Page 5, 6th March 1987

6th March 1987

Page 5

Page 5, 6th March 1987 — Tax and justice
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Tax and justice

The Tories intend to make tax cuts one of the big election issues. Most financial correspondants believe that the Chancellor has sufficient funds to cut income tax to 25 pence in the pound.
Those admirers of the Prime Minister are pushing, however, for a reduction of two pence in the budget, holding out the prospect of a further two pence if the Tories win the election. The message, if not the moral, is clear. Vote Tory for additional tax cuts.
The left is increasingly commited to opposing tax reductions. But, is it wrong to want to pay less tax?
The answer depends entirely upon the circumstances in which the cuts take place. If the tax reductions are bought at the expense of a reduction in unemployment, then many people would consider such cuts to be wrong. Likewise, if the cost is further hospital closures, then, once again, most would accept that the Government would be acting improperly.
However, would it be wrong if such tax cuts were at the expense of the tax allowance welfare state? The answer then, I believe, would be rather different.
Tax allowances are those benefits which the tax payer sets against his or her tax liability. The more taxpayers claiming these allowances, the higher the rate of tax paid by those who claim fewest allowances.
These allowances, such as mortgage tax relief, have grown dramatically in the past few years. This subsidy to home owners stands currently at £4.75 billion. And home owners gain exemption from the capital gains tax when they sell their property and are also exempt from what was called schedule A. There are currently over 100 different tax benefits. Labour's opportunity lies in proposing the phasing out of these benefits. If such a policy were pursued, then the amount of cash gained by the Revenue would be massively increased.
This also offers the opportunity to reduce substantially the rate of income tax. If all tax allowances were abolished at a stroke a policy not advocated here the standard rate of tax would fall to 13 pence in the pound.
By reforming the tax benefit welfare state, Labour will also shift the burden of taxation. Because such benefits are worth most to those who earn most, their phasing out will result in higher income groups paying more tax, and those on average or low income paying less.
In a book out this week, I explain how the reform of the tax benefit welfare state could work (Freedom and Wealth in a Socialist Future,) Constable, £7.95) The expenditure on each major tax benefit, such as, mortgage relief, relief on pension contributions and the like, would be frozen at its current level, and this subsidy would then be shared among existing beneficiaries and any
new qualifiers.
In its early years the reform would not produce a great deal of additional revenue, but this would not be the case by the end of a normal parliamentary period.
This reform would also allow a future government to reshape the welfare state, so that it no longer acted as an income ceiling, trapping the poor, but, rather, as an income floor on which people can build by their own efforts. It might well exert a wide appeal, extending beyond those who think of themselves as poor.
To recast the fiscal system, so that people are not bribed to buy houses, pensions or whatever, would appeal to those with secular libertarian instincts, and to the remnants of the ethical tradition which still is still to be found, alive and just about kicking, and not just on the Left of politics.
Such a twin programme of reform rebuilding a welfare state so that it acts as a springboard to freedom, while at the same time reining back on the ever-escalating cost of tax benefits would neatly distinguish Labour's programme of emphasising personal freedom from the Prime Minister's line. Despite all her rhetoric about individual choice, Mrs Thatcher remains an old paternalist at heart. This is proved by her commitment to a whole range of tax subsidies, for which voters qualify only if they undertake what she considers to be desirable apenditure.
Some Christians might argue that this kind of approach, which appeals to people's more basic interest, is, a negation of what Christian values are all about. Is this a fair observation?
The role of Christians in the community is to propose reforms which work with the grain of human nature, and not directly opposed to it. But, at the same time, such policies should attempt to move us towards the vision of the Kingdom as presented in the, New Testament.




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