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UK Budget Deficit - Solved

including Budgets
Lootman
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Re: UK Budget Deficit - Solved

#87473

Postby Lootman » October 11th, 2017, 2:39 pm

Paying off the deficit would be a terrible thing to do, because then the government would then immediately start borrowing and spending again, and pretty soon we'd be right back where we started.

The deficit has a useful role - to act as a disincentive for a government to spend even more than it already does.

gryffron
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Re: UK Budget Deficit - Solved

#87572

Postby gryffron » October 11th, 2017, 7:58 pm

1nv35t wrote:Whilst real yields are negative, debt in effect becomes a asset (deflated away over time).

Except you still have to service it, and renew it when it becomes due. Even if you only have to repay 80% of what you borrowed, you still have to find that 80% from somewhere. If the Corbynistas get their way, the money will have been spent on benefits used to pay for Chinese imports. i.e. All gone.

Of course it should be possible for governments to invest the cash in something useful to generate a real return (especially as the required return is only -20%). You know, something like, new nuclear power stations for example. Where instead we have the new PPI. :(

Gryff

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Re: UK Budget Deficit - Solved

#87594

Postby Alaric » October 11th, 2017, 10:11 pm

Snorvey wrote:What would be the effct of doing this?


Prudence would still suggest that you set aside excess income whilst you are working to finance yourself in retirement. Or persuade your employer to do so as deferred pay. Doing so in a vehicle where you saved out of taxed income to be taxed in retirement would not make any sense.

Provided pension contributions continued to attract relief as an expense against profits, there would be a continued case for employer pension contributions. There would be no case for the employed or self employed as within their contribution limits, ISAs would be better value.

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Re: UK Budget Deficit - Solved

#87601

Postby Charlottesquare » October 12th, 2017, 12:30 am

Scrapping tax relief just kicks the can down the road, everyone would save by other routes, the law of unforeseen consequences having even more ploughing money into BTL, not much good re current housing concerns.

To me the initial greater danger is to the 25% tax free lump sum, I could see this going thus potential higher tax receipts from those drawing out pension funds, however given some will still be intending to use this to redeem older interest only mortgages, and there are a lot of votes at stake, cannot see this brought in as a retrospective except by a party with massive electoral support or a death wish.

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Re: UK Budget Deficit - Solved

#87611

Postby Urbandreamer » October 12th, 2017, 7:24 am

Charlottesquare wrote:Scrapping tax relief just kicks the can down the road, everyone would save by other routes, the law of unforeseen consequences having even more ploughing money into BTL, not much good re current housing concerns.


Indeed so. BTL, risky shares etc. The one place that people would not be saving is gilts (government bonds). Reputedly such saving is very secure as the UK government has not defaulted in a couple of centuries. So why would people not save there in such an event. Because they might NOT BE FOR SALE!

Indeed there have been times in my generation when there has been a budget surplus, both here and in the states. I believe that the govenments maintained their bond sales, but the question of gilts was raised.

Indeed others have pointed out that government debt is actually a good thing. ie
http://www.taxresearch.org.uk/Blog/2015 ... surpluses/
https://www.theguardian.com/commentisfr ... ry-surplus

BTW I have one SCREAMING complaint about the Times article. Not taxing something (ie pension contributions or the personal allowance) is NOT A COST. Paying for something is a cost. I'm sure that scrapping the £11.K tax allowance we all get before we pay income tax would put a significant amount in the governments hands. Regressive to be sure, but why should the government pay that cost? Bloody journalists who can't use a dictionary.
https://www.merriam-webster.com/dictionary/cost

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Re: UK Budget Deficit - Solved

#87639

Postby Alaric » October 12th, 2017, 10:44 am

Urbandreamer wrote:Not taxing something (ie pension contributions or the personal allowance) is NOT A COST. Paying for something is a cost.


The reason it looks like a cost is because of the system of tax relief at source. That can be measured directly. All the ways of giving relief, such as extension of the basic rate band and Corporation Tax offsets to Company profits presumably have to be estimates. Where someone making a pension contribution isn't a tax payer, the relief at source is however a cost, albeit a policy decision in support of the lower or non paid.

