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Thursday, April 23, 2009

The Budget 2009

According to Colin Twiggs who I have a lot of time for.

U.K. Chancellor of the Exchequer Alistair Darling, delivering the annual budget statement, forecast a rise in net borrowing to £175 billion in the current financial year and an increase to £606 billion by 2013. He also announced a series of tax increases on higher income earners to help rein in the deficit. That is a mistake. Whether you tax the rich or the poor, the result is the same. Raising taxes reduces consumption. And falling consumption causes further job losses — reinforcing the downward spiral.

Australian Prime Minister Kevin Rudd appears to be following a similar path, attempting to spend his way out of a recession. Having inherited a clean balance sheet from its predecessor, his government is fast running up debt in order to fund new stimulus programs. Despite stimulus spending amongst the highest (as a percentage of GDP) in the G20, according to the IMF the economy will shrink 1.4 percent in 2009 — faster than the global average. Government revenues are already 63 per cent below estimates from last May's budget and expected to worsen further. The trap is when tax revenues shrink and the budget deficit starts to balloon, it becomes difficult to resist increasing taxes. The same mistake that Alistair Darling is making — and the Obama administration is likely to follow. Raising tax rates needs to be avoided at all costs.

Another alternative would be to increase the tax grab on what's left of your retirement savings. Australians' massive superannuation fund investments are an easy target. That would save jobs, but may prove highly unpopular with voters.

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Our years of living beyond our means, of buying everything on credit and on money printed out of thin air, are over. Sure, our government will carry on with its nonsensical policy of curing indebtedness with more indebtedness, inflation with more inflation, but the game is up. It's not going to work.

~ Congressman Ron Paul in the foreword to Meltdown by Thomas E. Woods Jr.

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So batten down the hatches..............................

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