Fiscal crises are actually a good time to take a strategic look at the tax system. While the books are being balanced, and some taxes increased to help do so, it makes sense to step back and think about where we want the burdens in the system to fall most heavily.
So this week’s budget was the coalition’s chance for boldness. Some think it does look set to be a radical budget, relatively speaking. But I can’t help thinking that – if the leaks provide an accurate picture – George Osborne might be ducking out and playing it safe.
Just think what this budget could have done. The Liberal Democrats were pushing for the immediate raising of the income tax personal allowance to £10,000. A few Tories agreed, but more wanted the 50p rate scrapped.
If Osborne had been being radical, he could have done both of these things immediately, paid for by taxes on expensive properties, further increases in taxes on capital gains and measures to crack down on the well-known specific instances of tax avoidance.
If he had done so, this week’s budget would have been a multi-billion pound shift in the tax system, both from taxing income to taxing wealth and, overall, shifting the burden further onto the wealthiest and off the poorest.
From media reports, it seems clear that the impediment to such boldness was actually the prime minister himself, who doesn’t like the idea of wealth taxes like a mansion tax, which actually George Osborne is quite open to.
So don’t let it be said that it’s the Liberal Democrats in the coalition who are impeding radicalism.
This budget does look set to do some fairly big things. But on taxation in particular, it looks like the coalition is failing to turn the fiscal crisis into an opportunity.