14 May 2017

Can we replace the French benefits system by a Universal Basic Income financed by a Negative Income Tax?

Those who are following my blog will have seen my suggestion that we could have a redistributive tax system whereby 61% of the population would actually get a net payment from the tax system, paid entirely by the other 39% of the population. This means that everyone earning less than about €2000 a month actually gets extra money from the system - effectively a negative income tax.

It's remarkably simple, because you just have to fix two numbers - the Basic Income level that every citizen should get, and the flat rate tax needed to cover the cost.

Thus, to provide a Basic Income of €600 a month would need a tax rate at just under 30%.
To provide a Basic Income of €800 a month, needs a tax rate at just under 40%.  A
Basic Income of €1000 a month, needs a tax rate at just under 50%and so forth. Around 10% tax provides an additional €200 a month of basic income for all citizens.

So, what rate should we choose?

Well, how about using the system to replace the "Minium Vieillesse" which currently provides a minimum revenue for old-age pensioners. As of the 1st April 2017, these payments are fixed at
- €803 for a single person
- €1247 for a couple

These payments are currently heavilly means tested -  you can only get it if you are over 65, and every euro of pension you receive from alternative sources is removed from the amount of the allocation. If you have a pension of €803 per month, the state will add nothing to your pension.  If your pension is €403 a month, the system will make up the difference.

Let's compare that with  what would happen if we scrapped the Minimum Vieillesse and just introduced an Basic Income at €800 a month, coupled with a 40% tax on additional income. In that case, someone with an additional pension of €800 would effectively get the €800 basic income, plus 60% of the additional pension, taxed at 40% - i.e. €480, a total of €1280. That's way better than under the current system.

Now consider what would happen to someone with pension of €1200. They would get €800 + 60% of €1200 = €1520 a month.

You have a pension of €2000? You would get €800 + €1200 (60% of €2000) = €2000, meaning that you would effectively keep it all. Only those with pensions of over €2000 a  month would pay anything, and their effective tax rates would increase only slowly as shown in this graph which shows the rates for a Basic Income at €800 and tax rate at 39.5% in Blue. Even someone getting a very generous pension of €10000 would still only be paying tax on that at 31.5%.

The graph also shows the effective tax for those getting more than €2000 with the Basic Income set at €600 and the tax rate at 29.65% (in yellow) or at €1000 and the tax rate at 49.4%. It's interesting to note that even at €10,000 a month, people are paying way below the standard rate. In fact, at €10,000 a month you would be paying tax at 80% of the headline rate. To get anywhere near the headline rate you would have have to be earning far more - at €40,000 you still only have an effective tax rate of 95% of the headline rate. 

How much would be saved by scrapping the Minimum Vieillesse and replacing it in this way by a negative tax?  Actually, I don't know. The latest figures I have seen were €1.6 billion in 2006, and €2.83 billion in 2008. It's probably substantially higher today.

So, why not scrap it, save billions a year, and also prevent people being stuck in a poverty trap that prevents them moving off the €803 baseline unless their additional pension rights are much higher.

The French system also provides another set of Benefits for people of working age. It's called the Revenue de Solidarité Active (RSA). The current value for a single person is €513.17 a month. Clearly, such a person would be immediately better off with the proposed switch to a Basic Income financed by a negative income tax, even at the lower value of €600 a month.

But, importantly, they would immediately see an improvement in their situation if they were earning additional income from a part time job. With the current RSA mechanism, any additional income is  directly substracted from the €513.17. Thus, if you earned €313.17 in a given month, your RSA is docked by the same amount. You also lose some of your RSA if you are also receiving housing support - €64.22 to be precise. You simply cannot get more than the standard amount unless you are earning over the basic amount. What incentive is there to go and work a few hours a week under such conditions? It would be better to stay at home at claim the RSA unless you can find a  full time job that pays enough to get you off the minimum level.

Emmanuel Macron wants to encourage people to take on work. The RSA system is the antithesis of what is required.

Compare that will my proposal where you could decide to give everyone an Unconditional  Basic Income of €600 coupled with a flat rate tax of under 30%. Someone who worked part time and earned say €500 would keep slightly more than 70% of the income, moving them to €950 a month. In otherwords, it always pays to take on work, even if it is only a few hours a week.

Under the current system, which takes into account all the other sources of revenue, succesfully getting the RSA requires citizens to negotiate a whole string of complex rules and fill in large amounts of paperwork. Many disadvantaged people will miss out simply because the system is too complicated for them. 

