The Podcast of the Lotus Eaters - PREVIEW： Brokenomics ｜ Taxation Is Out of Control

00:00:00.000 Hello and welcome to Brokonomics. Now in this episode I think I'm going to have to try and

00:00:04.460 figure out how I want to frame it, especially when it comes to titling it. I've got an extra

00:00:08.260 couple of days to figure that sort of stuff out. But basically what I wanted to talk about was

00:00:12.960 taxation in the UK. I'm talking about the UK. Basically everything I say is going to apply to

00:00:20.020 every other Western economy as well. If you're in Japan you're 15 years ahead of us. If you're in 1.00

00:00:26.700 the US you've got a few extra levers that you can pull but the stakes are higher. If you're in

00:00:31.540 another European country, Canada, Australia or New Zealand, it's going to be pretty much the same

00:00:39.080 set of circumstances. So I think this applies fairly broadly because I'm going to be talking

00:00:43.700 mostly about the principles. But I need an example as I'll be talking about the UK. And the question

00:00:47.540 that I've got to myself on framing this is, you know, on one hand I could say well look this is

00:00:55.420 Labour making an absolute hash of it, and they are. But also it's the set of circumstances which

00:01:03.860 Western governments have found themselves, have put themselves in. So they put themselves in.

00:01:09.880 Now it's perfectly true that Labour have got a bad set of cards. It's also very true that they are

00:01:18.400 playing those cards incredibly badly and they're making their hand worse than it needs to be,

00:01:24.160 even with the bad set of cards that they've got. So bear that in mind as I go through this. Yes,

00:01:30.280 it is partly Labour's fault. But I mean also they inherited a mess. So we sort of need to

00:01:38.840 acknowledge that as well. Right, so let's jump into taxation. What is tax trying to achieve? Well at a

00:01:46.480 basic level, there is a core nugget of what a state needs to do. And that is it needs to exist. So it

00:02:00.240 needs to have borders. It needs to be able to repel foreign invaders. It needs to be able to defend

00:02:07.860 itself as a state. So that is the core and primary function of the state. The second one is that it

00:02:16.500 needs to secure property rights. Because if you then secure property rights within your borders,

00:02:23.540 you allow the possibility of a free market to emerge and do everything else. Now a state could

00:02:31.100 actually function simply by doing those two things and nothing else. Now there's a whole debate in

00:02:40.000 libertarian thought about would it be better if we actually did that? Could things like courts be

00:02:47.420 provided, police, education, welfare, all of those things. The answer is yes, they could be. That's not

00:02:55.420 the model that we've chosen in our modern era. We've decided that actually all of this needs to be done

00:03:01.420 by the state. But actually we've got plenty of historical examples that it could be done. Fine,

00:03:05.500 whatever. Perhaps not what we're going to discuss today. But those are the core functions of the state.

00:03:13.500 We've also decided in recent years that the job of the state and what taxation is for is not just

00:03:19.740 national defence, courts, policing, critical infrastructure, that kind of stuff. It's going to be

00:03:23.980 redistribution of wealth. We're going to take money from productive earners and we're going to give

00:03:28.940 it to unproductive earners, the needy. We've also decided that the purpose of taxation is to

00:03:36.940 stabilise the economy so we can do all sorts of Keynesian things. We're going to influence behaviour.

00:03:44.300 So we're going to put taxes on sinful things like smoking or generating carbon or whatever else.

00:03:51.660 And proponents would say that taxation is the price we pay for civilisation. And the rebuttal has to be,

00:04:00.300 well okay fine, at what cost and at what price and what kind of civilisation. So let's jump into the

00:04:08.380 first one of those big themes. How taxation changes behaviour. If you tax something you're going to

00:04:14.060 get less of it. So if you tax labour you're going to get less work. If you tax capital you're going to get

00:04:19.420 less investment. If you tax profits you're going to get less entrepreneurship. If you tax hiring you're

00:04:25.740 going to get fewer jobs. Now for this I kind of want to start with an example we've got up on screen.

00:04:31.500 Well hopefully my editor will put this up to the screen. This is a lovely chart of UK payrolls.

