Tax-fiddling while the economy burns

Over in the UK, the latest wheeze to try and get the highly leveraged consumer back into the shops (and into even more trouble) has been announced by the government. This is in large part based on a one year reduction in sales tax (VAT) from 17.5% to 15%.

Let's do some quick math on this "major" stimulus package. According to the UK National Statistics, the average UK household spent about £21,000 per year (I've removed food from the equation, as it is VAT exempt). So that tax rebate is equivalent to a whopping £525 per year!

Laurel Brown and Oliver Darling strike again - this means that every household can treat itself to a nice cafe latte every workday for a whole year. Forgive my cynicism, but it will take a lot more to encourage Joe Public to forget the existing bills and go buy another flat screen TV.

I confess to being mystified as to how so much taxpayer money can be funnelled into dead-end temporary gestures like this. It makes TARP look like a carefully crafted and balanced strategy. If the government is intent on spending, why not do so on a useful investment programme, such as a high speed train network?

Instead, the UK government seems intent on wallowing in economic ineptitude by flooding the bond market with record levels of gilt issuance. The lesson from the subprime disaster isnot to extend lending to borrowers who could not afford it. Granted, the UK is not (yet) there, but that AAA rating is becoming a bit of a joke. Although in this day and age, perhaps ratings themselves are going the way of Bear Stearns?