax cuts announced in the mini-budget, Hunt also announced there would be further public spending cuts. Most importantly, however, the government has abandoned its commitment to fund an energy price cap – expected to cost £60 billion this year alone – beyond April 2023. </p>
<p>It will replace the scheme with a more targeted measure to be developed by the Treasury in the meantime. This will substantially reduce the deficit for the next two financial years – the original time period for the plan, <a href="https://www.gov.uk/government/news/government-announces-energy-price-guarantee-for-families-and-businesses-while-urgently-taking-action-to-reform-broken-energy-market">announced in September</a>. This will not have a direct impact on the Office of Budget Responsibility’s five-year deficit forecast, which discounts temporary measures, but it will lower the amount of debt interest payments the government will have to make.</p>
<p>But there are limits to how far his announcement can completely reassure the markets. Investors are likely to continue to add a “risk premium” when it comes to the UK, which means the markets will still demand higher interest rates when lending to the UK government than before the mini-budget. Among other issues, concerns remain over political instability, with <a href="https://news.sky.com/story/having-sealed-her-chancellors-fate-the-markets-could-seal-the-prime-ministers-fate-12720618">the fate of the prime minister Liz Truss</a>, in particular, remaining unclear. </p>
<p>Additionally, the increased likelihood of a <a href="https://www.independent.co.uk/news/business/uk-recession-economy-bank-of-england-b2203845.html">UK recession</a> (which would reduce government revenues) has increased. This is partly because the Bank of England is now expected to raise interest rates more sharply than previously planned, and also because the global economy – especially in the US, Europe and China – is <a href="https://www.oecd.org/newsroom/oecd-interim-economic-outlook-warns-of-pervasive-global-economic-slowdown.htm">slowing down faster than anticipated</a>.</p>
<p>The next test for the government will be the Office for Budget Responsibility forecast and full budget statement on October 31. Despite buying some time, the fate of this government is still in the hands of the markets. </p>
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Read more:
<a href="https://theconversation.com/how-bonds-work-and-why-everyone-is-talking-about-them-right-now-a-finance-expert-explains-191550">How bonds work and why everyone is talking about them right now: a finance expert explains</a>
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<h2>Business certainty</h2>
<p><strong>Steven McCabe, Associate Professor, Institute for Design, Economic Acceleration & Sustainability (IDEAS), Birmingham City University</strong></p>
<p>Businesses tend to be successful when there’s confidence that the government has a coherent plan for the economy and is consistent in its implementation. The past three weeks have been anything but coherent or consistent. Hunt’s five-minute emergency statement consigns <a href="https://www.spectator.co.uk/article/trussonomics-is-finished">Trussonomics to the bin</a> and acts as a warning to future governments about ignoring the markets.</p>
<p>The reversal of Kwarteng’s <a href="https://www.theguardian.com/politics/2022/oct/11/unfunded-tax-cuts-mean-uk-will-need-60bn-spending-cuts">unfunded tax cuts</a>, as well as the review of the <a href="https://www.reuters.com/world/uk/new-uk-finance-minister-faces-market-verdict-after-gutting-trusss-plans-2022-10-16/#:%7E:text=well%20over%20100%20billion%20pounds">energy support scheme</a> – expected to cost more than £100 billion before it was cut from two years to six months – means public finances are on a surer footing. Creating a sense of stability and showing there is a grownup in charge will restore confidence among the international financial markets. This will be excellent news for businesses which, although they will be paying more corporation tax after <a href="https://www.theguardian.com/politics/2022/oct/14/liz-truss-to-raise-corporation-tax-in-another-humiliating-u-turn">last week’s U-turn</a>, can at least make investment decisions with reasonable certainty.</p>
<p>Nonetheless, problems remain. Inflation is still <a href="https://www.bankofengland.co.uk/-/media/boe/files/letter/2022/september/governor-cpi-letter-september-2022.pdf?la=en&hash=0BA947C72022FDED9423F140AB7ACAA847C583A2">very high</a>, which may require the base rate to <a href="https://www.bbc.co.uk/news/business-63271551">remain elevated</a> for months. The pound, which has risen today after Hunt’s announcement, is still lower than when Kwarteng became chancellor in early September. Many businesses are in a precarious state and beset by a range of challenges including skill shortages and the prospect of higher energy after April.</p>
<p>Hospitality businesses – already being squeezed by <a href="https://www.thecaterer.com/business/hospitality-energy-bills-impact-the-caterer-survey-2022">rising energy costs</a> – will not be helped by the scrapping of the alcohol freeze. Equally, Hunt’s reversal of plans for tax-free shopping for tourists will be a <a href="https://www.forbes.com/sites/markfaithfull/2022/10/17/uk-retail-dismayed-as-tax-free-shopping-scrapped-after-just-three-weeks/?sh=e497ee21639d">kick in the teeth</a> for those hoping to see the UK attract more overseas visitors. The retail sector is also bracing itself for <a href="https://www.scotsman.com/business/cost-of-living-shock-fall-in-uk-retail-sales-stokes-recession-fears-3845346">tough times</a> as people in the UK become collectively poorer and cut back on discretionary spending. More intervention may be essential to stem the rate of business closures this winter.</p>
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<h2>The real economy</h2>
<p><em>Professor Brian Scott-Quinn, Emeritus Professor of Finance, ICMA Centre, University of Reading</em></p>
<p>Many politicians have referred to the “magic money tree” in recent years. In 2017, then-prime minister Theresa May <a href="https://www.independent.co.uk/news/uk/politics/theresa-may-nurse-magic-money-tree-bbcqt-question-time-pay-rise-eight-years-election-latest-a7770576.html">warned nurses</a>: “There isn’t a magic money tree that we can shake that suddenly provides for everything that people want.” More recently, Labour leader <a href="https://www.mirror.co.uk/news/politics/keir-starmer-vows-no-magic-27563746.amp">Keir Starmer has promised</a> there will be “no magic money tree economics” if his party gets into power. </p>
<p>It’s good news then that this “magic money tree” has been well and truly cut down by the new chancellor of the exchequer, Jeremy Hunt. By trying to increase spending substantially without increasing taxes, the UK government was losing credibility – and fast – in recent weeks. So Hunt is really only accepting the reality that slowing growth around world at the moment is making everyone, everywhere poorer. He is facing reality, which means ensuring that the UK remains creditworthy, even while the world becomes poorer.</p>
<p>So, where do we stand now? Central banks like the Bank of England must raise interest rates to damp down the economy and try to stop inflation getting of control and causing financial instability. On the other hand, governments want interest rates to be low to achieve their growth targets. But growth is not determined by interest rates so much as by a stable and low risk economic environment. This gives companies the opportunity to develop new products and provides households with access to new skills to supply such firms with appropriate labour. </p>
<p>A focus on the real economy (and today that would apply with even more force to clean energy asset growth), would be a much better policy than the tug-of-war over interest rates that has recently led to instability and loss of confidence by buyers of gilts, investors, industrialists and consumers. These are the people that matter when trying to achieve a growth target. </p>
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Read more:
<a href="https://theconversation.com/only-a-u-turn-by-the-government-or-the-bank-of-england-will-calm-uk-financial-markets-191523">Only a U-turn by the government or the Bank of England will calm UK financial markets</a>
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<h2>Targeted policies needed</h2>
<p><em>Morten Ravn, Professor of Economics at University College London, UCL</em></p>
<p>This was an inescapable U-turn. The September mini-budget brought market turmoil because it caused an unsolvable policy inconsistency with the Bank of England. This inconsistency was seriously threatening the economic and financial stability of the UK economy. </p>
<p>The unfinanced tax cuts announced in the mini-budget immediately affected government bond prices and the Sterling exchange rate. Declining long-term government bond prices put pressure on large UK pension funds, which forced the Bank of England to support the gilt market by buying long-term government debt. </p>
<p>The Bank of England has therefore, on the one hand, had to increase short-term rates to reduce inflationary pressures on the UK economy while, on the other, support long-term bond markets with its recent <a href="https://news.sky.com/story/bank-of-england-to-stop-government-bond-buying-scheme-today-12719934#:%7E:text=The%20Bank%20of%20England%20is,a%20potential%20pension%20pots%20crisis.">purchase programme</a>. Such policy inconsistency can only persist for a short time before it risks a speculative attack on the gilt market and further downward pressure on the sterling.</p>
<p>The increase in inflation in the UK hurts lower income households more than those that are better off because these people spend a greater portion of their incomes on goods and services with rapidly rising costs such as energy. Therefore, there is a need for targeted policies offering protection for the poorest parts of society – something the government should bear in mind when designing a replacement energy price support package after April.</p>
<p>So will the U-turn work? Markets appear to have been stabilised so far. What is still missing in an Office of Budgetary Responsibility evaluation of the fiscal framework and details about the financing of the government deficit. It is important that both of these issues are resolved quickly. This might involve very difficult spending cuts. </p>
<p>It is extremely unfortunate that precious time has been lost over the last few weeks that could have been used for designing these cuts in the least harmful way possible. It is also extremely unfortunate that this episode has seriously undermined the credibility of the UK’s monetary-fiscal framework. Confidence must be restored as fast as possible. It is equally important to rethink the energy price cap and replace it with targeted policies and better incentives in terms of energy efficiency.</p><img src="https://counter.theconversation.com/content/192669/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Burlinson currently receives funding from UKERC and previously received relevant funding from EPSRC.</span></em></p><p class="fine-print"><em><span>Catherine Waddams does not currently receive funding from external bodies, but has received funding from the ESRC in the past.</span></em></p><p class="fine-print"><em><span>Morten O. Ravn receives funding from the European Research Council (Advanced Grant). The author is also a Regular Visitor at the European Central Bank.</span></em></p><p class="fine-print"><em><span>Brian Scott-Quinn, Steve Schifferes, and Steven McCabe do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>UK chancellor Jeremy Hunt’s emergency budget announcement has calmed the market initially but experts see continued challenges.Steve Schifferes, Honorary Research Fellow, City Political Economy Research Centre, City, University of LondonAndrew Burlinson, Lecturer in Energy Economics, University of East AngliaBrian Scott-Quinn, Emeritus Professor of Finance, ICMA Centre, University of ReadingCatherine Waddams, Emeritus Professor of Economic Regulation, Norwich Business School, University of East AngliaMorten O. Ravn, Professor of Economics at University College London, UCLSteven McCabe, Associate Professor, Institute for Design, Economic Acceleration & Sustainability (IDEAS), Birmingham City UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1912742022-09-23T14:40:34Z2022-09-23T14:40:34ZMini budget 2022: experts react to the new UK government’s spending and tax-cut plans<p><em>UK chancellor Kwasi Kwarteng has just launched the <a href="https://twitter.com/PJTheEconomist/status/1573238871705677824?cxt=HHwWgMDT7eOaotUrAAAA">biggest package of tax cuts</a> in half a century. This will involve around £45bn of reductions for people and businesses by 2027 – 50% more than <a href="https://www.theguardian.com/politics/2022/sep/17/kwasi-kwarteng-30bn-of-tax-cuts-mini-budget-reports">anticipated</a> before the mini-budget announcement.</em></p>
<p><em>Amid the worst <a href="https://yougov.co.uk/topics/consumer/articles-reports/2022/08/25/cost-living-crisis-one-four-have-had-cut-essential">cost of living crisis</a> in a generation, Liz Truss’s government wants to boost growth and usher in “a new era” for Britain. It is targeting a 2.5% annual growth rate via a three-pronged approach of reforming the supply side of the economy, taking a “responsible approach” to public finances and cutting taxes.</em></p>
<p><em>The tax cut element was trailed heavily during the recent Tory leadership contest, but now that we have some firm details, our expert panel offers their views on <a href="https://www.theguardian.com/uk-news/2022/sep/23/kwasi-kwarteng-mini-budget-key-points-at-a-glance">Kwarteng’s plan</a>.</em></p>
<h2>Gambling on growth</h2>
<p><strong>Phil Tomlinson, Professor of Industrial Strategy, Deputy Director Centre for Governance, Regulation and Industrial Strategy, University of Bath</strong></p>
<p>The UK economy is stagnant. Prices continue to rise, while <a href="https://www.bbc.co.uk/news/business-62601689">consumer</a> and <a href="https://www.iod.com/news/uk-economy/iod-press-release-business-confidence-low-but-pointing-upwards-in-august/">business</a> confidence plummets. In response, the UK chancellor Kwasi Kwarteng has presented a mini-budget which he says will “go for growth”. </p>
<p>The headline tax and stamp duty cuts, alongside recent energy price caps, are aimed at easing household and business finances. Then there are plans for <a href="https://businessnewswales.com/mini-budget-regional-investment-zones-and-100-major-infrastructure-projects-across-the-uk/">regional investment zones</a> designed to offer tax incentives and fewer regulations. </p>
<p>All of this is being funded by huge levels of <a href="https://www.investmentweek.co.uk/analysis/4056711/mini-budget-22-treasury-warned-spending-support-dent-long-term-financial-resilience">public borrowing</a> in the hope of boosting consumer spending, stimulating enterprise and staving off recession. The government is gambling on economic growth to pay off its enormous debts. </p>
<p>And it’s quite a gamble. The stamp duty cut for example, will only fuel an already inflated housing market. And “enterprise zones” do <a href="https://www.centreforcities.org/publication/in-the-zone-have-enterprise-zones-delivered-the-jobs-they-promised/">not guarantee</a> new investment. </p>