00:04:37.900 Going back, I mean the actual original chart that I saw went back further in this but it's the same

00:04:42.060 picture. So it starts from January 2003. Payrolls were climbing and they had been for the last couple

00:04:50.380 of years as well. Lots of blue bars there. And then basically we got Rachel Reeves' budget on 0.99

00:04:57.020 the 30th October last year and immediately jobs tanked. Why did jobs tank? Well because she taxed 1.00

00:05:06.060 jobs. She put tax on employers, national insurance and I explained all of this at the time. The moment

00:05:12.620 she did it I came out there and said well what this is going to do is, best case scenario, is it will mean

00:05:18.460 nobody gets a pay rise because employers capacity on staffing has just been taken away. But more likely

00:05:28.300 what it's going to lead to is job losses. And those can be job losses where it's actually, you know,

00:05:34.300 you're too expensive now, sorry you have to leave. Or it will be things like, we were going to hire

00:05:41.100 somebody but actually we're just going to make do. And so jobs are not created and therefore as jobs roll

00:05:46.940 off for whatever reason, oh look I've got pregnant, I'm retiring, I'm going to jail, I'm leaving the

00:05:51.900 country, whatever it is, you get a net job loss. And that is exactly what happened as a result of the

00:05:59.580 incentive structures that Rachel Reeves put out there and so she's tanking the job market. And it's quite 0.99

00:06:06.220 bloody significant. It's something like 276,000 jobs. Oh here on the chart it says 250. So a quarter of a

00:06:13.340 a million jobs. I think it's gone beyond that at this point. But yeah, a quarter of a million jobs

00:06:17.740 in a country that isn't that large a country is a significant number of jobs to lose in just the

00:06:24.860 space of a couple of months as a result of a budget. So, you know, what did she do? It was like 13%

00:06:31.660 on earnings, no, 13.8% on earnings over 9,100. So she increased the threshold and all that kind of stuff.

00:06:37.900 And she put that up to just over 15% or something like that. So it's a meaningful difference,

00:06:44.460 it's a meaningful impact on employers. So what happens? You know, higher cost per hire, fewer

00:06:53.260 hires. You know, wage suppression, jobs get offshored or automated. Small and medium enterprises are

00:07:02.220 disproportionately impacted because they can't absorb the costs the way the larger corporations can.

00:07:07.340 Big immediate impact on jobs. There is a significant productive penalty in the UK on being productive.

00:07:20.300 There's a top rate of tax of what I think it is 45% on incomes over 125, much, much lower than that.

00:07:29.340 You pay 40% and that kicks in quite soon. A lot of people who, you know, never would think of themselves

00:07:34.620 as being high earners are paying higher rate tax. Effectively, tax plus national insurance,

00:07:42.220 you're over 50%. If you start adding in all the other taxes, you're well over. If you start adding in

00:07:49.820 how much you pay on VAT, council tax and all the rest of it, you're significantly over. But just tax and

00:07:55.580 national insurance will get you over 50% for most middle class professionals for whatever extent we

00:08:01.420 have a middle class left at this point. So, you know, the incentives are is to, you know, reduce

00:08:08.860 working overtime, promotion, starting businesses. Capital gains, that's been pushed as well. That's gone up.

00:08:18.620 It was 20% and I think that went up to 28%. So, a meaningful increase on capital gains. The threshold

00:08:28.380 was lowered from like 12,000 to 3,000. Again, a really material change. And what did it do to tax

00:08:35.500 receipts? You make this really material change and capital gains tax receipts went up from 12 billion to

00:08:42.220 14 billion. OK, so it made like a 2 billion difference. Of course, we immediately spunk that

00:08:48.540 off to Ukraine or putting people up in hotels. But the flip side of having increased capital gains by

00:08:55.740 a couple of billion is now people just don't want to invest. Or if they do invest, they don't want to

00:09:02.300 rotate it out of bad assets into good assets because they're going to get clobbered on the tax.

