Monday, 8 February 2010

Raising revenues

I always find David Smith's Economic Outlook column in the Sunday Times Business News worth reading and this applies to his latest article: Economy

He refers to the worthwhile efforts of the IFS to offer a menu for possible tax rises and refers to the option of widening the VAT base rather than simply increasing it. There is no logical grounds for many of the exclusions, but politically they are more difficult to remove.

Increasing VAT on books would bring the whole literary establishment down on the heads of whoever introduced it and would be denounced as a 'tax on knowledge'. The exemption of children's clothes is a clear anomaly (some smaller women benefit from it) but originated in a very clever political campaign started by a mother when VAT was first introduced. And that was in the days before the whole crowd became such a powerful political force.

As for placing VAT on food, that would be a clear tax on the poor who spend more of their budget on such items, although I wonder if one could get away with placing it on sugary drinks and other junk foods?

What makes economic sense is not always politically practicable.

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