We don’t need to increase taxes to pay for better public services

It’s becoming quite fashionable at the moment to advocate raising existing taxes (or introducing new ones) specifically to ‘pay’ for increased investment in public services, particularly the NHS. A lot of people say they would be quite happy to pay a bit more tax if it meant we can invest what is needed to ensure a world class NHS. This comes on the back of years of talk about our ageing population creating new pressures on the NHS leading to a ‘funding crisis’. The thing is though, we can afford to invest in the NHS and we don’t need to increase taxes to pay for it.

Taxes don’t actually pay for government spending at all. In fact, government spending ensures we have the money to pay tax. The spending comes first. Richard Murphy explains this quite nicely in this blogpost, and I’ve tried to explain it myself here. Taxation has a number of purposes, but paying for public spending ain’t one of them (even though 99% of people think it does).

We will always have the money to pay for extra NHS spending, the question is whether we have the resources. An important part of any health service is obviously going to be the medical personnel, so if we need to increase capacity, the question is are there enough qualified people available to hire, or enough people willing to be trained to do the work? The cost of hiring an extra doctor or nurse, is not the salary cost, it’s the cost to the economy of that person not doing what they would be doing if they weren’t a doctor or nurse.

Similarly with medical facilities and equipment. There is always enough money to purchase those things, but the question is, is using them in the NHS more or less important than what they would otherwise be used for? I would argue that usually, the answer would be more.

I think by floating the idea of increasing taxes to pay for things like the NHS, it allows the fiction of taxes paying for spending to continue. If everything we might want to do to further public purpose is couched in terms of how it will be paid for, it gives the other side the advantage. It’s far better to talk in terms of real resources rather than money. As my fellow MMTer Neil Wilson is fond of saying, it’s time to get real!

8 thoughts on “We don’t need to increase taxes to pay for better public services

  1. You are so right. People don’t understand that by saying they will pay extra taxes to run the NHS that this could give ideas to our politicians – we can afford to look after the NHS already, but the Tories don’t want you to know that!

  2. Reblogged this on Jay's Journal and commented:
    If only people could see what is what – but we have such lying politicians that most people will never know what we can and can’t do…

  3. What’s even more depressing is that getting extra taxes *might not* result in a better NHS – because of a shortage of trained doctors and nurses.

    The first question any government has to ask is whether the resources exist so that it can purchase them. If they do not then any purchase by government will simply drive the prices up *whether or not there are taxes to ‘pay for them’*.

    I’m not at all keen on the current way we staff the NHS – which is to steal trained doctors and nurses from other countries. They sort of need them over there as well!

    This is why we have to get the debate onto real terms. It allows to ask very important questions: ‘what exactly are those nurses you’re threatening to sack from the NHS going to do that is so much more important than being NHS nurses?’ and ‘where are the doctors going to come from to staff up the NHS in the manner you’re proposing’.

    The whole money argument abstracts away reality and gives the illusion that you can just replicate and re-allocate resources at will like it was some plasma soup. You can’t. It’s more challenging than that.

  4. You’re spot on that the money itself doesn’t matter. £30bn (or whatever is supposed to be needed) can be created with the wave of a magic wand. It’s the labour and consumable resources that we need to consider.

    That said, I have issues with some of your statements:

    “government spending ensures we have the money to pay tax. The spending comes first.” <– Not really. These days it's the (central + private) banks that create money. There are many ways the central bank can inject base money in to the economy; lending to government, lending to private institutions, asset purchases etc. Private banks can grow the money supply through fractional reserve practices.

    "it’s the cost to the economy of that person not doing what they would be doing if they weren't a doctor or nurse." <– Not strictly true. It's not safe to assume that a doctor/nurse would not be a doctor/nurse without government spending. If we don't assume that then there's no macro economic cost from their choice of vocation.

    There's more than any cost of vocational change too. There's the micro costs to everyone involved:

    1) Cost to the labourer (doctor/nurse) – would the market valuation of their labour be different without the distortion of government spending.
    2) Cost to the consumer – What's are the differences in the cost of buying a doctor's services. The NHS clearly has a big impact here. Some people exchange far more than others for the same service, even accounting for 'the commons'.

    As NeilW alludes to in his comment, these two issues don't just impact people in our country either, distortions created in labour movement can impact a wide geography e.g. A nurse coming from abroad may get much better exchange value for their services, but their leaving may increase the cost of buying those services where they otherwise might have stayed.

    On the consumable side of things the discussion is similarly complicated.

    None of this changes your original point, I'm being pedantic. But I think you can remove those statements and still make exactly the same point (maybe better); the round £ figures aren't important, we need to be looking at who is exchanging more/less than they would have. But I think doing that makes people less comfortable, it's easier to talk about using abstract concepts like money that is to talk about using other people's labour.

  5. I recently read that Richard Murphy article and was pretty dumb struck. Now I’m looking for verification from a source such as the Treasury or Bank of England to confirm that taxes don’t pay for public services. Can you help?

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