Tuesday, October 17, 2006

WHO LOSES WHAT?

Hi, do you know anything about economics. If so, could you comment on my logic below? If you just wanted to say hello that would also be good.

I usually think of more interesting things like the future or human nature but at this moment in time I’ve been pondering this one; for no other reason than it’s a puzzle. I’m not an economist or anything like, so I could be missing something obvious but I’m here to learn.


The following isn’t at all about whether benefits are right or wrong because I know there are other factors.

Does the British Government lose money on Benefits – or does it just get it back in taxes?

For example if the Government gives somebody £100 pounds in benefit and it’s spent in this country, doesn’t almost all the money eventually go back to the government in taxes (either vat or income tax).

Based on transactions paying vat at 17.5%.

£100 spent, gives £17.50 back to the Treasury leaving £82.50 still circulating the economy.
£82.50 spent, gives £14.44 back to the Treasury leaving £68.06 still circulating the economy.
£68.06 spent, gives £11.91 back to the Treasury leaving £56.15 still circulating the economy.
…and so on to £0.00.

This means that after approx 53 transactions next to nothing will remain of the original outlay. I know that the money got back will never quite go back to zero but it will continue until almost all the money is paid back to the Government.

I appreciate that the Treasury would do better to get new money rather than its own money back but other than that if this logic is correct, does anybody lose out.



I hope you have a good life.
Tony