The hole in Western finances

Can't tax, won't tax Mar 16th 2017

 There is a persistent shortfall between revenues and
spending and it could get worse
The planned initiative of aligning the tax rates of the
employed and self-employed announced in Britains
budget was avoided
The major reason being the because of the fear of angry
voters. The government had promised at the 2015 election
not to raise income tax, national insurance or VATthree
taxes that raise around two-thirds of revenues.
Differences in receipts and Spending
Measure adopted

Countries that have their own central banks have been

able to lower their interest rates (reducing the cost of
servicing the debt) and to pursue quantitative easing (QE)
programmes that actually buy the debt. As a result, net
debt payments are actually lower as a proportion of GDP .
Problems

First, they have tended to focus on social spending that

tends to benefit the poorest in societies.
Second, they have also cut capital budgetsspending on
infrastructure such as schools, hospitals and roads. This
latter category is probably the most useful form of
Keynesian stimulus. There must be plenty of infrastructure
projects with a net positive return if the cost of borrowing is
1-2%
The fundamental problem is that OECD populations are
getting older, which implies a steady increase in spending on
health and pensions. That will make it very hard to bring
overall spending down. Meanwhile the proportion of the
population that is of working age is set to declinenot good
for tax revenues.
The top 1% of Population pay 27% of all income tax receipts.
Governments are competing to reduce corporation tax rates
to attract multinationals.
Because of low rates it is not affecting severely. If interest
rates were higher it would have resulted in more interest
payments from GDP.
If the government cannot raise the taxes needed to finance
the spending their voters want, then it could result in
permanent central bank intervention in the economy