New British Prime Minister Liz Truss, successor to Boris Johnson, received her nomination thanks to a Tory-sounding project: a return to radical liberalism in the style of Margaret Thatcher. When he rose to 10 Downing Street, the new head of the British government appointed an ultra-liberal Kwasi Kwarteng as Minister of Economy, and the new government’s initial decisions were multiple cuts in taxes. Specifically, as a flamboyant gift to the wealthy, the top income tax bracket was lowered from 45% to 40%, while the corporate tax rate that Johnson had increased from 19% to 25% was again lowered. It can finance certain tax benefits of a social nature against inflation.
Kwarteng’s draft budget, presented on September 23, comes just two days after the Bank of England decided to raise the interest rate from 1.75% to 2.25%, the highest level since the global crisis, and this in a row. He implied that he would continue. will increase in the future. The contradiction between the government’s expansionary policy and the Central Bank’s restrictive policy was obvious and clear.
In the wake of this nonsense, rating agency Standard & Poor’s kept the UK’s AA credit rating on negative watch, a clear harbinger of an imminent downgrade due to “concerns that the new government’s proposed unfunded tax cut package will increase the country’s debt burden”. It’s more than certain as growth forecasts are so pessimistic and interest rate hikes are expected to inevitably slow down activity.
Liz Cruss was unable to save the head of Kwarteng, who attended the IMF’s annual summit in Washington and was shamefully forced to return to be fired. But its failure eroded all credibility in this attempt, which represented the end of Thatcherite dogma that the universal recipe for all crises was lower taxes for corporations and citizens to maneuver.
Such a fallacy stems from the discredited “Laffer curve” “invented” by a mediocre economist who started the thesis, assuming that income is 0% zero and 100% zero. A curve between both extremes presenting a maximum at a given point. Faced with this crude statement, it would be revealing to reconstruct John Kenneth Galbraith’s harshly critical judgment: “From the indisputable situation that if taxes were not imposed, no public revenue would be collected, and if taxes absorbed all resources, there would be no revenue. , Professor Laffer, these two indisputable truths. (…) In a later exercise of imagination, Professor Laffer argues that fiscal pressure in the United States is, as we have said, a continued to argue that it exceeded the optimum point achieved by raising the hand.(…) It is clear that no one in their right mind takes the curve and Professor Laffer’s conclusions seriously. The tax cut of the 1980s was by no means small. The moment was somehow the product of Laffer’s invention.”
IMF chief Kristalina Gueorgieva has made it clear that it is pointless for governments to try to balance rising prices by cutting “ineffective and unaffordable” taxes. In addition, Gueorgieva openly praised European policies, saying that “when monetary policy brakes its foot, fiscal policy should not step on the accelerator because if it does, we will have a very dangerous journey.” Spanish- only aid the lowest income earners at the expense of higher taxes to the highest.