<p>In fact, this mini budget is worryingly reminiscent of another Conservative gamble from 50 years ago. In 1972, the then chancellor <a href="https://www.ruffer.co.uk/Thinking/Articles/Market-views/2020-07-Barber-boom">Anthony Barber</a>, announced massive tax cuts and higher public borrowing in a “dash for growth” at a time of high inflation and rising unemployment. </p>
<p>The “Barber boom” is now a textbook case of how not to engage in fiscal largesse. It led to a temporary uplift in growth, and then a debilitating hangover of even higher inflation, a sterling crisis and Britain eventually having <a href="https://www.nationalarchives.gov.uk/cabinetpapers/themes/imf-crisis.htm">to go cap in hand</a> to the International Monetary Fund. </p>
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<p>Today, the markets are already nervous. A hard Brexit has exacerbated the UK’s <a href="https://www.cityam.com/uk-sinks-into-unprecedented-record-breaking-trade-deficit-with-us-as-low-pound-balloons-imports-value/">record trade deficit</a>, with the value of sterling <a href="https://bmmagazine.co.uk/news/pound-sinks-to-lowest-level-against-dollar-since-1985-as-sterling-also-down-against-euro/">recently dropping</a> to its lowest level against the US dollar since 1985. This raises import inflation, and the Bank of England has begun to respond aggressively by <a href="https://www.theguardian.com/business/2022/sep/22/bank-of-england-interest-rate-rise-latest">raising interest rates</a>, hitting borrowers and business investment, and raising the costs of servicing government debt. </p>
<p>There remains a strong case for a fiscal policy targeted at promoting new business investment, infrastructure, skills and public services. Unfortunately, this <a href="https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2016/12/31/Causes-and-Consequences-of-Income-Inequality-A-Global-Perspective-42986">“trickle down”</a> mini-budget is unlikely to deliver that elusive long-term growth. </p>
<h2>Personal finance</h2>
<p><strong>Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open University</strong></p>
<p>The government is giving big tax cuts to the better-off, but offering little to lower-income households. The recent 1.25% rise in national insurance is being <a href="https://www.gov.uk/government/news/national-insurance-increase-reversed?s=03">reversed</a>, and income tax will be cut in April 2023, with the basic rate falling to 19% (currently 20%) and the top 45% rate for the highest earners abolished.</p>
<p>As the table below shows, these changes mean take-home pay for someone on average earnings of <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/annualsurveyofhoursandearnings/2021">around £32,000</a> will increase by £368 this year and then go up by another £426 next year. The poorest households, earning too little to pay NI or income tax, do not benefit at all.</p>
<figure class="align-center ">
<img alt="Table of predicted earnings." src="https://images.theconversation.com/files/486292/original/file-20220923-26-jwnwh2.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/486292/original/file-20220923-26-jwnwh2.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=391&fit=crop&dpr=1 600w, https://images.theconversation.com/files/486292/original/file-20220923-26-jwnwh2.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=391&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/486292/original/file-20220923-26-jwnwh2.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=391&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/486292/original/file-20220923-26-jwnwh2.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=491&fit=crop&dpr=1 754w, https://images.theconversation.com/files/486292/original/file-20220923-26-jwnwh2.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=491&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/486292/original/file-20220923-26-jwnwh2.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=491&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption"></span>
<span class="attribution"><span class="source">Author provided</span>, <span class="license">Author provided</span></span>
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<p>The government argues that these tax cuts will stimulate the economy, increasing jobs and incomes for all. But <a href="https://eprints.lse.ac.uk/107919/1/Hope_economic_consequences_of_major_tax_cuts_published.pdf">recent research</a> was the latest to find no evidence that this approach works, and suggests instead that tax cuts for the rich serve to increase inequality, which is already <a href="https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householdincomeinequalityfinancial/financialyearending2021">much higher in the UK</a> than it was 40 years ago.</p>
<p>The government also says it will “make work pay” for lower-income households by cutting the benefits for those unemployed or working part-time if they do not, without good reason, make sufficient effort to either take on work or work longer. This could be especially hard on people (mainly women) who are dovetailing work with caring for children or older relatives.</p>
<p>A major concern is that the personal tax cuts will stoke spending by the better off, fuelling inflation. Current inflation rates have led to the Bank of England recently ratcheting the base rate up <a href="https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/september-2022?utm_source=Bank+of+England+updates&utm_campaign=2bad2742fe-EMAIL_CAMPAIGN_2022_09_22_11_14&utm_medium=email&utm_term=0_556dbefcdc-2bad2742fe-113381821">another 0.5%</a>, which is bad news if you are one of the 2 million people on a <a href="https://www.ukfinance.org.uk/news-and-insight/blogs/how-the-bank-rate-affects-mortgage-rates#:%7E:text=Currently%2C">variable-rate or tracker mortgage</a>, or if your fixed-rate mortgage is due to end soon, or if you are a buyer taking out a new mortgage. </p>
<p>Meanwhile, first-time buyers especially may benefit from a substantial increase in the thresholds at which stamp duty starts to be paid (in England), provided this does not simply fuel house price inflation.</p>
<p>The Institute for Fiscal Studies has called the chancellor’s package of tax cuts <a href="https://ifs.org.uk/news/reversing-nics-and-corporation-tax-rises-economic-growth-stalls-would-leave-debt-unsustainable">unsustainable</a>. And if the government’s growth-plan fails, households need to brace themselves for tax increases – or another bout of painful austerity – further down the track.</p>
<h2>Vulnerable households</h2>
<p><strong>Donald Hirsch, Professor of Social Policy, Loughborough University</strong></p>
<p>Kwarteng claims the government is embarking on a “new approach for a new era”. And this mini-budget certainly shifts the Treasury’s emphasis away from the past three years, when the main goal was protecting those hit hardest by the pandemic and rising energy costs.</p>
<p>But the new approach will provide little comfort to low income families who have faced blow after blow to their finances over the past year. There was a <a href="https://www.theguardian.com/society/2021/jul/07/universal-credit-20-top-up-will-end-this-autumn-mps-are-told">£1,000 cut</a> in universal credit payments last October, a similar loss in April (as a result of those payments rising much more slowly than prices), and a further £500 fuel price increase due next month. </p>
<p>Even taking into account the planned cost of living support, a typical family on benefits is about <a href="https://jpit.uk/enoughtolive">£1,400 worse off</a> this year than last.</p>
<p>By freezing the new energy cap, the government has invested massively in preventing the situation from becoming far worse for everyone. But in doing so, it has missed the opportunity to focus on those for whom £1,400 is simply unaffordable. </p>
<p>Those households will face severe hardship this winter. The cuts in national insurance and income tax will provide them with little (about £135 a year for those working full time on the minimum wage) or nothing (zero benefit for those not working or earning less than £12,500). </p>
<p>Kwarteng could have chosen to reassure those receiving universal credit that payments would match this month’s double-digit inflation rate when uprated next April. Instead he went for “reforms”, tightening conditions for claimants, and punishing those who do not meet them. The reassurance was saved for the 1% of the population who earn over £150,000, and will now keep an extra 5% of anything they make over this amount. </p>
<p>Last week, the US president <a href="https://www.itv.com/news/2022-09-20/biden-slams-trickle-down-economics-as-truss-plans-to-lift-bankers-bonus-cap">Joe Biden declared</a> that trickle-down economics had “never worked”. In the UK’s “new era”, it is clearly being given another chance.</p>
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Read more:
<a href="https://theconversation.com/bankers-bonus-cap-why-scrapping-it-could-hurt-the-uk-economy-190811">Bankers bonus cap: why scrapping it could hurt the UK economy</a>
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<h2>Energy crisis</h2>
<p><strong>Andrew Burlinson, Lecturer in Energy Economics, University of East Anglia, and Catherine Waddams, Professor of Economic Regulation, Norwich Business School, University of East Anglia</strong></p>
<p>Top of the agenda for the chancellor’s mini-budget was what he referred to as “the issue most worrying British people today: the cost of energy”. Kwarteng restated the government’s energy price guarantee plan which sets an average cost for typical household energy usage at £2,500 a year, still <a href="https://www.ofgem.gov.uk/publications/default-tariff-cap-level-1-october-2021-31-march-2022">twice the levels</a> at the same time last year. </p>
<p>With so many households facing severe hardship this winter, a wide-ranging package including some form of cap was needed, and the immediate relief will be welcomed. But unfortunately, a general cap with extra relief for some households is inadequately targeted and too short term. </p>
<p>It will dampen the incentive to respond to higher energy prices for those who can afford alternative generation, such as solar panels and better insulation – a crucial contribution to net zero targets. Meanwhile, households that are unable to respond to such incentives, especially prepayment consumers, remain vulnerable to unsustainable financial pressure. </p>
<p>The government has ignored calls for a <a href="https://www.nea.org.uk/wp-content/uploads/2022/07/2022_Solving-the-cost-of-living-crisis_v02.pdf">social tariff</a> to provide further help for such households. Government action to boost installation of renewables and energy efficiency technologies could also lift millions of households out of <a href="https://www.sciencedirect.com/science/article/pii/S0140988321004278">fuel poverty</a>, save lives and improve the <a href="https://www.sciencedirect.com/science/article/pii/S0140988321006319">health</a> and <a href="https://www.sciencedirect.com/science/article/pii/S0140988321003509">financial wellbeing</a> of households. </p>
<p>Social tariffs and energy efficiency schemes could be paid for in the short-term by a windfall tax on oil and gas companies, a <a href="https://www.ft.com/content/b7441bee-6bf7-46c2-ab75-916fec31f521">popular approach</a> among the public, and through general taxation in the medium to long term. A more sustained and effective strategy on prices and demand is needed to deliver climate goals and energy justice.</p>
<h2>Investment in energy</h2>
<p><strong>Jim Watson, Professor of Energy Policy and Director of the Institute of Sustainable Resources, University College London (UCL)</strong></p>
<p>Kwarteng’s <a href="https://www.gov.uk/government/news/chancellor-announces-new-growth-plan-with-biggest-package-of-tax-cuts-in-generations">growth plan</a> provided an opportunity to fill a gaping hole in the government’s response to the energy price crisis. A large-scale programme of investment in home energy efficiency is badly needed to bring down bills, lower gas demand, improve health and help reach our climate targets. It could also reduce the amount of government borrowing required for the energy price cap.</p>
<p>But the government has decided not to take up that opportunity. A smaller commitment to existing schemes delivered by energy suppliers was announced instead. While this is not trivial and will target those on low incomes, the scale of the energy and climate change crises means that it is simply not up to the job.</p>
<p>With this in mind, we will ultimately need to move away from fossil fuels for most purposes. But Kwarteng’s plan continues a pattern of mixed signals from the government on this issue. </p>
<p>It restates the commitment to investment in one of the UK’s most successful low carbon technologies (offshore wind) as well as more uncertain, longer-term options such as nuclear power and hydrogen. There is also a surprising and positive commitment to reduce planning restrictions for onshore wind, which is one of the cheapest forms of electricity.</p>
<figure class="align-center ">
<img alt="Onshore wind farm." src="https://images.theconversation.com/files/486297/original/file-20220923-10743-4pptt7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/486297/original/file-20220923-10743-4pptt7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/486297/original/file-20220923-10743-4pptt7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/486297/original/file-20220923-10743-4pptt7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/486297/original/file-20220923-10743-4pptt7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/486297/original/file-20220923-10743-4pptt7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/486297/original/file-20220923-10743-4pptt7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Winds of change.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/eaglesham-scotland-391508827">Shutterstock/David Falconer</a></span>
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<p>But this support comes alongside new oil and gas licenses and an end to the ban on fracking. Neither of these strategies are likely to have a significant impact on energy prices, particularly in the short term, as is sorely needed. There are also serious questions about their compatibility with our climate change targets. </p>
<p>The plan includes an increase in the estimated revenue from the windfall tax on oil and gas, from £5 billion to £7.7 billion in this financial year. This tax could have been extended further to help pay for the energy price cap, and to boost investment in low carbon infrastructure.</p>
<h2>Business impact</h2>
<p><strong>Steven McCabe, Associate Professor, Institute for Design, Economic Acceleration & Sustainability (IDEAS), Birmingham City University</strong></p>
<p>Kwarteng’s decision to scrap the planned increase in corporation tax, which had been due to rise from 19% to 25%, will be welcomed by businesses. As the chancellor claimed, this should make the UK a more attractive place to invest and result in a jobs and tax-take increase. It also means investors in companies retain more profits. </p>
<p>Whether this provides sufficient incentive for additional investment is questionable, however. On the other hand, a removal of the cap on fees for certain specialised investment schemes may encourage more funds for innovation and product development. </p>
<p>Kwarteng intends to underpin growth through 40 investment zones throughout England that will offer special tax breaks and reduced planning and environmental regulation for business. Kwarteng claims this will “unleash the power of the private sector”. </p>
