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!