Monthly Archives: January 2014
The Heritage Foundation have published the 2014 Index of Economic Freedom which calculated the economic freedom of all countries around the world. The UK came 14th, the United States came 12th. The top 34 are shown below.
14th place may seem like quite a good place to be until you follow what has happened over time. The report for the UK says the following things:
- Over the 20-year history of the Index, the U.K.’s economic freedom has declined by 3 points, the second worst performance among advanced economies. Despite notable improvements in trade freedom and investment freedom, the overall gain has been offset by combined declines in the management of public finance and regulatory efficiency.
- Britain’s economy has been consistently rated one of the world’s 20 freest. However, since 2006, when it reached its highest economic freedom score ever, the U.K. has been largely on a path of declining economic freedom. Expansionary public spending has generated significant budgetary pressure. With government debt over 90 percent of the size of the economy, underlying economic fundamentals generally remain weak.
- Following the market reforms instituted by Prime Minister Margaret Thatcher in the 1980s, Britain experienced steady economic growth throughout the 1990s, but the government’s size and spending grew significantly under successive Labour governments.
- Public debt continues to rise, surpassing 90 percent of gross domestic output.
The second worst performer out of the advanced economies proves that the UK government has become too big and bloated. Not only that, but it has terrible control over its spending. The stats for the UK are shown below.
It is clear that spending controls, such as those used by the Swiss who have been able to reduce government spending from 34%GDP to 20%GDP (2003-2012), are needed in the UK. Switzerland is the 4th freest economy in the world. Over the same period, most countries increased government spending.
Another interesting point is how consistently well, Hong Kong and Singapore have performed. Throughout the 20-year history of the Index Hong Kong has been rated the worlds freest economy every single year. Why is this the case?
- Hong Kong has one of the world’s most prosperous economies, thanks to a commitment to small government, low taxes, and light regulation.
- The standard individual income tax rate is 15 percent, and the top corporate tax rate is 16.5 percent. The tax system is simple and efficient, and the overall tax burden is around 14 percent of GDP. Government spending remains equivalent to slightly under one-fifth of the domestic economy. Public debt is virtually nonexistent, and a budget surplus has been maintained even in light of increased government spending and tax rebates.
- Hong Kong is very open to international commerce, with a 0 percent average tariff rate and few barriers to foreign investment. A robust and transparent investment framework, in place for many years, continues to attract foreign investment. The financial sector remains highly competitive and well capitalized, serving as a leading global hub. There are no restrictions on foreign banks, which are treated the same as domestic banks.
But what does being more economically free actually translate to? How does it benefit the people? Here’s how:
Hong Kong GDP (PPP) = $51,494 per capita
United Kingdom GDP (PPP) = $36,941 per capita
Unemployment: HK = 3.3%, UK = 8.0%
Growth: HK = 1.4%, UK = 0.2%
Foreign Direct Investment inflow: HK = $74.6b, UK = $62.4b
Public debt: HK = <0.5% of GDP, UK = 90.3% of GDP
What is the best way for people to escape poverty? By reading the press in the UK at the moment, it would seem that the best way would be too lower the tax on the poorest people in the country and increase taxes on the wealthy. Lowering taxes for the poorest is a good thing and would help them to climb their way out of debt, but taxing the rich more? That is not a good idea. If you want to know what taxing the rich does, just ask France.
France has a hate tax of 75% for top earners. Since it has been implemented a significant number of wealthy people and successful entrepreneurs have fled the country, and most have ended up in London where tax is lower. The media always fail to realise that it is the people with spare money who are the ones who create the jobs (And not just any jobs, but productive ones unlike government services).
All of this has lead to the owner of Iceland talking in the the media today defending his wealth:
The media have made negative comparisons between your wealth and that of your customers. Does that bother you?
Why is it an issue? My personal wealth is nothing compared to the wealth we’ve created. My hunger for business has resulted in 25,000 jobs and £600m in tax contributions in the past six years alone.
No one should have to defend their own earnings. Especially when they have used the spare money they had to start a successful business that employs thousands of jobs.
If the tax on the wealthy was even lower than it is now, it would mean they would have more money to plow into the economy, creating prosperity and jobs. Additionally, this lower tax rate would attract other entrepreneurs from across the world to the UK. The graph below shows the top tax rate and federal income from 1930 to 2010 in the US. It shows revenues can increase when the rich are taxed less because the economy becomes much more productive.
You may argue that with all these tax cuts, that the government would have to reduce in size, effecting local services. I have always believed that government should be as small as it possibly can be and local services can be, and should be run by the local people, not the bureaucrats controlled by MP’s and Lords in Westminster.
State run healthcare causes enough problems as it is. But when it is run by a government in debt, who must cut their spending, there is inevitably going to be a staffing crisis.
In the news today, it was found that the UK has fewer doctors per 1,000 people than almost all other EU countries! In the report (Eurostat regional yearbook 2013):
- The UK had 2.71 practising doctors for every 1,000 people – fewer than countries including Bulgaria, Estonia and Latvia.
- The UK ranked 24th out of the 27 European nations, only beating Slovenia, Romania and Poland.
So what did the union GMB say?
Enough is enough, there can be no more cuts to budget or staffing.
Why, in these sorts of articles (not just in the Telegraph, but in fact all other media outposts in the UK), do they not consider other options, such as splitting up the NHS into more manageable chunks, or privatising services such as GP practices to save the taxpayer and government money?
The only positive thing that has happened to the NHS over the past 10 years is the abolishment of 23,000 unnecessary admin jobs which are the types of jobs that are created when things are run by the government.
ps. will somebody please raid the guardian and destroy this horrifying meme which is designed to destroy the healthcare debate in the UK. Thanks =]
What happens when you have a big government and high taxes? Just ask France!
The Telegraph today:
Today it was revealed that French borrowing costs have continued to rise as latest figures revealed the manufacturing sector underperformed even Greece. The ten-year bond yield climbed as much as 4.5 basis points on Wednesday as a gauge of activity in its manufacturing sector slipped to a seven month low, to the lowest of the eurozone’s major economies.
This is a worryingly large increase in cost.
France’s manufacturing PMI slipped to 47, lower than the flash estimate of 47.1, and below the 50 mark which separates expansion from contraction. That marks the 22nd consecutive month of contraction for factory activity in the eurozone’s second largest economy.
“This suggests that competitiveness is a key issue which the French manufacturing sector needs to address to catch up with its peers.”
How do you solve an inefficient, uncompetitive nation? You lower all taxes and decrease the size of government. It really is that simple. Make a competitive environment, and jobs will be created.
Yet France pushes on with its hate tax of 75% for top earners, leading to a mass exodus of wealthy business people and entrepreneurs from the country, who incidentally are the people who create the jobs.