<p>We’ve seen this sort of intervention before in the 1980s and again in 2012, with mixed results. Kwarteng’s investment zones are also unlikely to solve the huge social and economic problems we face. </p>
<p>Rather than Boris Johnson’s fabled objective of “levelling up”, they risk merely encouraging existing businesses to relocate to enjoy tax breaks. This will not recreate the thousands of well-paid manufacturing jobs lost when traditional industries closed in the 1980s. </p>
<p>Overall, many businesses will be disappointed by what was announced. There will be continued concerns about business closures and redundancies accelerating, with the consequential loss of much-needed tax revenue to pay off the ever-increasing public debt. </p>
<p>What businesses needed from the government was genuinely radical intervention to stimulate manufacturing. What we got will not produce the growth we need. Look at the immediate market reaction, as measured by the falling pound. </p>
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<h2>Property market</h2>
<p><strong>Jean-Philippe Serbera, Senior Lecturer in Banking And Financial Markets, Sheffield Hallam University</strong></p>
<p>A permanent reduction in stamp duty, at a time when the property market has rarely been so strong, is perhaps one of the stranger aspects of the mini-budget. Kwarteng has raised the threshold for payment from £300,000 to £425,000 for first time buyers and to £250,000 for all other residential purchases.</p>
<p>The motive behind the change must be to further support the housing market by reducing overall costs for those trying to get onto the housing ladder, while also benefiting property investors. </p>
<p>On the face of it though, it seems ill-timed. Property prices are already at record levels, and it will cost the government billions of pounds. However, with the Bank of England raising interest rates, and inflation squeezing personal savings, it may be a way for the government to temporarily postpone a crash in UK house prices that is bound to happen – and sooner rather than later.</p><img src="https://counter.theconversation.com/content/191274/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Phil Tomlinson currently receives funding from the Engineering and Physical Sciences Research Council (EPSRC) for the Made Smarter Innovation: Centre for People-Led Digitalisation. </span></em></p><p class="fine-print"><em><span>Andrew Burlinson currently receives funding from UKERC and previously received relevant funding from EPSRC.</span></em></p><p class="fine-print"><em><span>Donald Hirsch is af member of the Labour Party</span></em></p><p class="fine-print"><em><span>The main research programme Jim Watson is involved in is funded by FCDO (Foreign Commonwealth and Development Office). This is the Climate Compatible Growth programme, where he is Research Director. He has previously received funding from UKRI for a number of research projects and programmes.</span></em></p><p class="fine-print"><em><span>Jonquil Lowe is affiliated with the Women's Budget Group.</span></em></p><p class="fine-print"><em><span>Catherine Waddams, Jean-Philippe Serbera, and Steven McCabe do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>How the government plans to address the energy crisis and economic growth, among other key issues.Phil Tomlinson, Professor of Industrial Strategy, Deputy Director Centre for Governance, Regulation and Industrial Strategy (CGR&IS), University of BathAndrew Burlinson, Lecturer in Energy Economics, University of East AngliaCatherine Waddams, Emeritus Professor of Economic Regulation, Norwich Business School, University of East AngliaDonald Hirsch, Professor of Social Policy, Loughborough UniversityJean-Philippe Serbera, Senior Lecturer in Banking And Financial Markets, Sheffield Hallam UniversityJim Watson, Professor of Energy Policy and Director of the Institute of Sustainable Resources, UCLJonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open UniversitySteven McCabe, Associate Professor, Institute for Design, Economic Acceleration & Sustainability (IDEAS), Birmingham City UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1896712022-09-18T08:50:58Z2022-09-18T08:50:58ZNew data on the e-levy in Ghana: unpopular tax on mobile money transfers is hitting the poor hardest<figure><img src="https://images.theconversation.com/files/484000/original/file-20220912-18-n7y3vq.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A lot of African countries have implemented taxes on electronic transactions</span> <span class="attribution"><span class="source">Wikimedia Commons</span></span></figcaption></figure><p>Ghana’s introduction of a <a href="https://www.bbc.com/news/world-africa-61248366">a 1.5% tax on mobile money transactions</a> in May 2022 has been watched closely by policymakers across Africa. The proponents of the electronic transaction levy (e-levy) argue that taxes on mobile money — commonly referred to in Ghana as MoMo — present an opportunity for cash-strapped governments to raise funds in the complex post-pandemic context. </p>
<p>In Ghana, the “e-levy” has been linked to the current administration’s “<a href="http://osm.gov.gh/assets/downloads/ghana_beyond_aid_charter.pdf">Ghana Beyond Aid</a>” strategy for reducing aid dependence.</p>
<p>Taxes on MoMo, in Ghana and elsewhere, have also been justified as a way to “capture” those working in the informal economy, who are perceived as being untaxed. Critics have pointed out, however, that informal workers (who make up <a href="https://www.wiego.org/sites/default/files/publications/file/WIEGO_Statistical_Brief_N21_0.pdf">89% of total employment</a> in Ghana) already pay a <a href="https://www.wiego.org/sites/default/files/publications/file/Rogan_Taxation_Debates_WIEGO_WorkingPaperNo41_2020.pdf">range of fees and taxes</a>. Therefore they may be disproportionately affected by this new tax. </p>
<p>Despite much speculation about the impact of the e-levy, there has been little empirical evidence. In particular, it is important to consider how informal workers actually use mobile money, how the levy affects them and how they perceive it.</p>
<p>Our recent <a href="https://opendocs.ids.ac.uk/opendocs/handle/20.500.12413/17625">study</a> looked at the likely impact of the levy on high and low earners in the informal economy. It was based on a representative survey of 2,700 informal sector operators – employers and own-account workers – in Accra before the tax was introduced. We found that despite the minimum threshold shielding some users, the tax likely has a negative impact on equity. We also found that informal workers’ scepticism about the tax was rooted in concerns about equity and in mistrust of the government more widely.</p>
<h2>Assumption 1: e-levy will target higher earners</h2>
<p>One of the assumptions prior to the implementation of the e-levy was that it would be an efficient way to target higher earning segments of the informal sector. These segments are perceived as being under-taxed and more likely than lower-income earners to use mobile money.</p>
<p>A key question, therefore, is whether mobile money usage is concentrated among higher income earners. This assumption only partially stands up to the evidence. We found that about half (51%) of the informal sector operators in Accra use mobile money. It is widely used by women and men, by different occupational groups and across the earnings distribution. But the distribution of the actual monthly transaction amounts is revealing (Figure 1). </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/483043/original/file-20220906-14-79imou.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/483043/original/file-20220906-14-79imou.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=361&fit=crop&dpr=1 600w, https://images.theconversation.com/files/483043/original/file-20220906-14-79imou.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=361&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/483043/original/file-20220906-14-79imou.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=361&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/483043/original/file-20220906-14-79imou.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=453&fit=crop&dpr=1 754w, https://images.theconversation.com/files/483043/original/file-20220906-14-79imou.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=453&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/483043/original/file-20220906-14-79imou.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=453&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Figure 1.</span>
</figcaption>
</figure>
<p>As expected, the top-earning group (quintile 5) reported transacting the most on the MoMo platform (about 500 and 700 cedis for female and male workers, respectively). However, lower-income earners will also be affected by the e-levy. This is because informal workers in the lowest earning group transacted more than those in several of the higher earnings categories.</p>
<p>About 41% of MoMo users in the informal sector do not have a bank account. Mobile money transfers may be particularly important for the unbanked, who typically account for the lower earning and more vulnerable segments of the workforce. We found 43% in the lowest earning quintile had bank accounts compared with 54% in the highest earning quintile.</p>
<h2>Assumption 2: excluding small transactions will make the levy fair</h2>
<p>It was anticipated that the exemption for transactions below 100 cedis per day would shield lower-income earners. It was expected to limit the negative impacts of the tax on the poor.</p>
<p>Based on MoMo usage data, we were able to estimate e-levy liability according to whether mobile money transactions in the previous month exceeded the 100 cedis threshold. Sixty-one percent of the users reported that they would be liable for some amount of e-levy payment based on their past MoMo transaction patterns and amounts. Here, our results provide some support for the government’s suggestion that the threshold would protect about <a href="https://citinewsroom.com/2021/11/momo-tax-wont-affect-about-40-of-ghanaians-adu-boahen/">40% of MoMo users</a> from taxation. </p>
<p>However, when the mobile money transaction amounts over the threshold are calculated as a share of earnings, it is clear that the levy is still a highly regressive tax (Figure 2) – meaning the tax burden is highest on the lowest earners. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/483044/original/file-20220906-12-1crisw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/483044/original/file-20220906-12-1crisw.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=361&fit=crop&dpr=1 600w, https://images.theconversation.com/files/483044/original/file-20220906-12-1crisw.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=361&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/483044/original/file-20220906-12-1crisw.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=361&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/483044/original/file-20220906-12-1crisw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=453&fit=crop&dpr=1 754w, https://images.theconversation.com/files/483044/original/file-20220906-12-1crisw.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=453&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/483044/original/file-20220906-12-1crisw.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=453&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Figure 2.</span>
</figcaption>
</figure>
<p>Lower earners bear a disproportionate share of the levy. The tax would account for just over 8% and 6% of monthly earnings for men and women, respectively, in the lowest earning quintile. Among the top earning quintile, in contrast, the projected tax would be less than 1% of earnings for both women and men. </p>
<h2>Assumption 3: support for the e-levy would vary on political lines</h2>
<p>As <a href="https://www.afrobarometer.org/articles/majority-of-ghanaians-oppose-e-levy-not-confident-it-will-fund-development-programmes-new-afrobarometer-study-shows/">other surveys</a> have highlighted, the e-levy is highly unpopular in Ghana. We found that 83% of Accra’s informal workers disapproved of it. They worried about how it would affect the poor, that it would be unfair, or raise an already high tax burden.</p>
<p>The levy was the subject of verbal and even physical <a href="https://www.africanews.com/2021/12/21/brawl-in-ghana-s-parliament-over-proposed-e-levy/">fights in parliament</a> between the two main parties. The New Patriotic Party administration blamed public opposition to the levy on alleged propaganda by the minority National Democratic Council. This might suggest that support for the levy would broadly fall along party lines. Our study found that supporters of the New Patriotic Party were indeed more likely to support the levy. But only 32% of them approved. Overall, perceptions of the government and its performance influenced opinions on the levy. </p>
<p>We also found that women were more critical of the e-levy, even when we controlled for a range of demographic and political features. Only 12% of women approved of it, compared with 21% of men. This striking difference highlights the importance of further research in this area, particularly to explore the relative impacts on men and women.</p>
<h2>Implications for policy</h2>
<p>The designers of Ghana’s e-levy argued that it would lead to a better distribution of the tax burden by bringing ostensibly untaxed informal sector workers into the tax net (fairness) while shielding the poorest (equity). While the threshold is successful in shielding some lower income users, we found, the e-levy is still highly regressive.</p>
<p>Our evidence suggests that the threshold should be raised and regularly adjusted for inflation. More generally, revenue authorities should focus on other ways of taxing high income workers in the informal economy, including professionals. At the very least, revenues from the e-levy should be used in a way that offsets its distributional impacts. This could mean targeting new spending on public infrastructure, goods and services that benefit informal workers. Government could also subsidise premiums paid by informal sector workers to join the National Health Insurance Scheme or contributions to the National Pension Scheme.</p>
<p>Our data suggests that key decisions about policy design and implementation were founded on assumptions that are not backed by empirical evidence. Continued research on the impacts of the e-levy in the coming months and years will help ensure that policymaking is evidence-based, with a more complete understanding of how the levy affects citizens and workers.</p><img src="https://counter.theconversation.com/content/189671/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mike Rogan a Research Associate with the Urban Policies Programme in WIEGO (Women in Informal Employment: Globalizing and Organizing). The research described in this article was made possible by generous support from the Swedish International Development Cooperation Agency. </span></em></p><p class="fine-print"><em><span>Max Gallien is a research fellow at the Institute of Development Studies (IDS) and the International Centre for Tax and Development (ICTD). Through the ICTD, the research described in this article has also been supported by the UK Foreign, Commonwealth and Development Office, the Norwegian Agency for Development Cooperation and the Bill & Melinda Gates Foundation.</span></em></p><p class="fine-print"><em><span>Vanessa van den Boogaard is a Research Fellow at the International Centre for Tax and Development (ICTD) and the University of Toronto.
