Stimulate those fiscals!
Earlier this year, George Bush launched a fiscal stimulus package to get US consumers spending again. It had the full backing of Democrats in Congress. Indeed Democrats (and John McCain apparently) are now pushing for a second round of stimulus but Bush is resisting. By my calculations, the package was worth about £650 on average to 130 million US taxpayers. In practice, a middle earning American family with two kids received a tax rebate cheque for about £1,000.
Very initial signs are that it has lifted the US economy with the 2nd quarter of 2008 showing unexpectedly high growth of 3.3%. The OECD has just raised it’s prediction for annual growth in the US from 1.2% to 1.8%. Although, admittedly this does not seem to have had a knock-on effect on employment yet.
So it’s interesting that there has not been much debate in the UK about a similar package. A new economic statement launched today by the TUC hopes to change this. The statement covers a lot of ground but at its heart is a call for tax cuts or rebates for low and middle earners. The size of this is left open although it would obviously have to be big enough to make a difference to the economy.
The US Government injected £85 billion into the American economy through its package. If the UK Government was to do something equivalent for all basic rate taxpayers, it would cost £17 billion. But we are probably not quite as far gone into a slowdown as the US was when it launched the package in February. The US had already had one quarter of negative growth at the end of 2007. If the UK Government moved fast, it could get the cheques in the post before the (likely) bad news about our current quarter going negative hits and dampens confidence even further.
So maybe we could get away with £7-10 billion; or a £300-£400 rebate cheque for all basic rate taxpayers (although we might want to skew towards those at the lower end of the scale – for fairness and also because they will go out and spend it quickly).
How to pay for this? The Touchstone pamphlet – The Missing Billions – showed that there is a great deal of wealth locked up at the top of the income scale through tax avoidance and planning activities – £31 billion in all including corporate avoidance, individual avoidance and tax planning by those earning over £100,000. A whole range of measures could be taken by the Government to get that flowing to the Treasury and into the pockets of low and middle earners.
The latest Touchstone pamphlet launched today – Do the Super-rich Matter? – highlights just one measure: a minimum tax rate for those earning over £100,000 to prevent avoidance and overuse of reliefs and allowances (another idea from the States). That would raise about £5 billion on its own which goes some way towards paying for the proposed package.