MEMBERSHIP OF THE EUROPEAN UNION:
The mother of all fiscal contraction
British
membership of the EU and consequent fiscal contributions are a major area of
fiscal contraction at a time when political and economic opinion worldwide is
that there should be a fiscal stimulus.
The G20 meeting has agreed “to use fiscal measures to stimulate domestic demand to rapid effect.”
The IMF is meanwhile talking about a two per cent GDP fiscal stimulus (£30 billion for the UK) and word is coming out from government that a £15 billion stimulus is being considered. Respected commentators, like Roger Bootle, are stating the stimulus should be substantial.
Pretty well all UK politicians are looking to a fiscal stimulus and are arguing over whether it should be funded by borrowings or reducing government spending and whether it should contain tax cuts.
Yet no politician is addressing the fiscal contraction inherent in Britain’s EU membership and its effect on overall demand. Lack of demand is at the heart of the recession yet EU membership is a constant fiscal contraction for the UK.
According to the Bruges Group’s pamphlet (published 22nd November) by Gerard Batten, MEP, and entitled “How much does the European Union cost Britain”, immense purchasing power is removed from the British economy by British payments to the EU.
Excluding deadweight burdens, such as regulation costs, but simply looking at financial flows, these, in the shape of net budget and other financial payments to the EU, higher food prices, fishing costs, easily add to £15-20 billion p.a. and, thanks to Mr. Blair’s incompetent negotiations, will rise substantially in the future.
Over a five year period, which may cover the course of the recession, we are therefore looking at a forced £75-100 billion fiscal contraction imposed on the UK economy by EU membership, just when all politicians and economists are calling for fiscal stimulus.
Net payments to the EU are different to other forms of government waste and different to fiscal contractions within the UK since they are money extracted from UK tax payers and spent in other EU countries.
Net payments to the EU are different in economic effects to other government waste, about which there is much correct indignation, since they remove purchasing power from the UK economy. Other government waste, such as employing more government bureaucrats, is of course a waste of resources but the money paid to the extra bureaucrats remains in the UK – it does not increase fiscal contraction – and by circulating the new bureaucrats’ income, other people keep their jobs. If government waste is paid for by higher taxes, a simplified explanation is that there is no change to overall demand. Part of the taxpayers’ income is appropriated and is circulated through the economy by the new recipient and not by the original taxpayer.
Net payments to the EU are also different from fiscal contractions internal to the UK economy, for example a budget surplus or a reduction in demand by consumers,. Here, money not spent is saved and used to reduce debt either by the consumer or by government.
Net payments to the EU therefore, unlike government waste spent in the UK, are a fiscal contraction and, unlike fiscal contractions internal to the UK economy, have no benefit in reducing debt.
So, over the next five years, payments to the EU will mean a contraction of up to £100 billion just when international authorities and governments and respected commentators are calling for a fiscal stimulus.
While unemployment is exploding, incomes and investments are falling and the private sector is contracting, there is no call by politicians to transfer some of the pain to government or to the EU.
A five-year plan should be announced to freeze government and EU spending now and roll them back after the economy has stabilised. A clear and precise plan will encourage bond holders to fund the fiscal stimulus.
Nothing will be of more benefit than the slaughter of the EU sacred cow which is, unlike other government waste, actively encouraging fiscal contraction in the UK.
FUTURUS/24 November 2008
The G20 meeting has agreed “to use fiscal measures to stimulate domestic demand to rapid effect.”
The IMF is meanwhile talking about a two per cent GDP fiscal stimulus (£30 billion for the UK) and word is coming out from government that a £15 billion stimulus is being considered. Respected commentators, like Roger Bootle, are stating the stimulus should be substantial.
Pretty well all UK politicians are looking to a fiscal stimulus and are arguing over whether it should be funded by borrowings or reducing government spending and whether it should contain tax cuts.
Yet no politician is addressing the fiscal contraction inherent in Britain’s EU membership and its effect on overall demand. Lack of demand is at the heart of the recession yet EU membership is a constant fiscal contraction for the UK.
According to the Bruges Group’s pamphlet (published 22nd November) by Gerard Batten, MEP, and entitled “How much does the European Union cost Britain”, immense purchasing power is removed from the British economy by British payments to the EU.
Excluding deadweight burdens, such as regulation costs, but simply looking at financial flows, these, in the shape of net budget and other financial payments to the EU, higher food prices, fishing costs, easily add to £15-20 billion p.a. and, thanks to Mr. Blair’s incompetent negotiations, will rise substantially in the future.
Over a five year period, which may cover the course of the recession, we are therefore looking at a forced £75-100 billion fiscal contraction imposed on the UK economy by EU membership, just when all politicians and economists are calling for fiscal stimulus.
Net payments to the EU are different to other forms of government waste and different to fiscal contractions within the UK since they are money extracted from UK tax payers and spent in other EU countries.
Net payments to the EU are different in economic effects to other government waste, about which there is much correct indignation, since they remove purchasing power from the UK economy. Other government waste, such as employing more government bureaucrats, is of course a waste of resources but the money paid to the extra bureaucrats remains in the UK – it does not increase fiscal contraction – and by circulating the new bureaucrats’ income, other people keep their jobs. If government waste is paid for by higher taxes, a simplified explanation is that there is no change to overall demand. Part of the taxpayers’ income is appropriated and is circulated through the economy by the new recipient and not by the original taxpayer.
Net payments to the EU are also different from fiscal contractions internal to the UK economy, for example a budget surplus or a reduction in demand by consumers,. Here, money not spent is saved and used to reduce debt either by the consumer or by government.
Net payments to the EU therefore, unlike government waste spent in the UK, are a fiscal contraction and, unlike fiscal contractions internal to the UK economy, have no benefit in reducing debt.
So, over the next five years, payments to the EU will mean a contraction of up to £100 billion just when international authorities and governments and respected commentators are calling for a fiscal stimulus.
While unemployment is exploding, incomes and investments are falling and the private sector is contracting, there is no call by politicians to transfer some of the pain to government or to the EU.
A five-year plan should be announced to freeze government and EU spending now and roll them back after the economy has stabilised. A clear and precise plan will encourage bond holders to fund the fiscal stimulus.
Nothing will be of more benefit than the slaughter of the EU sacred cow which is, unlike other government waste, actively encouraging fiscal contraction in the UK.
FUTURUS/24 November 2008