Capital taxes take the capital out of capitalism
| Date | 01 October 1980 |
| DOI | https://doi.org/10.1108/eb057146 |
| Published date | 01 October 1980 |
| Pages | 5-5 |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
COMMENT
Capital
taxes
take the
capital
out
of capitalism
CIVIL SERVANTS may squirm and local authority staff
protest, but excessive spending and overmanning in the
public sector is the bete-noire of Britain's economic reces-
sion,
and consensus on this point is rapidly evolving
throughout industry. It is certainly
a
view which we share as
the voice of
the
wealth-producing sector of the economy.
The Government campaign on cutbacks is largely
window-dressing, as the Institute of Directors has pointed
out in a letter to Sir Geoffrey Howe, Chancellor of the
Exchequer, with recommendations for the budget and the
Finance Bill 1981. In this, IoD Director General Walter
Goldsmith
said:
"What has been wrong over the last year is
not that economic policy has been generally too stringent
but that retrenchment has been almost entirely confined to
the private sector of the economy instead of extending to
the Government sector. If the Government had borne its
share of the burden, fewer firms need have gone out of
business and fewer jobs need have been lost in industry."
The "Operation - Expansion Britain" Committee,
established by Aims, the free enterprise pressure group,
puts it more graphically: "At the present rate of progress
the Cabinet Office cost-cutting group will need from 80 to
170 years to accomplish its task. The Rayner-type opera-
tion should be multiplied massively. Teams of professional
representatives of management services, operations and
methods, and similar disciplines should be formed. They
would seek out waste and low priority activities. They
would consider what activities should be removed from the
public sector. Similar teams would be available for local
government."
Aims and the IoD make almost identical pleas for tax
relief. Says the former: "A tax year with a tax freeze, for
example, could give the Government the time and oppor-
tunity to introduce new, radical ideas on taxation. There
must be a sharp movement away from present taxation on
income to taxation on consumption - though there must be
a reduction and not an increase in the total amount
col-
lected."
In its submission, the IoD explores the same ground and
recommends reform of taxes affecting business, opposes
any increases in taxation - proposals in line with the Gov-
ernment's objective of providing a healthy climate for
industry and business to flourish.
"Industrial Management" shares the institute's call for
the abolition of Capital Gains Tax, Capital Transfer Tax
and Development Land Tax which are unjust and whose
damage to the economy is out of all proportion to their
yield.
To encourage personal investment the investment
income surcharge should also be abolished. Capital taxes
take the capital out of capitalism.
A reduction in the rate of corporation tax to 50 per cent
should be introduced, and an interesting submission is that
Britain should adopt the bold and successful initiative of
the French Loi Monory by allowing as a reduction from
taxable income subscriptions to new equity capital in both
quoted and unquoted companies, up to a limit of 10 per
cent of the subscriber's income each year.
While agreeing that it is an austere year for the Govern-
ment and especially the private sector, this should preclude
modest tax cuts - "We are totally opposed to increases in
tax rates including excise duties," says the IoD. "The rates
of duty are already beyond the point of the maximum
revenue yield. Increases in tax rates would similarly relax
the pressure for cuts in Government spending and
increases in income would be directly opposed to the
Government's policy to improve incentives."
Radical measures are necessary on denationalisation.
Providing money to each nationalised industry imposes a
large and avoidable cost on the economy. The external
financial requirements of financially self-supporting
nationalised industries should be supplied by the market,
not by the Government.
While the Government should not weaken its economic
resolve, it is possible and consistent with Government
pol-
icy to make immediate tax concessions to industry. Cuts in
taxes will enable more businesses to survive and thus
indi-
rectly increase the yield of income tax on the earnings of
employees and of
value
added tax on their
spending.
At the
same time expenditure on unemployment benefit will be
reduced.
Similarly, Loi Monory, profit sharing incentives
and cuts in capital taxation will lead to expansion of
the
tax
base supporting income, value added, corporation and
other taxes.
We do not suggest a
U-turn
in Government policy if
there is seen to be light at the end of the tunnel, but some
degree of assistance and encouragement is certainly called
for at this parlous period.
Alec X.
Snobel,
Editor
DECEMBER 1980 5
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