The current Office for Budget Responsibility forecast is that the budget deficit will be cleared by 2019. The basis on which they make this rash assumption is growing tax receipts. I have offered this table analysing those receipts before, but it remains relevant and is based on the March 2014 forecasts:
It is, of course, good news that employment is rising now.
It is bad news that almost half of employment growth is in marginal self employed activity. I do not have the confidence of some that self employed earnings rise faster than wages in a recovery: that may have once held true but the underlying trend of self employed earnings is now inexorably down just as the trend in real earnings for most is down.
In that case I cannot see how tax revenue growth is going to significantly exceed the growth rate of the economy. It is obviously good news that more people are paying tax, but the danger is that the long term Treasury forecast has been built on long term trend data where overall income growth (largely fuelled by financial services) exceeded economic growth. That's no longer true - especially as financial services employment is now falling.
And if my suspicion is right then there is no way tax revenue will balance the government's books by 2019 even if it could deliver the cuts it is promising. It just won't happen.
Someone needs to say it, and more than just me.
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“The basis on which they make this rash assumption is growing tax receipts.”
Well no, this is not what they’ve done at all. Firstly, both the government and the OBR are very clear that further spending cuts will be necessary to balance the books by 2019. I don’t see any analysis of the spending side of the equation from you, so how can you make the statement above?
Not only that, the OBR are NOT assuming taxes will rise dramatically as a percentage of GDP. In nominal terms, the OBR expect the taxes described above to fluctuate between 25% and 25.9% of GDP. I.e. the total tax take is remaining fairly steady as a percentage of GDP.
I’m honestly not sure what your numbers are supposed to mean. The growth rate comparisons certainly don’t give you any real information – not least because you have avoided a line for total tax reciept growth.
Also, you have applied direct percentage increases to everything, starting with GDP whilst clearly forgetting that the numbers in the OBR table are nominal numbers. Nobody, let alone the OBR, is expecting real GDP to increase by over 4% a year. Nominal GDP however, can do so. You are missing the rather important factor of inflation (more accurately, the GDP deflator) in all these calculations.
“In that case I cannot see how tax revenue growth is going to significantly exceed the growth rate of the economy.”
In short, the data above doesn’t show this. At best, you can say that the OBR is expecting some fiscal drag.
“It is bad news that almost half of employment growth is in marginal self employed activity. I do not have the confidence of some that self employed earnings rise faster than wages in a recovery”
Two points here. Firslty, I’m not sure where you are basing your numbers to say that half of employment growth is in marginal self employed activity. As a percentage of the workforce, self-employment has increased, but only by about 1.3% since Labour left power.
Secondly, I assume the second sentence of the above refers refers to the “self-employment growth” line in your table, which shows a couple of big jumps (in percentage terms. Problem is, the OBR aren’t referring to “self-employment growth”. They are referring to “self-assessment.” The two are not the same thing. Whilst most self-employed people fill in S-A tax returns, very large numbers of employees also do, should they have investment income, be members of LLPs etc. There are lots of legitmate reasons people have to fill out S-A tax returns other than because they are self-employed.
These are not nominal numbers
They are cash forecasts
And if real wages do not keep track then it is even harder fro these numbers to be delivered
My point is a simple one: OBR forecast on trend data after two years. The trend data is no longer applicable so this forecast does not work
Cash forecasts ARE nominal numbers. They are NOT inflation adjusted.
“And if real wages do not keep track then it is even harder fro these numbers to be delivered”
This is true at least. Lots of things go into those numbers though, apart from wages. Specifically, working age population growth (growing), unemployement (which is coming down), fiscal drag (assumption is there will be some), inflation, etc. You can’t reliably pin any of these down, so it’s a big stretch to blame any miss on these revenue targets on one input.
“My point is a simple one: OBR forecast on trend data after two years. The trend data is no longer applicable so this forecast does not work”
I know for a fact their models are significantly more detailed than this. They don’t simply use a trend, buut data is more and more subject to error the further out you get. Indeed, for 2014 the OBR seems to be undershooting estimates for GDP growth, for example.
I agreed they were not inflation adjusted i.e. cash
Why the rattiness?
I am not attributing blame to any one factor – bar blind optimism
I can see no way in anyone’s wildest dreams these forecasts will be reached – and let’s be clear, OBR has form here. It’s forecasts have been wildly optimistic to date
Yet another individual, inevitably unidentified, willfully claiming superior knowledge without saying whence that superior knowledge emanates.
Someone is very worried about your influence, Richard, and getting his or her mates to try to disrupt your activities. As has been noted on other recent blogs, don’t let these buggars waste your time.
PS Hope you’ve recovered from the week’s medical experiences.
Nick
I agree: all these people who assure me of their vast experience without ever once providing any evidence as to why
I wonder who pays them all?
Medical progress has been made…..
