Friday, December 09, 2005


We have a surplus posibly approaching $10 billion dollars accordign to DPF - how could one possibly support such a large amount of money going to the government?

Well - let us compare this to a bar tab.

You (the public) are paying for your drinks. At the moment you are a few hundred dollars behind on your tab and the bar is hoping to get that down. they have let you run the tab a bit because you were a little short of cash and your a good customer but now you clearly have a bit to spare and they are asking you to pay a little more than the cost of your next beer next time you come in.

You then jump up and down complaining that you are now paying more than the cost of a beer.

(Or if you like a home loan where the bank is asking for you to pay more than the interest.)

Now there is a separate issue in regard to the government spending money irresponsibly OR if they repay the debt and then keep taking money off you or if we deem them to have to many assets and if we declare that someone else has been using your tab but besides those issues it doesn’t matter if they take a little more money and put it against your tab.

the things I would suggest that control whether you should run a surplus are

1) cyclical factors/fairness it is fairer to tax high during better economic times - because it helps a little to make the return on effort more equal

2) inflation - related to the above - it is smarter to save money as a government when inflation is high and interest rates are going up because it will help to cool the economy.

3) value for money - When there are few opportunities to spend money effectively (this is related to chance but also if hte economy is running hot everythign will be more expensive so you will have to tax more to do the same amount of work (imagine having a big public hosuing project going on now with such high land prices!).

4) international effects - what are your neighbours doing with their tax rates and how can you best leach of their economy in order to benefit your own. Sometimes it will just be a matter of having a very slightly lower tax rate in critical areas - other times it may be that you just dont want it to be enough higher that it is worth it for your companies to go overseas.

5) Political feasibility - it is easy to run a defecit and hard to run a surplus - you might have to run a surplus just because you dont trust anyone else to do it - or because there is an easy way to push throug a new tax or cut old spending. Also taxes on undesirable things like smoking or speeding may also be "free money" if they gain revenue but prevent anti-social behaviour.


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