</span></em></p><p class="fine-print"><em><span>Nana Akua Anyidoho does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The tax on electronic transactions has not generated as much revenue as the government of Ghana expected.Mike Rogan, Associate Professor, Rhodes UniversityMax Gallien, Research Fellow, Institute of Development StudiesNana Akua Anyidoho, Associate Professor & Director, Centre for Social Policy Studies, University of GhanaVanessa van den Boogaard, Research Fellow, Institute of Development StudiesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1861002022-08-23T19:31:42Z2022-08-23T19:31:42ZIndigenous people pay taxes: Demythologizing the Indian Act tax exemption<figure><img src="https://images.theconversation.com/files/480141/original/file-20220819-5947-tvcyhg.jpg?ixlib=rb-1.1.0&rect=0%2C617%2C5572%2C3094&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Indigenous Peoples are subject to the same tax rules as any other Canadian, unless they are eligible for tax exemption under the Indian Act.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/indigenous-people-pay-taxes--demythologizing-the-indian-act-tax-exemption" width="100%" height="400"></iframe>
<p>There is a <a href="https://www.ictinc.ca/blog/myth-status-indians-exempt-from-federal-or-provincial-taxes-2">common misconception among Canadians</a> that Indigenous people do not pay any taxes. It <a href="https://www.portageandmainpress.com/Books/I/Indigenous-Writes">perpetuates harmful stereotypes and hinders non-Indigenous Canadians</a> from reconciling with the truths of Canada’s colonial history and present.</p>
<p>In reality, Indigenous Peoples are subject to the same tax rules as any other Canadian, unless they are eligible for tax exemption under Section 87 of the <a href="https://indigenousfoundations.arts.ubc.ca/the_indian_act/">Indian Act</a>. However, there is still considerable <a href="https://anishinabeknews.ca/2020/11/25/opinion-some-thoughts-on-section-87-of-the-indian-act/">misunderstanding about how this exemption is applied</a>. </p>
<p>The term “Indian” is an outdated, pejorative term that is no longer used to refer to Indigenous people in Canada, but it is the legal term used under the Indian Act to designate persons and “<a href="https://indigenousfoundations.arts.ubc.ca/bands/">bands</a>” to which the Act applies, which is why we are using it here.</p>
<h2>The Indian Act</h2>
<p>The Indian Act is <a href="https://indigenousfoundations.arts.ubc.ca/the_indian_act/">an evolving piece of colonial legislation</a> that has continually governed the affairs of Indigenous Peoples since before <a href="https://www.thecanadianencyclopedia.ca/en/article/confederation">Confederation</a>. In 1867, the federal government assumed full jurisdiction over “Indians and lands reserved for Indians” <a href="https://laws-lois.justice.gc.ca/eng/const/page-3.html#h-18">under subsection 91(24)</a> of the Constitution Act.</p>
<figure class="align-right ">
<img alt="Black and white photo of a bearded man in a suit" src="https://images.theconversation.com/files/477910/original/file-20220805-35863-hga48w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/477910/original/file-20220805-35863-hga48w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=809&fit=crop&dpr=1 600w, https://images.theconversation.com/files/477910/original/file-20220805-35863-hga48w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=809&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/477910/original/file-20220805-35863-hga48w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=809&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/477910/original/file-20220805-35863-hga48w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1016&fit=crop&dpr=1 754w, https://images.theconversation.com/files/477910/original/file-20220805-35863-hga48w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1016&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/477910/original/file-20220805-35863-hga48w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1016&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Indian Act was passed in 1876 by Alexander Mackenzie’s Liberal government.</span>
<span class="attribution"><span class="source">(National Archives of Canada/William James Topley)</span></span>
</figcaption>
</figure>
<p>The first consolidation of the Indian Act was passed by Alexander Mackenzie’s Liberal government in 1876. The legislation was designed to “civilize” Indigenous peoples through “enfranchisement.”</p>
<p>This was accomplished by controlling the registration of “<a href="https://indigenousfoundations.arts.ubc.ca/indian_status/">status Indians</a>,” which encouraged the renouncement of status by Indigenous people. </p>
<p>Even though the legal term “Indian” is supposed to apply to all Indigenous Peoples in Canada, the term “Indian” in the Indian Act has been <a href="https://www.canada.ca/en/revenue-agency/services/indigenous-peoples/information-indians.html#hdng1">applied by administrative bodies</a> and courts to exclude not only Métis and Inuit peoples, but many other Indigenous peoples as well.</p>
<h2>The tax exemption</h2>
<p>The taxation exemption is <a href="https://laws-lois.justice.gc.ca/eng/acts/i-5/page-8.html#h-332811">housed in paragraph 87(1)(b) of the Indian Act</a>. It exempts “the personal property of an Indian or a band situated on a reserve.”</p>
<p>This provision has been interpreted to mean the income of someone registered, or eligible to be registered, as a status Indian will be exempt if that income is located on a reserve. However, because income is not tangible personal property, the courts have criteria for determining whether a status Indian’s income can be said to be located on reserve. </p>
<p>Since <a href="https://en.wikipedia.org/wiki/Indigenous_peoples_in_Canada#Legal_categories">not all Indigenous people are Indians under the Indian Act</a>, and because not all Indians earn income that could be said to be located on reserve, the exemption is very narrow.</p>
<h2>The statistics don’t lie</h2>
<p>While a status Indian doesn’t need to live on reserve to be subject to the exemption, it’s easier for them to get the exemption if they do. As of 2016, there were <a href="https://www12.statcan.gc.ca/census-recensement/2016/dp-pd/abpopprof/index.cfm?Lang=E">1.7 million First Nations, Inuit and Métis people</a> living in Canada, 745,000 of which were “status” or “registered Indians.” </p>
<p>Of that number, 44 per cent lived on reserve and about 200,000 were of working age (between the ages of 14 and 65). Of the working population, about 75,000 earned under $10,000 in annual income or less, meaning they would not have paid tax, regardless of their identity or place of residence. </p>
<figure class="align-center ">
<img alt="A sign for the Canada Revenue Agency's national headquarters pictures outside a buliding" src="https://images.theconversation.com/files/480146/original/file-20220819-3033-botuus.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/480146/original/file-20220819-3033-botuus.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480146/original/file-20220819-3033-botuus.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480146/original/file-20220819-3033-botuus.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480146/original/file-20220819-3033-botuus.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480146/original/file-20220819-3033-botuus.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480146/original/file-20220819-3033-botuus.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Canada Revenue Agency headquarters is pictured in Ottawa in August 2020.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Sean Kilpatrick</span></span>
</figcaption>
</figure>
<p>This left around 130,000 people — just eight per cent of Canada’s Indigenous population — who could potentially qualify for the Section 87 exemption. However, this number is likely lower because status Indians only qualify for the exemption if their income is connected to a reserve. </p>
<p>This doesn’t just require a status Indian’s employer to be located on reserve, but also that <a href="https://www.canada.ca/en/revenue-agency/services/indigenous-peoples/information-indians.html#hdng7">the connection be supported by a real relationship</a> and be more than a head office or place to pick up cheques.</p>
<p>While it is possible for a status Indian who resides off-reserve to claim the tax exemption, it’s more difficult for them to satisfy the necessary criteria. Courts must determine how much of a status Indian’s income is connected to a reserve by looking at several factors, including:</p>
<ul>
<li>Where a status Indian lives.</li>
<li>Where a status Indian’s employer residence is.</li>
<li>Whether an employer is a status Indian or a business is owned by a status Indian or Indian band.</li>
<li>If the activities performed on a reserve contribute to the reserve’s income.</li>
</ul>
<h2>Self-determination and taxes</h2>
<p>To date, Indigenous people have not been provided the taxation and spending authority consistent with self-government. This means Indigenous people have not received the same level of services that non-Indigenous Canadians enjoy.</p>
<p>Even though nearly all Indigenous people in Canada pay tax on their income, Canadian governments have not spent nearly as much on services for them. <a href="https://fngovernance.org/wp-content/uploads/2021/02/emmanuel-brunet-jailly.pdf">A study from 2008</a> found that Canadian governments spend about $15,000 per person on non-Indigenous Canadians, compared to the $9,000 it spends on Indigenous people.</p>
<p>Since the majority of Indigenous people in Canada pay tax to the federal and provincial governments, this deficit of received services is not on par with the fiscal burden of taxes they bear, in addition to the historical weight of <a href="https://cashback.yellowheadinstitute.org/">poverty wrought by the dispossession of their lands and resources</a> by colonial governments. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/JFgftoW0-5o?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">A video explaining how Indigenous tax exemption works in Canada.</span></figcaption>
</figure>
<p>Instead of questioning whether or not Indigenous people pay taxes, a more important question non-Indigenous Canadians should ask is whether Canada can make good on treaty promises or legal overtures to make room for Indigenous governments to assume authority over their own taxes.</p>
<p>In recent years, there has been <a href="https://www.rcaanc-cirnac.gc.ca/eng/1653656649496/1653656678395">movement in this direction by the federal government</a>. And as <a href="https://www.justice.gc.ca/eng/declaration/index.html">Canada has committed to aligning Canadian law</a> with the <a href="https://www.un.org/development/desa/indigenouspeoples/declaration-on-the-rights-of-indigenous-peoples.html">UN Declaration on the Rights of Indigenous Peoples</a>, there is good <a href="https://www.justice.gc.ca/eng/csj-sjc/principles-principes.html">reason to hope</a> that the way the <a href="https://cashback.yellowheadinstitute.org/part-one/">colonization of Indigenous peoples has financed Canadian prosperity</a> can finally be brought into the open.</p>
<p>If Canadians wish to take reconciliation and the self-determination of Indigenous Peoples seriously, it is time to stop allowing mythologies of “who pays for Canada” to be laid at the door of Indigenous Peoples.</p>
<p><em>Iain Thomas, a member of the Snuneymuxw First Nation and recent Juris Doctor graduate from the University of Victoria’s Faculty of Law, co-authored this article.</em></p><img src="https://counter.theconversation.com/content/186100/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bradley Bryan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The common misconception among Canadians that Indigenous people do not pay any taxes perpetuates harmful stereotypes and hinders reconciliation.Bradley Bryan, Assistant Professor, Faculty of Law, University of VictoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1889382022-08-22T11:49:36Z2022-08-22T11:49:36ZCost of living crisis: the UK needs to raise taxes not cut them – here’s why<figure><img src="https://images.theconversation.com/files/479959/original/file-20220818-23-l63g4u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Taxation has turned out to be the <a href="https://www.bbc.co.uk/news/uk-politics-62122166">main issue</a> dividing the two candidates in the current Conservative Party leadership contest. While Rishi Sunak wants to hold off making tax cuts until after the cost of living crisis has been tackled, Liz Truss wants immediate reductions. She believes cutting taxes will not cause <a href="https://www.theguardian.com/politics/video/2022/jul/21/liz-truss-my-tax-cuts-decrease-inflation-tory-leadership-video">further rises in inflation</a> for consumers.</p>
<p>But setting aside concerns that tax cuts risk accelerating <a href="https://uk.news.yahoo.com/tory-leadership-tax-cut-promises-230100093.html">price increases</a> by giving people and businesses more money to spend, these strategies also don’t account for the need to address the current crises facing the UK. In addition to an <a href="https://www.bma.org.uk/bma-media-centre/billions-needed-to-tackle-huge-nhs-backlog-and-reverse-years-of-underfunding-says-bma-ahead-of-comprehensive-spending-review">underfunded</a> health service, households need more help with <a href="https://www.independent.co.uk/independentpremium/uk-news/cost-living-energy-bills-debt-b2148418.html">skyrocketing energy costs</a> this winter. This will require large increases in government spending in the immediate future. Britain will need to pay for this either by borrowing more or raising taxes, not lowering them.</p>
<p>There is a pervasive myth about the effects of taxation on a country’s economic growth, namely that higher taxes mean less growth. It is one of those ideas that may seem plausible at first, but is in fact quite wrong. One of the sources of this myth is the idea that raising taxes reduces people’s incentive to work. Put simply, that people will refuse to take on a new job or accept a pay rise because it means paying more tax. Economists have found this idea <a href="https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.6.1.3">difficult to prove</a>, however.</p>
<p>Furthermore, various income support experiments conducted across the world show that raising welfare payments has <a href="https://www.vox.com/future-perfect/2020/2/19/21112570/universal-basic-income-ubi-map">no effect</a> on willingness to work. And <a href="https://www.jstor.org/stable/10.1017/s0022381613001345">research</a> also shows that tax cuts for businesses in US states have no effect on economic growth.</p>
<p>It is also possible to cast doubt on the myth that higher taxes prevent economic growth by looking at the relationship between tax levels and economic growth in the world’s most advanced industrial economies – the 38 member states of the Organisation for Economic Cooperation and Development (<a href="https://www.oecd.org/about/">OECD</a>) – over a long period of time.</p>
