A key point in the Green Party’s manifesto is its opposition to the pursuit of growth as a measure of economic success. As has been explained elsewhere, they pledge to abandon GDP, and replace it with a measure of Adjusted National Product.
The Greens pledge to end austerity and increase the role of the state. To increase government revenues, they plan to impose a wealth tax, a “Robin Hood” (or financial transactions) tax and to raise the top rate of income tax. And although their numbers add up, it is difficult to avoid the conclusion that the Greens’ estimates of the tax take from some of the measures they are advocating are incredibly optimistic, if not grossly unrealistic. Their proposals are also likely to have damaging effects on the economy as well.
Sustainable deficits
As far as their economic plans are concerned, the Greens contend that “it does all add up”. Their calculations are roughly as follows: they assume that, in the absence of the policies they are proposing being implemented, real government spending would be £743 billion every year until 2019. Their growth assumption is that in the five years from 2015 to 2019, real GDP growth will be 10.9% (as opposed to 12.4% forecast in the 2015 budget).
The assumption about taxation is that, in the absence of the changes they are proposing, tax revenues will grow in proportion to GDP. So revenues would grow from £667 billion in 2015 to £741 billion in 2019. On top of this, the Greens are proposing an increase in government spending of £177 billion by 2019, which would be accompanied by an increase in taxation of £157 billion, resulting in a fairly small deficit (as a fraction of GDP) which would be easily financed.
So far, so good. The numbers add up. But we need to scrutinise how exactly the Greens propose to raise revenues.
Scaring away the rich
There are eight major measures the party plans to introduce, which are each estimated to bring in more than £10 billion in extra revenues in 2019. One is a wealth tax, which the Greens assert will raise £25 billion in 2019. It may be useful to compare this with the (highly controversial) French wealth tax.
The French tax brings in about €4 billion – or roughly £3 billion. French GDP is of comparable size to the UK, so the Greens are proposing a tax which would raise about eight times as much revenue as a fraction of GDP as the French wealth tax. One would expect that, were it enacted, many of the wealthy, who are very mobile internationally, would leave. And those that stayed would doubtless find ingenious ways of minimising their tax payments. It is extremely unlikely that a UK wealth tax would generate anything remotely like the revenues postulated.
Another major source of revenues would be a so-called “Robin Hood” or financial transactions tax, which – according to the Greens – would bring in £20 billion by 2019. The economic effects of this policy are uncertain, but the revenue the Greens are expecting it to bring in is far higher than most estimates. For instance, one estimate suggests that it would generate a little more than £8 billion extra for the UK economy.
The Greens also propose to raise the top rate of tax to 60%, and abolish the upper National Insurance threshold, a measure that they believe will bring in an extra £31.1 billion. This means that those paying the top rate of tax would effectively pay a marginal tax rate of 72%. It is difficult to believe that this would not affect work and migration incentives for many well-off people. This would undoubtedly be harmful to the economy, and may mean that the tax take would be much less than projected.
The Conversation’s Manifesto Check deploys academic expertise to scrutinise the parties’ plans.