The anti-austerity march on Saturday marked one of the great turning points in our political history. Yes, there can be no doubt about it: Charlotte Church has replaced Russell Brand as celebrity comrade number one.
Ms Church was well on her way to the top when, earlier this month, she proclaimed her willingness to pay more tax. The Guardian reported her words thusly:
“…I would certainly be happy if the rate was 60% or 70%. I wouldn’t move away, I wouldn’t have an offshore account.
“That would be totally fine, for better infrastructure and public services and more of a Scandinavian model, which I see as far more progressive than the way we are, I would be absolutely fine with that.”
That’s a kind offer, but unfortunately it reinforces the misconception that we could pay for a bigger welfare state just by taxing the rich more.
In a briefing for the Tax Foundation’s Tax Policy Blog, Kyle Pomerlau takes a look at how the Danes, Swedes and Norwegians actually fund their famously generous welfare systems:
“In order to raise a lot of income tax revenue, income tax rates in Scandinavian countries are rather high except for in Norway. Denmark’s top marginal effective income tax rate is 60.4 percent. Sweden’s is 56.4 percent. Norway’s top marginal tax rate is 39 percent.”
At first glance it appears that they are soaking the rich (apart from the Norwegians, who are soaked in oil). But on closer examination, it’s not just the rich who pay the price:
“Scandinavian income taxes raise a lot of revenue because they are actually rather flat. In other words, they tax most people at these high rates, not just high-income taxpayers. The top marginal tax rate of 60 percent in Denmark applies to all income over 1.2 times the average income in Denmark…
“Sweden and Norway have similarly flat income tax systems. Sweden’s top marginal tax rate of 56.9 percent applies to all income over 1.5 times the average income in Sweden…”
This is certainly not the basis on which the British Labour Party sold its 50 per cent top rate of income tax (not that it did Gordon Brown or Ed Miliband much good anyway).
Scandinavian-style VAT would also be a tough sell in this country:
“In addition to the high payroll and income taxes, all Scandinavian countries collect a significant amount of revenue from Value-added taxes…
“Denmark collects about 9.6 percent of GDP through the VAT, Norway collects about 7.8 percent, and Sweden collections about 9 percent of GDP. All three countries have VAT rates of 25 percent.”
Furthermore, compared to Britain, VAT in the Nordic countries is applied across a wider range of goods including food (at a reduced rate in some, but not all, cases).
For ordinary working people the benefits of the Scandinavian model don’t come cheap:
“It isn’t a mistake that taxes in Scandinavian countries are structured this way. In order to raise a significant amount of revenue, the tax base has to be broad. This means higher taxes on consumption through the VAT and higher taxes on middle-income taxpayers through high payroll taxes.”
It’s almost like you can’t get something for nothing.