In addition to being good for incentivising people to earn additional money, switching to the proposed system would save a huge amount of money for the state.  How much would it save? According to one site, the cost is currently around €10 billion a year. As I have been arguing, a much more generous program of benefits could be provided for essentially no net cost by getting the 39% who earn the most to pay those who constitute the 61% at the bottom.

So, dumping RSA and Minimum Vieillesse and replacing both by my proposed simple system would save billions. And the administration costs would be a fraction of the cumbersome means tested system that we currently have.

Is Emmanuel Macron listening? Maybe it's time to think about some really radical reforms?

8 May 2017

Message to Emmanuel Macron : Prove that you are not just a puppet of the Banking system

Yesterdary, in the second round of the French Presidential elections, Emmanuel Macron succeeded in getting 20,753,798 people to vote for him. That's 43.63% of those eligable to vote, 58.47% of those who voted, and 66.06% of those who chose to vote for one of the two candidates in the second round.

There's no denying that this is a truly remarkable performance for someone who is only 39,  has never held an elected office, has no official support from any of the traditional French Political Parties, and had to launch his own "En Marche" movement (with the same initials as his name) little more than one year ago, on the 6th of April 2017.

It's truly spectacular, and I'm not surprised that many people are feeling more optimistic about the future with Emmanuel Macron as president. It could be the new blood that we desperately need.

But many people have criticised him for having spent a period of over over 3 and half years from September 2008 to May 2012 as a Banker with Rothschild and Co. And it's true that this is an invitation to those who like conspiracy theories.  Could it be that he could be secretly working for the banking system? After all, the ability of Banks like Goldman Sachs to infiltrate the highest echelons of the Political system is impressive, as pointed out in a recent article in Yahoo Finance. Just as a quick reminder (thanks to Wikipedia) here is a partial list of how just one bank has managed to get its alumni into a huge number of key positions:

But I'm prepared to give Emmanuel Macron a chance to prove that he is truly independent.

Here's how he could do it.

First, he should join the chorus of distinguished economists who are calling on Mario Draghi to put an end to the scheme where he uses his power as President of the European Central Bank to create money to flood the financial markets with liquidity. The €80 billion that Draghi has been pumping into the financial system every month for the last year has been of virtually no utility to Eurozone Citizens. Instead, he should be using that money creation intelligently - for example to finance renewable energy projects, or providing direct payments to Eurozone citizens. The arguments can be found on the QE4citizens website.

Second, he should accept that the current system in which commercial banks have a virtual monopoly on money creation in the real economy, and where essentially all the money we use is created as interest bearing debt, is insane. It would be far more intelligent to allow governments to create at least some of the money we use debt free. This is what I have been proposing with the idea of the N-Euro - a parallel electronic currency that can be used to pay public sector salaries, pensions and benefits, and which has parity with the conventional Euro because it can be used to pay taxes - one N-Euro being exactly the same value for paying taxes as one standard Euro. The huge difference is that the N-Euros are not created as debt and therefore do not require interest payments. Progressively replacing Euros with N-Euros would allow us to avoid paying the absurb interest payments on public sector debt that French taxpayers have been paying to the commercial banks and pension funds. As I reported recently, those payments that have totalled over €1 trillion since 1995. French taxpayers can reasonably say - we want our €1 trillion back.

Third, he should push for the introduction of a tax on financial transactions. This is something that has been blocked by the banking lobby for years, but is totally unjustifiable. Everytime I make a financial transaction using my credit card outside the Euro area, I get charged a financial transaction tax of around 2.75% - for multiplying the value in sterling or dollars by the current exchange rate. At the same time, the banking sector and its allies makes over 5 trillion dollars worth of foreign exchange every day, and for free. Let's have a level playing field. I'm happy to pay exactly the same transaction fees as the bankers.

If Emmanuel Macron was prepared to take the lead on either of this issues, he would convince me that he is not simply a smooth and manicured front man for the Banking System. If he fails to do anything, then I'll always have doubts about his true motivations.

I'll be following developments with much interest in the months and years to come.

French Presidential Elections : A massive increase in the "we don't want your policies" vote

Like many people, I'm very relieved that Marine LePen's National Front was pushed into second place in yesterday's second round of the Presidential Elections. Congratulations to Emmanuel Macron.

