Keeping Taxes Low

The government pays for nothing. Because it does not create the value that it distributes, all of its expenditures are transfers from the general public. Purchasing power is taken from private individuals who are less well off as a result. This income is then used in ways which the government has itself determined.

There are without question many activities which governments rightly undertake and there is an important role for transfer payments to supplement the incomes of the disadvantaged. National defence is the obvious example of the first kind and the social safety net is an example of the second.

But each has its limits. The privatisation programmes of the past few years have been part of a process in which activities which can be undertaken by the private sector are returned to private ownership. It is well understood that the pressures of the market do a far better job to ensure that resources are used more efficiently. So long as competition is maintained, the market will provide a better service than can be expected from publicly owned enterprises.

And then there are the problems with poverty traps. One of the important lessons of the thirty year experiment with a rapidly expanding welfare state has been that up to a point it provides a necessary benefit but beyond some point it actually makes conditions worse.

Where that point is and in which circumstances a withdrawal of social support is advisable are issues about which there are different opinions. But it is no longer controversial that some of the expenditure on the safety net does those who receive it no favour but creates problems for them which are difficult to undo.

It is a nice thought that we may be heading for a period of perpetual budget surplus. If so, the first priority ought to be lower taxation. There are certain circumstances in which it is well understood that governments have a role but if we are seriously interested in strongly growing economies and a self-reliant population, the aim should be to keep public spending to a minimum.

A lower level of taxation relative to total national income is an ideal towards which we should now be heading.