<p><strong>1. OECD taxes rise alongside GDP growth</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/480103/original/file-20220819-22-6jf1r3.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line graph showing correlation between taxation as a percentage of GDP and GDP per capita" src="https://images.theconversation.com/files/480103/original/file-20220819-22-6jf1r3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/480103/original/file-20220819-22-6jf1r3.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=411&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480103/original/file-20220819-22-6jf1r3.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=411&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480103/original/file-20220819-22-6jf1r3.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=411&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480103/original/file-20220819-22-6jf1r3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=517&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480103/original/file-20220819-22-6jf1r3.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=517&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480103/original/file-20220819-22-6jf1r3.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=517&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The correlation between taxation and GDP.</span>
<span class="attribution"><a class="source" href="https://www.oecd.org/tax/tax-policy/tax-database/">Author's chart using OECD figures.</a></span>
</figcaption>
</figure>
<p>The chart above shows the levels of <a href="https://www.oecd.org/tax/tax-policy/tax-database/">taxation</a> (from all sources) and gross domestic product (GDP) per capita among OECD members over the 50 years since 1970. Both GDP (which indicates the size and health of an economy) and the tax take in these countries have increased over time, with the former rising more rapidly than the latter. This produces a strong positive correlation between the two, indicating that higher taxes are associated with increased prosperity, rather than the opposite.</p>
<p>For example in 2019, the last year before COVID hit the world economy, the GDP per capita figures in Germany, Sweden and Denmark were respectively 13%, 11% and 17% higher than in Britain – despite all three countries having significantly <a href="https://ifs.org.uk/taxlab/key-questions/how-do-uk-tax-revenues-compare-internationally">higher tax rates</a>. </p>
<p>The simple explanation for this is based on the interaction between growth and taxation. As countries grow richer, they can raise taxes and spend more on education, health, welfare and other public services. At the same time, this stimulates growth because investment in infrastructure and a healthier and more educated work force increases productivity.</p>
<p>In contrast, reduced spending means less investment and ultimately <a href="https://www.hurstpublishers.com/event/gambling-on-development-why-some-countries-win-and-others-lose-w-stefan-dercon/">lower productivity and growth</a>. The way to stimulate growth is to invest in both private and public assets at the same time, rather than by impoverishing public investment in the mistaken belief that this will stimulate private investment.</p>
<p>While the vast majority of OECD members have raised taxes over the last 50 years, Britain has not. This can be seen in the chart below, which shows taxation as a percentage of GDP in Britain since the start of Harold Wilson’s Labour government in 1965. Britain’s current tax take is essentially the same as it was more than half a century ago, while taxes have increased by about 25% across the rest of the OECD.</p>
<p><strong>2. UK taxes as a percentage of GDP</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/479952/original/file-20220818-22-419b6c.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Bar chart showing taxes as a percentage of GDP and party incumbency in Britain, 1965 to 2019" src="https://images.theconversation.com/files/479952/original/file-20220818-22-419b6c.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/479952/original/file-20220818-22-419b6c.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=408&fit=crop&dpr=1 600w, https://images.theconversation.com/files/479952/original/file-20220818-22-419b6c.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=408&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/479952/original/file-20220818-22-419b6c.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=408&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/479952/original/file-20220818-22-419b6c.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=512&fit=crop&dpr=1 754w, https://images.theconversation.com/files/479952/original/file-20220818-22-419b6c.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=512&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/479952/original/file-20220818-22-419b6c.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=512&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Taxes as a Percentage of GDP during each UK government from 1965 to 2019.</span>
<span class="attribution"><a class="source" href="https://www.oecd.org/tax/tax-policy/tax-database/">Author's chart using OECD figures</a></span>
</figcaption>
</figure>
<p>The chart also shows that there is little difference between successive British governments and the size of the tax take over time. There were fluctuations, but they were quite small and unrelated to which party was in power. This highlights Britain’s collective problem of “<a href="https://ifs.org.uk/publications/16151">cakeism</a>” – that is, wanting decent public services but being unwilling to pay for them. Part of the reason for this is that both major parties appear to be unwilling to tell the public the truth: we can’t cut taxes and address current crises in the cost of living and public services without borrowing more.</p>
<h2>Addressing crises while avoiding a crash</h2>
<p>So many of our public services are currently in crisis – whether it’s <a href="https://www.theguardian.com/society/2022/aug/14/ministers-admit-hospital-buildings-england-roofs-could-collapse-any-time">crumbling hospitals</a>, a <a href="https://www.liverpoolecho.co.uk/news/liverpool-news/nhs-staff-shortages-worst-ever-24765094">chronic shortage</a> of NHS staff, the risk of social care system <a href="https://www.telegraph.co.uk/news/2021/10/16/social-care-boss-warns-basic-services-will-collapse-without/">collapse</a>, or even roads full of potholes. In the end, all of this comes down to a lack of spending and investment.</p>
<p>Ramping up borrowing further is not a long-term solution to this problem. In the last few years, international borrowing by Britain has mushroomed in size. In March 2022 it was £2,365 billion, or just under 100% of GDP – a <a href="https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/bulletins/ukgovernmentdebtanddeficitforeurostatmaast/march2022">much higher proportion</a> than in the past, and an indication that the UK could already struggle to repay its debts. The pandemic, the war in Ukraine and Brexit have all contributed to this. </p>
<p>The interest payments on such borrowing are now rising fairly rapidly as <a href="https://www.cnbc.com/2022/07/27/fed-decision-july-2022-.html">central banks</a> around the world <a href="https://theconversation.com/uk-interest-rate-rise-what-the-bank-of-englands-historic-hike-means-for-your-money-188042">raise rates</a> to combat <a href="https://www.reuters.com/markets/europe/ecb-finally-join-rate-hike-club-with-big-move-agenda-2022-07-20/">inflation</a>. This means a government that funds tax cuts by borrowing more is going to risk higher inflation and an accelerating deficit as a result. This is a recipe for an economic crash. Extra spending has to be financed. To do this, Britain needs higher taxes not tax cuts.</p><img src="https://counter.theconversation.com/content/188938/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Whiteley has received funding from the British Academy and the ESRC</span></em></p>Why tax cuts are unlikely to help Britain address its current crises.Paul Whiteley, Professor, Department of Government, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1887862022-08-18T17:23:54Z2022-08-18T17:23:54ZWill the Inflation Reduction Act actually reduce inflation? How will the corporate minimum tax work? An economist has answers<figure><img src="https://images.theconversation.com/files/479917/original/file-20220818-6276-9qt389.jpg?ixlib=rb-1.1.0&rect=152%2C58%2C2842%2C1782&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Don't expect the Inflation Reduction Act to bring down prices all that much.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/ProducerPrices/e52f9db68a144f2e9822d8c2f0f06925/photo?Query=prices&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=51911&currentItemNo=52">AP Photo/David Zalubowski</a></span></figcaption></figure><p><em>The U.S. is about to <a href="https://www.nytimes.com/interactive/2022/08/13/upshot/whats-in-the-democrats-climate-health-bill.html">spend US$490 billion over 10 years</a> on reducing greenhouse gas emissions, improving health care and reducing the federal deficit. Where’s all that money coming from?</em></p>
<p><em>We asked University of Michigan economist <a href="https://www.nirupamarao.org">Nirupama Rao</a> to examine how the new law will raise enough revenue to pay for clean energy tax credits, Affordable Care Act subsidies and incentives for manufacturers to use cleaner technologies, among other initiatives. We also wanted to know, given its name, will the Inflation Reduction Act actually bring down inflation?</em></p>
<h2>What are the main revenue components in the bill?</h2>
<p>The new law funds itself primarily <a href="https://www.nytimes.com/interactive/2022/08/13/upshot/whats-in-the-democrats-climate-health-bill.html">through a mixture of tax-related measures and health care savings</a>. In fact, the revenue it’s projected to raise more than pays for the new spending, reducing the deficit by roughly a quarter of a trillion dollars over 10 years.</p>
<p>The biggest source of revenue, <a href="https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf">projected by the Joint Committee on Taxation</a> at about $222 billion, comes from a new 15% minimum corporate tax rate. Another $124 billion in net revenue is expected as a result of stepped-up tax enforcement by the Internal Revenue Service. The committee expects two other tax measures – including a 1% tax on corporate stock buybacks – would raise about $126 billion.</p>
<p>Congress is also hoping to save $265 billion through several provisions to <a href="https://theconversation.com/why-letting-medicare-negotiate-drug-prices-wont-be-the-game-changer-for-health-care-democrats-hope-it-will-be-188560?notice=Article+has+been+updated.">lower the amount of money the government spends</a> on prescription drugs through its Medicare program. </p>
<h2>How will the corporate minimum tax work?</h2>
<p>The corporate minimum tax is aimed at raising revenue from companies that report large profits to their shareholders but pay minimal taxes. </p>
<p>Though businesses can, of course, owe no tax because of perfectly legitimate uses of the tax code, seeing headlines about <a href="https://www.washingtonpost.com/business/2022/08/11/minimum-corporate-tax">successful companies</a> paying little to no tax <a href="https://www.pewresearch.org/fact-tank/2021/04/30/top-tax-frustrations-for-americans-the-feeling-that-some-corporations-wealthy-people-dont-pay-fair-share/">has been galling</a> to many Americans and can potentially undermine the public’s faith in the tax system. </p>
<p>In addition, government revenue from companies <a href="https://www.taxpolicycenter.org/statistics/corporate-income-tax-revenue-share-gdp-1934-2020">has plunged in recent years</a> as a result of the 2017 corporate tax cut and other measures. Corporate tax revenue fell by nearly half as a share of gross domestic product from 2015 to 2020. </p>
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<p>To be subject to the minimum tax, U.S. corporations must earn an average of at least $1 billion in adjusted book income – the earnings they report to shareholders less some adjustments – over the previous three years. It hits foreign companies too, though they need only report $100 million in U.S. income. </p>
<p>Basically, companies subject to the minimum will have to calculate their tax liability twice – once under regular corporate income tax rules and again by multiplying their adjusted book income by 15%. Their tax is whichever is greater. Theoretically, this ensures they at least pay the minimum.</p>
<p>A few important adjustments included in the bill’s final language will limit how much companies pay under the minimum tax. To prevent manufacturers from facing high minimum tax bills, for example, <a href="https://www.taxpolicycenter.org/taxvox/how-senate-approved-corporate-minimum-tax-works">companies will be able to employ</a> some of the same credits and deductions they use to reduce their regular corporate tax bills to lower the minimum tax they’ll pay as well. </p>
<p>While an earlier vision of the bill would have subjected private equity funds to the minimum tax, <a href="https://www.nytimes.com/2022/08/08/business/corporate-minimum-tax-private-equity.html">intense lobbying</a> of Arizona Sen. Kyrsten Sinema helped the industry get an exemption, along with retaining the carried interest loophole that the bill initially closed.</p>
<p>In the end, <a href="https://www.finance.senate.gov/imo/media/doc/CAMT%20JCT%20Data.pdf">fewer than 150 companies</a> – including many household names like <a href="https://www.washingtonpost.com/business/2022/08/11/minimum-corporate-tax/">Amazon, AT&T and General Motors</a> – are expected to be subject to the tax. </p>
<figure class="align-center ">
<img alt="A sign reads Internal Revenue Service in front of a large stone building" src="https://images.theconversation.com/files/479918/original/file-20220818-459-zgp5vk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/479918/original/file-20220818-459-zgp5vk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=347&fit=crop&dpr=1 600w, https://images.theconversation.com/files/479918/original/file-20220818-459-zgp5vk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=347&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/479918/original/file-20220818-459-zgp5vk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=347&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/479918/original/file-20220818-459-zgp5vk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=436&fit=crop&dpr=1 754w, https://images.theconversation.com/files/479918/original/file-20220818-459-zgp5vk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=436&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/479918/original/file-20220818-459-zgp5vk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=436&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The IRS gets a big boost in funding from the new law, which should help it beef up enforcement and bring in more revenue.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/Corporations-ZeroTaxes/960af7fa6f804aa3acc39d119caf450d/photo?Query=company%20tax%20profits&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=236&currentItemNo=11">AP Photo/J. David Ake</a></span>
