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Wondering where your government’s priorities lie? Then consider the interim report out from the Office of Tax Simplification on how they might go about changing the hundreds of tax reliefs on offer at the moment.
Some are listed as “potentially retain”, others as “potentially simplify” and more as “potentially abolish”. Look under the first category, and the two that jump out are a) income tax relief for players in the UEFA Champions League Final 2011 and b) capital gains tax relief on disposal of private residence.
The first of these is beyond me – I can’t understand why footballers should be exempt from taxes that other sports people have to pay. But the second is equally baffling, to me at least.
I’ve written here before about how I think primary homes should be taxed. If we take as a base view that it would be a good thing for house prices to remain relatively stable in real terms (to make sure that speculative money flowed into more productive investment) it surely makes sense to tax gains on houses rather than, as we do now, the transaction costs of buying and selling them.
The latter hurts mobility by making it impossible for most people to move house unless house prices are rising fast (which isn’t good) while the former would dampen house prices without hurting anyone. You’d only pay tax on any gains you made above inflation, which in a rational market, would mean you wouldn’t pay any.
However, as much as most of us would like to see flat house prices, the authorities would not. The OTS notes that were the capital gains tax relief on houses to be removed, prices would flatten. But in a hint as to how the authorities feel about that, they don’t use the word flatten. They say “stagnate” instead.
Today’s economic policy is almost entirely aimed at stopping house prices from falling – if it wasn’t, having the RPI at nearly 5% would have prompted a rate rise by now. So the fact that there isn’t going to be a change to the way in which houses are taxed isn’t a surprise. However that doesn’t mean it isn’t a mistake.
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1. Stephen B
(14 December 2010, 05:03PM)
Complain about this commentThis is an excellent article. Surely this is politics being put before economics. The baby boomers have most of their wealth tied up in housing, and as they remain the major political voting block, it would be suicidal for any political party to not try and support house prices, especially as those boomers look to draw on that wealth as they retire.
However, keep an eye on Labour, who seem to be positioning themselves as the party for the young and disenfranchised. That could be a major political voting block in itself, and I wouldn’t be surprised to soon hear Ed Miliband attacking house prices as too high. -
2. Ben at the Rat and Mouse
(14 December 2010, 05:34PM)
Complain about this commentI know they’re supposedly independent, but one could possibly add the reluctance of the MPC to raise interest rates when their remit’s to control inflation as further evidence of economics v political expediency where the property market’s concerned.
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3. bubblemeister
(14 December 2010, 06:01PM)
Complain about this commentAs a follower of the Austrian school of economics I always laugh when people talk about an “independent central bank”. Men like Mervyn King owe their power and position to the politicians who appoint them and they know that their days will be numbered if they act contrary to government policy. Show me an independent central banker I will show you a pig that can fly.
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4. Daffyd K Jones
(14 December 2010, 06:26PM)
Complain about this commentThe tax exemption for players competing in the 2011 Champion’s League final was pretty much a necessity if London wanted to host it. UEFA would never have awarded the finals venue to Wembley if the players were going to be taxed at 50% of any prize money (€9 million for the winning team, €5m for the losers). It might not seem fair to give a tax break to superrich footballers, but the income from being the host city will outweigh the potential tax lost.
With regards to these two tax breaks being listed as “government priorities”, you are being a bit disingenuous. The two cases were listed purely as theoretical examples of how they work through the cost-benefit analysis for proposed intervention. They’ve not stated that keeping footballer’s tax exemptions or CGT relief is a priority, or even that it is important. They were just randomly picked to provide an example of their methodology, as the interim report you linked to makes clear.
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