So the rich get richer ….and fuel inflation!

I can’t help it if you can’t un

You've been taking lessons from our PMs in evading the question, haven't you, GSM?

growstuff

Germanshepherdsmum

Indeed there are poorly paid public sector workers who will spend their money straight away, though not necessarily in a manner which effects a quick return to the government. And there are very well paid public sector workers who may spend money on things which mean a quick return via taxation (20% VAT) but can also afford long-term savings. The striking consultants are just one example.

But depending where they save their money, banks and stockbroking firms pay tax.

Banks are not subjected to tax on deposits. The interest the saver receives is taxed unless put into a tax-free product but interest isn’t exactly a hill of beans at present.

I have done so.

The companies people invest in pay tax.

Germanshepherdsmum

Indeed there are poorly paid public sector workers who will spend their money straight away, though not necessarily in a manner which effects a quick return to the government. And there are very well paid public sector workers who may spend money on things which mean a quick return via taxation (20% VAT) but can also afford long-term savings. The striking consultants are just one example.

But depending where they save their money, banks and stockbroking firms pay tax.

Whitewavemark2

Spending money =revenue. Unless it is all on books or food which is possible I suppose.

Even money spent on books and food is taxed and returns to the Treasury at some stage. Publishers pay taxes, as do food manufacturers and the retailers which sell it, plus the people who work in those retail outlets pay income tax and NICs and tax on their fuel to get to work, etc etc.

No, I can't understand it. You are not explaining your rationale at all.

Would you please explain it.

If you underpin your argument for pay increases by saying that the money returns to the government via taxation you must surely be able to understand my view that the value of that argument diminishes the longer the money takes to find its way back.

It's not at all evident, GSM. I wouldn't be asking you to spell out what your problem is with the time it takes to return if it were 'evident'.

I have taken the trouble to detail the support for what I have said. Perhaps you could return the compliment.

If return of the money is the nub of your argument, surely that’s pretty evident?

Germanshepherdsmum

As I said, it is relevant if you rely on return of money to the government as justification for a pay rise.

That still doesn't tell us why you think it important that the money is returned sooner rather than later.

As I said, it is relevant if you rely on return of money to the government as justification for a pay rise.

Germanshepherdsmum

The time the money takes to return to the government is relevant if this is used as a justification for pay increases. Circulation of money within the economy is not the same argument.

Why is it relevant?

Spending money =revenue. Unless it is all on books or food which is possible I suppose.

Indeed there are poorly paid public sector workers who will spend their money straight away, though not necessarily in a manner which effects a quick return to the government. And there are very well paid public sector workers who may spend money on things which mean a quick return via taxation (20% VAT) but can also afford long-term savings. The striking consultants are just one example.

The time the money takes to return to the government is relevant if this is used as a justification for pay increases. Circulation of money within the economy is not the same argument.

Germanshepherdsmum

I haven’t found that. May I ask where? Given the assumption that some money will be saved, how can that be?

Even money that is saved will eventually be spent. But a point pertinent to the issue of public sector pay is that the greater part of it will be spent over a short period of time; the more that is spent in that period, the faster it will circulate and return to the govt. A great many public sector workers have little to spare for saving and pay increases won't make much difference to that. Only the better paid ones are able to save much.

But why does the time it takes to return to the government matter?

The importance of the money injected by the govt. into the economy by way of govt. spending is that it facilitates economic activity. That is the whole 'point' of money, it enables economic activity. For example, economists calculate that govt spending on the NHS has a multiplier effect of about 2.5 as it works its way through the economy. The Sankey diagram demonstrates how govt. spending enables economic activity. The time it takes to 'return' is immaterial.

Most of the money circulating in our economy originates from the government, either by direct govt. spending, or by the creation of money by the commercial banks for loans to businesses or individuals, under licence from the govt. Banks don't use depositors' money for loans, they create new money with every loan. This isn't figment of my imagination, this is what the Bank of England tells us.

Top of page 16 (for some reason my ipad won't copy and paste the relevant section)

www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/quarterly-bulletin-2014-q1.pdf

Money originating from the govt. makes up the greater part of our GDP. The rest comes from foreign earnings and investment. But let's not go down that rabbit hole. The point is that without govt. originated money we'd be stymied.

I haven’t found that. May I ask where? Given the assumption that some money will be saved, how can that be?

Germanshepherdsmum

I understand it perfectly well but there is no indication of how long the pay increase takes to get back to the government. Nor can there be as each individual’s spending and saving pattern will be different to the next. That, to me, is very relevant if one is justifying pay increases by saying that most of the money gets back to the government through taxation.

The link says within a year.

I think one of the greatest problems in not paying people in the public sector properly is that they just leave to work in the private sector where they will get paid properly. Govts may be able to get away with it in times of high unemployment but at the moment they can't. It also tends to be the most experienced who quit, leaving a less experienced and understaffed workforce, new recruits are inadequately trained and supported so they fail. Is it any wonder that our public services are collapsing? Apparently only 5% of private rents would be payable via housing benefits. So many of the people doing the poorest paid work in our hospitals etc get help with their rent, these are some of the people who get caught by rising mortgage interest rates as well as less than inflation pay increases!

I understand it perfectly well but there is no indication of how long the pay increase takes to get back to the government. Nor can there be as each individual’s spending and saving pattern will be different to the next. That, to me, is very relevant if one is justifying pay increases by saying that most of the money gets back to the government through taxation.

Neither does gsm 😄

growstuff

But it does return to the Treasury! That's how money works, unless people stick it under their mattress. I don't understand your argument GSM.

I don't understand it either, growstuff.