They say you get the politicians you deserve.
If that’s true, then the British people must collectively have been very naughty boys and girls in some past life.
The Conservatives have ditched any clarity of purpose in favour of churning out daily crowd-pleasing election bribes.
Meanwhile, Labour is doing its usual thing of conjuring up a mystical magic money tree – in this case, the mansion tax – which will somehow fund bottomless payouts for the NHS, students, the low-paid, and any other client voters who need a handout.
And in the middle of both, we’ve got a bunch of people who literally want the end of Britain, being cast as kingmakers.
Oh dear…
Britain: no country for high earners
The coalition has done some good things for investors in this parliament. Pensions freedom day has potential pitfalls, but it has put more responsibility and power in the hands of the individual, which is to be cheered in our era of big government. (Check out more on these changes here).
Beside that radical move, it’s easy to forget that there was also the hefty rise in Individual Savings Accounts allowances, as well as the removal of the division between cash and shares.
So it’s really disappointing to see them unable to resist ruining it by introducing unnecessary complications aimed entirely at vote-grabbing. And their priorities – as with all the other parties – sum up just about everything that is structurally wrong with the UK economy.
On the one hand, the Conservatives want to allow people to pass on their £1m family home to their inheritors free of inheritance tax. On the other, they plan to pay for that by restricting tax relief on those who earn more than £150,000.
Meanwhile, Labour and the SNP both want to bump up the 45% tax rate to 50%. And all of the parties have various fiddly schemes that promise to get more people on ‘the housing ladder’ without actually lowering house prices.
Annual earnings are, of course, not an entirely fair reflection of how hard someone works. Plenty of low-wage jobs are extremely hard work, while the average chief executive’s pay – certainly when it comes to listed companies – reflects the biased munificence of remuneration committees, rather than any contribution of staggering brilliance.
But I think it’s also fair to say that of all the things we tax – capital gains tax on investments, VAT on consumption, stamp duty on transactions – taxes on income (including National Insurance) are the ones that can most feasibly be described as taxing hard work, rather than wealth.
Yet, while plenty of people noisily complain about the ‘mansion tax’ – usually highly-paid broadsheet columnists – and see property wealth as some sort of right, nobody gets worked up about marginal tax rates on high earners rising above 50%.
Don’t get me wrong – the mansion tax is a stupid tax. There are far better ways to tax property.
But think about this for a moment: we use our tax system and political platforms to demonstrate societal disapproval of people who earn above a certain salary each year. And at the same time, we celebrate and protect unearned windfalls generated by taking leveraged bets on property prices.
Our taxation and benefits system seems designed to penalise those who would rather get their head down and work hard, than expend time and energy on learning to work the tax credits system (at the lower end) or milk the remaining loopholes (at the higher end).
No party is offering to simplify or change that. And we wonder why we’ve got a chronic productivity problem in this country.
It’s pathetic.
Whoever wins this election, it’s going to affect your pocket
Anyway. We’ve got to live with what we’re given, whether we deserve it or not.
It’s impossible to predict who’s going to win the next election with any sort of confidence. Our election pundit, Adrian Sykes, has been doing a sterling job of keeping an eye on the odds and giving us his own take on why he thinks the Conservatives will ultimately form the next government.
But the only thing that’s clear to me right now is that it’s anyone’s game. And that whoever gets into power, it’s going to have a significant effect on your finances. For a start, as far as pensions go, if you’re a highest-rate income taxpayer (45%), then kiss goodbye to your pensions tax relief. As Merryn has already pointed out, it’s bound to go regardless of who gets voted in, so if you want to take advantage while you can, then top up your pension now (read her blog here for more on the topic).
Meanwhile, Merryn and I are working on a special project to make sure that MoneyWeek magazine subscribers get everything they need to know, as soon as the results are out.
We’ll be filling you in on all the details in the run-up to the election – and if you don’t already subscribe to the magazine, I reckon that now is a very good time to do so. Get your first four issues free here.
• This article is taken from our free daily investment email, Money Morning. Sign up to Money Morning here.