Sunday, September 26, 2010

Paying off the deficit

Interesting suggestion from Julia Finch in the Observer. She points out that high earners in Britain receive enormous tax relief on their private pensions, estimated by Richard Murphy to be worth £38 billion per year, about a quarter of the deficit. She suggests that 'we should maintain the subsidy, but only if the recipients divert at least a proportion of their funds into infrastructure investments and local authority bonds'.

Sounds good to me. In fact, why stop at that? The subsidy could be tied to the purchase of Treasury bonds at rates close to the rate of inflation. After all, the deficit is at least in part the consequence of saving the value of private investments through state intervention. Financing government borrowing at a reasonable rate seems a fair contribution from those who have benefited so much. This would remove fears of a spike in bond prices, allowing us to plan for an orderly reduction of the deficit over a longer period of time.

This is such a good idea that it can be guaranteed not to happen. The state is there to protect the wealth of high earners, not to ask them for a contribution to national recovery. No, the contribution instead must come from the real threats to our livelihood: public servants and benefit recipients.