Friday, August 19, 2005

Flat Tax Fibbing (by omission) from the Treasury

I read the ‘Daily Telegraph’ everyday, mainly to have a laugh at the ‘Alex’ Cartoon which I have followed since it began in the ‘Independent’ and then switched, presumably for a better deal, but probably because ‘Alex’ and ‘Clive’ were more likely to find sympathetic readers in the ‘Daily Torygraph’. Also anything by John Keegan is good value (from my Cold War days).

Today (19 August) there is a article by George Jones and George Trafgarne reporting on how the Treasury heavily censored an internal paper on the Flat Tax for public distribution. The censor’s black pencil altered the drift of the original Treasury paper from one that gave the case for and against Flat Tax reform into one that merely gave the case against. That seems to me somewhat unsatisfactory. The Treasury has been caught out in what amounts to political ‘fibbing’.

Some extracts are appended (but do read the full copyright article in the Daily Telgraph at

“The Treasury has suppressed arguments in favour of introducing a flat tax - a radically simplified system charging the same rate on all income - documents passed to The Daily Telegraph show.

Part of a two-page section that was removed says: "The reduction in rates and thus the tax burden faced by individuals should, in theory, stimulate further economic growth" and would establish "a one-off virtuous circle from tax cuts to economic growth to tax revenue".

Hong Kong has had a flat tax of 16 per cent since 1947. President George W Bush's advisory panel on federal tax reform is examining the system and Angela Merkel, who is challenging Chancellor Gerhard Schröder in the forthcoming German election, has hired a leading flat tax advocate as her economic adviser.

The censored document originally published by the Treasury gave prominence to what it identified as the many difficulties involved in introducing a flat tax.

It described as "misleading" claims that it would improve levels of compliance because there would be less reason to evade taxes. It said the evidence that flat taxes would raise revenues was "at best mixed" and questioned whether increases in Russia's tax revenues could be attributed to the introduction of a flat tax of 13 per cent.

Flat tax rates are usually accompanied by a large personal allowance and the Treasury highlighted research by the Adam Smith [] think-tank that a flat rate of 22 per cent, with a universal £12,000 personal allowance would cost about a third of income tax revenues.

The complete report says that the combined effect of savings in compliance and an increase in revenue should enable a cut in average taxes and spur further reductions in avoidance and evasion, making the economy more attractive to foreign investors and creating a mini-boom.”

Will anybody electable propose a Flat Tax reform in the UK? I share Adam Smith's pessimism about the prospects for Free Trade in the matter of Flat Tax reform - utopia is more likely to be established than the politicians adopt Flat Tax, which like free trade is a proven route to Smithian opulence for all, including and particularly, the 'common working person' and their families.


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