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<h2>How will IRS enforcement generate so much revenue?</h2>
<p>The law allots $80 billion in new funding for the Internal Revenue Service. The Joint Committee on Taxation expects the investment to <a href="https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf">garner $204 billion in revenue over 10 years</a>, or $124 billion once you subtract the increased spending. </p>
<p>The main target of this spending is the so-called tax gap, which is currently <a href="https://home.treasury.gov/news/featured-stories/the-case-for-a-robust-attack-on-the-tax-gap">estimated at about $600 billion a year</a>. The tax gap is the difference between how much corporate or individual taxpayers owe the IRS and how much the agency is able to collect. </p>
<p>The new revenue is expected to come from increased auditing, mostly targeting high-income taxpayers. <a href="https://home.treasury.gov/system/files/136/JLY-letter-to-Commissioner-Rettig-Signed.pdf">Treasury Secretary Janet Yellen</a> and <a href="https://www.irs.gov/pub/irs-utl/commissioners-letter-to-the-senate.pdf">IRS Commissioner Charles Rettig</a> have both pledged that the investments will not lift audit rates on small businesses and households earning less than $400,000 a year.</p>
<p>Many Democrats, along with former <a href="https://www.washingtonpost.com/opinions/2021/11/17/cbo-build-back-better-irs-revenue-too-low/">Treasury Secretary Larry Summers</a>, believe this investment in the IRS will raise a lot more money than estimated because of <a href="http://jasondebacker.com/papers/DHTY_IndivAudit.pdf">better compliance</a> among taxpayers who want to avoid being audited. </p>
<p>The funding will also be used to update <a href="https://www.nextgov.com/it-modernization/2018/03/irs-system-processing-your-taxes-almost-60-years-old/146770/">antiquated technology</a> and increase the IRS’s staff. Decades-old computer systems and understaffing <a href="https://www.taxpayeradvocate.irs.gov/reports/2021-annual-report-to-congress/">prevent the IRS from answering taxpayer queries</a>, tracking funds owed and using simple analytics to guide enforcement. </p>
<p>While an $80 billion investment that returns $204 billion already sounds pretty impressive, it may be possible that it’s a conservative estimate. </p>
<h2>Will the law reduce inflation, as the name implies?</h2>
<p>Probably not much.</p>
<p>Several measures in the law, such as narrowing the deficit, lowering drug prices and making the U.S. less vulnerable to energy price spikes, should all help reduce inflation somewhat. </p>
<p>Though monetary policy is the main tool for fighting inflation, it’s also possible that the new law will convince people that Congress is functional and willing to take steps to address inflation, and that feeling <a href="https://twitter.com/WendyEdelberg/status/1555256251369635841">could lead to lower expectations</a> for future inflation, which can be a self-fulfilling prophesy. </p>
<p>However, the magnitude of the direct impact on inflation, despite the bill’s name, will likely be slight. The <a href="https://budgetmodel.wharton.upenn.edu/issues/2022/8/12/senate-passed-inflation-reduction-act">Penn-Wharton Budget Model</a>, which publishes economic analysis on the fiscal impact of public policy, suggests that the reduction in inflation of the Inflation Reduction Act “will be statistically indistinguishable from zero.” </p>
<p>That’s an economist’s way of saying, when it comes to the bill’s impact on inflation, don’t get your hopes up too much.</p><img src="https://counter.theconversation.com/content/188786/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nirupama Rao has received research support from the Center for Equitable Growth.</span></em></p>The new law will pay for increased spending in several ways, including a corporate minimum tax and funding tax code enforcement by the IRS.Nirupama Rao, Assistant Professor of Business Economics and Public Policy, University of MichiganLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1886762022-08-15T15:37:15Z2022-08-15T15:37:15ZHow to finance marine conservation without harming local communities<p>Subject to <a href="https://www.cell.com/current-biology/fulltext/S0960-9822(21)01198-2">overfishing</a>, marine megafauna – such as sharks, rays, and turtles – are among the world’s most <a href="https://www.iucnredlist.org/resources/summary-statistics">threatened species groups</a>. Somewhat paradoxically, these species also have widespread appeal.</p>
<p>Tourist activities, such as scuba diving place considerable economic value on these species. <a href="https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0065051">One study</a> values global manta ray tourism at US$140 million (£116 million) each year.</p>
<p>Marine tourism is often promoted as a more conservation-compatible substitute to unsustainable fishing. However, despite its value, marine tourism <a href="https://www.frontiersin.org/articles/10.3389/fmars.2020.00261/full">rarely contributes directly</a> towards conservation. The economic value of these species is typically extracted by the tourism industry and rarely filters directly into conservation actions. </p>
<p>Coastal communities that depend on marine megafauna for food and income are, in contrast, <a href="https://www.frontiersin.org/articles/10.3389/fmars.2020.00261/full">rarely well placed</a> to benefit from marine tourism. </p>
<p>And subject to restrictive regulations, the costs of marine conservation also often <a href="https://conbio.onlinelibrary.wiley.com/doi/full/10.1111/csp2.494">fall</a> on these communities. <a href="https://conbio.onlinelibrary.wiley.com/doi/full/10.1111/csp2.494">One study</a> estimated, for example, that catch limits on endangered shark species could cost low-income Indonesian fishers up to 17.6% of their annual revenue.</p>
<h2>A ‘beneficiary pays’ approach</h2>
<p>A potential solution to this <a href="https://www.cambridge.org/core/product/identifier/S0030605303000413/type/journal_article">inequity</a> is a “beneficiary pays” conservation approach. </p>
<p>Here, a fee is levied on tourists or tourist-focused businesses. The proceeds are then invested into community-based conservation projects, which provide coastal communities with the resources to facilitate conservation, while supporting their livelihoods.</p>
<p>In a <a href="https://www.sciencedirect.com/science/article/pii/S0921800922002403">recent study</a>, my colleagues and I investigated the feasibility of this approach.</p>
<p>Using an online survey of people with a general interest in travel, we established the willingness of international marine tourists to pay towards community-based shark conservation. Participants were presented with a scenario in which they were at a tropical beach destination. They were also informed of a nearby community highly dependent on catching endangered sharks.</p>
<p>Given this scenario, participants were asked the maximum amount they would pay for a marine conservation fee. The fee, added to the price of marine activities, would directly compensate local fishers for reducing their catch of endangered shark species.</p>
<p>By combining the average willingness-to-pay per person with market data from two popular Indonesian holiday destinations – Lombok and Pulau Weh, both home to several endangered shark species – we estimated how much conservation revenue could be raised annually.</p>
<h2>Wide support for tourism levies</h2>
<p>Our results show wide support for tourism levies. </p>
<p>Survey respondents were willing to pay a daily average of US$10–15 (£8.25–12.37) per person towards community-based marine conservation projects.</p>
<p>This corresponds to US$2.3–6.8 million (£1.9–5.6 million) per year in Lombok and US$300,000–900,000 (£247,000–742,000) per year in Pulau Weh in potential revenue for coastal communities. The lower estimate is based on a levy of US$10 per day and one day of marine activities per tourist, and the upper based on US$15 per day and two days of marine activities per tourist.</p>
<p>These revenues exceed the <a href="https://osf.io/bxzfs/">estimated costs</a> of community-based shark conservation in nearby fisheries. <a href="https://www.instagram.com/kebersamaan_untuk_lautan/">Pilot projects</a> are already ongoing in these communities, whereby fishers are compensated for releasing critically endangered species, with some early success.</p>
<p><div data-react-class="InstagramEmbed" data-react-props="{"url":"https://www.instagram.com/p/CfdtWMIpmB4/","accessToken":"127105130696839|b4b75090c9688d81dfd245afe6052f20"}"></div></p>
<h2>Direct investment</h2>
<p>Marine tourism is an underutilised source of revenue for marine conservation. However, financing mechanisms must be appropriately designed.</p>
<p>Respondents in our study expressed strong preferences for funding environmental NGOs or direct payments to local communities. There was less support for paying a levy to national or local governments. This implies that for marine tourism levies to be successful, the revenues must be openly distributed to locally-run projects.</p>
<p>Our research also found that travellers’ willingness to pay depended on their holiday budget. Therefore, conservation revenue may be higher in luxury destinations and far lower for budget destinations. This highlights the need for mechanisms to be adapted to local contexts and markets.</p>
<p>We would also suggest, based on our findings, that offering information about marine conservation at the “point of sale” may not be needed. We found that existing pro-environmental behaviours led to a greater willingness to pay. Providing information on shark conservation issues directly prior to the survey had little effect on the willingness of participants to pay.</p>
<p>Over 80% of respondents also agreed that they would be more likely to purchase goods and services from environmentally conscious tourism companies. This further raises the possibility that companies who incorporate conservation levies into their prices may even be deemed more attractive by customers.</p>
<p>Reef areas attract about <a href="http://dx.doi.org/10.1016/j.marpol.2017.05.014">70 million tourists</a> annually. If each tourist is willing to pay just US$10 (£8.25) per trip, marine tourism levies could generate at least US$700 million (£580 million) for marine conservation annually, and in doing so ensure that vulnerable coastal communities do not bear the full costs. </p>
<p>Marine tourism levies can become a key financing mechanism for delivering global biodiversity goals and addressing mismatches between the costs and benefits of marine conservation. But only if they are correctly designed. There is a clear opportunity for tourism operators, governments, NGOs, and coastal communities to develop partnerships to ensure the potential of marine tourism levies can be realised.</p><img src="https://counter.theconversation.com/content/188676/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hollie Booth does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The true cost of marine conservation often falls on vulnerable coastal communities. Can a ‘beneficiary pays’ approach protect both endangered species and the communities dependent on them?Hollie Booth, Nature Positive Senior Specialist at The Biodiversity Consultancy, and Post-Doc Research Associate, University of OxfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1878472022-07-31T20:05:48Z2022-07-31T20:05:48ZWhy Labor’s new tax cut on electric vehicles won’t help you buy one anytime soon<p>The Albanese government has <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/electric-car-discount-bill-introduced-parliament?utm_source=miragenews&utm_medium=miragenews&utm_campaign=news">introduced tax cuts</a> to electric vehicles in its first sitting week, <a href="https://twitter.com/Bowenchris/status/1552457351835176961?s=20&t=oP_tfHNcGY__oQXilm1Uvg">claiming</a> the proposed changes would be “good for motorists, good for climate action and good for fleet purchases”. They won’t, however, help most Australians afford one.</p>
<p>Labor plans to stop the “fringe benefits tax” applying to electric vehicles. This tax usually applies to all cars provided by an employer to an employee, either as part of a salary sacrifice arrangement or as a company car available for personal use. This means the winners of the tax change are high-end employees who can afford a high-priced electric vehicle such as a Tesla.</p>
<p>Rolling business fleets over to the secondhand market is an important way to make electric vehicles more affordable to everyday people. But this tax cut won’t see this happen anytime soon. </p>
<p>Our <a href="https://www.racefor2030.com.au/fast-track-reports/?utm_campaign=318233_BEVs%20apology&utm_medium=email&utm_source=RACE%20FOR%202030%20Limited&dm_t=0,0,0,0,0#2">recent report</a> recommends a suite of other tax changes to lower electric vehicle prices and ownership costs. Australia can’t meet its target of 89% new car sales being electric by 2030 without significantly reforming the transport sector. Labor’s new tax cut is a far cry from what’s needed.</p>
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Read more:
<a href="https://theconversation.com/australia-could-rapidly-shift-to-clean-transport-if-we-had-a-strategy-so-we-put-this-plan-together-182598">Australia could rapidly shift to clean transport – if we had a strategy. So we put this plan together</a>
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<h2>What does a fringe benefits tax do?</h2>
<p>Australia’s transport sector <a href="https://www.climatecouncil.org.au/wp-content/uploads/2018/10/CC_MVSA0154-Report-Transport_V6-FA_Low-Res_Single-Pages.pdf%22%22">accounts for around 18% of national emissions</a>. Electric vehicles, powered by renewable energy, are crucial for meeting Australia’s emissions target of net-zero by 2050. </p>
<p>This won’t happen if electric vehicles remain prohibitively expensive. Indeed, 87% of Australians in a <a href="https://electricvehiclecouncil.com.au/wp-content/uploads/2021/10/2021-EVC-carsales-Consumer-attitudes-survey-web.pdf">2021 survey</a> said the biggest barrier to buy an electric vehicle is its high upfront cost.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1552457351835176961"}"></div></p>
<p>So what does a fringe benefit tax on cars actually do? </p>
<p>There are <a href="https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/types-of-fringe-benefits/car-fringe-benefits/working-out-the-taxable-value-of-a-car-fringe-benefit/">two ways</a> the fringe benefit tax is calculated in Australia: using the statutory formula (based on the car’s cost price), or using the operating cost method (based on the costs of operating the car). The fringe benefits tax <a href="https://www.ato.gov.au/rates/fbt/#:%7E:text=Find%20out%20about%20fringe%20benefits,1%20April%20to%2031%20March.">is 47%</a> of each method’s calculated final value, known as “grossed up taxable value”.</p>