00:09:07.100 So, your bad asset has to be really bad in order to rotate it into something else,

00:09:13.340 which means capital is tied up on unproductive assets. You know, somebody comes to you and says,

00:09:20.860 look, I'm thinking of starting a business. These are all the things I can do and, you know,

00:09:26.940 it's all very exciting and I'm going to get this good growth and you've got it stuck in

00:09:31.260 post office shares or something. You're going to look at it and say, well,

00:09:34.060 you're going to get clobbered if I back you. So I'll just leave it in the post office to be

00:09:40.140 massively inefficient rather than backing your new thing. And those are the sort of conversations

00:09:44.460 that are going to be happening all over the place. The UK has a tax code which is 21,000 pages. It is

00:09:52.540 the world's longest tax code. The compliance cost for UK businesses is huge. I've seen it estimated at

00:09:59.740 something like 10 to 11 billion a year. And what this is all doing is it's creating this massive

00:10:05.580 opportunity cost of time, talent, money. You know, it's all redirected away from productive uses to

00:10:13.820 compliance. You know, am I getting my taxes right? Am I, am I minimizing my tax bill? A lot of senior

00:10:20.460 management time will go onto that rather than how can I grow? How can I, how can I do my little bit of

00:10:26.780 growing the UK economy multiplied many thousands of times? Um, the syntax is, you know, fuel duty,

00:10:34.700 VAT, um, you know, 60% of petrol prices is, is, is, is tax. Uh, we're going to tax plastic packaging.

00:10:44.380 Uh, we're going to, um, you know, we're going to add green levies to your bills and now 23% of your,

00:10:51.500 um, home energy bill is, is, is going in taxes. So, you know, taxes are not used to just fund the

00:10:58.460 state as perhaps, you know, might've once been the idea, uh, it's to shape personal choices and achieve

00:11:06.060 political goals with a whole bunch of unintended consequences. And it's the deadweight loss, the

00:11:11.500 economic value destroyed when people change behavior in order to avoid tax. Um,

00:11:17.980 um, it's something like one pound lost for every one pound 20 in, in tax inefficiency,

00:11:27.900 I think was the number that the OECD came up with. Uh, you also push a shadow economy,

00:11:34.620 you know, off the books economy, that is probably 10% of the economy easily, um, because it is worth

00:11:42.060 taking the risk of, of going into the shadow economy and doing things off the books because taxes are so

00:11:46.980 high. So that then just doesn't get taxed at all. Um, wealth migration, thousands of high net worth

00:11:55.780 individuals are leaving. And, um, you know, this was found out by a survey done by, uh, uh,

00:12:04.020 wealth advisors called Henley and Henley and partners just last year. Um, and when they, when

00:12:09.140 they sampled people and said, you know, why is it that you're leaving? Why are these high net worths

00:12:13.060 getting out? Um, primarily the reason was tax regime. So, you know, we're squeezing all the

00:12:21.300 pips trying to get as much tax as possible. Um, but then you're making it less possible to get

00:12:26.820 taxed because people leave or stop working or stop doing many other things, or just don't take up

00:12:30.500 opportunities in the first place. So tax doesn't just change, you know, tax isn't just taking your

00:12:36.420 money. It's changing the way that you live and you work and you think, and, and sometimes it changes

00:12:42.980 your mind about staying in the country at all. Uh, I think at this point I ought to pivot to talking

00:12:49.220 about lower tax economies, because it's all very well me saying, you know, basically what I am saying,

00:12:58.420 which is tax is bad. The question then becomes, okay, well, can you give me a counterfactual? Can you

00:13:03.940 give me a different example? And the answer is yes, I can. So, uh, Singapore tax as a percentage of GDP

00:13:13.300 is 14% and it has consistently maimed, um, you know, low tax and high growth. So it grows strongly.

00:13:24.420 Um, so, I mean, I compiled the 2023 figures for a bunch of places, Singapore, um, tax as a percentage

00:13:30.660 of GDP, 14%, but growth was 3.6%. You know, excellent, excellent growth for 2023 compared

00:13:40.020 to many other places. And it's maintained that for decades. Ireland, um, tax revenue is a percentage

00:13:45.620 of GDP, about 21%. Um, very strong growth over the period. We come back to them. Estonia, uh, flat tax,

00:13:54.580 uh, pioneers, um, tax as a percentage of GDP, about 31%. Um, again, strong growth. I mean,

00:14:00.980 it's strong growth for, for current times, 2.7%, but that's well above what we're getting at the

00:14:05.460 moment. Counterfactuals that UK, uh, tax 38% of GDP growth, sub 1%. Um, France, uh, France is fascinating.

