Green taxes to fill black hole
The story of this year’s Budget will, I think, be new and higher green taxes to fill a potential black hole in the public finances.
Or to put it another way, the Treasury badly needs to raise money.
So the imposition of assorted green taxes – on gas-guzzling cars and flying – will not be matched by cuts in other taxes.
There, I think, is where any political row will ignite, because the Tories claim they would wholly offset any green levies with reductions in other taxes, so as not to increase the overall burden of taxation through environmental initiatives.
And although there may be many who will applaud the taxing of environmental bads, there will be plenty of others who will see the new taxes as disingenuous.
But what are the strains on the government’s finances that the green taxes are supposed to ease?
Well they stem from last summer’s pricking of the bubble in debt markets, which has taken its toll on property and share prices and will prompt a consequential fall in projected tax revenues from transactions in shares and property.
In the pre-Budget report of 9 October, the Treasury had expected stamp-duty proceeds to rise 5% to £15.8bn in 2008/9 and the contribution from capital gains tax to increase by 13% to £5.4bn.
Both of those forecasts look absurdly optimistic, even allowing for the incremental revenues that should flow from the controversial reform of CGT.
The FTSE All Share index has, for example, fallen 14% from the level that was built into the Treasury’s audited assumptions of last autumn.
That decrease automatically reduces the Treasury’s revenue projections.
Also, the level of housing sales is running 14% below where it was a year ago.
And although there are regional variations (the Scottish market is still pretty buoyant, for example), house prices are beginning to fall.
Lower share prices, lower house prices, and fewer transactions: collectively they would reduce the take from stamp and CGT by many billions of pounds.
And it gets worse, because the outlook for corporation tax isn’t brilliant either.
There is likely to be a fall of between 5% and 10% in profits reported by British companies in the coming year, according to City analysts.
That should mean they’ll pay less tax.
However there is a credit-crunch skew to this corporate slowdown: the prospects are gloomiest for our big banks, which, as it happens, pay a massively disproportionate amount of all corporation tax.
So on the revenue-raising side of things, the prospects could be at their least benign since Labour took office in 1997.
And that’s on the assumption there’s simply a modest economic slowdown this year, and that we avoid a sharp rise in unemployment or a recession.
In other words, and to state the bloomin’ obvious, if the government is to avoid humiliating cuts in its public-spending plans, the Treasury has to find additional revenues. Taxes will have to be increased.
Which is why Gordon Brown and Alistair Darling are presumably counting their lucky stars for global warming.