<p>The highest payable fringe benefits tax is under the statutory formula method, which applies when employees fail to keep a car logbook. Under this method, electric vehicles would be at a disadvantage. </p>
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Read more:
<a href="https://theconversation.com/how-climate-friendly-is-an-electric-car-it-all-comes-down-to-where-you-live-179003">How climate-friendly is an electric car? It all comes down to where you live</a>
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<p>Employees would be penalised for choosing an electric vehicle because of its higher upfront cost price. Employers would pay a higher fringe benefits tax than if they’d bought a lower-priced petrol or diesel car. That doesn’t leave much incentive for businesses to buy an electric car.</p>
<p>Removing the fringe benefits tax on electric vehicles is a good way to stop penalising employees for choosing an electric vehicle. But it still won’t reduce the high upfront cost price.</p>
<h2>Why businesses still won’t choose electric cars</h2>
<p>Business uptake of electric vehicles depends on the total cost of ownership. Let’s use Hyundai’s Kona cars as a case study.</p>
<p><a href="https://www.racefor2030.com.au/fast-track-reports/?utm_campaign=318233_BEVs%20apology&utm_medium=email&utm_source=RACE%20FOR%202030%20Limited&dm_t=0,0,0,0,0#2">Modelling </a> found Kona electric cars, including a smart charger, costs A$66,337 (excluding GST). A new Kona fuel-combustion car, on the other hand, costs $31,329 (excluding GST), which means electric vehicles are not cost competitive. </p>
<p>The fringe benefits tax would further widen this cost gap of over $35,000, adding around $12,000 each year to the Kona Electric. </p>
<p>Labor’s bill would remove the $12,000 yearly tax, reducing the <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/electric-car-discount-bill-introduced-parliament?utm_source=miragenews&utm_medium=miragenews&utm_campaign=news">ownership cost</a> of an electric vehicle. But it will not reduce the upfront price difference with Kona’s fuel-combustion car.</p>
<p>Another factor to consider is that <a href="https://afma.org.au/electric-vehicles-in-business-fleets-report/#report">a 2020 survey</a> found over 47% of business fleets used for work are parked at home and subject to fringe benefit taxes. This means the fringe benefit tax exemption does not apply to all business vehicles.</p>
<p>The fringe benefit tax exemption may encourage the 47% of business fleet vehicles parked at home to transition to electric vehicles. But this will require an additional cost of installing chargers. This can be expensive, non-tax deductible and subject to additional fringe benefits tax. </p>
<h2>Can we buy from the second-hand market?</h2>
<p>Australia should learn from <a href="https://www.transportenvironment.org/wp-content/uploads/2021/07/2020_10_Company_cars_briefing.pdf">tax changes</a> in Europe, which have successfully accelerated the uptake of electric vehicles. <a href="https://www.transportenvironment.org/discover/company-cars-how-european-governments-are-subsidising-pollution-and-climate-change/">Company cars</a> represent the main market share for new electric vehicles in Europe. </p>
<p>The highest is in the Netherlands, where businesses account for 73% of new electric vehicle purchases. In the United Kingdom it’s at 67%, Germany at 49% and Norway at 34%.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/5-tips-to-make-your-fuel-tank-last-longer-while-prices-are-high-180134">5 tips to make your fuel tank last longer while prices are high</a>
</strong>
</em>
</p>
<hr>
<p>After three to four years, these business electric vehicles are rolled over into the second-hand market, which are cheaper and more affordable to all consumers, not just high-end buyers. </p>
<p>In Australia, business buyers account for <a href="https://www.ntc.gov.au/sites/default/files/assets/files/Carbon%20dioxide%20emissions%20intensity%20for%20new%20Australian%20light%20vehicles%202020.pdf">over 40% of new light vehicle sales</a>. But their uptake of electric vehicles is shockingly low, with a mere <a href="https://www.ntc.gov.au/sites/default/files/assets/files/Carbon%20dioxide%20emissions%20intensity%20for%20new%20Australian%20light%20vehicles%202020.pdf">487 electric vehicles</a> acquired by business fleets in 2020.</p>
<p>This means Australian consumers cannot rely on more affordable business fleet electric vehicles being rolled over into the secondhand market any time soon. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/476631/original/file-20220729-21-l4tehb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/476631/original/file-20220729-21-l4tehb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/476631/original/file-20220729-21-l4tehb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/476631/original/file-20220729-21-l4tehb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/476631/original/file-20220729-21-l4tehb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/476631/original/file-20220729-21-l4tehb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/476631/original/file-20220729-21-l4tehb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/476631/original/file-20220729-21-l4tehb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Businesses account for 67% of electric vehicle purchases in the UK.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>What should we do instead?</h2>
<p><a href="https://www.racefor2030.com.au/fast-track-reports/?utm_campaign=318233_BEVs%20apology&utm_medium=email&utm_source=RACE%20FOR%202030%20Limited&dm_t=0,0,0,0,0#">Our report</a> finds the federal government must introduce additional tax changes, and not be limited to the fringe benefit tax exemption for electric vehicles. </p>
<p>We recommend 17 short-term and long-term tax changes to lower the upfront electric vehicle prices, the total cost of ownership and encourage home charging to address business lack of workplace charging infrastructure. These include:</p>
<ul>
<li><p>instant asset write off to only apply to employer-provided fleet electric vehicles, up to the luxury car limit of A$84,916 (including GST in 2022/23). This would allow the Kona electric vehicle purchase cost of $64,037 to be claimed as an outright tax deduction by a business in its first year of ownership.</p></li>
<li><p>increase the GST credit and depreciation cost limit for fleet electric vehicles, up to the luxury car limit</p></li>
<li><p>a fringe benefit tax exemption for home charging installation and smart charges for fleet electric vehicles</p></li>
<li><p>instant asset write-off for home charging installation and smart charges for fleet electric vehicles.</p></li>
</ul>
<p>Business incentives such as these will bring Australia a big step closer to meeting its 2030 electric vehicle target and, crucially, its net-zero emissions target. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/we-must-rapidly-decarbonise-transport-but-hydrogens-not-the-answer-166830">We must rapidly decarbonise transport – but hydrogen's not the answer</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/187847/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anna Mortimore receives funding from Reliable Affordable Clean Energy Cooperative Research Centre for 2030 (RACE for 2030).
Anna Mortimore acknowledges researcher Dr Diane Kraal from Monash University, </span></em></p>Labor’s new tax cut is a far cry from what’s needed to meet Australia’s target of 89% new car sales being electric by 2030.Anna Mortimore, Lecturer, Griffith Business School, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1873922022-07-22T12:01:03Z2022-07-22T12:01:03ZTory tax plans need to be more strategic to tackle the cost of living crisis – here’s why<p>The cost of living crisis is a <a href="https://www.thetimes.co.uk/money-mentor/article/cost-of-living-crisis/">key issue</a> for the Conservative leadership candidates hoping to become the next prime minister of the UK. But the taxation strategies suggested by the final two Conservative party leadership hopefuls, Rishi Sunak and Liz Truss, won’t solve this problem. </p>
<p>Instead, we need a more nuanced approach that will support all UK households, but particularly those in more deprived areas who have been hit hardest by rising bills and slowing economic growth. Understanding how and why inflation has affected these households is an important step in assessing the solutions the candidates have put forward.</p>
<p><strong>UK inflation rate</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/475261/original/file-20220720-26-3iz7yv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/475261/original/file-20220720-26-3iz7yv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/475261/original/file-20220720-26-3iz7yv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=335&fit=crop&dpr=1 600w, https://images.theconversation.com/files/475261/original/file-20220720-26-3iz7yv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=335&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/475261/original/file-20220720-26-3iz7yv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=335&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/475261/original/file-20220720-26-3iz7yv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=421&fit=crop&dpr=1 754w, https://images.theconversation.com/files/475261/original/file-20220720-26-3iz7yv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=421&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/475261/original/file-20220720-26-3iz7yv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=421&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">UK Inflation Rate.</span>
<span class="attribution"><span class="source">Office for National Statistics</span></span>
</figcaption>
</figure>
<p>One of the main contributors to the UK’s current economic situation is that the high rate of inflation – <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7g7/mm23">9.4% as of June 2022</a> – has outstripped wage and benefit increases. Although UK <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/july2022">unemployment</a> held at 3.8% from March to May 2022, real disposable incomes (pay adjusted for inflation and after taxes and benefits) fell by a <a href="https://www.theguardian.com/business/live/2022/jul/19/inflation-jobs-ons-uk-pay-business-live?">record</a> 2.8% during the same period. </p>
<p>This means work is becoming less effective at <a href="https://www.jrf.org.uk/data/poverty-rates-working-age-adults-working-households-region">warding off poverty</a>, particularly in areas of the UK where incomes and investment are lower; where infrastructure needs updating and where overall economic prospects are more bleak than for the rest of the country. The situation has been further intensified by tax increases, with 2021 seeing the <a href="https://www.instituteforgovernment.org.uk/explainers/cost-living-crisis">largest rise in taxes</a> (as a share of national income) of any year since 1993.</p>
<p>The last-remaining Tories vying to become Conservative party leader and prime minister will engage in a head-to-head debate in Stoke-on-Trent on July 25. As an economist working on <a href="https://www.researchgate.net/publication/352126874_Ethnic_Poverty_Causes_Implications_and_Solutions">poverty reduction</a> and living in Stoke-on-Trent – one of the <a href="https://www.ons.gov.uk/visualisations/dvc1371/#/E06000021">most deprived</a> parts of the UK – I see the effects of the cost of living crisis every day. The tax strategies put forward by Sunak and Truss will have major implications for the areas of the UK most affected by the rising cost of living.</p>
<h2>Liz Truss</h2>
<p>The foreign secretary’s tax strategy indicates she sees UK inflation as “cost-pushed”, which means there is a reduced supply of goods and services. With this kind of inflation, prices are pushed up by rising costs of production and raw materials. </p>
<p>The current inflation situation in the UK has arisen partly due to supply chain issues as businesses struggled to <a href="https://www.bankofengland.co.uk/knowledgebank/will-inflation-in-the-uk-keep-rising">meet</a> a boom in demand following the pandemic. Higher <a href="https://www.weforum.org/agenda/2022/03/how-does-the-war-in-ukraine-affect-oil-prices/">oil prices</a>, as a result of the war in Ukraine, have not helped the situation.</p>
<p>Truss has also <a href="https://www.itv.com/news/2022-07-17/liz-truss-seems-to-challenge-the-bank-of-englands-independence">blamed</a> UK inflation on the Bank of England increasing money supply. In addition to setting a money supply target, Truss wants to focus on boosting the supply-side of production. Her pledge to reduce both personal and corporate taxes via a £30 billion tax cut package has been <a href="https://nation.cymru/news/final-two-slug-it-out-over-tax-plans-in-fierce-tory-leadership-race/#:%7E:text=Mr%20Sunak%20said%20he%20thought%20borrowing%20%C2%A330%20billion%20for%20unfunded%20tax%20cuts%20would%20be%20%E2%80%9Cinflationary%E2%80%9D">criticised as inflationary</a> by Sunak. She has not yet provided the <a href="https://www.standard.co.uk/news/uk/rishi-sunak-liz-truss-institute-for-fiscal-studies-foreign-secretary-prime-minister-b1014005.html#:%7E:text=yet%20to%20be%20fleshed%20out">exact details</a> of the plan, however. </p>
<h2>Rishi Sunak</h2>
<p>On the other hand, the former chancellor’s economic strategy suggestions are designed to address demand-pull inflation. This kind of inflation occurs when there is too much demand for the limited goods and services being produced. This causes prices to go up, resulting in inflation. This excessive demand can also be described as as too much money chasing too few goods.</p>
<p>Sunak intends to stick with his plan from his days as chancellor to increase both <a href="https://www.express.co.uk/finance/personalfinance/1632363/National-Insurance-threshold-tax-increase-Rishi-Sunak-income-UK-2022">National Insurance</a> and corporation income tax. This will mean <a href="https://www.theguardian.com/business/2022/jul/03/uk-needs-coherent-plan-with-serious-firepower-for-great-economic-escape-productivity-investment">raising</a> corporation tax from 19% to 25% next spring, while offering investment relief to firms. He has also <a href="https://www.independent.co.uk/news/uk/politics/tory-leadership-rishi-sunak-truss-b2128287.html">pledged</a> a 1p cut from the 20p basic rate of income tax in April 2024.</p>
<p>The ex-chancellor has been criticised for the current government’s loose <a href="https://www.thetimes.co.uk/article/sunak-fuelled-inflation-by-printing-huge-sums-of-money-during-pandemic-xfjp8bls8">monetary policy</a> contributing to the UK’s high inflation. Before launching his campaign, however, the chancellor announced a multi-billion-pound package of support that he said would have a “<a href="https://www.bloomberg.com/news/articles/2022-05-27/sunak-says-aid-plan-will-have-a-minimal-impact-on-uk-inflation#xj4y7vzkg">minimal impact</a>” in terms of further increasing inflation. </p>
<h2>How to help ‘left behind’ areas</h2>