00:14:15.940 France is even higher than the UK, 47% of GDP. So it's got an extra, almost 10% on us.

00:14:24.580 Uh, growth is anemic, about half a percent. You know, it's the highest tax burden in the OECD.

00:14:30.340 So, um, you know, let's dig in a couple of those. Ireland is a great one. Uh, 1987,

00:14:37.940 basically bankrupt, 17% unemployment, immigration crisis, people flocking out. Nobody wants to stay 1.00

00:14:45.100 in Ireland. They cut the corporation tax from 50% down to 12 and a half percent. Uh, they slash spending

00:14:52.180 by 10%. They stabilize the currency. What was the result? Well, over the, over the next 10 years,

00:14:57.780 less than the next 10 years, actually, unemployment fell from 17% to 4%. Um, foreign investment

00:15:04.340 tripled, um, you know, um, Intel, Pfizer, Apple, Microsoft, Google, they, they all set up in,

00:15:12.340 in Ireland. Tax cuts worked because it was matched by spending cuts and political will,

00:15:20.100 and they had to hit really rock bottom in order to have that revelation. Um, obviously they've gone

00:15:26.660 off the rails with immigration lately, but doesn't disprove the point about taxation. New Zealand,

00:15:31.700 another good example, um, 1984, absolute bloody basket case. Uh, they then had a 10 year, uh,

00:15:39.780 sort of blickscreet reform, uh, process deregulated all their agriculture, um, privatized telecoms,

00:15:47.700 rail pensions, a whole bunch of other things. They replaced, um, what was it? They, they,

00:15:52.580 they replaced income linked pensions with individual retirement savings plans. Um, flat rate of, um,

00:16:00.900 um, uh, income tax at 15% was it, um, tax rate fell. Oh no, no. The tax rate came down from 66

00:16:14.980 to 33% the top rate, um, and more broadly leveled out at 15% across the different bands.

00:16:22.500 Okay. What was the impact for New Zealand? Inflation came down from 18% down to 2%

00:16:28.420 and productivity went up 3.5% a year. Brilliant gains. They shrank the state down from 44% to 35%

00:16:39.140 of GDP. Um, it paid off, you know, it, it made them wealthy again, wealthy enough to think that

00:16:46.500 they could afford socialism again. And so they got Jacinda Ardern in. Um, so, you know, this only gets

00:16:52.180 you so far because of course we have democracies. And as soon as you give people a little bit of

00:16:56.180 prosperity, they instantly want to destroy it with a bit of socialism, but you know, there you go.

00:17:00.660 Uh, Singapore, uh, flat tax system. Uh, there's no inheritance tax. Um, the, the low personal taxes,

00:17:08.900 I think maxes out at 22%. Corporation tax 17%, a bit higher than Ireland, but it's, it's a low effective

00:17:16.660 rate. They've got a lot of credibility that it's going to remain consistent those levels.

00:17:21.220 They don't have a national debt problem. Um, the government runs a surplus, heavy infrastructure

00:17:27.140 spending, all of it from cash, none of it from debt. Um, they have one of the world's highest

00:17:36.260 GDP per capita. Um, GDP growth since 1990, when they sort of set out on this, on this exercise,

00:17:44.740 uh, 4.7%, uh, 4.7% a year, right? What that would have done to Britain if we had done the same thing, 0.61

00:17:56.420 uh, at the same time, uh, small state, smart investments, and it beat, it is comprehensively

00:18:04.580 beaten a tax and spend economy. Uh, Estonia, let's quickly run through that. Uh, 20%, uh, flat income tax,

00:18:12.020 uh, no pensions. They basically use private citizen accounts. Um, you know, lean bureaucracy,

00:18:19.620 leaning on digital wherever they can, um, GDP per capita in the space of the 25 years they've

00:18:27.780 been doing this has gone up eight X. We've been flat. US has been, Western world has been flat.

