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Wanna Argument?
Taxes - to cut or not to cut?
Who's spending how much, when and on what?
The ideological divide between the main three parties seems to have returned in 2000 - probably in the run-up to an election. The Liberal Democrats have promised an increase in spending and have proposed some "hypothecation" of taxes. Hypothecation means earmarking some taxes for particular purposes and giving people some say in how they want their taxes spent. The
exact details of how they propose to do this are not yet clear, but will be set out in their manifesto. They have also proposed putting a penny on income tax to go directly towards education, "if necessary".
The Tories on the other hand have promised tax and "better" spending. The only detail is William Hague's proposal to take 3p off fuel duty, but other tax cuts are promised. On spending they seem to be proposing to increase spending by slightly less than the trend rate of growth of the economy. This will have the effect of cutting slightly the percentage of GDP taken
in tax revenues.
Labour, in their spending review, have promised to increase government expenditure by 3.25% a year for the next three years.
All the parties argue that there are holes in the others' proposals - no surprises there then! However, exactly what happens depends a lot on the rate the economy grows at. Towards the end of 2000 the government surplus is growing healthily. Any decrease in the rate of economic growth though could hit this hard. As the economy slows down tax revenues fall as people earn and spend
less. At the same time government expenditure rises as increased social security payments are required for higher levels of unemployment. This "double whammy" can mean that public finances can deteriorate as sharply as they can improve. How much the Tories plan to spend could therefore depend a lot on the rate of growth the economy achieves.
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