Monday, November 24, 2008

At least, it's a plan -- if you're in the UK

Gordon Brown's Labour Party is going down in flames and everyone knows it. In a desperate last ditch attempt to save the party from almost certain defeat in next spring's election, his government announced a number of steps to ride out the rocky recession -- in part motivated by the fact that collections from "stamp duty" (what we on this side of the pond call the land transfer tax) is down a whopping 40% this year no thanks to a tanking real estate market.

Among the major planks in the mini-budget are a cut in the VAT, the country's GST, by 2½% to 15% (the lowest rate allowed under EU rules); an increase in income tax for those earning over £150,000 to 45% (although that wouldn't take effect until April 2011), and an increase in social security taxes (which funds unemployment insurance and state pensions) by ½% as well as a rise in vehicle registration fees and excise taxes at the pump.

To partly compensate for this, pensions and child allowances will also go up.

A lot of it is half-baked, and overall will wipe out the country's razor thin operating surplus (money needed to day to day operations), about £4 billion this year -- and Chancellor Alexander Darling said Britain should not expect a surplus again until 2015 at the earliest.. There's also nothing about bringing back the low income tax rate of 10%. So, in short, New Labour is officially dead. But at least I give credit to Brown and Darling for trying something to jump-start the economy.

What are we getting from Harper and Flaherty in Canada? An ill-timed GST cut well before the recession hit (a temporary cut during one might have been more proper) and nickle and dime tax credits here and there that amount to a hill of beans. As far as corporate taxes go, the 19% rate is actually quite competitive compared to the US (at 35%) or many EU states (ranging from 10-20%). And in general, a happy go lucky attitude. And oh yeah, they also want to sell the government's crown jewel, the CN Tower, along with other valuable assets.

Remember when Flaherty, as Ontario's Finance Minister, sold the 407 highway for a quarter of what it was really worth? At the rate we're going, we might very well see the Citadel and the Plains of Abraham put up for auction -- after all the sovereigntists have never been happy that they are federal facilities.

What we need is an income tax cut for the lower and middle classes, and now -- not nickle and dime stuff.

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