We need to talk about…. taxes
Speaking at the launch of the Mirrlees report, this week, IFS Director Paul Johnson mused on the fact that we had strategies for education, for health, indeed for much of public spending – but no British government had ever seen the need to produce a tax strategy.
Tax matters. Not only do we need it to raise money to pay for the public services and benefits we want, the way we raise taxes affects the performance of the economy and the sort of society we are.
For too long, as we have argued before, the Treasury has treated taxation as its private domain – with scant regard for views of other departments and a view that it is impossible to have a sensible public debate about taxation. Indeed the immediate reaction to the Mirrlees report, with the BBC immediately consigning its proposals for a restriction of VAT zero rates to the dustbin marked “politically impossible” without a passing look at the potential merits, showed why the Treasury believes that in the case of tax policy, all publicity is bad publicity.
But we are all the poorer for that. There are some big strategic decisions to be made on taxation – many of them highlighted by Mirrlees: how do we have a rational approach to taxing different sort of income and how progressive do we want the system to be? how can we modernise property taxes? what is the role for environmental taxes – and how can we use them to achieve our environmental goals at least cost? should we extend “sin taxes” beyond alcohol and tobacco to other areas where we want to influence personal behaviours? And Ministers are currently wrestling with the difficult question of whether and how to pay for social care following the Dilnot commission.
These are choices which would be better exposed and discussed so that the trade-offs can be better understood, and, as the report says, enable us to understand tax as a system, not just a series of micro decisions made one by one. At the launch Sir James Mirrlees said it is not a blueprint – but rather showed the direction of travel for the next 20 years. But the way we make policy on taxation suggests that is more likely to be a random walk than a set of purposeful strides. The Treasury has already put out a standard brush-off line, pointing that the government is embarked on a series of tax reforms, which seems to miss the point about taking a strategic approach entirely.
In other countries, major systemic tax reforms have come about not through government but through the creation of tax policy commissions. In 2009 a Commission to review the future of the Australian tax system reported. What is striking is not the content, but the degree of engagement with the substance of the report including 13 focus groups! This is a very similar approach to commissions like the Pensions Commission which turned the unthinkable into the mainstream and echoes the potential of engaging citizens in policy design – even on tax choices!
Given government’s reluctance to think strategically about tax, and the perception that many potential changes are off limits, is it time to call in some commissioners?