§ Mr. Ron Thomasasked the Chancellor of the Exchequer what is his estimate of the increase in direct and indirect tax revenue if the level of unemployment were reduced to 700,000.
§ Mr. Denzil DaviesIt is not possible to say how much tax revenue the Government would receive if unemployment were reduced to 700,000. This would depend on the way in which the reduction had been achieved. An expansion of demand—and reduction in unemployment—brought about by tax cuts, for example, would have a different effect on tax revenue from one brought about by increases in public expenditure, and each feasible combination of tax and public expenditure changes would similarly have a unique effect. Furthermore, the impact of changes in either taxation or public expenditure on the economy depends on how it is financed, and hence on the associated monetary policy. Alternatively, it could be assumed that unemployment was reduced as a result 965W Of an autonomous increase in private sector expenditure—for example, exports, or personal consumption—with different revenue implications again.