<p>The cost of living crisis displays elements of both types of inflation. Difficulties in getting materials needed for production of goods, higher wages and price increases for energy and agricultural commodities, are all signs of cost-push inflation. And demand-pull inflation has resulted from <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-9309/">increased government spending</a> during the COVID crisis and greater spending by households due to <a href="https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/economicmodellingofforcedsavingduringthecoronaviruscovid19pandemic/2022-06-06">savings made</a> during the pandemic.</p>
<p>Cost-push inflation cannot be solved by higher taxes for households, as proposed by Sunak, especially as most of the inflation in this case is <a href="https://www.economicsobservatory.com/why-are-uk-energy-prices-rising">imported</a>, for example through higher energy prices. More taxation in this case will only hurt households already struggling with costs. On the other hand, Truss’ plan to reduce taxes indiscriminately may worsen inflation. </p>
<p><strong>Deprivation levels in Stoke-on-Trent</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/475258/original/file-20220720-20-rzcams.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/475258/original/file-20220720-20-rzcams.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/475258/original/file-20220720-20-rzcams.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/475258/original/file-20220720-20-rzcams.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/475258/original/file-20220720-20-rzcams.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/475258/original/file-20220720-20-rzcams.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/475258/original/file-20220720-20-rzcams.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/475258/original/file-20220720-20-rzcams.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Stoke-on-Trent Income Deprivation Measure.</span>
<span class="attribution"><span class="source">Office for National Statistics</span></span>
</figcaption>
</figure>
<p>This is particularly true for England’s “<a href="https://www.ons.gov.uk/visualisations/dvc1371/#/E07000223">left behind</a>” neighbourhoods. These <a href="https://ocsi.uk/2022/07/19/list-of-left-behind-neighbourhoods/">areas</a> – predominantly in post-industrial and coastal parts of England – have been <a href="https://www.appg-leftbehindneighbourhoods.org.uk/news/left-behind-neighbourhoods-will-be-hardest-hit-by-cost-of-living-crisis-independent-13-july/">acutely affected</a> by the cost of living crisis. More than a quarter (26.7%) of people living in left behind neighbourhoods are <a href="https://www.ons.gov.uk/visualisations/dvc1371/#/E07000223">income deprived</a>, compared to 12.9% in England as a whole.</p>
<p>A more nuanced approach to taxation is needed if we are to help these areas in particular. Tax cuts could ease the burden on households and small businesses that are struggling, alongside tax increases for large firms – particularly those that have recorded <a href="https://tradingeconomics.com/united-kingdom/corporate-profits">substantial profits</a> such as the <a href="https://www.marketwatch.com/story/corporate-profit-is-at-a-level-well-beyond-what-we-have-ever-seen-and-its-expected-to-keep-growing-11649802739">energy sector</a>. </p>
<p>The <a href="https://www.reuters.com/world/uk/uk-must-pay-household-support-without-deterring-investment-minister-2022-05-26/">25% windfall tax</a> imposed on oil and gas companies last May is a good example of how the next government can use taxes on businesses to support those who experience fuel poverty. This directly benefits left behind areas where <a href="https://www.gov.uk/government/collections/fuel-poverty-statistics">fuel poverty</a> is an issue for 8.8% of people, compared to 2.3% in England as a whole.</p>
<p>Tax incentives for investments that benefit left behind areas should also be on the agenda of the incoming government. Cutting taxes for firms that actively invest in the UK economy would be a good start – especially those investing in left behind neighbourhoods. This could create better paying jobs and stimulate vital growth in these communities and across the country.</p><img src="https://counter.theconversation.com/content/187392/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tolu Olarewaju receives funding from the British Academy and Midlands Innovation. </span></em></p>Tax cuts could ease the burden on households and small businesses that are struggling, alongside tax increases for large firms.Tolu Olarewaju, Economist and Lecturer in Management, Keele UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1836382022-05-25T20:17:06Z2022-05-25T20:17:06ZMemo to Labor: you need more tax, working out how much more is urgent<figure><img src="https://images.theconversation.com/files/465230/original/file-20220525-13-z86qzw.png?ixlib=rb-1.1.0&rect=101%2C724%2C2958%2C1736&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The new government has inherited an extraordinarily difficult budget situation.</p>
<p>The budget deficit amounts to 3.5% of gross domestic product this financial year and it will be almost as high next financial year at 3.4%, after which the budget papers project deficits for the <a href="https://budget.gov.au/2022-23/content/bp1/download/bp1_bs-3.pdf">entire ten-year forecast period</a>.</p>
<p>At the same time, the unemployment rate has fallen to <a href="https://theconversation.com/at-3-9-australias-unemployment-rate-now-officially-begins-with-3-whats-next-183226">3.9%</a> – the lowest in five decades. It is so low it is below the 4.25% the treasury believes is needed to stop <a href="https://budget.gov.au/2022-23/content/bp1/download/bp1_bs-2.pdf">inflation accelerating</a>.</p>
<p>In other words, the economy is operating at full capacity and inflationary pressures are mounting, with businesses complaining about difficulties in finding labour and supplies. </p>
<p>Households and businesses are flush with cash saved during the pandemic and prepared to spend more.</p>
<p>A responsible budget would immediately wind back the deficit and get to surplus within two years. Without that kind of restraint, inflationary pressures will mount and interest rates will climb higher, hurting mortgagees and crimping growth.</p>
<h2>Labor’s budget strategy</h2>
<p>During the election campaign, Labor’s budget strategy was built around:</p>
<ul>
<li><p>minimising the number of its own expenditure proposals, so that next year they would add only a net <a href="https://cdn.theconversation.com/static_files/files/2108/ALP_Election_Costing_2022_FINAL_-_Copy.pdf">A$1.1 billion</a> to the estimated $77.9 billion deficit</p></li>
<li><p>“quality” spending proposals, with Labor claiming its plan would “alleviate supply-side pressures by enhancing the productive capacity of the economy”</p></li>
<li><p>a crackdown on multinational tax avoidance and achieving substantial savings by auditing the previous government’s “rorts, waste and mismanagement”</p></li>
</ul>
<p>So far, so good. But it is extremely unlikely this strategy will be sufficient to restore budget balance, and impossible for it to restore it within two years.</p>
<p>For one thing, even though much of Labor’s proposed spending is worthwhile, it will add to aggregate demand (spending) in the economy in the same way as would bad or wasteful spending.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/465218/original/file-20220525-22-npw8xz.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/465218/original/file-20220525-22-npw8xz.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/465218/original/file-20220525-22-npw8xz.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=969&fit=crop&dpr=1 600w, https://images.theconversation.com/files/465218/original/file-20220525-22-npw8xz.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=969&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/465218/original/file-20220525-22-npw8xz.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=969&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/465218/original/file-20220525-22-npw8xz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1218&fit=crop&dpr=1 754w, https://images.theconversation.com/files/465218/original/file-20220525-22-npw8xz.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1218&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/465218/original/file-20220525-22-npw8xz.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1218&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Treasurer Jim Chalmers. Good as well as bad spending boosts demand.</span>
<span class="attribution"><span class="source">Mick Tsikas/AAP</span></span>
</figcaption>
</figure>
<p>For another, even though some of Labor’s new expenditures on things such as a better-trained workforce and cheaper child care can be expected to accelerate economic growth, they are unlikely to lift the growth rate growth rate above that underpinning the treasury forecasts in the <a href="https://theconversation.com/pefo-tells-us-morrison-abandoned-promises-but-his-books-are-in-order-181538">pre-election outlook</a>.</p>
<p>These forecasts assume that “the underlying rate of growth in labour productivity will converge over a ten-year period to the average growth rate in labour productivity over the 30 years to 2018-19 of <a href="https://treasury.gov.au/sites/default/files/2022-04/pefo-2022.pdf">1.5% per annum</a>”.</p>
<p>But in the first six years of the Coalition government, pre-COVID, the annual rate of labour productivity growth averaged only <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release#key-tables">0.85%</a>.</p>
<p>Furthermore, this slowdown is common to all developed economies. This means while Labor’s new programs can be expected to boost economic capacity, it is very unlikely they will lift growth above what the treasury already assumes.</p>
<h2>Maybe an extra 4% of GDP</h2>
<p>As important, essential services are struggling after years of under-funding.</p>
<p>Labor has recognised this in instances such as health, aged care, facilitating the reduction of carbon emissions, and national security, but its costings made insufficient allowance for the spending that will be required. </p>
<p>And more will be needed in other areas, such as higher education and research.</p>
<p>Overall, my rough guesstimate is that even after the savings to be had from the audit of the former government’s “rorts, waste and mismanagement”, the new government will still need to raise additional revenue equivalent to around 4% of GDP if it is to close the deficit and adequately fund essential services.</p>
<h2>First, find out what’s needed…</h2>
<p>Unfortunately, this extra revenue can’t be expected to come from economic growth for the reasons already given. It will have to come from raising more tax. </p>
<p>And that’s a problem. Australia has developed a culture where low taxation has been seen as an end in itself. For Labor to succeed, it needs to change the debate.</p>
<p>To this end, the new government has to quickly establish an expert committee (not a royal commission made up of lawyers) to conduct a fundamental public investigation of how much extra revenue is needed to guarantee the funding of the essential services that are underperforming and underfunded.</p>
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Read more:
<a href="https://theconversation.com/a-new-dawn-over-stormy-seas-how-labor-should-manage-the-economy-183518">A new dawn over stormy seas: how Labor should manage the economy</a>
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<p>Instead of being constrained by some <a href="https://theconversation.com/election-tip-23-9-is-a-meaningless-figure-ignore-the-tax-to-gdp-ratio-115432">arbitrary taxation cap</a>, the committee would develop a bottom-up estimate of how much in total is required to ensure the cost-effective provision of essential services.</p>
<p>In developing this bottom-up estimate, the committee would be supported by more specialist committees, such as the proposed committee to be chaired by the incoming minister for health. The eventual report would provide a carefully considered and expert assessment of how much extra spending is needed. </p>
<h2>…then work out how to pay for it</h2>
<p>It should also be noted that even if the extra revenue required amounted to as much as 4-5% of GDP, it would leave Australia more-lightly taxed than almost every other OECD country in Europe.</p>
<p>Following public consideration of that first inquiry, a second inquiry would establish how best to raise the additional revenue required. Again, the inquiry process, the evidence produced, and the final report, would be instrumental in achieving public support for the types of tax reform that were needed</p>
<p>These inquiries and what follows will inevitably take time – years not days. </p>
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Read more:
<a href="https://theconversation.com/stand-by-for-the-oddly-designed-stage-3-tax-cut-that-will-send-middle-earners-backwards-and-give-high-earners-thousands-182751">Stand by for the oddly designed Stage 3 tax cut that will send middle earners backwards and give high earners thousands</a>
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<p>That means that some of what Labor wants to do will take time. Some will have to be part of Labor’s platform for a second term.</p>
<p>But the restoration of the budget balance is urgent. It could be accelerated if Labor grasped the nettle and rescinded the <a href="https://theconversation.com/stand-by-for-the-oddly-designed-stage-3-tax-cut-that-will-send-middle-earners-backwards-and-give-high-earners-thousands-182751">Stage 3 tax cuts</a> it has agreed to.</p>
<p>These Stage 3 cuts cost $15.7 billion in their first year (2024-25), climbing to $37 billion per year in ten years’ time. Very few taxpayers will notice, because they are directed towards the 10% of taxpayers with incomes greater than $120,000.</p>
<h2>Small targets can’t offer big services</h2>
<p>Labor has been fearful of debating taxation ever since the 2019 election, presenting itself as a small target.</p>
<p>This means it has served up a contradiction. Australians have been promised the services they need without a tax setup that will pay for them.</p>
<p>In 2022 Australians voted for change. Albanese and Treasurer Chalmers need to build on that and change the debate around tax. Now is the right time to start.</p>
<p>It needs to get Australians to understand what American jurist Oliver Wendell Holmes was getting at when he said taxes are what we pay <a href="https://quoteinvestigator.com/2012/04/13/taxes-civilize/">for a civilised society</a>.</p><img src="https://counter.theconversation.com/content/183638/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Keating does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia will be probably need to raise an extra 4% of GDP in tax to fund the services it needs. The first step is a inquiry into what’s needed.Michael Keating, Visiting Fellow, College of Business & Economics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.