We wouldn’t be here if it weren’t for high debt and taxes

Anthony Page

By ISC Affiliated Researcher Dr Anthony Page, History and Classics, School of Humanities, University of Tasmania

To all the conservatives who decry debt and taxes and laud “mother England”, you might be surprised to hear that it was big spending that kept the French at bay all those years ago and allowed the Brits to settle in Australia, writes Anthony Page.

Tax should not be toxic and debt should not be a dirty word in Australia. Without high taxes and public debt we would not have the British heritage in which conservatives take pride.

Australia was colonised at the same time that the world’s first industrial revolution was beginning in Britain. Historians tend to agree that it was caused by a conjunction of factors, in particular accessiblecoal and relatively high wages, which encouraged manufacturers to invest in labour saving steam-engines.

It was traditionally thought that a small non-interventionist state with low rates of taxation was one of the causes of British industrialisation. This was contrasted with the supposedly high taxing big governments run by absolute monarchs on the European continent.

Historical research has, however, turned this view of the past on its head.

In France taxation was inequitable, inefficient and inadequate. This caused a fiscal crisis for Louis XVI’s government that escalated into a French Revolution in 1789. As Richard Bonney, an economic historian, has noted: “The weakness of the ancien régime was not too much, but too little taxation.”

Meanwhile, in Britain total taxation as a proportion of GDP was twice as high as in France. The bureaucracy of the British state remained relatively small, but at many levels it worked in partnership with society, and its fiscal footprint was large.

While parliaments dominated by the aristocracy kept land taxes down, they nevertheless paid more than their French counterparts. Indirect consumption taxes grew the most, but governments made some efforts to limit their inherently regressive nature. Taxes were put on wigs, windows, servants and candles (wax candles were taxed higher than tallow candles used by the poor).

William Pitt the Younger, the first modern Tory prime minister, declared it was “justice to tax the wealthier in preference to the more indigent part of the community.”

This taxation was used to fund interest payments on a public debt that reached an eye-watering 250 per cent of GDP after the battle of Waterloo in 1815.

High tax and debt enabled little Britain to fend off French invasion threats and build a global empire.

If 18th century British politicians had pursued policies of low tax and debt, they would have succumbed to invasion and domination by France.

In an effort to ease the squeeze on British taxpayers, attempts by parliament to raise revenue in the lightly taxed North American colonies resulted in rebellion and an American Declaration of Independence in 1776. The US grew out of a “Tea Party” tax revolt and today acts as global fountainhead of anti-tax ideology.

In an inherently combative international environment, defence spending dominated all 18th century European state budgets. But the peculiar nature of British military expenditure had economic benefits. With gradual reforms to its administration, Britain acted as an increasingly efficient “contractor state” that increased demand in various parts of its economy.

The British government taxed money that might have been dissipated on private consumption and bricks and mortar, and instead spent it on a navy that both protected and helped grow the economy.

The Royal Navy accounted for nearly half of British defence spending. A large ship-of-the-line was more expensive to build and maintain than a cotton factory, and many ships were built under contract in private shipyards. Agricultural markets were stimulated by large navy contracts to provide food for the square platters on which seamen ate their meals. There was also a lot of iron in wooden warships, and large government contracts helped build the capacity of the iron industry.

Those ships then defended and expanded an empire of commerce. Britain was arguably the only European nation with the fiscal and naval power capable of successfully colonising Australia in 1788.

After 1815 the profits of empire and industrialisation helped to gradually reduce Britain’s public debt.

If 18th century British politicians had pursued policies of low tax and debt, they would have succumbed to invasion and domination by France. Britain would have remained the rain swept marginal European island that it had been in previous centuries.

Instead, they taxed and borrowed in order to defend their nation. And we now look back to a past in which the industrial revolution began in our high wage, high tax and high debt “mother country”.

We live in a very different world today, and thankfully don’t have to spend three quarters of our budget on defence. Yet nations are competing to build their social and economic capacity. Smart states invest in health, education and infrastructure.

During the recent mining boom, as George Megalogenis has argued, Australia “imported the American disease of budget-busting tax cuts for the rich”. But we now need a more “active government” as tax cuts and too much faith in the market have:

…left us with gridlocked cities, growing inequality and a corporate sector that feels no obligation to pay tax. If politics waits any longer to address these issues, we will muddle into a recession and government will have to prop up the economy, but from a position of weakness, with the budget in deficit and interest rates too low to cut in a meaningful way.

Australia has great potential, but it will not be realised unless our political and economic elites show the same willingness to tax, borrow and spend in a smart way as Britain’s aristocrats did in the 18th century.

For more detail on tax and debt in 18th century Britain see Anthony Page’s publications: The Seventy Years War, 1744-1815, and Britain’s Fiscal-Naval State, and Britain and the Seventy Years War, 1744-1815.

Anthony Page is a senior lecturer in history at the University of Tasmania.

This article originally appeared on The Drum website.

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