The Tories are scrabbling a bit to justify their marriage tax allowance plans, they will always be scrabbling to justify themselves on tax during this campaign unless they start making a more optimistic case for tax revenue growth based on policies that kick start the economy rather than just putting taxes up.  They are playing a zero-sum game devised by Brown and Balls, so they have to go through a charade of finding some way of funding the plan.

They have fallen back on green taxes on motorists, yet again.  How many times have they reached for green taxes to fund a spending commitment?

1.8 million voters signed a petition against more green taxes on car users.  Drivers already pay huge amounts of tax, more taxes would be extremely unpopular – when you go green, you lose votes. Think again.

UPDATE : Osborne just denied they were going to put up car taxes on the Today programme. Good. Time for a coffee.

Danny has responded to Guido’s taxing questions.  John Rentoul counsels Fink to “leave it son, he’s a worthless political nihilist“.  Steady on John.  The last person who called Guido a nihilist self-destructed shortly after…

Socratic blogging will continue once Guido has digested Fink’s thoughts.

You have to laugh at the audaciousness of the Brown change of strategy, from a “war on toffs” to fighting for the middle classes. He has also resurrected Blairism, even referring to his “friend” Tony, claiming “we have governed as New Labour and now we will campaign as New Labour.”  His speech to the Fabians yesterday was ideologically Mandelsonian.

At first the Tories might be inclined to dismiss it as desperate political zig-zag forced on Brown and Balls by a cabinet that wisely wants to fight for middle-income swing votes rather than just core-votes in a defeatist retreat into welfarist clientèlism. Except middle-income voters are bound to ask: “What will the Tories do for us?”

The Tories mock “One minute Gordon Brown’s a class warrior, the next he is a friend of middle Britain … The idea that a man who has spent his whole career at war with the middle classes can be their champion is laughable”.  They charge Gordon Brown with tax-bombing middle Britain, saying:

• He’s repeatedly hiked national insurance, hitting middle Britain again and again.
• He imposed a £100 billion pensions stealth tax.
• He hit first time buyers with a £1,500 rise in stamp duty.
• He imposed 111 tax rises.

Families on middle-incomes are entitled to ask where is the Tory commitment to roll-back those hikes?  Will they remove the pensions stealth tax or stamp duty?  How many of the 111 tax rises will they actually reverse?

The Tories give little sign that they plan to defend the middle-classes by reversing Gordon’s decade of attacks on them. The proposed marriage tax allowance is being watered down by Osborne, the Labour tax-bombs that CCHQ have warned us about in campaign posters since 1997 will not be defused.   In fact the Tories are signalling they too will bomb low and middle income earners with their own 20% VAT bomb. Only the LibDems are offering a tax cut for low and middle income families, promising to put the tax threshold up from £6,500 to £10,000.

Gordon says social mobility is his new priority, yet the Labour Party has blocked council house sales, the single greatest boon to social mobility since free education for all.   The LibDems and Tories should promise low-income, public sector tenants that they will bring back a programme of heavily discounted council house sales. Owning your own home is a great aspiration and a key driver of upward mobility.

The Tories are promising a lot of pain and little gain for the middle-classes.   The transferable marriage allowance is a vote winner, higher inheritance tax allowances are another and radical education reform looks appealing to all those of us who can’t afford to send our kids to Eton.  If the Tories are going to remove superfluous welfare benefits from those on middle to upper incomes they need to compensate us in return.  If Osborne credibly matched the LibDem proposal to raise income tax thresholds to £10,000 they would seal the deal with middle England…

Tim Montgomerie is asking for ideas to counter the deliberately drawn Brown/Balls 20% VAT political dividing line.  He makes five suggestions: admit VAT will rise to 20%, time limit it, ameliorate the regressiveness, promise a focus on spending cuts and launch a growth manifesto.