00:18:37.940 They went up eight X, um, public debt. It's less than 20% of GDP. Um, they became the EU's,

00:18:46.900 you know, leading digital economy. You know, I could rest my case here, but you know, why not?

00:18:55.300 Let's dig a bit into France. Um, highest tax burden, 47% of GDP, as I said,

00:19:01.380 uh, heavily over-regulated labor markets, stagnant productivity. Uh, even before COVID, they had a

00:19:13.140 30% youth unemployment rate. Um, Sweden, Sweden managed to hit 60% of, um, tax as a proportion of GDP

00:19:23.780 in the 1980s, uh, capital flight, uh, stagnation, loss of top earners. Uh, they were basically forced

00:19:32.500 to deregulate and reduce spending in the nineties, um, which of course helped them.

00:19:38.660 Now, so why does this work? Why does it matter? Well, higher after tax returns,

00:19:47.540 people are gonna work, invest and innovate more, um, more startups, more inward investments,

00:19:56.660 uh, low unemployment, uh, capital inflows, um, foreign money, chasing yield and security.

00:20:04.820 If they like what you're doing, um, Ireland, Singapore, um, you know, show this, um, public

00:20:12.020 discipline. If there's no fiscal, fiscal cushion, that forces the hard choices to be made. A point

00:20:20.260 that I'd like to think that the UK is at, but they're probably going to try and print and

00:20:25.540 borrow out of the current debacle that, that Rachel Reeves is in, but, you know, at least less 0.98

00:20:31.860 waste, you know, better allocation. Uh, there needs to be a good exit threat. If citizens can leave,

00:20:37.540 uh, government must comply. I mean, they, they, they, they, they, they can, they can try for a

00:20:45.300 while, but if, if people were just bailing out and that is exactly the point that the UK is in now,

00:20:49.780 where people are just bailing out, um, government is going to have to respond to that. And, um, it,

00:20:56.900 it leads the, the kind of, uh, the kind of regime I'm describing institute spontaneous order

00:21:06.500 throughout the system. You know, local market solutions emerge when the state withdraws. A

00:21:13.700 lot of people think that, oh no, you can't, you can't do anything to the NHS because then we'd never

00:21:17.860 have medical care in this country. No, you, you, you'll just get the emergence of market solutions.

00:21:26.740 And we can't possibly get rid of education because, um, you know, if it wasn't the state doing it,

00:21:30.980 no one would ever be educated. All of these functions were done before the state and they

00:21:36.980 could be done after the state when it is well, when the government takes less, people build more,

00:21:43.380 they innovate more, they do more, you know, um, I'm not saying that, you know, low taxes are a magic

00:21:49.780 wand. It requires determination, determination that we are sadly lacking. Uh, it requires commitment.

00:21:58.660 It requires belief in your citizenship. But I mean, history has comprehensively shown,

00:22:03.700 I've just comprehensively shown when you do this, it works. So that's why I wanted to,

00:22:13.780 and hopefully Mr. Editor, I've got something up on screen here. Right. What I did was I thought, okay,

00:22:22.980 let's go back to 1980 because, you know, um, in the 1970s, the UK was in a complete

00:22:29.220 utter basket case. Uh, Mr. Editor, if you can pop up on screen my, my link thing that says, or, or,

00:22:36.020 or redo it, whatever you want to do, uh, what if we cap tax and spend it 20%. So the premise here,

00:22:41.860 I thought, okay, 1970s, UK is a basket case. Thatcher comes in and she begins what has been 0.95

00:22:50.420 referred to as a radical program. Actually, it wasn't that radical. It was fairly small reforms,

00:22:57.540 but in the right direction, spread out over a number of years. And I just thought, okay,

00:23:01.460 well, let's do a counterfactual. What if, what if she actually was properly radical? What if she came in 0.98

00:23:08.420 and had the will and the backing, which she might not have done, but she had the backing to say,

00:23:13.380 okay, from now on tax and spend is capped at 20%. The tax burden. Now there's a whole,

00:23:23.060 whole bunch of questions about, okay, how do you tax? Do you use a flat tax? I'm not getting into that

00:23:28.580 right now. All I'm saying is the overall tax burden, somehow through some combination of whatever tax

00:23:34.660 policies you want to put in would have been capped to 20% and state spending capped at 20%.

