The Telegraph, March 5th, Professor Patrick Minford
On present political forecasts, Jeremy Hunt will present a Budget on March 15 that will raise corporation tax from 19 per cent to 25 per cent. If so, it will damage the economy’s growth prospects. Decisions by businesses on innovation and investment and by multinationals on where to locate their foreign direct investment are motivated by expected profit after tax. Hence productivity growth is affected by government, rather than falling like manna from heaven, which is how it is being treated by the Treasury and the OBR. For these two, profits can be treated like a milch cow, without any negative effects.
It is not just economic theory that shows this is wrong. The data does too. So it is tragic that the Government seems determined to stick with its growth-destructive fiscal policy, on the grounds that it is necessary to head off inflation and to remain solvent. The economy will run flat if not into overt recession in the short term and into weak growth in the longer term.
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