But one of the most fascinating things about yesterday's results was the massive increase in the number of people who went out to vote, but refused to vote for either Macron or LePen. The official  results from the French Ministery of the Interior now distinguish between "Vote Blanc" - an empty envelope, or a blank piece of paper, and a "Vote Nul" which is what happens if you write something else on the voting slip. This is actually new - and follows a change in practise that occured in 2014.

Of the 35,407,616 people who voted yesterday, over 3 million voted blanc (3,006,106 to be precise), and a further million voted nul (1,070,696). Add them together, and that tells you that over four million people (4,066,802) said "we don't want either set of policies!". That's 11.49% of the people who voted. In my part of France (Occitanie), the percent of people who voted Blanc and Nul reached 13.08%.

That's about twice the previous record.

If you are interested in the details, I extracted the relevant information in a Google Sheet that you can access here.

I'm happy to tell you that I voted blanc myself - but only after the RTBF news site in Belgium had revealed that Macron was heading for a safe victory! I didn't want to wake up this morning with LePen as president.

If you add to the 4 million plus that voted Blanc or Nul the more than 12 million people (12,041,313) who abstained, and you get a total of over 16 million people (16,108,115) who effectively reject the current policies. This massive rejection is particular clear in these graphs that you can find on the Guardian's website, that shows that for many parts of France,  "spoiled ballots" (Blanc and Nul) and abstention were remarkably common.

I hope Emmanuel Macron is paying attention to this. It looks like the French people want something different from the usual tired old Neoliberal recipes. I believe that deregulation and Uberization of the economy is simply not what people want.

I believe we need radical new ideas that can make the economy work for people. Monsieur Macron, you seem to be an intelligent person, who appears to be capable of listening. I'm happy to talk with you if ever you want some new ideas.

7 May 2017

More ideas for Emmanuel Macron - A Basic Income via Negative Income Tax

Today we will learn who will be the next French President. Hopefully, the "MacronLeaks" scandal will not have destablilised the campaign and we will avoid the trauma of having a neo-fascist like Marine LePen as president.

Nevertheless, I am far from being a fan of the very conventional neo-liberal program being offered by Emmanuel Macron. That's why I would like him to consider some of the more radical ideas that I have been pushing for the last 7 years on my blog.

In my "Open letter to Emmanuel Macron" last week, I was suggesting that he should consider replacing the bulk of the existing tax system with a flat rate universal tax on all electronic financial transactions. And I argued that the positive redistribution effect of the current inefficient income tax system could be done much more efficiently by simply providing a universal basic income to all citizens.

In earlier posts, I had already argued that such a basic income can be implemented very neatly by having what is effectively a negative income tax for anyone earning less than a certain amount. Using the distibution of incomes in France provided by Lansais, Piketty and Saez, I was able to show that if you had a basic income payment of €600 a month, coupled with a fixed income tax on all additional revenue of under 30%, the entire system would pay for itself. You can hopefully understand how this would work by looking at the following graph which shows how montly income varies with the percentile of the population. The blue line plots monthly revenue for French citizens by percentile. The yellow line gives the monthly income include the Basic Income and after income tax. And finally, the red line gives the net transfer - negative for those on relative low income levels, positive for those with higher revenues. If you want to see exactly how I get these numbers, feel free to check out the Google Sheet that has all the numbers here.

The idea illustrated in this particular example is that everyone gets an Unconditional Basic Income of €600 and then pays 29.65% tax on any additional revenue. Since the bottom 7% of the population have no income at all, they all get the basic €600. But the 61% of the population who earn less than about €2000 a month would all receive a net payment from the state. Someone earning €2000 would be neutral (no net monthly payment) because the €600 of Basic Income would be cancelled out by paying 30% tax on their €2000 of revenue. People earning more than €2000 would effectively pay roughly  30% tax on earnings above €2000. Thus, someone earning €3000 would pay €300 (i.e. an effective tax rate of 10%), someone earning €6000 would pay  roughly €1200 (an effective tax rate of 20%), and so forth.

If you look at the details, this means that there would be a net transfer of nearly €10 billion per year to the 61% of the population earning less than €2000 a month, entirely paid for by the 39% earning more than €2000 a month.  In other words it would be a pure redistribution system. But importantly, more than a quarter of the money (€2.75 billion) would be paid for by those in the top 1% of the population. Indeed, nearly €1 billion would be contributed by the top 0.1% of the population, and no less than €390 million by the 0.01% of the population who earn the most.

