It is possible to argue with the use of the word “improve.” Of course, we all have different tastes and thus different ideas of what is in fact better. Ask any man with a teenage daughter about boys, parties, and modes of dress for proof of that contention.
Thus it is that a report in this newspaper, that the tax to GDP ratio will “improve” by rising in coming years, is something open to question. What, exactly, does improve mean here? The use actually employed was “rise” and given the current levels in Bangladesh, even I would agree that the two go together here -- rise and improve.
To explain the background here, GDP (gross domestic product) is the total value created in the domestic economy over the year. If 11.9 per cent of that goes in tax, then that is the portion of everything that the government has at its disposal to do the things that government must do.
I am a “minarchist,” someone who believes that small government is a good idea, an effective way of running the world, even the moral manner of doing so. Even so, there are some things that must be done, that can only be done by government, and therefore there are things that government must do. The difference between a minarchist and everyone else -- and at my level of purity of belief in the idea that is just about everyone else -- is that others say that government should do more than the merely necessary and go on to do those things which are nice or politic, or which some people would like the government to do.
So, I think that the tax burden should be the absolute minimum to finance the government in doing those things which only government can do and, as above, which must still be done. There is no absolute measure of what this is, but a reasonable rule of thumb is about 15 per cent of GDP. Within that, the government can provide a basic welfare system, defend the country, make sure there is the necessary bureaucracy, finance a health care -- we will come to this in a moment -- system, education, and so on.
What it cannot do within such a measly share of that everything is run a significant redistribution system. But then, I do not think a government should be doing that. Many others, OK, let us be realistic here, near everyone else, thinks the government should do more than that. That is fine, differences of view make the world more interesting.
What should be noted though is that near no government spends more than about 20 per cent of GDP on actually doing things. Near all of anything larger than that is redistribution. Taxation of the richer to pay for the poorer perhaps, or as it most likely turns out, taxation of everyone to redistribute to those who decide upon the redistribution. There is, after all, a reason why bureaucrats’ salaries and pensions are rather better than those of the rest of us.
It is also true that things which must happen -- that health care service -- can be funded in different ways. My native Britain taxes everyone, then the government actually produces the hospitals, doctors, and health care and pays for that from tax revenues. That is the NHS. The American system has people getting health care insurance through their workplace. The Singapore system is a quarter the cost of the American, half that of the NHS.
There, a tax-free savings account is assigned to everyone and this pays for their standard health care. Very large expenses are paid out of the general tax revenue instead. There are advantages and problems with each of the systems, but all do produce health care of a pretty high standard (the NHS is the worst of the three for the actual standard of health care) -- very different implications for how much of GDP the government needs to pay for it.
It is entirely fair -- true possibly -- to say that Bangladesh’s government does not have enough of the economy to be able to pay for those minimally necessary things. So, in that sense, we can agree, improve and more mean the same thing here. However, we do also need to understand that this is not always true. The French government takes -- according to whose estimate you want to use -- between 45 per cent and 51 per cent of the economy. That is definitely too much. Enough and no more is the barrier between “more” meaning improve and it switching to meaning make worse.
The original article here also says: “The ratio is also a marker of how well the government controls a country’s economic resources.” Well, no, not really. It’s a marker of how many of, what portion of, the resources are controlled by the government. But that is not the same as how well they control them.
One reason I am that minarchist as mentioned above is that I insist that government is a bad way of doing things, except for those few things which both must be done and can only be done by the government -- which is why we should restrict it to just those things.
My real argument here is that the initial assumption was that more government is better. This is not so. As with anything else in life, we desire sufficient government and no more. After all, why should the government be any different from a biriyani? Essential at times, useful at others, but definitely something that it is possible to have too much of both in the short and long terms.
Tim Worstall is a senior fellow at the Adam Smith Institute in London