When the mind wanders to tax and economics

Having a curious little thought about tax and the economy, so bear with me.

This little thought comes from a very important question: given all the waste in the public sector, where is all this money going?

Here’s a hypothetical. I’m directing a big IT project at the HMRC. Let’s say a nice, civil liberty infringing database, something perhaps to do with ID cards. These things seem to be all the rage these days anyway. I appoint some Programme Managers and Project Managers, but since we have very little in-house experience, we’re going to need contractors. So we tender the project and appoint a consultancy. Let’s call them Capcenture, for arguments sake.

Capcenture come in, look at our hastily drawn requirements and make some suggestions, the requirements are changed and we then go out to hire a load more contractors to help us develop it – coincidentally, most of these people are one-man-band ‘consultancy’ companies going through an Agency, taking advantage (barely legally) of IR35 to pay as little tax as possible (and who can blame them?). Already the bill is looking pretty swollen, but the project is underway.

Then, someone goes back to the original specifications and decides that there’s more functionality they need out of it. Development has already started, so this means more modifications, and the timetable slips. The budget doesn’t cover for that kind of slippage, so they revaluate the project and go back to the purse holders talking about sunk costs and the importance of this government approved initiative.

More contractors are hired at £500 per day to help with the development. The Consultancy is called back in with their specialists each at £1500 per day. The bill goes ever higher, and the project will run for ever longer. All this money gushing from the purse of the public; but where is it going to?

The Government is giving it to private sector companies, whose tax receipts will funnel some of it back to the Government. The rest they will invest in staff, or save, or spend as is their wont. The shareholders off all these companies will reap the dividends. The consultancies all know this. That’s why there are armies of ‘Public Sector Account Managers’ and specialists. An entire business stream has built up on selling to the public sector, because it is the ultimate cash cow – and they always pay their bills. If it sounds a lot like stealing from Peter to pay Paul, you’d be right.

Where has the money gone? Into the private sector; waste or not, you can’t deny that people have profited from it, even if it is the few rather than the many. Hold up a second there. Did we just say the few rather than the many? Isn’t the point of socialism and social democracy the many rather than the few? Isn’t it about redistribution of wealth and all that stuff? Our taxes have gone to pay for a project that lines the pockets of the evil capitalist piggy things! By extension, the Government has stolen from the many to give to the rich few.

Yikes. Who’d have seen that flaw in their logic?

Anyway, it seems to be something of a merry-go-round of money. I think of it as being that there is ultimately a finite source of cash in the economy. This can occasionally be increased in terms of numerical amounts, but the ultimate value of the cash pool cannot change. In my very simple understanding, this is why we get inflation – you can print as much of the stuff as you want, but that only devalues what you have. 100% split into thousandths is still 100% when you add it all up. Growth, and an increase in the base value of the money pool, can only occur when new products are created or resources made/discovered.

The only difference is who determines where that money goes. Is it me, or is it the Government?

The Devil’s Kitchen has for a while now been hunting down, naming and shaming what he identifies as Fake Charities. These are pressure groups and lobbyists that receive significant funding (more than 10% or at least £1m, I understand) from HM Gov. Notwithstanding that I find the principle of the Government choosing to pay my taxes to a ‘charitable’ pressure or lobby group with whom I disagree to be a total affront, the funding for these groups should come from those who support them, not the body politic.

I do not agree with what the Anti-Drinking/Alcohol lobby say, therefore I am appalled that my taxes are going to fund them. I may sympathise with the Anti-Tobacco lobby insofar as I like not having smoke in my face, but the fact they push to actively remove the rights of others to do to their bodies as they please means that I would never willingly give them money. As you can imagine, I’m not best pleased that the Government does on my behalf. Even for charities of which I approve, such as Stonewall, I do not agree with the Government funding them, or indeed any public sector body. Public money should not fund a pressure or lobby group, however admirable their aim.

The Government has decided that it knows best where to spend our money and to whom to donate, therefore these ‘charities’ receive money to advance their arguments to the Government. Right or wrong their arguments may be, the decision of who to support should be mine. On no grounds, be it health, social welfare or civil liberty, should taxpayers cash go towards a pressure group. Unfortunately, it does.

Charity should be private and personal. Charities and political lobbying groups can lobby me for my cash all they like. They certainly should receive none from the treasury.

The State colossus, Big Government, our massive and bloated Public Sector, are the manifestation of that denial of choice. They are testament to a belief that our leaders know best how to spend our money. Which, given the way they throw it around, shows a complete lack of respect for the people from whom they take it on threat of imprisonment. I apologise if that all seems melodramatic, but New Labour scare me and I don’t trust them with my money. Imagine if the Government let failing industries fall. What do you think would happen? My belief is that if there is no market for goods, the companies are on borrowed time anyway. If their departure creates an opportunity, someone with savvy will fill it.

At the heart of all this is one basic difference. One approach assumes that the populace is too selfish or too stupid to spend its money, the other believes in the intelligence and natural altruism of the human spirit. If you like, socialism is the ultimate form of political pessimism. Libertarianism, and to a degree, Conservatism, believes in the ultimate good of humanity and in our ability to decide for ourselves.