00:23:43.620 And so what I did is, is rather than me do this analysis, because I'm biased, uh, I am a,

00:23:50.420 I'm a low tax person. I thought what I'll do is I'll get the AI to do it for us. So I described the

00:23:55.620 scenario. So I said, you know, first of all, I went through a whole bunch of examples. I said,

00:23:58.340 go and find examples of countries that have gone in and radically cut tax and spend.

00:24:08.020 What does it tend to do to them? Um, then I got it to look up all the figures for the UK from the

00:24:13.380 1980s afterwards. And then I paired it down to once every five years to, to make it readable.

00:24:18.260 Uh, and I said, um, you know, go off and find me a whole bunch of examples of where the, um,

00:24:24.820 state spending is cut. Cause you've got to bear in mind that in GDP, that includes a whole bunch of

00:24:31.140 state spending, right? So if you cut state spending entirely and, um, state spending is half of GDP,

00:24:41.700 you will, you will lose half GDP. So very, very short term, it looked really bad. But then what

00:24:48.100 happens is those resources and money is recycled into the private sector that gets absorbed.

00:24:56.820 And then those functions are taken over by the public sector.

00:25:02.180 And there are many examples. I mean, the most recent will be Argentina, but there's a whole bunch

00:25:06.420 of them. And I got the, I got the AI to, you know, process a whole bunch together and build a framework

00:25:11.780 for analyzing how quickly that reabsorption happens. So what you would expect to see in the model,

00:25:16.420 and it is actually what happened. I mean, I didn't, I didn't tinker with this. I just said,

00:25:20.580 you know, this is what I'm looking for, put these elements together, build a framework,

00:25:26.100 right? And then model out. So counterfactual, um, hopefully you should see this on the screen.

00:25:31.060 Um, 1980, tax as a percentage of GDP was 32%. And in my hypothetical, I'm just going to say, no,

00:25:40.740 whack it down to 20%. Uh, nominal GDP, uh, is what it is. And this is the starting point. So it's going

00:25:47.540 to be the same, uh, tax take, tax take is going to take effect instantly. So the tax gets whacked.

00:25:55.140 Um, so tax take would have come down in 1980 from 19, uh, it's from, from 75 billion to

00:26:01.860 47 billion. So it's a meaningful increase. Uh, you would have had to have chopped a whole bunch

00:26:07.620 of things, probably would have had to got, well, I mean, you basically would have had to got rid of

00:26:11.620 half of everything. Um, um, you know, half of, half of the NHS. So, you know, you're only getting it

00:26:18.420 if you're, um, if you can't pay and you're really in need, um, you know, make your own provisions.

00:26:24.820 Otherwise, you know, half of you aren't getting state education. Um, so private education would

00:26:29.620 have to have scaled rapidly welfare. Uh, I mean, you've got to bear in mind that all,

00:26:33.940 again, all of these functions, education, welfare provision, um, uh, yeah, education,

00:26:39.620 health, all of those things were provided in the free market prior to World War II anyway.

00:26:44.500 You know, they, they, they just got taken over. So, so the UK would have certainly easily had the

00:26:49.380 muscle memory in order to do this. In fact, um, in, even in 1980, uh, PPP and Bupa, uh, private

00:26:55.780 healthcare providers existed, you know, that they could have scaled up. So a whole bunch of things

00:27:01.220 could have, would have had to been cut in this scenario, but there's, there's certainly the mechanism

00:27:06.500 for this to be done elsewhere. So, you know, carrying, carrying on with my hypothetical, um, real GDP

00:27:13.220 growth, um, in the real world, the historical example, it was 2.2%, which is, I mean, we'd kill

00:27:18.660 for 2.2% these days, but the model, and, and I think this is probably pessimistic, but you know,

