You can’t budget on Sentiment Taxation

Money protects you if you have enough you are secure if you do not you are not secure. During a recession like we have at the moment with job losses left and right the desire for security is strong so people cut back and keep the money they have. 

The government finances are in tatters for far too long the government relied on indirect taxation of its revenue. This was purely an election stunt to stop poll numbers dropping with an income tax increase. But it is based on Consumption. VAT, Stamp Duty, Excise Duty, VRT etc all all dependent on people being willing to consume. Back in 2006 I said

 Our tax is very much based on consumption so if people start saving instead of spending then we might be in a wee bit of trouble.

Man was I wrong wee is not the word to describe the current finances

We are totally dependent on the public willingness to spend their money. If as we have at the moment a downturn in peoples willingness to spend money then these taxation’s plummet. Even if the general amount of money in the economy is not that damaged. While 10% of people lose their jobs and thus stop paying income tax 50% of the people fear losing their jobs and stop spending resulting in less VAT etc. While the symptom of a fall in VAT will feed into the economy later in reduced jobs etc it takes longer.

We built this country on sentiment taxes. Taxes based on (indirectly) whether people are willing to pay them leads to a volatile exchequer. We need to overhaul this and move to a system where we are not overly dependent on consumption. 

We need the tax base to be more stable. Whether this is high or low taxation is a secondary debate to me, look at the crisis the government is in at the moment. It is about coping with the collapse of revenues primarily from sentiment taxes not with the downturn which it needs to be deal with.