Welcome back to Gary’s Economics.

Today we're going to talk about the tax burden.

So this is an economic story

which comes up a lot

in the news, which is the idea

that at the moment

the tax burden is at an all time historic high.

Now, I'm pretty sure this is

a basically a factual truth.

And it's something that

when it first started to get mentioned, it

kind of confused me a little bit.

And I think it will have

confused a lot of people.

The reason it confused me is because

we have two things happening simultaneously,

which kind of appear to be like

paradoxically impossible, which is, number one,

you have the tax burden at an all time high.

And that's true.

You guys will see that, especially things

like council tax rising really significantly.

And at the same time, we have this situation

where basically all government services

seem to be collapsing simultaneously.

Everything seems to be constantly

in crisis, NHS is in crisis.

Education is in crisis,

especially things like local

services are in crisis.

So how can it be possible that on the one hand

taxes are the highest they've ever been

and on the other hand,

government services are like

the worst they've ever been, or

they've been in decades.

Taxes pay for government

services, so if taxes are super high,

how can government services be

super terrible? And

the reason which is often

given for this

and I think it's really

increased the popularity of the idea,

is basically that government is corrupt.

Government is corrupt,

so we’re paying loads of taxes.

Government p*sses the taxes up the wall.

You know, let's get rid of taxes,

let's get rid of government services.

And I think,

you know, there probably some truth to this.

I think there's probably always been

some degree of government corruption.

Government corruption

may well be higher now

than it has been historically.

If you look at some of

the things that happened during COVID,

some of the sort of Conservative Party

scandals, it does look like

corruption is increasing.

But I'm not an expert on

the levels of government corruption.

I don't work in government.

But I've been sitting and

thinking about this for a while.

I don't think it's enough to say that

corruption has suddenly increased massively.

And the more I thought about this,

the more I realised

there is another really obvious factor,

which basically never gets discussed,

which I want to explain to you today,

which explains really well

basically why the tax burden

has increased

and probably

will continue to increase

despite the fact that

government services are collapsing.

I think the best way to explain this

is to use an example.

Imagine you own completely

your own house.

No mortgage, no rent, you own your own house.

Some of you will be in that position.

Most of you won't be in that position.

Now, imagine you are in that position.

How expensive will your life be?

Well, for most people,

their housing cost

is their single biggest expense in their life.

Be that through paying rent or paying mortgage,

if you own your own house

outright,

you don't need to pay rent,

you don't need to pay mortgage.

And basically your costs in life are

very low compared to somebody else.

Now, let's imagine

situation changes and suddenly

you lose that house,

you completely lose that house, and now you

still need to leave,

but you don't own your house.

Your costs

will massively increase

because you have to pay

rent for a whole house, or you have to pay

a mortgage on a whole house.

So if you own your house,

your expenditures in life are much lower

than if you don't own your own house.

Now, keep this example

in mind and we're going to start

thinking about the government.

So I talk a lot on this

channel about increases in inequality of wealth

and what I say

very often is

that there are two groups in society

who are losing their wealth.

That is ordinary working families

like you, unless you’re very rich

and the government.

And both of these groups

have lost their wealth significantly.

Now, of course,

if you're an ordinary family,

especially if you're a young person from

from an ordinary family,

it would be very visible to you

that ordinary families are losing their wealth

because you'll be probably

struggling to buy a home.

Or you may be in a situation

where you think

you can never buy a home compared

to older generations, who could buy property.

But the loss of government

wealth is often

a lot less visible because we don't,

you know, we are not the government,

we don't think about what the government owns.

So I went to a talk by famous French

inequality economist Thomas

Piketty, of whom I'm quite a big fan,

a few years ago when I was at Oxford

and he showed us a graph

which I still remember today,

and we're going to show you that graph now,

which basically shows you

government wealth holding.

So what you can see in this graph is that

all of the countries in this graph,

the wealth holding of governments

has decreased significantly over time.

So that one line at the top is China.

You won't be surprised, the Chinese government

is essentially a communist country.