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Re: UK Budget Deficit - Solved

#87696

Postby Lootman » October 12th, 2017, 2:37 pm

Alaric wrote:Provided pension contributions continued to attract relief as an expense against profits, there would be a continued case for employer pension contributions. There would be no case for the employed or self employed as within their contribution limits, ISAs would be better value.

A better model might be the American system, where the individual/employee is given a choice of how to build a pension fund. The first method is more like ours, with tax relief for contributions but you have to pay tax on the eventual pension payments (but with no 25% tax-free lump sum). The second (called Roth variants) are more like our ISAs - there is no tax relief on the way in, but no tax on the eventual payouts either.

Offering the latter would save the government money in the short-term, although it would lose the tax revenues decades later. Given that taxes will probably increase long-term to meet all the unfunded government liabilities, that might be seen as attractive to individuals. But do we trust the government not to change the rules later? Governments can NEVER seem to resist fooling around with pension funds - captive funds are just too tempting a target for avaricious politicians.

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Re: UK Budget Deficit - Solved

#87750

Postby Urbandreamer » October 12th, 2017, 6:19 pm

Alaric wrote:The reason it looks like a cost is because of the system of tax relief at source. That can be measured directly. All the ways of giving relief, such as extension of the basic rate band and Corporation Tax offsets to Company profits presumably have to be estimates. Where someone making a pension contribution isn't a tax payer, the relief at source is however a cost, albeit a policy decision in support of the lower or non paid.


I can't actually read the entire article (it's behind a paywall, but... a quote from what I can see
There has been speculation that Philip Hammond will pare back higher rate tax relief on pension contributions in his first post-election budget


So I would assume that the article is not about the policy of government contributions to those who don't pay tax, but about the tax that is not recieved at the point that pension contributions are made due to the return of the tax already paid on that earned income.

I thought that one principle was that pension contributions were made from untaxed income. The government "top-up" is simply returning the tax already paid and simply to ease book-keeping. Hence the use of the word "cost" is inapropriate IMHO.

Snorvey, who I assume read the article, talks in terms of abolishing that "top-up", in which case the same money would be taxed twice. Once when it was earned and a second time when the pension is taken.

In the past taxation that was regarded as clearly not to be endured has had bad effects upon every country. The questions that arrise are, would people regard such double taxation as wrong and would the government assume that people would regard it as acceptable.

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Re: UK Budget Deficit - Solved

#88731

Postby SteMiS » October 16th, 2017, 10:59 pm

Urbandreamer wrote:I thought that one principle was that pension contributions were made from untaxed income. The government "top-up" is simply returning the tax already paid and simply to ease book-keeping. Hence the use of the word "cost" is inappropriate IMHO.

Pension contributions are considered deferred pay. They are not received by the person until the pension is paid, which is when they are taxed. All the rest is bookkeeping really. If you make a pension contribution then you are effectively saying that you want that amount to be considered as deferred pay and therefore HMRC refund the tax that was (erroneously - in the sense that it shouldn't have been if they'd known) taken off the payment. If you start charging tax on 'pension contributions' (which is what restricting tax relief really is) then the whole principle of deferred pay collapses.

Now you might say who cares. Government's tax people in all sorts of ways that the payer considers unfair. However, how do you deal with employee contributions and particularly final salary schemes where the contributions and indeed deferred payment is uncertain? It's a minefield. Which is why governments have avoided doing anything, relying on restricting the amount of pay you can defer to reduce higher rate tax relief (although even that is problematic).

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Re: UK Budget Deficit - Solved

#97711

Postby NeilW » November 22nd, 2017, 6:03 am

[quote="Snorvey"
What would be the effct of doing this? Inflationary (as people spend it rather than save it) I guess?[/quote]

It wouldn't work.

The budget deficit is caused by people saving more than they borrow. Eliminating tax relief on pension may reduce the pension contributions but since we have compulsory pension contributions it can't get rid of it all as a matter of accounting.

We'll never get anywhere until the reality of the situation is realised. When a bank 'borrows' you are 'in credit'. Similarly with the government.


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