Best
Richard
Rattiness? Not sure what you mean. I suppose I do get a little bit frustrated when people contort data to try and prove rather unreasonable headlines.
“I can see no way in anyone’s wildest dreams these forecasts will be reached — and let’s be clear, OBR has form here. It’s forecasts have been wildly optimistic to date”
Currently the OBR seem to be underestimating growth. Forecasting is by definition difficult. It’s hard enough to forecast economic data one month in advance let alone 5 years, so I’m happy to give the OBR grace on this. They are certainly better than most.
@nickjames
I am an economist, working in finance, posting in a personal capacity here. I certainly don’t get paid to do so, as Richard suggests (with more than a whiff of conspiracy theory based slander).
I certainly don’t feel threatened by his views or ideas either. If anything, I woul be greatly intrigued to see some of Murphy’s suggestions reach the real world. I’m pretty sure they would be unmitigated disasters, but at least we would have real world data to prove as much, rather than constantly arguing unquantifiables. Some of his assertions about debt and QE are particularly amusing to me, but I doubt anything other than real world experience would convince people like Richard and SteveO.
I’m not really sure why my credentials matter though. Certainly Richard Murphy has no greater claim as an economics expert than I, or Richard’s personal kryponite Tim Worstall. Indeed, the points I made above are hardly that of economic mystery. Anyone with a copy of Excel could easily run the numbers and show that the OBR are forecasting tax revenues remain roughly constant as a proportion of GDP – something Mr Murphy seems to have studiously avoided mentioning, given it rather holes his argument below the waterline.
Then why does tax revenue rise so disproportionately?
I am hardly alone in noticing it
And why the weird distortions in the growth rates?
Please explain?
Taking tax is a whole is completely misleading: CT falls relatively, and so does VAT. But taxes on incomes arose more than growth. Why not answer the points I raise instead of being so intent on missing the point?
“Then why does tax revenue rise so disproportionately?”
It doesn’t. As I said, total tax revenue varies between 25% and 25.9% of GDP in the years where data is given. There is no disproportionate rise.
“I am hardly alone in noticing it”
Well, I think you may well be alone on this one.
“And why the weird distortions in the growth rates?”
I’m sure there are plenty of factors, many of which I mentioned in my first post. It does help though if you do your calculations in real (inflation adjusted) space rather than nominal space.
“Taking tax is a whole is completely misleading: CT falls relatively, and so does VAT. But taxes on incomes arose more than growth. Why not answer the points I raise instead of being so intent on missing the point?”
Why is taking tax as a whole any more misleading than taking any one part of the tax take? Focusing on one line item of tax reciepts then correlating it to GDP growth is much more likely to be misleading, as correlation does not prove causality. By trying to compare everything to GDP (notwithstading the errors in calcluation methodolgy) you are ignoring what are likely to be the real factors driving changes in tax reciepts.
I havn’t dug into the numbers (maybe I will this weekend if I get time) but having done similar work in the past, the relationships between GDP growth and tax reciepts are more often than not non-linear. Population growth and demographics have significant effects, and would likely account for much of the rise in income taxes. Likewise, falling unemployment will have a very similar effect. There also tends to be significant feedback effects on job markets post recessions – initial job creation tends to be slow but later into a full recovery you get a compounding effect on job growth.
The all important inflation makes a huge difference as well. As I have pointed out, the numbers you give do not differentiate between nominal GDP growth and real GDP growth. How much of that 4.4% GDP growth for 2013-14 is down to inflation, and how much is real GDP growth? Throw in some fiscal drag on top and we might be starting to get somewhere.
I could go on, but the topic is large and complex, with lots of factors affecting the outputs. To reduce the subject matter as simplistically as you have and then make rather bold assertions is not economics, its politics. It’s just an ad hom attack.
I await your answers
So far you have admitted you have none
That’s not much of a contribution
Why not say so?
Oh, and since when was economics not politics? You may want to answer that too – but you’ll have difficulties doing so, because every single element of it is, at the end, political
“I await your answers
So far you have admitted you have none”
I have answered your questions and pointed out the rather serious errors in your calculations several times now. It’s as if you simply won’t acknowledge any possibility of error in your work or any criticism thereto. In my last post I asked some very specfici and simple questions. Instead of answering them you have mae some non-sequiter statement, ignored my questions, then stated that I have made none. I have answered your questions – now answer mine.
The work you present is not serious analysis. It is very basic, and unfortunately does not stand up to any real scrutiny, yet from this you draw rather significant results. You can’t simply make these bold statements without analysing all the available data, and all the possible explanations for it.
“Oh, and since when was economics not politics? You may want to answer that too — but you’ll have difficulties doing so, because every single element of it is, at the end, political”
I see from your venn diagram post that this seems to be your new meme. No, not all economics is political. Certainly, the scientific study of economics is not political – though judging by your writings you believe this not to be the case.
