The UK promised $3 of cuts for every $1 in tax hikes, but 75% have been tax hikes. Officials never passed pension reforms or labor reforms they promised. The cuts have been fake and the hikes real.
History backs this up. ‘Twenty one peer reviewed studies show spending cuts solve debt problems, but balanced approach with tax hikes fails. One study in particular showed that if tax hikes amount to more than 15% of the fiscal consolidation, the policy fails to solve the debt problem. In fact, the best outcome was Finland, where they slashed government spending, while cutting taxes. The debt problem was solved.
The policy of tax hikes and no spending cuts is basically a vote in the direction of communism and the welfare state in lieu of investments that produce a positive return. The government does not invest, it reallocates, and consumes, destroying quite a bit of capital in the process.
Granted, it’s not best for those on the government dole, which is in essence living off the work of their fellow citizens, but those benefits are unsustainable anyway.
From an investment standpoint, one needs to monitor the proposals of government officials to see whether tax hikes are being proposed as the solution, such as in France, and whether reforms, even if passed, like in the UK, are actually enacted.
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