It is interesting to point out that the €600 and 29.65% tax rate numbers are just one of a whole range of options. For example, if you only want to guarantee €400 of basic income per month, you could fix the tax rate at below 20% and again have a perfectly balanced redistributive tax system. In that case, €6.2 billion would be redistributed from the top 39% of earners to the bottom 61%, as shown in the following figure.

Likewise, suppose you wish to increase the basic income to €800. In that case, you would need to increase the flat rate tax rate to 39.95%, which would  transfer about €13.27 billion from the top 39% to the bottom 61% as shown in the figure.

You want an even larger Basic Income? Easy. To get an Unconditional Basic Income of €1000 a month, you simply have to increase the flat rate tax to 49.5% and you will transfer nearly €16.6 billion from the most affluent 39% of the population to the other 61%.

It's interesting to note that note that it doesn't matter which particular combination of Basic Income and Tax rates you choose, the percentage of the population that get a positive net payment stays fixed at 61%. Indeed the rule is pretty simple. Relative to a reference figure for the Basic Income of €600 and a tax rate at just under 30%, adding an extra €200 to the basic income requires a hike in the flat rate income tax of about 10%.

These numbers are built into the basic principle that the income tax system is designed as a redistribution system that shifts income from those who are earning a lot to those who are earning less than €2000 a month. If you actually wanted income tax to provide money to pay for other things (like the staggering €46 billion a year that French tax payers have been paying in interest on public sector debt since 1995!), then you could I suppose increase the tax rate above the levels proposed here. Personally, I object very strongly to the government using my income tax to pay illegitimate interest payments to commercial banks who didn't even have the "money" that they lent the French Government. In contrast, I would have much less problems if those interest payments were paid for using a tax on financial transactions - but that's another story.

If you do want to use this mechanism to actually raise money, rather than simply redistribute it, it's actual quite simple. If you go above the neutral tax rate for a given basic income level, each 10% increase in the tax rate generates roughly €120 billion in revenue. Thus, if we set the Basic Income at €600 and move the Tax rate from just under 30%, to 40%. First, it would generate €120 billion of extra income for the government. But second, it would move the point at which people start having to pay tax from €2000 a month, to about €1500 a month with the result that the percentage of people who receive money from the system will drop from 61% to 45%.

But for me, I really like the idea that Income Tax should serve one purpose, and one purpose only- namely redistributing wealth from the affluent to the less affluent. This may appear to go against my previous proposition that we could potentially scrap all taxes (including income tax) using a flat rate financial transaction tax. But the fact is that currently, French income tax only generates about about €146 billion a year, and most of that is in the form of the CSG (Contribution Sociale Generalisé) which is currently fixed at 15.5% and is not in the least bit progressive.

I think that people would be much happier with Income Tax if they knew exactly what it was being used for. Essentially, with my proposals, if you are among the 61% of all French citizens who earn less than about €2000 a month, your income tax will be NEGATIVE - it will be a good thing!  In other words the majority of French voters would actually be in favor of Income Tax!

And for those earning more than €2000, they will be able to feel proud that their taxes are going to help those with low incomes. If you are in the 1% of French citizens earning more than  about €11,000 a month, you will be able to look yourself in the mirror and not feel ashamed, because you are helping to contribute about 25% of the money needed to provide a basic income for all.

If you are in the 0.1% who earn more than about €32,500 a month, you will be even more proud to know that you among the group that finance no less than 10% of the basic income. And finally, if you count yourself among the 0.01% earning more than €110,000 a month, you will proudly be able to boast that your contributions pay for 4% of the basic income.

But for me, there are other huge advantages of scrapping the current ridiculous Income Tax system. My proposals are simple and easy to understand. No more tax bands. No more tax loopholes. Income tax will be simple to understand. Noone will need to spend their weekends trying to make sense of the ludicrously complex tables which you need to use to work out how much you should be paying in income tax. It will be simple. You will get a fixed allowance in the form of a basic income and then pay a flat rate on all additional income. Simple. Clean. And efficient.

At the same time, the existence of an Unconditional Basic Income at €400, €600, €800 or even €1000 a month would mean that most of the existing means tested benefits could be scrapped. You could potentially only keep benefits for people who are physically or mentally unable to earn additional income by working. Imagine the impact of such a vast reform?

Emmanuel Macron - are you listening? Isn't this the sort of liberalisation of the economy that you have been arguing for?

30 Apr 2017

An Open Letter to Emmanuel Macron - Future French President?

