The consumerisation of fiscal politics

Recently I’ve been struck recently by how western politics is becoming more like a consumer activity. In part, this is conditioned by watching the UK election process, but it is also reflected more widely and strangely in the unfolding Euro crisis. More and more we see voters with the expectation that they should have a public good or an improvement in a public good with no expectation of paying for it themselves or how it is to be paid for. In part, this contributes to demands that “other people” should bear the brunt of taxes to meet these demands, and in particular that business should be the target. Politicians respond to this demand from civil society – rarely do they try to mould it into a more rational response. This is a worrying trend which could well lead to a decline in tax policy.

In the UK election the current key issues are the funding of the Health and Education services. Labour and other parties  maintains that both need more money spent on them. Service delivery issues in health are blamed on “cuts” and lack of funding. There are clearly pressures on the NHS from the aging of the population and the overall  population increase, but equally there are problems with the lack of efficiency in the system which is obvious to anyone who uses it. Sadly, the easier story is that lack of funds cause the problem rather than inefficient use of funds, so the obvious solution becomes one of spending more. As this clashes with the need to reduce fiscal deficits, then more and more imaginative ways to raise funds are floated. In other words we can solve the problem by spending, taxing and borrowing more. The interesting contrast is with the behaviour of individuals, because they can’t borrow beyond their asset base multiplier, unlimited spending is not an option so we see the growth of public debt and private assets, but this doesn’t preclude the demands for spending more on public goods. Would it be prudent to consider an asset base multiplier restriction on government spending?

This is also reflected in the dilemma of the Euro. Many of the euro countries with the worst fiscal positions are prime examples of public debt and private assets. I was surprised to see for example that there are more millionaires in France than the UK (despite a smaller population). But perhaps Greece is the best example. The new Syriza government has come to power on a wave of belief that austerity is too harsh and that new taxes (particularly on property) are too high. Now this stands in contrast with the fact that Greece raises taxes equivalent to 34% of GDP which is well below the amounts in virtually all the rest of the EU (average 40%). So Greek voters want more public goods (ie less austerity) but don’t want to pay taxes at the level which most people in the Eurozone pay to pay for them – instead they want those voters in other countries to fund either a write off or deferral of Greek public debt and the associated interest charge. Now the alternative would be to increase the amount of tax collected to the EU average and use that money to pay for a mixture of public goods and public debt reduction – but who would vote for that? and what sort of story would that make?

This is the fundamental issue which the Eurozone has to grapple with. Without fiscal union then the resolution of the  funding of these issues will always be a political issue. Voters will continue to believe that they can spend on public goods in their country regardless of the funding. Where fiscal and currency issues are aligned then the constraints on the funding of public goods are clear, the currency declines in value. Where they are not – as in the Euro – the lack of constraints will eventually lead to a crisis or someone picking up the bill. Voters are private consumers most of the time, but politicians need to educate them on the cost of public goods rather than pander to them and encourage them to pay for more public goods  on the “never never”.

© Chris Lenon and  2014-2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chris Lenon and with appropriate and specific direction to the original content.

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