Budget Balancing Methods – Cost or Gain?

Measures to reduce expenditure and increase revenue raising by governments will often be seen in current economic terms as “costs” to the nation. But if seen in the light of the ideas put forward in the post about “Costs – What Really Costs Us and What Doesn’t?” they are economic gains.

Putting a tax on motor fuel will reduce the depletion rate of non-renewable fossil fuel resources without affecting necessary transport. Motor fuel consumption everywhere is in excess of what is actually required for the transportation it provides – in some places grossly so. It is not necessary to have one to three tonnes of powerful machinery to carry one person. In concentrated business, residential or industrial areas that could be efficiently served by mass transit it is not necessary to cram each person into the area in their own car. The point is that people could travel for work or pleasure as much as they do now using only a fraction of the fuel currently used. So any tax that reduced fuel consumption by raising its price would slow the rate of depletion of the resource base and thus provide a form of economic growth without reducing utility.

Yet current economics would say that (i) there would be a cost to consumers because the tax would increase their fuel bill, as though their rate of fuel consumption were an irreducible necessity – a nonsensical notion; (ii) there would be a cost to the nation because lower fuel consumption would exert downward pressure on the gross national “product”. There would be so much lost “production” in the oil industry, economists would say, as though something were irrevocably lost from the ever-growing pile of national wealth that economic activity is supposed to create.

Increasing income taxes would reduce expenditure on goods and services, but this would be a gain because of the lower rate of resource depletion that would result. Paying higher income taxes would also cause people to press for higher wages, but this pressure could and should be resisted.

Income taxes could be left alone and consumption taxes introduced or increased instead. These taxes could be designed not just to raise revenue, but to reduce consumption of those resources whose consumption most needs curbing because:
(i) the consumption rate exceeds the renewal rate by a wide margin;
(ii) the consumption of the resource is a disproportionately large part of the total resource throughput in the economy;
(iii) the consumption of the resource is most in excess of the consumption actually required to provide the service obtained;
(iv) the use of the resource entails the formation, with consequent leakage and disposal problems, of pollutants, substances toxic to life.

The consumption taxes could also be heavier on things most unnecessary or dangerous to health such as cigarettes, alcohol, rich meals in expensive restaurants, or violent and pornographic games and DVDs.

The other side, reduced government money outlays, is just as important. I reject the current fad for “privatisation”. Services provided by the government are there because there is a demand for them and they are a kind that the private sector would do less well or not at all. However, gross inefficiency, measured in terms of what is actually achieved by the staff and time used, is a general disease of government bureaucracies. Far more could be achieved with the staff and time available, or the same could be achieved more quickly with fewer employees. But this is the one problem in the public sector which politicians are least able or willing to tackle. This subject will be discussed in more detail in the ensuing digression.

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