Dear Monsieur Macron

In a weeks time, the French will vote to choose whether you or  Marine Lepen should be their next president. Many people will probably vote for you simply to prevent an extreme right Front National candidate getting into power. But many others, including myself, remain unconvinced that your brand of neoliberalism is really what we need. I would be reluctant to see you elected with more than the minimum support to beat Lepen, because I fear that your program is just going to be more of the same neoliberal policies that we have had with Hollande. I see little in your program that has any chance of fixing the real problems that face us.

That is why I am writing to you to argue that in fact there are a large number of alternative ideas that I believe you should be considering. You seem like an intelligent person, capable of listening. So please, listen for a bit. You might find something you like.

To start with, I think that most people can understand that almost all taxes are intrinsically bad. Income tax reduces the incentive to work. VAT reduces the incentive to buy products and services. The cost of social contributions discourages companies from employing humans - and pushes them to replace workers with robots whenever possible. And taxes on Company profits encourages businesses to relocate to places where the tax rates are lowest, with the result that there are entire industries devoted to minimising taxes for international corporations, biasing the playing field against the small entrepreneur.

For some years, I have been convinced that we could easily scrap Income Tax, VAT, social contributions, and taxes on profits. The solution would be to introduce a simple flat rate transaction tax on all financial transactions. Figures from the Bank for International Settlements show that transactions in 2015 totalled $9.76 quadrillion, and if you count the last 10 years, the total reaches $105 quadrillion. That's a one with 14 zeros after it ($105,000,000,000,000).  Here's a summary table, but you can find the original data on a Google Sheet here.

OK, I would agree that France only contributes a relatively modest amount to this eye-watering total (3.4%) - the bulk taking place in the US and UK, with a massive 10.9% being handled by multinational groupings like CLS which handles roughly half the world's $5.1 trillion in Foreign exchange transactions that occur EVERY DAY.

Nevertheless, even if we count just the numbers that are purely French, you will see that France's total over 10 years has been €2.745 quadrillion - or about €275 trillion a year on average.

So, just imagine what would happen if you were to impose a flat rate transaction tax on all electronic transactions in France of 0.2%. That would potentially generate up to €550 billion of revenue - enough to abolish every other tax!

I'm sure that your banker friends would say that a 0.2% tax on transactions would make the sky fall in. But it's 100 times less than the 20% VAT that the rest of us currently pay when we buy many things. It's also 100 times less that what many individuals and companies pay to the government in the form of income tax and profits.

Sure, the ridiculous and pointless frenetic activity on the financial exchanges would slow done, or move elsewhere. But imagine if France was the first country to scrap taxes on profits entirely. Multinationals would be swarming to Paris to be able to use their profits legally, rather than stashing them away in some taxhaven in the Caymans or Panama.

A second reform that goes hand in hand with abolishing income tax would be to set up an alternative way of restributing wealth. People say that they like Income tax because it provides a way a redistribing wealth from the rich to the poor. But what would happen with no income tax? Well, one way that produces a roughly equivalent redistributive effect would be to replace the redistributive tax system with direct payments to all citizens in the form of an unconditional basic income. I suspect that you think that this is a dangerous lunatic leftist proposal. But I would argue that it is quite the contrary.

Suppose that we have a system where you have scrapped taxes on company profits and abolished social security payments. This would already give a fantastic boost to French industry, because their costs would be slashed, making it substantially cheaper to produce goods in France than elsewhere.

But what few people seem to realize is that when an unconditional basic income is combined with a citizen's salary, this will also produce a massive boost for French industry. Someone with a family and kids would have basic income that would cover some percentage of their basic living costs. Additional money paid by the employer would add directly to the family's revenue, especially if we have also managed to scrap income tax. With the extra direct revenue from the basic income, the employer could manage to provide a decent living for less cost - thus again driving down the costs of producing in France.

In many respects, the same thing happens with any services that are provided as a basic citizens right. If people get free health care, free child care and free public transport, these are all things that they don't have to pay out of their salary, meaning that employment costs for the employer can be reduced.

It's odd that in the US, people still fail to understand that having an extortionately expensive health system that effectively has to be paid for by the employer means that US industry could never really compete on equal terms with industries in places like China.

