Most economists reject wealth taxes as a way to fill fiscal gaps, according to analysis citing Gerard Lyons in The Times. Lyons describes the question of where government cash will come from as the "defining fiscal question" of the present moment.
Chancellor John Healey is preparing his first budget for delivery at the end of October and has pointedly refused to rule out tax rises. He faces the challenge of rebuilding a fiscal buffer eroded by the Iran war and weak growth while funding new spending commitments.
Lyons notes that modern tax systems rely on "large, reliable and predictable" sources of revenue, with taxes on income, profits and spending generating around four-fifths of tax revenues across the OECD. Wealth taxes depart from this principle by seeking to draw income from a stock of assets rather than flows.
The Wealth Tax Commission, often cited by supporters, found that even at a tax rate of just 1%, behavioural responses could shrink the tax base by between 7% and 17%. Lyons says many people are asset rich but cash poor, and a tax detached from recurring cash flow eventually forces borrowing or the sale of assets simply to pay the tax.
Christopher Snowdon, writing in The Critic, says most economists dismiss the idea because wealth taxes are costly to administer, do not raise much money and drive talent out of the country. In 1990, 12 OECD countries had a wealth tax; today there are only three.