Do not swarm banker pit

Now we know that is the UK budget for this year. But I, unlike many, was not struck by an increase in government borrowing, and increasing the maximum tax rate. Learn more about the budget documentation, I am even more convinced that the increase in taxes - the biggest mistake Alistair Darling. But I must admit that the other solutions and numbers printed in small print, have been much worse than I expected. All of these apocalyptic predictions of national bankruptcy seems to be inappropriate and almost absurd for several reasons.

First, the government may well take 10-12 percent of GDP, if companies and households to pay their loans at the same rate. Secondly, there is no reason to believe that increasing the national debt up to 80 or even 100 percent of GDP could cause some serious economic problems or, in itself, lead to higher interest rates or a decline in the pound. Eventually, in Japan the level of public debt was more than doubled, while interest rates were at record low levels, and Japanese yen was the strongest currency. In the third, and most importantly, by frightening forecasts of the Ministry of Finance on the financial condition of the country based solely on economic assumptions that over time, yet many times changed. Experience shows that a relatively rapid recovery, which is awaiting the Ministry of Finance, the fiscal performance will end up much better now than risk analysts suggest.

On the other hand, if the economy continues to be paralyzed, the budget deficit would nullify all the new measures. The only way to reduce the deficit in these conditions - this is a reduction of social security, public pensions and health spending, which largely affect the growth of public sector deficits. As illustrated by the Ministry of Finance of graphics, the main reason for growth in the UK public sector deficits - this is not the decline in income from taxation, which at the moment are within the limits laid down in previous periods of economic downturns, and unprecedented increases in public spending - a seven per cent relative to GDP.

Before I announce the imminent death of the British welfare is worth noting that no one can say with accuracy that we are waiting for - a favorable scenario of a quick recovery, or the horror of the longest in the history of economic downturn. That is why the best economic policy is now - a "wait-and-see" policy. World economy at the moment is dominated by exceptional forces. Worse yet, one of those forces - part of an unprecedented deflationary credit crisis - pulls in one direction, while the second - part of an unprecedented expansion of zero interest rates and unlimited public spending and borrowing - in another.

In such times, as now, economic computer models simply useless. And as evidenced by the tremendous scale revisions of economic calculations and projections, published in the last few weeks, this applies not only to the Ministry of Finance, but also to the IMF and the OECD. Taking into account all the above reasons, as well as many not mentioned, I believe that the forecasts of public borrowing by the budget should be a concern similar to that which causes the predictions of the financial situation regarding the United States, Japan, Germany and other major economies. Mr Darling could just voice these forecasts, to declare that he expects a moderately rapid economic recovery as a result of zero interest rates and the measures already introduced financial incentives and quietly sit on the seat. Then, its budget would be remembered as an exceptional case of political courage. Unfortunately, the Finance Minister did not want to show such persistence. Instead, he decided to make a significantly less likely a favorable scenario of rapid economic recovery, on which depends the survival of the British welfare state.

A notable measure in this respect has been a 50 per cent increase in the maximum tax rate. However, there were several equally significant changes (printed small font), which mainly relate to pensions. In terms of income, Ministry of Finance, such reforms are doomed to fail, or at best, simply useless. According to a report by the British Institute of Financial Studies, bihevioristskie changes such as changing the mode of operation, relocation abroad and re-pay in corporate profits or capital gains, would mean that the Ministry of Finance of income is much lower than the projected 2 billion pounds. And even if the pre-tax gesture, Mr. Darling will help to get one billion, these amounts will still be too small to somehow influence the targets of public borrowing, which ranges from 150 to 200 billion British pounds per year.

Yet, the main drawback of increasing taxes is related to the timing. Even if the tax increase is justified at the time a long-term perspective and in terms of social justice, the decision to undertake such reform during the economic downturn led to serious negative consequences for the economy and public finances. Hopes for a rapid improvement in the economic situation in Britain, predicted the Ministry of Finance, more than ever dependent on whether the City of London retain its role as the main center of world finance and business services, as well as the revival of the premium segment in the housing market.

According to Red Book budget, before the economic recession, the financial sector provides 25% of the total corporate tax of $ 47 billion, as well as "significant" portion of the proceeds of tax revenues and social insurance. Financial and housing sector provides half of all revenue from taxation in the period from 2002 to 2007. It is projected that this fiscal year, this part should be reduced to 1.75% of GDP or 25 billion British pounds. This is more than half of the total reduction in revenue from taxation, because of the expected economic downturn. The hopes of the Ministry of Finance that it will be able to implement their new plans on loans, depending on the likelihood of compensation for lost profits in the financial and housing sectors by 2013. Will I receive the compensation or not, depends largely on the improvement or, conversely, the further deterioration of the situation of borrowing in the public sector.

And yet, it seems that the budget tax measures designed specifically to finance and business sector has never returned to the former position of world domination. This is quite an adequate reaction to the excess and abuse of banks. But before you make a conclusion about the appropriateness of the highest among the countries of B7 marginal tax rate for the UK, as it will help transform the economy of the post in postfinansovuyu, we must consider the three reservations. First, the transformation of the economy from the financial in-kind - a long process. The decline of a currency and availability of skilled workers who previously may have worked in the financial sector, should in time encourage the development of export and manufacturing industries. But it will take years if not decades. Moreover, during this transformation of the UK will need a healthy business and financial sectors for employment growth and income from taxation. Secondly, if Britain is indeed reduce dependence on finance and high-paid bankers, other industries will be forced to assume a greater portion of future tax burden. Structure of the British tax system should be changed in such a way that is more pressure on manufacturing and middle-income workers. And third, it turns out that many other industries in which Britain has a natural comparative advantage - the pharmaceuticals, advanced electronics, technical design, architecture, entertainment, management consulting, law, advertising - are dependent on highly mobile employees and businesses. In some cases, these industries will suffer from high marginal tax rates are not lower than the banks.

Thus, far from the fact that other branches of the British economy will benefit as a result of the implementation of measures aimed at reducing the financial sector. It is more likely that the attempts to punish the bankers, and create postfinansovuyu economy may cause damage to other industries and harm the prospects for economic recovery and employment growth, at least during the transition to a new economic structure. This, in turn, means that the increase in state revenues and increase the solvency of the British welfare will depend largely on what happens to the international competitiveness of the financial sector. The logic of the budget is simple: those who want to be bankers punished in the end, just destroy the welfare of the country.

By Anatole Kaletsky