LONDON—When politicians in power in any country have wrong, fixed ideas, not even the worst crisis will lead them to abandon those ideas. They will only administer still greater doses of the same quack remedies that brought on the disease.
The budget measures recently announced by Roy Jenkins, the British chancellor of the exchequer, are a perfect illustration. They have been praised both there and abroad for their harshness and brutality. It is true that they impose further sacrifices on the British taxpayers, but most of these are unnecessary and irrelevant. In the long run the new measures can only discourage effort, saving, investment, and production.
To restore confidence in the pound the budget should be balanced, of course; but it should be balanced by reducing grossly inflated welfare spending. Instead, the new budget actually increases total spending to $27.6 billion in fiscal 1969 compared with $26.1 billion in the preceding fiscal year. The surplus is to be achieved by even more onerous taxation. Revenue for fiscal 1969 is estimated at $30.9 billion, up from $26.8 billion. This would leave a nominal surplus of $3.3 billion, compared with a surplus of only $718 million in fiscal 1968, which ended March 31.
Even before the announcement of the new levies, Britons paid Draconian taxes. The standard income tax rate is 41¹/4 per cent. On top of this are imposed surtaxes which bring marginal rates as high as 91¹/4 per cent on income and 80 per cent on estate duties.
The Jenkins proposals, imposing stiff increases on “purchase taxes” (up to rates of 50 per cent on items like phonograph records and cameras) were praised because they did not increase ordinary personal income, corporation, or capital-gains taxes. But to make up for this, the new budget imposes a savage additional tax (ostensibly to run only for one year) on investment income over $7,200 a year. The rate progresses from 10 per cent on that amount to 45 per cent on amounts over $19,200. Because this special impost comes on top of the regular income tax and surtax, it actually makes the total tax on investment income in the higher brackets more than 100 per cent. In fact, a man with investment income of more than $19,200 could pay a total tax of 136 per cent on amounts over that figure.
An added grim feature of this confiscatory tax is that the recipient of investment income is not allowed to escape it even by giving that income away.
There are various other follies in the new Labor Party measures. The stupid “selective employment tax” has been increased by 50 per cent. Wage and dividend increases are to be limited to 3¹/2 per cent a year. The government is to be allowed to roll back individual prices that it considers too high. All of these measures will restrict, discourage, and distort production. Yet the most ominous measure is still the expropriation of investment income, in a country once considered to be the most responsibly governed in the world.
Even the London Economist, today far from a conservative journal, gagged at this. “The spectacle of people purposelessly enjoying the despoiling of somebody else is very nasty; and as a great roar of delighted shadenfreude greeted the levy, the Labor backbenches suddenly looked extraordinarily nasty and loutish.”
The act of confiscation is totally irrelevant to restoring confidence in the pound. It can only undermine that confidence. Even on the government’s own calculations it will bring in less than 1 per cent of its total revenues. It penalizes precisely saving and investment, the most essential element for the increase of production, real wages, and economic growth. It was imposed solely to satisfy a blind envy and class hatred.
Copyright ¹968, Los Angeles Times. Reprint-by permission.