@eriugenus
The UK is forecast to grow at around 3% this year. That’s above trend growth. Probably has something to do with why unemployment is coming down so fast (and 2/3 of jobs created are permanent at the moment).
There is no point debating
Anyone who claims there is a non-political ‘objective’ science of economics is either lying or so lacking in self awareness that they cannot appreciate the political pre-disposition that they bring to their thinking
In either case their conclusions are invalidated
“There is no point debating”
Clearly. You are unwilling or more likely unable to answer simple questions regarding the veracity of your work – which having reviewed some more of it seems to be littered wih basic mathematical and systemic mistakes. Every time someone points these out, you resort to hurling accusations at them or simply asserting you are correct.
It’s the economics equivalent of a Punch and Judy show. Aimed at those on a similar intellectual level.
“Anyone who claims there is a non-political ‘objective’ science of economics is either lying or so lacking in self awareness that they cannot appreciate the political pre-disposition that they bring to their thinking
In either case their conclusions are invalidated”
This is pure, unadulterated nonsense. Whilst there is clearly some crossover between politics and economics, the idea that economics cannot be objective is one I think you’ll find few proffessional economists agree with. Though I assume you will now name-check a few economists who are heavily politicised and say that this proves the opposite.
Political decisions can have a bearing on an economy. Economics in the pure form, is a study of those economies. To present it as good science, one has to divorce oneself from making presumptions (which I note you are particularly bad at) and simply take the available data.
Indeed, if I were presented economic research or forecasting which treated the data as you have, with an overt political bias, I would treat it with extreme caution – as their conclusions are more than likely to have been goal-seeked to prove a point. Science seeks to test a hyptothesis against a conclusion, not the other way around, yet your work seems to have a theme running through it – contorting data into funny shapes to prove a point on a subject you are heavily invested in, whilst ignoring other evidence or data to the contrary.
I’m sure you will be true to form, it seems, and simply block me or write some ad hominem attack against me. Here’s a clue – that’s not economics either – it’s the language of the playground bully.
Oh, dear. What can I say? I could argue but I just suggest you read Steve Keen’s Debunking Economics. Then you might just realise how crass your claim to be objective is.
And I also suggest that your supposed mathematical knowledge includes the pre-chaos theory belief that a very small number behaves as if it is zero – a belief fundamental to almost all marginal based micro economic theory leading to supposed stable economic equilibria and is absolutely wrong.
As for your claim to be objective, that just confirms your belief that as part of or as an agent for the elite you really do not have to justify yourself. I’m sorry, you do. But at least I am completely honest about my bias. You are so dishonest about yours you pretend they don’t exist.
I won’t offer further description of that behaviour.
Paying off the deficit is a myth and a very dangerous one. Borrowing. except in exceptional circumstances, always has to exceed tax receipts in order to balance the books.
Relying in tax receipts alone us a surefire way to tip the country straight back into recession.
The very act of cutting spending cuts during a slow recovery helps only to shrink GDP and consequently makes the debt bigger, leading to more self defeating spending cuts.
Did the great depression of the 1930s teach us anything?
Spot on, as I have argued here many times
But I really don’t like the idea of the wealthy living of the tax payers through interest on bonds.
Once again someone points out the multiple flaws in your simplistic analysis and, rather than deal with each comment and clarify the issue, as usual you simply attack the person making the comment.
Further, you threaten to silence anyone who is able yo point out all the mistakes you make.
If only your sychpohantic followers knew what really went on behind the scenes…
Actually, no flaws in the argument were pointed out. What was claimed was that no conclusion could be drawn from the evidence I presented because the issue was to complex to do so, if I précis the argument made. I, very obviously disagree, with all my reasons having been stated already.
So your contribution adds nothing to debate and many of my wise followers have suggested I am far too tolerant of such time wasting.
And not one of those wise followers would think it anything but sensible to edit comments. You in fact agreed to this condition when contributing: please reread the comments policy. You cannot argue that I delude anyone.
Compton
It would always help economists if they got out from their word-processors & lived in the real world a bit.
If you did, you mightn’t be so convinced that our “falling unemployment” would contribute to any kind of recovery.
The JobCentre staff have been given targets to get people off JSA. They are, more or less, bribing them to register as “self employed” even if, in reality, they might clean one window a week. They can make up the difference on working family benefits.
Another great plus is that a woman registering as a self-employed cleaner, even if she only earns £10 per week can get her child-care paid, up to no fixed amount! You’d be surprised how many £10 a week self-employed cleaners there are in Brum. You’d also be surprised how many of the “day nurseries” that their benefits go to are linked, alarmingly closely, to Al Shabab.
All I get from the FT is bewildered surprise that the UK’s rising employment isn’t mirrored, in any way, by a rising GDP. What a surprise!
A good economist would spend a lot of time in pubs, cafes, markets (I mean food markets not your mythical “free” markets), on the streets & only then go back home to their PC to write up their confusions.
Well said