views

We will all have to work much longer

Allister Heath
WHY is anybody upset at being told that we are all going to have to work until we are 66 or even older before the state pension kicks in? I would have thought this was obvious – and in fact it has long been the plan to make everybody work a year longer. The coalition is merely mulling moving this forward to 2016. Fewer workers are having to pay for more pensioners; this is unsustainable. We must work longer and save more throughout our lifetimes for properly funded retirements. The current state system is a bust ponzi scheme – the sooner it is scrapped the better.

NO DOUBLE DIP
True double dip recessions are so rare as to be an almost extinct species – that is the conclusion reached by Jonathan Wilmot, a strategist at Credit Suisse. He has studied US industrial production since 1884 and found only three recessions out of 38 that could just about be counted as double dips: one in the late 1880s, 1913/1914 and 1980-1982, though the latter is usually (and in my view rightly) defined as two back to back recessions or just one long downturn.

None of this is surprising: the forces of recovery are stronger and more self-reinforcing than often supposed, even when unemployment and spare capacity are high. As Wilmot says, recoveries follow a well rehearsed rhythm, with the first burst of growth typically very fast and the first peaks occurring 6-15 months from the trough. Their aftermath are often mistaken for double-dips but are just temporary slowdowns.

I have not become some sort of deluded optimist. The Office for Budget Responsibility’s forecast of 1.2 per cent growth this year and 2.3 next year seems about right. It will be a pretty poor performance. There are also clearly massive challenges ahead; and a proper sovereign crisis in the Eurozone would certainly trigger a fresh recession. My point is just that a double-dip is not likely and certainly will not be caused by the Budget. Those who are shouting from the roof tops that the end is nigh are often little more than ideologically-motivated activists who have convinced themselves that we can go on spending more than we can afford forever.

TAX REVOLT DOWN UNDER
The spectacular demise of Kevin Rudd, Australia’s demagogic Prime Minister, is a lesson to all politicians. In Britain, banker-bashing has worked well among the general public, who hate the City (even though it employs hundreds of thousands of Londoners, pays billions in tax and is Britain’s single most important industry). But in Australia – where mining is even more important to the local economy than finance and business services are to the UK’s – Rudd’s war against the extraction industry turned out to be a massive miscalculation. The tax he wanted to slap on the mining industry was so punitive that it made a host of new projects unviable, threatening jobs. The industry, rather than rolling over, fought back; much of the electorate turned against Rudd, culminating in this week’s coup and his replacement by Julia Gillard, a Welsh-born politician. She may not halt the tax altogether but the final outcome won’t be as nasty as that planned by Rudd. There is a long history of tax revolts in countries around the world: politicians who take taxpayers – individuals as well as companies – for granted and overstep the mark are playing a dangerous game.

allister.heath@cityam.com