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Insights from the UK and beyond

from Anatole Kaletsky:

Learning budget lessons from Japan and Britain

While the world is transfixed by the U.S. budget paralysis, fiscal policies have been moving in several other countries, most notably in Japan and Britain, with lessons for Washington and for other governments all over the world.

Let's start with the bad news: Shinzo Abe’s decision to increase consumption taxes from 5 to 8 percent next April. This massive tax hike, to be followed by another increase in 2015, threatens to strangle Japan’s consumer-led growth from next year onwards, since Abe looks unlikely to offset this massive fiscal tightening with stimulative measures that would maintain consumers’ spending power. Even if Abe delivers on his vague promise to compensate with business tax reductions, these will only aggravate the over-investment and corporate cash hoarding that have long distorted the Japanese economy. Meanwhile, the government’s willingness to risk economic recovery in the cause of fiscal discipline implies that those of us who believed Abe was making an unconditional commitment to do whatever it takes to achieve economic recovery were simply wrong. Now that the forces of budgetary austerity have reasserted themselves, Japan’s probability of ending its decades of stagnation is much reduced.

Now for the good news: a change of attitude to debt and borrowing is transforming Britain from the second-weakest G7 economy (after Italy) into a world champion of growth. As recently as last April, the British government was attacked by the International Monetary Fund’s chief economist for “playing with fire” by trying too hard to reduce its budget deficits. This week the IMF World Economic Outlook praised Britain’s rapidly improving economy and upgraded 2013 growth projections by 0.5 percentage points, to 1.4 percent. That may not sound like much, but this improvement comes when almost every economy is being downgraded -- and compared with last year’s miserable 0.2 percent growth rate, it feels almost like a boom.

Does this experience prove that David Cameron was right to persist with his unprecedented program of spending cuts, tax hikes and fiscal austerity? The answer is no, for two reasons.

from The Great Debate UK:

VAT rise – is it really that bad?

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Rachel Mason is public relations manager at Fair Investment Company. The opinions expressed are her own.-

So the new coalition government is putting VAT up from 17.5 percent to 20 percent on January 4 2011 and the country is up in arms, but is it really that bad?

from The Great Debate UK:

Roger Bootle analyses the potential impact of the budget

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London-based Roger Bootle, director of Capital Economics and an advisor to business accountancy firm Deloitte, shares his thoughts on what Chancellor George Osborne's budget may hold and its long-term effects on the economy.

Bootle suggests the coalition government must narrow the deficit for this year and give confidence to the markets that something will be done longer term to restore the economy to health.

from The Great Debate UK:

Will politicians come clean on tax hikes?

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As political parties step up their campaigning ahead of a general election due by June 2010, voters need to know exactly how politicians plan to tackle a projected deficit of 175 billion pounds, says Stephen Herring, senior tax partner at accountancy firm BDO LLP.

In a report titled "Time to Break the Silence" BDO suggests there will not only be cuts in public spending, but substantial business tax increases.

Should BBC salaries be secret?

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As the annual chore of filling in tax returns looms on the horizon again, many taxpayers might be reflecting longer than usual this year about just where the money is going.

Since the last time he ripped open the blue cellophane HMRC envelope with a sigh and started hunting around for his P60, Joe Public has seen billions of pounds going to the banks, thousands if not millions being used to bankroll the expensive tastes of MPs — and now he sees the BBC clamming up about how much it spends on stars from that other effective tax, the licence fee. 

Punters cash in on Darling’s budget tie choice

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Smokers and top earners were clear losers in Britain’s budget this year, as the government hiked taxes on cigarettes and the highest incomes.

 

But a lucky few must have been cheering in front of their televisions during the 51-minute speech.

Pre-budget report: what it means for personal taxes

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Here is a guide on what the pre-budget report means for personal taxation by accountancy firm BDO Stoy Hayward. Income tax – changes to allowances and rates

The basic personal allowance for 2008/09 was increased above inflation from £5,225 to £6,035 as a one off measure to compensate for the loss of the 10 per cent starting tax rate.

Drawing up the Battle Lines

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Newspapers were in no doubt of the significance of the pre-budget report – this was a defining moment in British politics.

New Labour is no more, they announced, and prudence has been blown away by a massive gamble for the hearts and minds of the electorate before the next election.

A lifeline or a time bomb?

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Chancellor Alistair Darling has delivered a 20 billion pound fiscal stimulus package to get the nation spending again and mitigate the worst effects of the downturn.

He cut VAT to 15 from 17.5 percent just in time for Christmas shopping – a move he said would put some 12.5 billion pounds in consumers’ pockets over 13 months. Other measures include well-leaked plans to help homeowners, small businesses, parents and pensioners.

A profound shift in party politics

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David Cameron’s decision to ditch a major Conservative pledge to match Labour spending plans pound for pound was hailed by commentators as an important step in the politics of the recession, opening up a clear gulf between the two main parties’ economic policies but exposing the Tories to considerable risk.

Labour is expected to cut taxes, accelerate public spending and announce more borrowing in Monday’s pre-budget report. Now their supporters can revive the spectre of “Tory cuts” to funding for schools and hospitals which helped the Conservatives lose the last two elections.

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