Budget 2012: A classic tale of spending, tax and reform A big rise in the tax-free allowance looks nailed on. There have been murmurings that some sort of deal on the taxation of the rich will allow a reduction of the 50pc top tax rate. This is likely to include a worsening in the tax treatment of pension contributions and a further squeeze on tax avoidance. Further help for motorists is possible given the recent rise in petrol prices. And there will be countless other small measures - enough, in fact, to swell the Budget documents and, most importantly, to deck out the Budget speech. Forget the pages of calculations of who is better or worse off by so many pounds a week that will dominate the news over the next few days. It is the overall scale of Government spending that should command attention. The total comes to about £700bn, almost half of our GDP. Of this, about £200bn goes on "social security." The three key underlying realities are: Government is spending far too much of our income; much of what it spends is wasted; and it raises the money in a damaging way. The two biggest revenue generators are taxes levied on employment, with income tax contributing about £150bn, and the pseudo income tax, known as National Insurance, raising another £100bn. Such a structure is hardly clever when you want to encourage employment. Making a real difference to our economic performance will require major action on these three, together with institutional and structural reform. The Government is attempting the latter with education, health and social security. But so far there hasn't been much reform in the pure economic sphere. Significant reforms often stretch across more than one department and need thought and co-ordination from the top. For example, one of the most important objectives should be to encourage the legions of sole traders to make their first hire. What holds people back is often: fear of hassle, and the direct losses that this may cause, from PAYE, National Insurance, employment law, health and safety, discrimination law, employment tribunals, VAT. There is clearly a tax element in all this, but tax is far from being the be all and end all. Not so long ago, the leading members of this Government were completely unprepared for the fiscal cataclysm that lay ahead. The OBR's pessimistic assessment raises the possibility of the future fiscal position catching them unawares from the opposite direction. Making a real difference to the economy by budgetary measures requires a vision of the future tax system and the patience and foresight to make progress towards that vision in stages. Otherwise it is easy to squander billions by giving out sweeties here and there to little or no effect. The time to start thinking about that vision - and turning it into reality - is now.