The government owns

a lot of the wealth in the country.

The other countries on the graph

are all Western countries.

So you've got the USA on there, UK in there,

Germany, Japan, I think France is on there.

And the story of the

rest of these countries

is basically all the same.

They’ve all the...

the wealth holding of the government

has decreasing significantly over time.

And I want you to notice that in the case of both

the UK and the US, that number went below

0% in the early 2010s.

So the aftermath of the 2008 financial crisis.

So what that means is the total wealth of

the UK government, the US government and

basically every other

Western government is in a pretty similar

situation, is now below zero.

So that means these guys have debts

bigger than their assets.

Note that that graph ends in 2014.

The situation during COVID

got significantly worse,

so now these graphs will drop down significantly

and what you will see is significant

negative wealth holding

for the British government,

for the American government,

basically every Western government.

Now, I want you to remember

the story I told you about you and your house,

because Western governments,

including the British and American governments,

are basically in this situation.

Back sort of 50 years ago,

Western governments had a lot of wealth.

They essentially own their own house.

Now, of course, when we talk about governments,

it's not just housing.

We're talking about governments

owning things like hospitals, like schools.

But of course, in the case of the UK,

the UK government did own also

a significant amount

of housing back in the seventies.

Governments have lost this wealth now.

So governments are in the same situation

basically as you would be if you lost your home.

So governments,

you know, they provide, in the West

a lot of services, education, health care.

They used to provide housing

for the poorest people in the countries

and they were able to do this

because they owned the wealth,

they owned hospitals, they owned schools,

they owned housing.

And what we learned

from that Piketty graph that I showed you

is that basically Western governments do not own

any wealth anymore.

And the fact that the number has dropped

below zero,

means that not only do

they not own wealth, they're actually

in a significant amount of debt.

So what does that mean?

Governments

still need to provide you with health care,

but they don't own the hospital.

Governments still need to provide you

with education,

but they don't own the school.

Governments still need to provide

the poorest people in society with housing,

but they don't own the homes.

Now, things like health care and education

are never very cheap to provide anyway.

You need

to pay for doctors, you need to pay for teachers.

But they're a

lot cheaper to provide

when you own the buildings.

If you don't own the building,

then you need to pay rent on the building.

If you have a massive

amount of debt,

then you need to pay interest on that debt.

So now governments are in situations,

just as you are in,

previously they didn't need to pay that rent,

they didn't need to pay that debt interest,

and now they've got to pay it.

What that means is

if they want to provide you

with the same level of service

that they used

to provide you with 30, 40, 50 years ago,

they simply need more tax money

because they no longer

own the assets

and they need to pay rent or interest

on those assets.

So I think this is a really important thing

for you to understand,

and it really completely explains the situation

that we are in.

The reason that governments

are having to charge much higher levels of tax

to provide much worse levels of service

is quite simply

because governments are much, much poorer now.

Governments are really poor.

And when governments are rich,

they have what you could call in

modern lingo passive income,

you know,

they own the property,

they don't need to pay for the property

and they can use those passive incomes

to provide you with government services.

Governments are no longer rich.

Governments are now very poor.

They need to rent everything they use,

they need

to pay interest.

And that means

they've taken that money from you.

And despite

taking more money from you, they can't

provide services.

That is what happens when you go

from being rich to being poor.

Now, this wouldn't necessarily be a problem

if the assets which the government

has lost, the wealth

which the government has lost,

were held by ordinary families.

So, you know, one thing I want you to realise is

this loss in government

wealth, you know,

these assets,

these hospitals, these schools,

they have not disappeared.

They're all still here.

These assets must have gone to somebody.

And if those assets had

gone to ordinary people, it wouldn't necessarily

be a problem.

I think the best example to illustrate

that is the council housing, right?

So when council housing was sold off in sort of

the ‘80s and the ’90s,

the people who benefited from that initially

were the people who lived in the council houses.

Council houses

were given to poorer people, so it benefited

the poor people.

Now the government didn't have the homes,

but the people who needed

the housing owned their own homes.

