Wednesday, 31 October 2012

Why Tax Avoidance Isn't Causing the Deficit

Not the solution to your problems.
There's been a bit of rumbling recently about tax avoidance, most notably Starbucks, eBay and Amazon, which don't seem to pay a huge amount of tax in the UK. Some bright sparks on Twitter have come up with the notion that this tax avoidance is basically responsible for the deficit, and that all that we have to do is to get our hands on this money.

I have a few points to make.

Firstly, the old difference between tax evasion and tax avoidance. Tax evasion is deliberately not paying tax which is already due. Tax avoidance is simply arranging your financial affairs, or the affairs of your company, to minimise a tax liability. Tax evasion is illegal, tax avoidance is not. I would encourage everyone to engage in tax avoidance.

If it's true, and the fact that these horrible companies are simply not paying tax which they should be paying (even though they're not because tax avoidance is perfectly legal), then this would be reflected in historical revenue figures, would it not? I mean, the deficit didn't exist at one point, so there must have been a point where tax avoidance was lower in order for us to have been running a surplus in the past?

Enter this article, from the Guardian, no less, which gives us the historical UK tax revenues as a percentage of GDP going back to 1964-65. It quite clearly shows that total tax revenue, as a percentage of GDP, fluctuates between about 31% and 39%.

That's it, folks. In black and white. In official figures printed by a left-wing newspaper. Doesn't matter who's in power, doesn't matter how much they fiddle with the tax system, the most you're going to get in good years and bad, is between 31% and 39% of GDP. That takes into account years when we've been running deficits and surpluses.

Government spending as a proportion of GDP is around about the 47% mark at the moment, yet our average tax take is about 36%. Oh, that would be an 11% structural deficit, then. Not caused by not raising enough money. Caused by spending too much.

Cut, cut, cut, cut, cut.