A question for the economists amongst us

[Ozzie Osmond]

How does government and tax actually work?

• If you earn £1,000 and pay 40% tax, you get £600 and the gov’t gets £400

• You then pay your builder £600, of which he gets £500 and the gov’t gets £100 in VAT

• The builder's “profit” on the work was £300 on which he pays tax at 40% so the gov’t gets another £120

• The builder spends his remaining £300 on various things (fuel, beer and fags) which include, say, £80 of VAT and duty

So, from your initial £1,000 the gov’t has alreday taken £700 and so it goes on until, inevitably, the government owns everything. Unless, of course, the government reycles the money into the system as,

a) Prudent investment in capital projects, or
b) Spent paying benefits.

And if the government prints more money it doesn’t actually matter, because the money keeps moving through the system in the same way irrespective of the "value" of the currency. [Ignore inflationary effects]

So how does it all work?

[Balmoral Green]

What sort of builders pay VAT & income tax on jobs like that? It would all just get pocketed.

[louiebaby]

What is your job? Do you work for the government in some way?



This is why the Government would rather your wife went to work and employed a nanny / child minder, than just looked after the kids herself.

Anyway...

[Balmoral Green]

I work in the private sector, Mrs BG works in the public sector.

If I earn £30,000, the government is up £6,000.
If Mrs BG earns £30,000, the government is down £24,000.
If I buy a £500 telly, the government is up £100.
If Mrs BG buys a £500 telly, the government is down £400.

[98elise]

Ozzie Osmond said:

How does government and tax actually work?

• If you earn £1,000 and pay 40% tax, you get £600 and the gov’t gets £400

• You then pay your builder £600, of which he gets £500 and the gov’t gets £100 in VAT

• The builder's “profit” on the work was £300 on which he pays tax at 40% so the gov’t gets another £120

• The builder spends his remaining £300 on various things (fuel, beer and fags) which include, say, £80 of VAT and duty

So, from your initial £1,000 the gov’t has alreday taken £700 and so it goes on until, inevitably, the government owns everything. Unless, of course, the government reycles the money into the system as,

a) Prudent investment in capital projects, or
b) Spent paying benefits.

And if the government prints more money it doesn’t actually matter, because the money keeps moving through the system in the same way irrespective of the "value" of the currency. [Ignore inflationary effects]

So how does it all work?

As you have guessed, the government spends all the cash it recieves.......but it doesn't stop there, it actually spends 30% more cash than it receives....around half a billion per day.....day in day out....year after year.

This is why we are fked......not because of a few billion lent to banks.

Oh....and to " stimulate" the economy they just printed and spent more money......which in effect robs everyone of a bit of money, by making the pound worth less.

I am not an economist......but I have more financial sense than most MP's......but so does my 13 year old son

[Eric Mc]

I think you are igmoring the "added value" that each business generates which is what grows the economy. And then there is importing and exporting to take into account.

In reality, exporting is the key and our main problem for far too long is that we haven't been exporting enough.

[sunbeam alpine]

I think it's called the Multiplier effect.

[Balmoral Green]

http://www.bbc.co.uk/programmes/b017vd5m

[motco]

Of course in Greece and Italy they do things differently...

[Ayahuasca]

Ozzie Osmond said:

How does government and tax actually work?

The accumulated value of all of the transactions that take place in an economy in one year is called the Gross Domestic Product.

As people buy and sell and make and do more, the GDP rises although of course the overall amount of money in circulation doesn't necessarily change.

The govt will seek to tax the GDP in a multitude of different ways.

The overall tax collected as a percentage of GDP is listed here for several countries.

http://en.wikipedia.org/wiki/List_of_countries_by_...

Edited by Ayahuasca on Wednesday 23 November 19:08

[chris watton]

motco said:

Of course in Greece and Italy they do things differently...

Even Italian lawyers want paying half cash, half cheque, the former being pocketed tax free - even accountants, who are supposed to collect the tax on the government's behalf! I know this as fact from personal experience!