00:27:25.140 the, the AI, uh, you know, push that up to, uh, 5.2%. Uh, I, I think that's right. I think it would

00:27:33.380 have been at, at very minimum that. And then basically I've got it to run through. Now, what we're

00:27:37.860 expecting to see on this, what, what I'm expecting to see, because it's what all the real world examples are,

00:27:42.340 is yes, you take a hit initially because you cut out that element of state spending, state GDP,

00:27:49.140 and you're waiting for those resources to be reallocated into other things. Now, I think this

00:27:54.740 would happen fast. Uh, we, we, we did do a bit of this post 2008 in this country with the, um,

00:28:02.740 George Osborne and the austerity and stuff. And actually what we found is that this, the private

00:28:08.500 sector absorbs that capacity extremely quickly, like 18 months. Now the AI model that was put

00:28:15.460 together and I didn't want to tinker with it cause I thought, you know, just, just leave it as it is

00:28:18.580 and show it as an example. So I think the AI model is being overly cautious. Uh, the AI model is showing

00:28:25.060 that that absorption takes best part of 10 years. I think it would be much, much quicker than that,

00:28:30.020 but nevertheless, uh, fine. Let's just have a look at it. Let's see what it came up with. So

00:28:36.180 by 1985, uh, the tax revenue, uh, collection has actually kind of started to come back because the

00:28:44.660 growth, um, is, is, is kicking in. So nominal GDP, the, the hypothetical isn't actually that far

00:28:51.860 behind because it's been absorbed and the, and it's had now five years of a higher growth rate.

00:28:56.340 The tax take is of course still down because now, you know, uh, nominal GDP is still roughly the

00:29:02.900 same or the hypothetical is still slightly behind it. Uh, but the overall percentage is lower. So you're

00:29:08.420 still being, um, very cautious on your spend. But I mean, look at that. The tax take in 1985 would be

00:29:14.180 71 billion against where we started in the real world example of 74 billion. So it's, it's, it's

00:29:20.180 perfectly manageable. You can, I mean, it's not, it's just not that mean, is it? Well, by 1990,

00:29:27.300 um, tax revenue percentage of GDP is still, of course, significantly lower. That's the whole point,

00:29:32.420 but nominal GDP, uh, still suffering a bit in this example because we've knocked out the state again.

00:29:37.780 I don't think it'd be that bad. Um, taxes, um, have been rising. Um, and so

00:29:44.100 the tax take is still below, but, but the important thing is the growth is, is significantly higher.

00:29:49.940 Again, I think it would be at least that I think the Singapore example and all the suppressed demand

00:29:54.980 and the ingenuity of the British people, 3.7% is, is the absolute minimum, but fine,

00:30:00.260 not tinkering with the model. Uh, by 1995, uh, nominal GDP in this very conservative model has now

00:30:08.420 overtaken the historical example. Um, the tax take is lower, but not that materially lower.

00:30:17.700 It's, you know, it's 208 billion versus 166 billion. Um, and still the growth rate is

00:30:23.140 absolutely stonking. It's, you know, 5.8 versus 2.8. You know, it's, it's got that premium on top of

00:30:28.420 the historical example. Um, by 2000, um, nominal GDP is now comfortably passed. Um,

00:30:37.540 we're in a, we're in a period of slightly higher taxes here again. Um, and so the tax

00:30:42.100 tax take is now up to 230 billion as opposed to 310. The thing you've got to remember though,

00:30:46.660 is even though the tax take is lower, we're now in a world where a lot of the previous functions of

00:30:53.860 the state are being done in the private sector. You know, you've got a more robust private health

00:31:02.020 system. You've got a more robust private, uh, pension system and education system. And actually,

00:31:07.460 most people who could choose probably be choosing the private alternative rather than the bog standard,

00:31:12.980 um, state version, which we all get anyway, given today. Uh, by 2005, what have we got? Um,

00:31:20.820 we know we're now over a hundred billion, 150 billion ahead in nominal GDP, uh, tax take,

00:31:27.460 you see, even, even on a limited 20% basis, it's still a very comfortable hundred 315 versus 440.

00:31:34.980 GDP was still growing growth. And, and we're just going to watch this trend continue.

