Tuesday, November 25, 2008

The UK just HAS cut its GST

Details here.  Stephen Koukoulas thinks we could too

"VALUE Added Tax (VAT) has been cut from 17.5 per cent to 15 per cent as part of the £20 billion "fiscal stimulus" package to encourage spending and spur economic growth. The reduced rate will operate from Monday for 13 months...

INCOME tax on the highest-earners – those who make at least £150,000 a year – will be raised to 45 per cent. The new tax band will come in from April 2011. By announcing a deferred tax rise, the Chancellor is attempting to outline how he will make up the borrowing he is doing now."

5 comments:

Mike said...

And surely if they can do it while running a (gasp) deficit, we can manage it while we have a surplus?

Anonymous said...

That's interesting news. I'm sceptical about a temporary small cut in GST. I mean what would a 2% price reduction in some products do for anyone? A $100 bag of groceries becomes $98. Will that really make any difference to anyone? And that is of course assuming that the tax reduction is passed on to consumers (and I'm not sure if that is safe to assume).

Al

Nicholas Gruen said...

Well, I'll be pleased if I'm wrong, but it seems barmy to me. Hard to see how you couldn't have stimulated consumption by foregoing a lot less revenue than that. A 1.5% cut in prices (some of which won't flow through from the menu costs one presumes.)

The economic textbook is a good thing, but not when used in such a mechanical way. Still, I guess we'll find a little bit out about how it turns out.

Marek said...

Al
It would be even less than $2 as most groceries are gst free.

I'm with you on this one totally pointless just like the 5c cut to petrol tax.

redback_original said...

At first I thought this was quite a bizzare move - I have no darling admiration of the current UK administration.

However, when New Zealand went through recession, high street was a mixture of boarded up shops and big bright and beautiful supermarkets. Still good for revenue as New Zealand has GST on food.

Ramsey's rule would suggest that in a recession, GST should be reduced on luxury items and increased on basics. As food is zero-rated in the UK, any reduction would then apply to the type of consumables that probaly still need to be bought to keep the economy ticking over.

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