tax reform

UK austerity

In the current debate about UK austerity, what’s missing from the choice (not the fake choice between austerity and no austerity, but the hard choice between Social and Economic austerity) are two important other options (Productivity improvements and Philanthropy).

To elaborate, the current debate about austerity should be about the mix of four things:

(1) Social austerity – realisable tax rises for some or all current UK tax payers). Of course, history shows us that raising taxes encourages tax avoidance and discourages incentive to work harder.

(2) Economic austerity – alleviating current austerity through borrowing to burden future citizens with greater austerity.

(3) Productivity improvements – workers choosing (through a combination of after-hours study and after-hours volunteering?) to up-skill, to raise their productivity to ultimately alleviate austerity. When we change our expectations, build on small successes to boost our confidence and reframe current problems in a different way using personal flexibility, then there is every chance to better ourselves. If the future is about portfolio careers, and in the age of smart machines, ‘keeping our skin in the game’ through clever design, then up-skilling starts today. After all, process automation and machine learning won’t wait for us, but proceeds at its own pace. A final question about labour productivity at the national level. Which is better – fewer people employed but them generating higher average labour productivity (the French model, relative to the UK model) or, more people employed but with lower average labour productivity (the UK model, relative to the French model).

(4) Philanthropy – particularly high-net-worth individuals forming consortiums, to alleviate UK social deprivation through charitable foundation activity.

The best solution will probably come from a better combination of all four things.

One great opportunity with philanthropy is developing ‘hospital charities’ to build city hospitals that are entirely charity-funded and can take some ongoing pressure off the NHS, care homes and private hospitals. Such hospitals could offer a more selective range of treatments (target elective-surgeries with long waiting lists?), than the NHS.

Food for thought?

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The only future certainty is taxes…

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In the future, medical advances and biotechnology might prevent death. But not the need for taxes.

This week I read a small but interesting tax article by Andrew Sentence (senior economic advisor at Price Waterhouse Coopers), in a column in the morning edition of the City Newspaper (London). In the article, Sentence highlighted that UK taxes on income and national insurance make up nearly half of tax revenues. Also that the combined burden of (labour-related) national insurance on employers and employees at 13.8% and 12% respectively, was higher than the 20% income tax rate on corporate profits.

Meanwhile the combination of UK Council taxes, business rates, stamp duty, inheritance tax and capital gains tax, levied on property values or wealth, raises only about 12% of total tax revenues.

The basic message of the article, was that the UK government needed to reform the tax system. And that it was time for George Osborne (UK Chancellor of the Exchequer) to make his mark as a tax reformer.

I couldn’t agree more. There’s little doubt that the UK Government desperately needs the quantum of all those taxes, to balance the annual Budget (income less infrastructure and other spending)  and pay down some of the £1.5 Trillion of legacy debt. The mix of taxes and the relative emphasis is the problem. The mix problem will only grow bigger, as companies invest further in automation and eliminate human jobs too.

To elaborate, as we further enter the age of Big Data, robotics, artificial intelligence and global trade, tax types and tax rates will have to change radically, else the social cohesiveness that we struggle to maintain at present, will be swept aside on a tide of conflict and protest.

The owners of ‘automated capital’ exploit various enterprise incentives and legal trading structures to minimise their corporate profits liable for corporate tax. They also continue to make economically-rational decisions to ‘offshore’ labour costs. Or replace labour with 24/7 automation, laying off human jobs in the process. The only way soften the social impacts of these changes is to more effectively tax the property purchases that such profits are invested in. And perhaps reform VAT to a much higher rate on luxury products than the standard 20% rate at present.

Say I’m right on this (current blue, pink and white collar jobs disappearing at a faster rate than future high-tech job are being created and in different regions of the World too). Where is the lobby group at present in the Western World to lobby effectively for the necessary tax reforms before it’s too late?

The emerging generation of school leavers has the most to lose from the forthcoming automation changes, with their entire working life ahead of them. They need to use their electoral votes wisely. And form a tax reform political party if necessary. The alternative is society facing soaring insurance costs, greater legal costs, a rising crime wave and serious inter-generational resentment.