Moving to a system where there is a basic unconditional income would not be a leftist fantasy. On the contrary, it should be seen as move that would greatly simplify the employment rules. If combined with the elimination of the vast majority of existing benefits schemes, it would result in a much simpler and understandable system in which everyone would know that whenever they work, they would be be guaranteed to increase their revenue. Under the current system with its labyrith of support measures, many people find that working ends up being unattractive because if they earn more than a given amount, they run the risk of losing the benefits they currently have. Such poverty traps are something that you could eliminate by simplifying the entire benefits system.

Monsieur Macron, don't you think that there are better ways out there that are worth considering. In the short message, I have talked about just two of them - fundamental tax reform and specifically the idea of replacing the majority of conventional  taxes with a universal transaction tax, and the basic unconditional income. If such ideas could be included in your program, I am certainly that many people would end up voting for you because they actually like what you have to offer - and not just as a way to prevent LePen gaining power.

29 Apr 2017

Eurozone Public Sector Debt and Interest payments 1995-2016

Here I provide more details of the way Eurozone Public Sector debt has soared since 1995, and the extent to which increases in debt relate to the interest payments that we have been forced to pay. The full set of data can be found in a Google Sheet File that you can download and consult freely. All the numbers come from the latest set of figures from the EuroStat office.

First hes is a graph of how debt has increased by over 135% since 1995, from €4.07 trillion to €9.59 trillion at the end of 2016.

Now let's look at the figures in detail.

Debt has increased by €5,518,180 million, corresponding to an average increase of around €263 billion a year.

In the same period, Eurozone taxpayers have paid almost €6 trillion in interest on that debt - an average of over €280 billion a year. The figure is amazingly constant, with a peak value of €318 billion in 1996, and a minimum of €246 billion in 2004 and 2005. This contancy is despite an almost continuous drop in the effective interest rate, from 7.37% in 1995 to a "mere" 2.46% in 2016.

But that "mere" 2.46% level, helped no doubt by the massive purchasing of government bonds by the ECB, has not appreciably reduced the drain on Eurozone taxpayers. Despite Mario Draghi's efforts, we still forkd out over €236 billion in interest last year - corresponding to 2.2% of the Eurozone's GDP.

Over the whole period, an average of 3.4% of the Eurozone's GDP has been used to pay interest charges on Public Sector Debt. Given that roughly 19% of Eurozone GDP is taken in tax, this means that roughly 18% of all taxes in the Eurozone gets used to pay interest charges.

Where does all that money go? Well, to start with, you have to realize that only selected players are allowed to buy Eurozone government bonds - and those players are essentially all commercial banks. They are thus the ones that are first in line to benefit from all that taxpayers money.

And where do the banks get the money they use to buy government bonds? Well, they would no doubt like us all to believe that they are just acting as intermediaries for armies of grannies who want to use their savings to buy safe government bonds.

But this image is, in my humble opinion, a complete myth. When Commercial banks want to buy government bonds, they can just invent the "money" they use out of thin air. They can then sit back and cash in the taxpayers money that is being siphoned out of the economy. Alternatively, they can flog the bonds to third parties that include US and Canadian Pension Funds.

Whoever benefits from the money, it seems very likely that  roughly €6 trillion of Eurozone Taxpayers money could have been used for much more useful purposes.

There is thus a very strong case for completely scrapping the current insane system in which our governments are forced to borrow from commecial banks with the result that we are effectively all slaves to the financial system. That system was made binding by the treaties of Maastrict and Lisbon, but desperately needs to be overturned.

What is needed is a system where the European Central Bank can provide funds to Governments directly, preferably with no interest charges to pay. Or even better, Governments could simply create their own debt free money as with the N-Euro scheme that I have been proposing.

Spain : Over €500 billion in interest payments on Public Sector Debt since 1995

I'm continuing my analysis of the latest Eurostat Figures on European Union Public Sector Debt and Interest payments since 1995. Following France,  the UK and Italy, let's have a look at Spain - another of the countries under heavy pressure from the troika. All the figures I used to do the analysis can be found in a Google Sheet document that you can find here.

First, take a look at the graph of how Public sector debt has increased. It was incredibly stable from 1995 to 2007, increasing from just under €300 billion to less than €400 billion. But then, starting in in 2008, debt levels have tripled to over €1.1 trillion at the end of 2016.

The next table allows us to look at the details.

First, over the period 1995-2016, debt levels increased by €811,348 million, an average of €38,636 million per year. But note that Spain actually decreased its debt levels in 2003, 2006 and 2007

The amount paid by Spain's taxpayers as interest on that debt totals €509,730 million. It was less than €20 billion a yaer from 2002 to 2009 but has now been substantially over €30 billion a year for the past 5 years.