So it wasn't initially

a problem

if it was just a transfer of wealth

from the government to the people,

then it wouldn't necessarily matter

because the people would be richer now.

They could pay more taxes

or the government wouldn't

need to provide so many services

because you directly would own things

like your own homes.

The problem that we have is that actually

in the last,

you know, 30, 40 year

period

in which you have seen governments

have massively lost their wealth.

We have also seen a significant

loss of wealth in ordinary families.

And I think this is

something I talk about a lot on the channel,

but it is most visible in two things.

Number one, the massively decreased

home ownership rates for young people.

You know, here in this country

and in the US, ordinary families,

their wealth tends to be in housing.

So if younger people

are not getting housing, it's a sign

that families are losing their wealth.

And number two,

the massively increased debt levels

for ordinary families, especially families

who manage to get a mortgage.

So I think this creates a kind of

interesting and confusing paradox, right.

Which is

how can it be possible

that government has lost its wealth

and ordinary families who lost their wealth?

Now the government

gave, for example, the council housing

to ordinary families.

Now you have a situation where

both ordinary families and governments

are struggling to get housing.

And I think this reveals

the core of the problem, which is something

I talk about a lot on this channel,

which is that wealth, which transferred

initially from the government

to ordinary families,

has over time

ended up being held by the very rich.

And you know, this happens to...

If you want to understand the mechanism of this,

you should watch the video

we put a couple of weeks

ago called

How You Lose Your House, which is ordinary people

got this wealth from the government.

They use that wealth to support their lives,

to support their retirements,

to pay for end of life care.

And they ended up selling that wealth

to the rich.

The end situation is

we end up in a place where both the government

and ordinary families have very little wealth.

Now, this is.

it’s kind of a disastrous situation, right.

Because we've already learned

the government is

struggling to provide basic services

now because government is poor.

What does it mean if on top of that, ordinary

families are poor?

Well, that means

ordinary families can't afford housing,

which means they really need housing.

But the government who used to have housing

doesn't have housing either,

so they can't provide you with housing.

It also means that

people are living lives of greater poverty.

They will live in worse conditions,

they will even worse housing.

They will eat worse diets,

they will have more stress.

They will probably face more crime,

which means they'll need more health care.

But the government can't provide more health care

because the government has no assets.

So I think this

really realises, makes real the problem

that I talk about on this channel.

So people who’ve

watched for a long time will know

I'm very, very worried

about growing inequality of wealth.

And I think

people have become

used to the idea

that inequality is a social problem.

They’re used to, kind of, people on the left

arguing that we need less

inequality because it's unfair.

It's not good for society.

My worry is deeper than that.

My worry is that when you have

very high levels of inequality,

what it means is you can't get

basic essential needs like

housing and health care and education.

You know,

in our economy we have a distribution

of resources.

If both governments and ordinary families are

losing their wealth,

that wealth is going to the super rich.

And we've seen a ton of statistics

which show us that

the super rich have enormously

increased their wealth in the last three years,

we had the biggest ever one year rise of wealth

by superrich in the first year of COVID.

If we give all of the resources to the rich,

if we bankrupt both ordinary families

and the government, the consequence is

your family can't get a house,

your family can't get

health care, your family can't get

education, and the government

won't be able to provide them

because they are also poor.

So I think

once you recognise that that is the problem,

that governments have lost their wealth

and therefore they can't provide services,

the only option that they appear to feel

they have is to tax the middle class

who are also losing their assets.

You realise that

the fundamental question here

and the only real way to solve this problem

is to get the assets back, basically.

And that doesn't necessarily mean

increasing the size of government.

It could mean transferring assets back

from the very rich

to the middle class, to the working classes.

And the fundamental question is

how do you get those assets back?

And I think if you want to address that question,

how do you get the assets back?

It is very helpful to consider yourself

from the position of a wealthy person.

So consider you all like,

a rich person, but not a super rich person.

So say you've got a net worth of £5 million,

which is of course a lot, but the very rich

have much, much more than that.

