Sunday, December 09, 2012

Small State, low taxation - will it make us happy?

The aim of George Osborne and the whole pack of neo-liberal/neo-con/free-market fundamentalists ideologues is to bring about a "small state" - where taxation is minimised and individual liberty (for the rich) is maximised.

Small statism is the leading ideology of our age, the default framework out of which commentators and politicians operate. I have had a long debate with Mark Littlewood, a leading small stater, on this blog.

The idea is that the state has grown too big over the years, and is trying to take over too many functions. It should really confine itself to running defence, police, justice and prisons. It should bow out entirely from trying to provide health, education, and welfare, which should be provided by private organisations, on an insurance basis. People who are too poor, or too disorganised to obtain insurance for themselves should feck off and die, or turn to robbery to provide the necessary cash to buy these services as and when they need them.

That's small statism, in a nutshell. It is based on the belief that private is good, and public is bad, private is efficient, and public is inefficient. This despite the fact that private provision has to make more and more profit every year, and therefore has to siphon off more and more profit every year, or expand more and more every year, which means either crashing the competition or invading new countries - which is what US health care companies are doing on the back of Lansley's health reforms.

So. We are headed towards the small state. What does a small state country look like?

First, let's look at the whole picture, the range, taking taxation as percentage of GDP as the proxy for small stateness.

Go here. Click first on the triangular symbols by the Heritage Foundation. This arranges all countries by taxation as proportion of GDP. What we see is that in the main, smaller and less developed countries tend to have smaller taxation, and that more larger and more developed countries have larger taxation.

We can strip out the smaller and less developed countries by looking at the OECD or Eurostat figures.

In these latter two rankings, the UK stands pretty much as Mr Average, halfway between the lower bound (28% Romania in Eurostat list) and the upper bound (48% Denmark).   The USA is consistently low taxation (26.9%) and it is noticable that lower taxation does not bring happiness, since Republicans are always moaning that they want yet smaller government.

What is interesting is the correlation between higher taxation and the quality of life.
If we take the top 10 in the OECD taxation as % of GDP ranking (Denmark, Sweden, Italy, Belgium, Finland, Austria,  France, Iceland, Norway, Netherlands, and then scan for them on the Quality of Life Index here, (go down to the ranking list, click on it and embiggen(!) it), we find that of our top 10 high tax "victims", 7 are in the top 10 for democracy, 6 for peace and good environment, three for education, and three for health.

Clearly this is a pretty crude glance at the data, and a PhD student could write millions of words about the subject, but still come to much the same conclusion -  that high taxation is not such a bad thing as the free market fundamentalists would have you believe.

Next: Is low taxation linked to corruption?

2 comments:

Gavin said...

I think we need to be careful about making a direct link between taxation and the happiness of the population.

I don't believe the Scandinavians are happy BECAUSE they pay a lot of tax. I believe their happiness stems from good social welfare programs & education etc. These things happen to cost a lot of money and so the side effect is high taxation.

The question is whether the money is being well spent? In the UK, the feeling of many taxpayers, is that their money is wasted and that further taxation will be money down the drain. Before we can think of emulating the Scandinavian model, trust in the people who run public finances must be restored.

Richard Lawson said...

Hi Gavin,
I tend to agree. Nobody LIKES to pay tax, but the figures about quality of life speak for themselves.

Fully agree that efficiency of public spending is v important. It is far more complex than public good, private bad, or vice versa.

I think the old social market/ mixed economy idea that prevailed in the 60's and 70's was right. Let them be in competition with each other, in a dynamic relationship. I remember when I was on the district council, an officer saying they had a meeting with people in corporations, and both came away with increased respect for each other.

That's fine. But the neo-liberals seem to want to kill off the public sector totally. Bad as the Marxists who want to kill off the private sector totally.

Why can't they learn to play nicely?