The amount paid in interest charges averages 2.9%, which, when you compare that figure with the value of 14.5% of GDP corresponding to taxes in Italy provided by the World Bank,  means that roughly 20%  all Spain's taxes gets used to pay the interest on Public sector debt.

This is frankly criminal. As with all European Union governments, the Maasstrict and Lisbon treaties oblige governments to borrow from the financial markets - essentially commercial banks. But, because of the way that banks work, they don't have to have pre-existing money to buy Spanish Government bonds - they can just invent the money out of thin air, and then sit back and enjoy the benefits of getting billions of interest payments every year, or flog the bonds to third party investors, including US and Canadian Pension Funds.
What would a typical Spanish Citizen say if he or she found out that a substantial proportion of their   taxes gets used to pay for pensions in the US? Would there be a revolution? I think there should be.

Italy : €1.72 trillion in interest paid on Public Sector Debt since1995

I'm continuing my analysis of the latest Eurostat Figures on European Union Public Sector Debt and Interest payments since 1995. Following France and the UK, I now turn the spotlight on Italy. All the figures I used to do the analysis can be found in a Google Sheet document that you can find here.

First, take a look at the graph of how Public sector debt has increased from just over €1 trillion in 1995 to over €2.2 trillion in 2016.

Next, lets look at the details.

First, over the period 1995-2016, debt levels increased by €1,147,338 million, an average of €54,635 million per year.

The amount paid by Italian taxpayers as interest on that debt was particularly impressive, totally no less that €1,720,306 million. The amount has varied substantially from year to year, peaking at an eye-watering €114,239 million in 1996. It's been dropping slightly over the last five years, but was still no less than €66,272 million last year. Over the whole period, taxpayers have been paying an average of over €78 billion every year - that's 5.8% of Italian GDP.

When you compare that figure with the value of 23.7% of GDP corresponding to taxes in Italy provided by the World Bank, this means that roughly one quarter of all Italian taxes gets used to pay the interest on Public sector debt.

OK, the interest rates have been dropping somewhat, and are now quite a bit lower that the 9.32% effective interest that Italians were paying in 1995. Indeed, the effective interest rate dropped below 3% for the first time in 2016. But that doesn't make this situation any less ridiculous.

Why on earth are Italians forced to pay 25% of all their taxes to a Financial System that creates money out of thin air to purchase Italian Government bonds and then sits back and rakes in the interest charge. The €1.72 trillion that Italians have paid is, in my humble opinion, a total racket. I would suggest that someone in Italy should press to (a) end this insane system, and (b) ask for the €1.72 trillion back- please.

UK : Nearly £750 billion in fraudulent interest payments on Public Sector Debt since 1995

Given that the UK also has elections coming up in the next couple of months, I thought it would be useful to use the recently updated EuroStat Figures on Public Sector Debt and Interest Payments to have a look at just how catastrophic the current system has been for UK taxpayers.

First, here's a graph of how UK Public Sector debt has gone trhought the roof in the last decade.

From 1995 to 2000, debt was fairly stable at around £400 billion. But then its started climbing gradually, and then shot up with the arrival of Cameron's Conservative Party in 2009 and George Osborne as Chancellor. It has now reached a very impressive £1,731,402 million - call it roughly £1.7 trillion.

The following table provides the gory details.

First, debt has increased by £1,253,157 million since 1996. But that debt has increased most in the period 2008-2011. In 1998, 2000 and 2001, debt levels actually decreased!

At the same time, the UK government has been generously paying out tens of billions every year in interest payments on that debt. The total over the period was £747,343 million - and average of very nearly £34 billion a year.  Last year, depite the claims of the Conservative Govenment that it was trying to get levels of debt down, debt actually increased by over £65 billion, and UK taxpayers handed out nearly £48 billion in interest charges.

The right hand column show the effective interest rate on Public sector debt has tended to drop and currently stands at 2.76%. But the average interest over the entire period has been 4.91%.

As a percentage of GDP, those interest payments account for 2.5% (both in 2016, and as an average over the period 1995-2016), which corresponds to about 10% of the total UK tax take (25.4% of GDP according to the WorldBank).

