Governments can create jobs in the public sector. However unless they are balanced by jobs growth in the private sector, the public sector will not sustain employment and wealth creation. Private sector prosperity creates the wealth required to sustain great public services. It is the responsibility of government to create the conditions in which private sector businesses can flourish.
This means lower taxation to encourage re – investment. The more you can encourage businesses to re – invest, the more jobs they will create, the more they will grow, the more sustainable they will be, the more profitable they will become. The more people employed, the greater the revenues, the greater the profits, the more goes back in to the public purse via taxation. It’s a simple model. The more you tax business, the more ways business will spend money trying to find (legitimate) ways to avoid paying those taxes.
Across much of the developed world at the moment the argument is that we cannot afford to reduce taxation. I understand why, but we are trapped in a vicious downward spiral. Businesses are hoarding cash. The survival mode of the last few years has meant strengthening balance sheets has been order of the day. Having done that, confidence and the conditions required to re – invest still do not exist.
If you have cash right now then arguably you will emerge from this period much stronger. Valuations are low, assets are distressed. If you are in a position to acquire then the opportunity to strengthen your business is too good to miss. So why are we missing it?
Its going to take a brave leader to create the conditions to encourage business to start spending again. However do it we must. Public spending must be cut, that much is clear. Unless governments create the right conditions to encourage private sector investment and spending, the private sector will not be able to pick up the “slack” created by public sector cuts, particularly in employment.
We need governments to be brave, strong and decisive. Then we need them to step aside. Short term pain, long-term gain. Fail and we risk generations of disaffected unemployed. It is too high a price to pay. Action is needed now.
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