£18bn cuts to public services

Inflation of course brings down government debt.

MaizieD

Well, if people won't challenge the lie that taxation funds spending; or even give the idea a bit of consideration, what else do you expect?

The real sadness of this is that the only thing that is going to pull us out of the economic mess that we're in is increased state spending because I can't see meaningful investment coming from any other source.

I have explained the reasoning behind my assertions many, many times. Do I have to do it again ( Noooooooooo, I hear the cry go up )

There are many arguments about what the country needs Maizie,

The force of your insistence that everyone believes what you believe is beginning to sound like we are listening to a priest from the sixteenth century.

In those days, if you asked anyone if they were a Christian, they would almost certainly say "yes". However, if, in answer to the question "do you believe in transubstantiation", you said no, you could, under one monarch, be a hero. Under another, you would be burnt to death.

If you ask the public now if they want a "sound economy", they would, almost certainly say yes. So, we mainly agree about the wider argument. Your "Taxation doesn't fund spending!" doesn't matter a jot to most people. If it were a matter of their life and death, people would agree. If they were also MMT believers, they might well agree. Otherwise, they don't care.

These are not the economics currently taught. What if taxes don't actually "fund spending"? What if they can print all they want? Those proponents of MMT, many grinding their political axe, will tell you that if the government spends too much, the excess demand will also cause inflation. And what is the MMT answer to this? Inflation can be curtailed by reducing government spending and raising taxes. So where, please, is the difference to the wider aim? Taxation probably doesn't fund spending in a direct exchange, but it is a shorthand for the circulation that takes it back into the funding pool. So why does it matter?

If we all want a sound economy and we want the best for all, perhaps we have to get together and discuss ideas instead of shouting slogans at one another. We won't succeed; sadly, we are human. But at least we can come closer to what we all want.

So there is a link between government spending (debt) and tax (credit)

But one is not dependent on the other.

So government spending and investment creates and pays for jobs which in turn generates tax revenue, and even more taxes when they purchase goods and services with their income. These taxes will pay to reduce government debt over a period of time.

I'm going for a lie down... ?

Prentice

Whitewavemark2

Just in the middle of getting dressed and it occurs to me really government borrowing is just like anyone applying for a mortgage or for a project.

You have to be able to convince the bank that you are a long term safe bet and that they will get their money back.

You have to disclose details of income and how you are going to earn it.

The same for guilts.

PS they are called guilts because they are usually seen as a safe bet in which to invest.

Am not sure about the last part of your comment, as I understood them to be called gilts, the meaning of which was perhaps the word golden?

but perhaps,given the state of our financially unbalanced society guilts is a more appropriate spelling!!!

volver

My brain just exploded.

Not sure I'm convinced, but I see what you are getting at.

So when Sturgeon says we have a lot more benefits up here (free prescriptions etc) because some of us pay more tax, is that just lying?

It's accepted dogma, IMO. But probably to some extent true because the Scottish government is funded from Westminster. You do have a finite amount of money unless you can get more from tax.

But when you become independent make sure that you have your own currency; otherwise you'll still be reliant on central UK monetary policy.

My brain just exploded.

Not sure I'm convinced, but I see what you are getting at.

So when Sturgeon says we have a lot more benefits up here (free prescriptions etc) because some of us pay more tax, is that just lying?

volver

But are people right to think that one way for them to support the provision of government services they value is to pay more taxes?

No. It's a myth.

It's state creation of money that enables you to pay the tax in the first place.

When you think about it, in the 1950s, say, the UK population was about 45 -50 million people and a 'good' wage £12 - £20 per week.

70 years later, the population is 66+million and a 'good' wage (taking £25,000 pa as around median) is upwards of £500+ a week.

There's still enough money to go round (or would be if better distributed). Where has it come from?

It isn't all generated by the sale of gilts, though. That's just some of it.

Crazily enough, if you think about it, apart from gilts bought by foreign investors, most of them are bought with money the state created in the first place! If you have a NSI account, or premium bonds, or gilts, you are using money that originated from the state to fund them...

But are people right to think that one way for them to support the provision of government services they value is to pay more taxes?

More about tax.

So given that government income is generated by the sale of gilts (bonds)

The question is - what does the government do with tax revenue?

The governments balance sheet clearly needs balancing, and this is what tax revenue is used for - to pay back its borrowing, and balance its books.

So what is obvious is that

taxes are not the source for government spending, and are not essential for governments to spend

MadeinYorkshire I think you're hallucinating. Maybe you should have a lie down.

grannyrebel7

Do you ever think we're living in a parallel universe? This government just goes from bad to worse. Three weeks in and they've done a Boris style U-turn already! Granted it's the right thing to do, but it doesn't look good for Truss and her merry band. Keep making mistakes Liz! That's fine by me

It's unreal isn't it?

I am getting to the point where I think it is deliberate now to stir up civil unrest, I cannot see any other reason why this is happening, but then again why would they want that? I have actually been thinking that all these fit young male "asylum seekers" - not half starved women and children who have walked across Europe, may be mercenaries to pile in when civil unrest happens, as I doubt our army boys will want to turn on their own? Bit 'conspiracy theorist' I know but it all just seems so ODD, the pandemic, vaccines, Truss and Kwarteng doing quite bizarre things?? I am so confused about it all ....

“Depending on private enterprise to 'create wealth' is illogical because any borrowing they incur to create or grow their enterprises is mostly state issued money via the commercial banks. And they depend on enough money circulating in the economy for people to be able to purchase their goods and services.”