00:31:39.220 So we're 500 billion ahead in nominal GDP by 2010. Um, we are coming up for a trillion

00:31:47.860 ahead in nominal GDP by 2015, uh, by 2020. Um, I mean, it's just absolutely, uh, racing away. So

00:31:58.500 historical example, uh, tax take, uh, sorry, nominal GDP of 2.1 trillion versus here, uh,

00:32:04.820 getting on 3.5. Meaningful difference. People of Britain would be significantly wealthier,

00:32:11.460 that the state would be doing less. Although interestingly, uh, the tax take, uh, has now

00:32:17.620 surpassed the tax take in, in the historical example, because yes, it's only charging 20% of GDP,

00:32:26.500 as opposed to 32%. But because GDP is now so much larger as a result of the lower burden,

00:32:33.700 your tax take, you actually have more and you need to do less. So that means the things remaining

00:32:42.100 in the state sector could be done so much better. You know, the, let's say we're providing school

00:32:48.260 vouchers to the, the poorest half of the population, because we binned half of it in the initial

00:32:52.580 example. Though that voucher system can now be quite good or extended up to, um, your more,

00:32:58.100 more middle income people, not that they need it because they're earning so much. Um, we could have a

00:33:02.740 proper military, uh, we could have a, um, a really nicely done, um, court and police system.

00:33:10.660 You know, we, we, we could potentially even have border controls, you know, fancy that as opposed to

00:33:15.780 what actually happened in 2020 with the, uh, with the Boris wave. Uh, and by, um, you know,

00:33:20.820 the other thing I should point out about 2020 is, um, in the real figures, in the historical examples,

00:33:26.580 there was a big GDP contraction as a result of the lockdown madness. I just went ahead and assumed

00:33:33.540 that any government that is sensible enough to operate policy like this is not going to do something

00:33:38.100 as batshit crazy as lockdowns. So, um, I, I just zeroed that out because, um, you know, I didn't

00:33:45.780 even, I didn't even take the, uh, the, the, the higher growth. I just thought, no, just, just zero it

00:33:50.260 out because the rest of the world might've gone crazy, but if we didn't, you know, we're at least

00:33:54.180 zero it out. Uh, and by today, uh, difference is just insane because you're getting this higher growth.

00:34:01.700 Um, growth rate has been suppressed. Uh, I don't know if it necessarily would be because we're in a global

00:34:06.580 debt crisis. We probably wouldn't be participating in that because bear in mind, because tax and spend

00:34:11.220 was both limited at 20%, uh, we would have kept the 1980s level of debt. We would not be in a debt

00:34:19.460 crisis that we're in today. That, that all would have remained consistent. Uh, GDP in, in, in actual,

00:34:26.420 it's 2.8 trillion, but in our hypothetical, it's 4.6 trillion. Uh, hugely larger

00:34:36.420 economy. We would all be significantly wealthier people. Um, we wouldn't have had to have done

00:34:44.900 the insane stuff that we've done. So, you know, this, this is a counterfactual of what the world

00:34:50.420 could have looked like if we had introduced something like this, um, back in the 1980s

00:34:58.900 and we would be a significantly richer country. Uh, why don't we do something like this? Well,

00:35:09.060 because as you can see, the benefit comes, well, in this example, anyway, I think it would keep

00:35:14.740 quicker than this, but it's the benefits generally don't come up by the next election.

00:35:20.180 The gen of the benefits really come through when the next generation is entering the workforce.

00:35:26.740 That's the difference.

00:35:30.500 And that is why we can't have nice things. If, if the UK was not a democracy, you know,

00:35:37.300 if it was, you know, a Dan dictatorship, uh, and, um, you know, I, I, I were to be running this,

00:35:43.540 uh, I just take the hit short term. Yeah. People are going to grumble.

00:35:47.300 A lot of state employees are going to be out of a job. GDP would go down, um, other countries would

00:35:59.940 point and laugh, um, one generation later and the effects would be enormous.

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The Podcast of the Lotus Eaters - June 17, 2025

PREVIEW： Brokenomics ｜ Taxation Is Out of Control

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