If you have a net worth of £5 million,

lets assume you’re able

to make 5% a year on that £5 million,

you might make a bit less.

5% of £5 million is £250,000 a year.

Lets assume you make a bit less. £200,000 a year.

This is passive

income, you

get this on top of your work,

you don't do any work to get it.

You're making £200,000 a year.

How much money would you spend?

Imagine you suddenly had a

passive income of £200,000 a year.

You know,

the ordinary person

probably spends £20,000 to £30,000 a year.

I suspect you probably raised your spending

to £60,000 a year, maybe £70,000 a year,

which would massively improve your lifestyle.

And you still have another £130,000 a year

passive income,

which you could use to buy more assets.

Now, in a strong economy that is growing rapidly,

you might be able to use

this money to create more assets.

But we don't live in a strong economy

that's growing rapidly, we haven't for some time.

You're probably going to use this money to buy

existing assets,

probably from the middle class,

probably from the government.

But the big problem you have here,

you will never sell your assets, will you?

If you have £5 million in assets,

you've got £160,000 a year passive income,

which you use to grow your assets.

You will never, ever sell your assets.

So if we exist in an economy

which is not really growing,

the rich will never sell their assets.

Not only that, they will continue

to buy more assets.

You can see that it is already

and will become increasingly impossible

for the government

or for you as an ordinary family

to ever get any of your assets back.

So, you know, this is the situation we are in.

Government is taxing you a lot

to pay for sh*tty services

because government's bankrupt

and you can't afford to pay those taxes

because ordinary families are bankrupt

and all of that wealth

is gone to the rich who are going to use it

to buy the rest of the wealth,

making you even more bankrupt.

And this essentially is the reason why

what I always campaign

for is significantly higher taxes

on the very rich, because I don't see

any other way of you getting your assets back.

And I want to talk a little bit

about how this could work, how we could make

this society better.

I think the only way

you get wealth flowing in the other direction,

you tax very rich people much, much more.

You use that money

to significantly reduce taxes on working people.

Your taxes are less.

So you start to be able

to accumulate a bit of money.

Rich people's taxes are much, much more

so they need to sell their assets

in order to pay for the taxes.

You've got more money.

The rich need to sell assets.

You ordinary working families can start to buy

those assets back from the rich.

So the reason I support higher

taxation on the rich is because, number one,

it's the only way to reduce your taxes.

And number two, it's the only way for you,

ordinary families, to get your assets back.

The point I want to make here is,

you know, when I talk about taxes,

we're in an interesting

place here in society where,

you know, understandably, the middle class

is getting quite heavily taxed, largely

because the rich pay very low taxes.

And if you haven't watched,

I would encourage you to watch our video

Who Pays Tax?

Because the very rich often pay

very, very low rates of tax.

And that has led to a situation

where ordinary people

and particularly slightly higher earning

people, middle class people

are very opposed to tax.

And yet tax

is essentially

the only way that they will ever get richer.

So ordinary people have been

put in a situation where for very

understandable reasons,

they oppose the only possible

policy measure which could

save them from poverty.

And I think, you know, this is supported

by ideas like tax is wasted,

like tax is corrupt,

like tax goes to a corrupt government.

Taxing the rich can be used to lower your taxes

and that is the only way

that you can get your assets

back from wealthy people.

If we don't tax them,

they will continue to never sell any assets

have enormous amounts of passive income

which they and their kids will use to outcompete

you and your kids for the assets

which you currently own and in the end

your family will own nothing.

So listen, tax for me is...

it's not about increasing the size of government.

It's not about more

levels of government spending.

Tax for me is about defending

ordinary families

from the growing power and wealth of the rich.

It's about getting wealth

back into the hands of ordinary people,

and it's about making

life better, or at the very least

stopping life from getting worse.

So to conclude,

I would like to make the clear point

that the only way

to reduce the tax burden

for you, for ordinary families like you,

is to increase taxes.

But to increase taxes on the rich.

We're going to campaign for it.

We're here every week. Tell your friends.

Tell your mum. Thank you.