Given that commercial borrowing is “new” money which is regulated by BoE interest rate is it “issued” as such

Overseas investors did not trust that the VALUE of sterling was going to hold.

You know, I do believe that I said that in the post you are questioning!

Note that it was the lack of trust that caused the rapid fall of sterling. And how did the BoE restore 'trust' and stabilise the pound By issuing £billions to reassure investors.

Thank you too MaizieD. Now I remember why I'm an economics illiterate. ?

growstuff

volver

I don't think anybody's told me yet why we pay taxes...?

The description of how government spending is down to investment in gilts or whatever is understood...

But why do we pay taxes....?

This is what I think...we pay taxes to partially offset the money raised by government to run the country on. So although our taxes don't pay directly for particular services, they do pay indirectly because we partially fund the government's debt out of them. So we are entitled to believe that paying more taxes would improve services, because the government would have more money to fulfil its debt obligations.

No...? If not, why do we pay taxes?

Six reasons we pay tax:

1) To ratify the value of the currency: this means that by demanding payment of tax in the
currency it has to be used for transactions in the UK;
2) To reclaim the money the government has spent into the economy in fulfilment of its
democratic mandate;
3) To redistribute income and wealth;
4) To reprice goods and services;
5) To raise democratic representation - people who pay tax vote;
6) To reorganise the economy i.e. fiscal policy.

Thanks, growstuff.

I was getting round to it, planned in my head, but life gets in the way sometimes.

I think that there's a preamble to that in that it has to be understood that it is the state that issues our currency, either directly via the Bank of England, or indirectly through the commercial banks (and it is the BoE which supports what they issue through the use of reserve accounts).

The logic is that we can only pay our taxes with money that the state has issued. So we can't pay if the state hasn't issued the money we pay them with.
One important way in which the state puts money into the domestic economy is by its own spending. It has to spend before it can get anything back.

Cutting state spending reduces the money in the economy, meaning there is less there to be 'taxed back'. It also means that it results in loss of jobs, loss of business for all manner of private enterprise because the state isn't purchasing from them and the people with less money aren't purchasing from them either. That's why it makes no sense to believe that taxation funds spending; if the state doesn't spend, it can't tax.

Of course, we have the state welfare to fall back on if we become unemployed or unable to work, or retire. It's funded by the state and is one way of putting money into the domestic economy, though not as much money as if the state had invested in health, education, infrastructure etc. That it kept at least some money circulating in the economy was one of the benefits of state welfare.

Depending on private enterprise to 'create wealth' is illogical because any borrowing they incur to create or grow their enterprises is mostly state issued money via the commercial banks. And they depend on enough money circulating in the economy for people to be able to purchase their goods and services.

MaizieD

^“Because everyone trusts in money, they are happy to accept it in exchange for goods and services — it can become universally acceptable as the medium of exchange.”^
I’m not sure where that assertion came from

FFS, Katie59. It came from the Bank of England article I'm trying to get you to read.

You really think that they'd allow something to go into their official bulletin that wasn't actually true.

Overseas investors did not trust that the VALUE of sterling was going to hold.

Despite the BoE statement overseas traders don’t agree because most commodities are priced in US$ and the sterling price fluctuates according to exchange rate.

12 years ago, my daughter with a severe disability was a child. The services started being cut then
we told you
we told you all the services were being cut
we told you education and health to our children were being cut
we told you eventually it would affect you
you told us not to be so silly
we were absolutely right weren't we?
unbelievable

Thanks growstuff. I'm not sure I understand all that but I'm going to think about it!

“Because everyone trusts in money, they are happy to accept it in exchange for goods and services — it can become universally acceptable as the medium of exchange.”
I’m not sure where that assertion came from

FFS, Katie59. It came from the Bank of England article I'm trying to get you to read.

You really think that they'd allow something to go into their official bulletin that wasn't actually true.

volver

I don't think anybody's told me yet why we pay taxes...?

The description of how government spending is down to investment in gilts or whatever is understood...

But why do we pay taxes....?

This is what I think...we pay taxes to partially offset the money raised by government to run the country on. So although our taxes don't pay directly for particular services, they do pay indirectly because we partially fund the government's debt out of them. So we are entitled to believe that paying more taxes would improve services, because the government would have more money to fulfil its debt obligations.

No...? If not, why do we pay taxes?

Six reasons we pay tax:

1) To ratify the value of the currency: this means that by demanding payment of tax in the
currency it has to be used for transactions in the UK;
2) To reclaim the money the government has spent into the economy in fulfilment of its
democratic mandate;
3) To redistribute income and wealth;
4) To reprice goods and services;
5) To raise democratic representation - people who pay tax vote;
6) To reorganise the economy i.e. fiscal policy.

If we accept that spending precedes taxation, we pay tax to repay SOME of the debt.
Like a never-ending mortgage?

If we accept that spending precedes taxation, we pay tax to repay SOME of the debt.

In recent years the UK has always failed by a big margin to do that so the currency has slowly declined in value.

“Because everyone trusts in money, they are happy to accept it in exchange for goods and services — it can become universally acceptable as the medium of exchange.”

I’m not sure where that assertion came from because in many cases they don’t trust the local currency, if you travel overseas as a tourist many services are priced in US $, hotels, activities even meals in many restaurants.

Mismanagement of the national finances, corruption, in some cases both, causes currency collapse, the mini budget was seen as gross mismanagement, thankfully the policy has reversed and the currency has recovered.

In Sri Lanka’s case they had no money to pay for imported food and oil so the economy stopped and people starved.