Friday, November 11, 2005

Pax Tax Axe

Well, it certainly wasn't comfortable viewing. But nobody actually wins against Paxo, and at least DD stayed on his feet. We'll see how DC fares next week.

Paxo's opening shot- "Why are you a shit?"- brought back memories of that notorious intro with Theresa May- "Why are you so unattractive?" And just to underline the point again, his power to behave like this comes from the BBC's position as a tax funded "national treasure" that doesn't have to answer to its customers. Interviewers on commercial staions just don't behave like this.

And tax occupied quite a chunk of the interview. Paxman repeatedly tried to get DD to say the £38bn was a promise, and DD replied:

"This is the strategy ... there will be a reduction in taxes to create growth in the economy...I did not use the word guarantee, I said it was a strategy."

We've posted on this before, stressing the importance of the "Growth Rule". This is a medium term strategy for limiting the growth of public spending, and thereby funding reductions in taxation, and thereby lifting the long-term growth of the economy. Simple isn't it.

Unfortunately, while it's simple from out here, in the sweaty confines of Paxman's disembowelling pit it gets a lot trickier. Promise? Guarantee? Strategy? What do you mean? Can we trust a shit anyway?

One thing we must not allow is to have this strategy get twisted into a claim that we can abolish the economic cycle. The Times and the DT both carry stories that DD's plans have been rubbished by "leading economists". Actually, that turns out to be Peter Spencer of the ITEM Club:

'Professor Spencer said that if taxes were cut in a recession, the resulting high interest rates would offset any benefits. “I don’t think we can give Mr Davis the benefit of the doubt on this — these policies would basically fail,” Professor Spencer said. “Any extra spending seen on the high street as a result of tax cuts would be offset by lower exports and investments.”

For reasons we needn't go into here, at one time I knew Prof Spencer, and I have the highest regard for his economic judgement. So when he tells us that you can't avoid recessions by cutting taxes, we should listen.

But the thing is- that's not what DD is saying. What he's offering is a medium term strategy for lifting the trend growth rate- not abolishing the cycle. So how did Pete think otherwise? Surely...surely someone wouldn't have misrepresented DD's position to him and then reported his answer.

Someone's been passing around the porkies again. I wonder who that might be.

(PS- I expect Prof Spencer would be only too pleased to issue a clarification if DD's office contacted him with the facts).
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