Guido has an alternative policy – rule a VAT hike completely out of the question.  It is regressive, it hits the poorest hardest, it punishes the many.  Labour can’t counter – they can hardly claim it is necessary if they themselves won’t do it.  Keep on the Balls/Brown side of that dividing line, then mercilessly whack them for raising taxes on jobs, taxes on small businesses and implementing anti-poor regressive taxes.

Promise to do what Obama is doing – cut payroll taxes, cut taxes on small business and get more money flowing in the economy to get it growing again.   Boosting the supply side to drive economic growth will increase government revenue from a faster growing economy and, in fact, cause overall revenue to increase.  The dynamic effects were proven during the Reagan years:

• Real economic growth averaged 3.2% during the Reagan years versus 2.8% under Ford-Carter years and 2.1% during the Bush-Clinton years.
• Real median family income grew when supply-side policies were implemented under Reagan
• Interest rates, inflation, and unemployment fell faster under Reagan than they did immediately before or after his presidency.

Either the Tories believe in the merits of a low tax, high growth economy or they don’t.  You don’t grow the economy by taxing it more.

By coincidence here in Ireland it was also budget day, the Finance Minister Brian Lenihan delivered a 7% cut in public expenditure to match the 7.5% fall in GDP in 2009.  To equal that Alastair Darling would need to have announced £40 billion in public expenditure cuts today.

Here are some of the reasons Guido thinks Ireland will bounce back faster than the UK:

• Corporate and capital tax breaks for start-ups have been extended
• Corporation tax rate of 12.5% is ‘here to stay’
• “Green tax cuts” for zero emission vehicles
• VAT has been reduced by ½%
• Public services efficiencies sort
• Welfare benefits reduced to 2006 levels, social welfare bill cut by equivalent to 1.5% of public expenditure
• Dole allowance to be reduced to €150 a week
• Social welfare to be cut 4.1%
• Politicians’ pay will be reduced in line with public sector grades
• Public sector pay cut of 5% on first €30,000 salary, 7.5% on the folllowing €40,000 of salary and 10% on next €55,000
• Taoiseach (PM) to have pay cut by further 20% on top of previous 10%
• Permanent pay reduction of 12% for those on over €200,000 in the public sector
• Savings of over €1bn on public sector pay bill

Darling has gone the other way, introducing penal tax rates at the top, and hiking NI payroll taxes on people on only £20,000.  He put up VAT which as any left-winger will tell you, is regressive and hits the poorest hardest.  What struck Guido was that this is an odd class war political budget, their own core voters are being hit hardest.   Low paid, public sector workers on £20,000 get a pay freeze, a tax hike and whacked by VAT increases – a triple whammy.

Ireland welcomes UK corporations with a tax rate nearly half the UK rate and best of all, Lenihan also announced that alcohol and cigarette taxes are to be reduced…

As Alastair Darling prepares to deliver a kick in the bonuses to successful bankers, pause for thought.  As the bankers eye up properties in Zug and sunnier islands the tax burden falls heavier on those left behind.  The harder you squeeze high-earners, the more will leave these shores – the tax on the many is increased by the few who leave.  That is what happens when looters try to fleece the productive too much.

Bob Diamond, head of investment bank Barclays Capital,  warned yesterday that businesses and individuals could flee the City – “both financial capital and human capital are extremely mobile”.  Tory appeasement of City bashing will continue, led by the son of a son of a son of a stockbroker they stand on the sidelines for fear of being painted as friends of the City.  Guy Hands is just one high-profile tax exile, many more are fleeing the 50% tax rate.  We already seeing human capital flight…

UPDATE : How will the plan to tax bonuses cover the hedge fund community? It won’t is Guido’s guess, they are unregulated in the most and the capital is nominally held offshore. The hedgies in St James are the ones who take home 8-figure sums. Bankers and brokers will have to re-define bonuses as ‘profit shares’ and their limited partnerships as “mutual cooperatives”…

In the rush to talk tough on the deficit Alistair Darling is expected to announce an end to Labour’s limited-time-only 2.5% cut in VAT this year.  That means VAT will go back up to 17.5% or, if Darling’s feeling even more stern, to 20%. Since VAT is one of the most regressive taxes this gives the Tories a golden opportunity to shun a tax rise that hits the poorest, hardest.  The chart from the Taxpayers’ Alliance [pdf] shows that the poorest quintile pay over ¼ of their in indirect taxes, the richest only some 10%.

