ASI Calls For Tax Simplification

Sunday 16 September 2007

"The UK tax system is well beyond the point at which complexity itself imposes costs and disincentives", says a new report from the Adam Smith Institute (ASI). At 9,973 pages, the UK's tax code is now the longest in the world and, according to KPMG, its administrative burden costs the UK £5.1bn a year.

The report argues that the Treasury should embark upon a sustained programme of tax simplification. Firstly, this would let people know their liabilities and assent to them – making clear the duties of citizenship and allowing individuals to feel they are partners with, not servants of, government. Secondly, "tax simplification can lead to lower taxes." Lower and simpler taxes stimulate growth by discouraging avoidance and creating greater incentives to industry. "The net effect is that the same revenue, or more, can be raised from a lower overall rate than was taken from the higher rate with its added complexities."

To this end, the report recommends:

·     Raising the personal allowance to half the average wage (about £12,000 a year). Only income earned above that level would be taxed. This would end most of the poverty traps of the present welfare system.

·     The vastly over-complicated tax credit system should be abolished, and replaced with something much simpler. The innumerable tax exemptions that litter the system should also be scrapped.

·     National Insurance should be treated as income tax, and calculated on the same rules and base levels as income tax. The cap on NI payments would be lifted, with top rate income tax payers paying a simple percentage without limit. Ultimately, the separate status of NI should be abolished altogether.

·     All income should be taxed on the same basis, whether it comes from earnings, investment dividends, or capital gains.

·     The arcane and complicated rules for calculating corporation tax should be overhauled. Business profit should be the basis of tax liability, rendering legions of pen pushers and number crunchers unnecessary.

·     Pension contributions should be made from taxed income, with the government matching contributions up to a set level. Growth of the fund should not be taxed, nor should any income subsequently drawn from it.

·     The death tax should be abolished.

ASI President Dr Madsen Pirie comments: "There is no doubt that a tax simplification programme would increase the UK's competitiveness and its economic growth. It would create jobs and wealth, as well as easing the burden which complexity imposes. The UK could easily and rapidly become the tax haven of choice."

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Alternative Vision For Troubled EU Constitution

Friday September 7th 2007

The Adam Smith Institute (ASI) is pleased to announce that John Hopkins has won the Institute's £1000 prize for the best draft EU Constitution under 3000 words in length.

The contest was inspired by widespread and growing concern that both the original rejected constitution and the new draft treaty are far too long and complex to be comprehensible to the citizens of EU member states. The new draft Treaty (English version) is 67,000 words long. The US Constitution, by contrast, is just 7,700 words long.
 
The ASI is not impressed by the argument that the new draft Treaty accumulates and amends previous treaties, and therefore must be a lengthy document. The bureaucratic fudge of sheltering in past verbosity is lamentable. The purpose of the treaty should simply be to state what the EU is for, and what common principles member states are accepting.

We do not accept the argument that the new EU draft is merely an 'amending treaty' and not a 'Constitution' requiring a UK referendum. The original text, rejected by the French and Dutch electorates, and the new draft are substantially the same. Any attempt to argue otherwise is disingenuous.

Our competition had a range of entries broadly spanning the main difference of opinion, namely whether the EU should be limited to economic matters (a single internal market with open competition under standardised rules) or should embrace social and political convergence as well.  Whilst the ASI embraces the former view, we were looking for the most coherent and professional approach, succinctly expressed.  

The full text of John Hopkins' 2094-word constitution is attached.  His key points are:

    a)   The EU should be a voluntary confederation of democracies. A high degree of consent means that         there should also be considerable scope for opt-out.

    b)   “The objectives of the Union are:

        (1) To prevent citizens, organizations or governments of one member state from doing harm to the health, wealth, liberty or environment of others in other member states.

        (2) The provision of public works and institutions which private enterprise and individual member states cannot provide."

   c) “The Union shall have exclusive competence in the following areas:

        (1) Customs Union

        (2) Competition rules necessary for the functioning of the common market

        (3) Common Commercial Policy

        (4) Monetary policy for member states using the common currency.

    The Union may produce binding Law in the following area of cross-border competence:

        (5) Environment

        (6) Transport

        (7) Consumer protection

        (8) Internal market."

    “The Union shall ensure a common market with free movement of persons, services, goods and capital, and freedom of establishment. Discrimination on grounds of nationality is prohibited."

   d) The Central Bank and Euro should continue much as at present.


The Institute is grateful to all those who took part.  They provided valuable and interesting ideas that could be of great service to Europe's politicians, if only they were more open to informed debate. 

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