Saturday, December 09, 2006

Gordon Brown's pathetic pre-budget legacy

With Gordon Brown as Chancellor of the Exchequer and possibly soon to be Prime Minister, I actually wish for Dr Michael Cullen. Besides being a wittier debater, he has, despite massive increases in spending, not put the NZ government into deficit (though he didn’t pull it from deficit, that was Bill Birch in the 1990s). Cullen also has not increased taxes so brazenly as Brown or so regularly. This is not a ringing endorsement of Cullen. Bloody ‘ell I’m a libertarian, and he has increased state spending many times over – but it is an appreciation of how much more advanced fiscal policy is in NZ.
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Gordon Brown’s pre-budget statement highlights were:
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- A doubling in air passenger duty (to between £10 and £80) ostensibly to respond to climate change. Given he hasn’t cut other taxes, given this will make virtually no difference to air travel (Will £5 put chavs off their trip to Prague or will £80 put Madonna off of her first class flight to LA? Hardly), it’s about revenue. A BA spokesman said that aviation is the only transport sector in the UK that pays for all of its own infrastructure directly. He is right. It’s also worth nothing that the fuel consumption of the latest aircraft, per passenger km is remarkably low. Lufthansa reports that the latest Boeing 747-8 series, which is has just ordered, burns 3.5 litres of fuel per passenger every 100km. 30km a litre isn’t bad fuel economy for travelling at 90% of the speed of sound. NZ air passenger levies are about paying for security/border control, not the UK.
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- Inflation indexing fuel taxes once more (increasing petrol by 1.25p/l). Given that no fuel tax in the UK is dedicated to roads or indeed, any transport, this is all about revenue as well. It will have virtually no effect on demand. Now yes, Dr Cullen inflation indexes petrol tax as well, but the indexed amount DOES get dedicated to the National Land Transport Fund, most of which goes on roads. Given around 60% of petrol tax (100% of LPG tax and road user charges) is dedicated to the National Land Transport Fund, and Dr Cullen spends all of the rest on land transport as well, NZers have little to complain about.
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- A new welfare benefit giving pregnant women £200 in the final weeks of their pregnancy. That’s nice, it is saying “aren’t you clever? You had sex and want the baby. Here’s some money we took off of everyone else to show you how clever you were getting knocked up”. He could have cut taxes, but no – that just means people get more of what they truly earn. It is unlikely to be enough to encourage middle class couples to have children, but £200 to an inert chav is “well good init?” Sadly Gordon Brown doesn’t mix enough with the rest of the world to know how important it really is to adopt a policy of disincentivising chavs breeding, partly to improve Britain’s reputation in the world.
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- Zero stamp duty for new “carbon-neutral” homes. Well that’s not a bad thing, except there should be zero stamp duty full stop. Of course there are no "carbon neutral" homes in the UK, so it costs nothing. What does a home changing ownership cost the state?
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- On the bright side, Brown is pushing for an efficiency campaign in the public service. He is pushing for 5% cuts in admin budgets each year between 2008 and 2011. This is expected to save around £26 billion over that time. The British public service has a long history of obfuscating accountability for expenditure, but the unions are unhappy – which surely must mean Brown is doing something right.
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- Expenditure on a new literacy campaign. This wont ever be enough, because one in six boys at age 16 are functionally illiterate. The money to subsidise pregnancies wont help.
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- £9 billion budget deficit by 2010/11, borrowing an extra £1 billion in current financial year over previous forecasts.
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Gordon Brown has been credited for running a reasonably positive British economy, but as the Times has commented, it is only positive when you compare it to past long term performance (which has been stagnant) and the “sclerotic” economies in continental Europe. 2.75% growth forecast isn’t bad, but it is hardly stuff of wonders. It should also be noted that, despite massive transfers in the form of subsidies to the north and Scotland, Britain’s growth is concentrated in London and the south-east, and much is driven by the City. If London was not such a successful centre for the service sector, Britain would be a sclerotic economy. It is not a message that Brown, Blair or David Cameron mention enough.

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