The bottom line is thus that 10% of UK Taxpayers money has gone to feed the parasitic tapeworm that came up with the wonderful scheme that allows Commercial banks to lend non-existent money to gullible (or complicit) governments, and then sit back and either get the interest, or flog the bonds that they have bought to third parties such as the US and Canadian Pension funds. Effectively, UK taxpayers are paying for pensions in the US. How generous.

How about Labour or the Lib Dems challenging this insane system that, thanks to the policies of Cameron and Osborne have put UK citizens massively in debt, through no fault of their own?

France : Over €1 trillion in interest payments on Public Sector debt since 1995

The latest Public Sector debt and interest payment figures from EuroStat make for sobering reading. Yesterday, I gave the headline figures for the the whole European Union - €12.4 trillion in public sector debt, with in interest payments €317 billion in 2016 alone.

Today, I want to look at the specific case of France, particularly in the light of the next week's Presidential run off between the Extreme Right wing candidate Marine Lepen and Neoliberal Emmauuel Macron.

First, lets just plot a graph of the increase in Public sector debt from €696,291 million at the end of 1995  to €2,147,418 millon at the end of 2016. 

Now lets look a some more details. This table can also be found as a sheet in a publicly avaible Google Sheet file that you can examine and download here (go to the folder called "France").     

The table reveals that, over the period 1995 to 2016,  French public sector debt levels inceased by €1,451,126 million (€1.45 trillion). Of that, €1,017,375 million was due to the interest payments, i.e over €1 trillion. 

The right hand column shows that the effective interest rate paid on French public sector debt has dropped from 5.79% in 1995 to a "mere" 1.96% in 2016. 

Does this mean that the French taxpayer has been gettting a better deal? I don't think so. If you look at the actual amount of interest paid, it has remained remarkably stable, averaging €46.2 billion over the whole period. The minimum was around €40 billion in 1995, peaked at €56.2 billion in 2008, andhas dropped back to roughly €42 billion last year. How interesting. Effectively, as the levels of debt have more than tripled, the markets have magically adjusted the interest rates to ensure that the amount of money extracted from France's taxpayers has remained roughly stable.

For info, the Agence France Tresor (AFT), which manages French Public Sector debt, is currently prediciting that for 2017, the interest payments will stay pretty constant relative to 2016, with a total of €41.55 billion

The system reminds me of a parasitic tapeworm that skillfully avoids killing off the host.

The column that gives the interest paymnets as a percentage of GDP shows that the percentage has indeed tended to drop - from a peak of 3.4% at the start of the period, to a "mereé 1.9% in 2016.But the average over the entire period was 2.7% of French GDP.

That parasitic tapeworm has siphoned off a very sizable proportion of the tax revenue of the French governments revenue. According to World Bank figures, France's tax system took about 23.4% of French GDP in 2015. Shall we say that roughly 10% of that was used to keep the parasitic tapeworm happy? 

Who profited from this? In other words, where should we looking to find that tapeworm? 

Well, unfortantely it is difficult to have clear information about who gets the interest payments. We know that around 60% of the debt is held by non-residents - the historical details are available on the Banque de France's website which demonstrates that the percentage held by non-residents has dropped a bit from a peak of  over 70% in 2010.  But who are these "non-residents"? It seems quite plausible that a major holder could be  US and Canadian Pension Funds. That would mean that a substantial proportion of the 2.7% of GDP that gets used to pay the interest on French Public Sector debt has been used to pay pensions in the US and Canada. One might reasonably ask whether it might not be better to use French taxpayers money to pay pensions in France!

No doubt the defenders of the status quo will argue that the French government has no choice but to borrow from the financial markets. But I would argue that this is simply false. Until the infamous "Loi Pompidou-Giscard" in 1973, the French government could simply ask the Banque de France for funds, and actually had no debt at all. 

For some reason, the idea that only commercial banks should be allowed to lend "money" to governments subseqently became the norm, and was finally sealed into the Maastrict and Lisbon treaties. The result has been total disastrous for French Taxpayers who, in the period 1995-2016, as  have effectively handed over more that €1 trillion of hard earned cash to Banks who, in case you didn't know, don't even have to have the money they lend. They can just create it out of thin air by buying up French government bonds with non-existent money, and then either sit back and collect the interest payments, or flog the bonds on to Pension Funds in countries like the US and Canada.

Is this insane? You bet.

If Emmanual Macron would really like to be elected in one weeks time as France's President, why doesn't he say that he will fight to (a) end this racket, and (b) ask for out €1 trillion back please. Now that would be a really popular move!