The Tories are refusing to rule out the same rise in VAT to 20%. That makes the Lib Dems the only party to promise substantial tax cuts with a plan to raise the income tax threshold to £10,000. If you are going to hit the low paid hardest with indirect taxes surely it makes sense to compensate them by raising the income tax threshold accordingly? Lower taxes for the low paid has got to be a vote winner.  In any event Guido has a suspicion that Darling’s PBR won’t schedule any rise until after the election…

The always smiling (and first openly gay) leader of the German Free Democrats, Guido Westerwelle, is pencilled in to become the country’s new foreign minister, after the FDP won its best result in 60 years allowing the center-right Christian Democrats to kick  the left-wing SDP out of their governing coalition.  The FDP stood for election on a platform committed to promoting free markets and small government. Tax cuts are at the heart of his party’s election programme – he wants the top rate of tax to be cut from

The FDP is promising to cut taxes by up to €35 billion, citing 400 spending cut proposals for the budget, by January 1, next year he wants the basic tax-free threshold to be raised to €8,004 per person, which factoring in other allowances, would mean the average four-person family would only start paying taxes once its earnings exceed €40,000.  He wants to financially incentivise taxpayers to have children, whereas in Britain we incentivise welfare claimants to have children.  He wants to cut the top rate from 42% to 35%, flattening and simplifying taxes with a starting rate of 10%.  George Osborne should note that  he is committed to abolishing all federal inheritance taxes.  The liberal FDP is allied with the LibDems in the European Parliament.  Hopefully Cable and Clegg are taking note of how a liberal third party offering tax cuts succeeds.

McDonalds Restaurants are shifting their HQ to Switzerland.  It joins Kraft, Procter & Gamble, Google, Electronic Arts and Yahoo in switching from the UK to Switzerland as the corporate tax burden rises. Britain was at the top of the international competitiveness tables only a decade ago and has been sliding down ever since.  Fewer corporations headquartering in the UK means more taxes for the rest…

Guido is an unashamed tax cutter who prefers to cut the taxes of the poorest by raising thresholds and cutting the basic rate.  Nevertheless the Inheritance Tax cut promise was a welcome tactical success in that it contributed to Brown bottling the election in 2007, the strategic mistake that doomed his premiership.  The News of the World has been given a steer that it will be shelved (presumably by Andy Coulson, who according to Guido’s sources at the Screws, “acts like he is still the boss”).  Also shelved will be the commitments to cut Stamp Duty and to introduce a modest but symbolically important £20-a-week tax break for married couples.

It will be spun that the dire fiscal state left to them by Brown will prevent the Tories bringing in any tax reduction.  The expected onslaught from Labour on all these tax breaks will be more easily deflected if they take a “only when we can afford it” stance.  The trouble is, unless they slash the budget deficit they won’t be able to balance the budget in first term.  So when will the Tories be able to afford to reduce taxes?  What a depressing poverty of ambition, no bright new dawn, just a fiscal fog.

This timid “give no ammunition to Brown and Balls” approach was first publicly advocated by Policy Exchange’s Neil O’Brien last month, he argued “Dropping the inheritance tax cut will earn the Tories the right to tell the public the terrible truth about the debt disaster.” The public already knows the terrible truth, there is only one way out of debt, you cut spending, there is only one way to grow the economy sustainably, supply side reforms and cutting taxes.  Nuancing the politics might spin well on the comment pages of the Guardian, it won’t bring jobs and economic growth.  Which is more important?