In the black Labour and the concept of fiscal potentiality
I’ve read the opening salvo of a debate on fiscal conservatism by various authors for Policy Exchange, and it wasn’t as I expected it to be. Firstly it was value-free as far as social policy was concerned, and so was neither one way nor the other on the welfare system or the state stepping in when the markets fail or there is an absence of private sector demand – despite initial criticisms that it was Tony Blair reincarnate.
It is good to remember here that Blairism is a theory that will live a life even if Tony Blair the person was to say tomorrow that he was a born again Communist. Blairism is the word for what in Europe and beyond described third way, which was essentially fiscal conservative, but pursued a balance between state and private sector in a way familiar to orthodox Keynesians. Tony Blair and Gordon Brown, as the all-too-reminded criticism is levelled, spent over and above its means, particularly (with Brown) at the time of the financial crisis.
The authors of the discussion at Policy Exchange, rather than simply shouting cuts like the Tories did, are concerned that those lending money to the UK will want to know how that money is going to be paid back.
One of the arguments – convincing it was, too – against closing the budget deficit so quickly is that only few countries have been free from long term debt and they still operated fine. Remember this from Red Pepper:
Government debt never fell below 100 per cent of GDP between 1920 and 1960. It is only in the past decade or so that it has become normal to think of government debt being stable at around 40 per cent of GDP.
Which is fine, but it is no assessment on whether or not we should be, as a country, servicing our debt.
Strictly speaking the report wants to discuss whether we can achieve a progressive society and service our debt at the same time – and it is a good question to ask ourselves on the left. Because the question is not the relationship between debt and GDP, but spending and tax receipts. Not only does this kind of thinking remind us of how far we can build on good, socially progressive programmes that don’t cost too much (or waste, for which one has to admit there is. For what else is Trident or the Millennium Dome if not waste), but it should make what we lose in tax receipts all the more important.
One thing that seems interesting about fiscal conservatism is that it is necessarily conditional on the pot of money we have to play with. If we can only spend what we can bring by way of income, then things like tax evasion will mean all the world to us.
Tax evasion accounts for more than $3 trillion, or about five percent of, world gross domestic product, and the UK is losing £69.9bn a year to tax evaders. If we are to move into a more fiscal conservative economy, then we shouldn’t simply account this loss as evasion. It should be accounted as fiscal potential. The things which the state spends on, to improve lifestyles, is jeopardised by such evasion, and the campaign, I’m sure, to support country-to-country reporting will grow by leaps and bounds.
Yes, as the authors point out, fiscal conservatism is not right wing – and my clause to this notion is to suggest we look at tax evasion as fiscal potential, lost. It should by now be a political consensus that we gain and spend our potential national incomes.