Britain’s Chancellor of the Exchequer, George Osborne, delivered a new budget. The plan calls to eliminate the structural deficit by 2018 and then resume deficit spending. It is an instance of policy pandering to election prospects.
The shift in Britain is to move taxes away from direct taxes on income and toward indirect taxes such as the VAT. Now in Britain individuals start paying taxes after the 10,000 pound starting mark as opposed to the previous 6475 pound previous starting point and the VAT has gone up from 15% to 20% the last time a change like this happened was in 1979 when the Thatcher administration’s fiscal policy raised the VAT from a two rate system of 8% or 12.5% to a single VAT of 15%.
The effect of lower direct taxes and higher indirect taxes is to discourage spending and encourage saving. This is because people see a higher price for their goods and compensate for the increase in prices by saving a more, and the abatement to taxes will only be on several thousand pounds, which won’t mean too much in the way of a rebate. 5% of 3500 pounds is only 175 pounds more; the abatement will likely make the average person worse off.
Source: The rollercoaster ride