Years ago I worked in structured finance for an investment bank, creating tax-efficient structures for large corporations. That left me with the lasting impression that income taxes are inefficient — both in terms of equity and collection — and should be levied at low flat rates if they cannot be avoided altogether.
Any tax acts as a disincentive. The impact of flat taxes at low rates is mild. We don’t often think of GST/VAT as deterring consumption. But income tax, with progressive tax rates, acts as a massive disincentive on production. If there was no income tax, we would all be encouraged to work harder. Doctors might not play golf on Wednesdays, but the average worker would also seek more income because they aren’t giving half of it back in taxes. This would give a significant boost to GDP. Interest would also not be taxed, creating an incentive to increase savings.
The problem with all taxes is they tend to increase over time. Flat rate taxes such as GST are the exception because of political fall-out from a rate increase. It is too easy with progressive taxes, like income tax, for politicians to introduce increases by stealth or simply to allow inflation to push taxpayers into higher tax brackets over time. Flat taxes allow politicians less wiggle room as any tax increases are evident to all.
Substituting a combination of land taxes, resource taxes and sales taxes (GST/VAT) for income taxes, or even just reducing income taxes to a low flat rate, would boost both economic growth and savings while making politicians more accountable to their electorate.
Many years ago the Japanese looked at doing away with taxes all together or cutting them to the absolute minimum and while I do not know if they finished the analysis and came up with a definite yes or no I do know it is possible to cut a big chunk out of the tax burden and that should be true in most countries.
In Australia the picture is complex with our constitutional split of responsibilities and three levels of government but there is a lot of room to rationalise the way governments do business (we could start by cutting one level of government) and by setting up single national authorities to manage education, health and so on australia wide. The savings by agreeing on a single provider delivering a uniform service nation wide would be huge.
The next step would be to put in one bag those services government can’t charge out to individuals or households such as national Defence and Law and Order and in the other services that can be provided on a user pays basis e.g. road usage, schools, hospital services, fire brigade services and so on.
In short we would finish up raising taxes only to cover the cost of “law, order and government” with everything else being funded on a user pays basis i.e. if you don’t use the service you don’t pay. Our economy would be a lot more efficient, would put much more money in people’s pockets and would encourage them to think a lot more about how they spend their money.
As for how to structure the taxes the answer is they should be efficient, and basically that means everyone pays the same but just enough to cover the basic cost and if that creates problems for the low paid then the tax goes up with income.
This all makes perfect sense. I’ve been saying the same things for years. But over time I’ve come to realise that it’s just not going to happen. Far too many people that benefit from the status quo.
If however I’m wrong, just let me know who to vote for.
Australia has enormous mineral wealth. Iron ore, thermal and coking coal, natural gas, gold, uranium, diamonds and much more.
Nobody can claim to have created any of it. It simply belongs to the nation. It’s our ‘Common Wealth’, if you like.
If the resources of the commonwealth were shared more generously for the nation, and less generously for the extractors, then there would be no need for income tax at all.
The total income tax revenue of the nation is not huge. BHP, RIO and a few others together could pay enough to replace income tax. (personally, I’d give them a discount if they produced a saleable product with any of the resources they extract, but that’s a different discussion.)
Given the way policy is ‘influenced’ by those very same companies, I realise this will never happen. But it should.
(And yes, I currently own shares in both BHP and RIO).
Write to the Rothschild/Rockefeller dynasty and the Royal Cartel and ask their opinion on sharing around the wealth, the answer will be, “Slaves, you will forever struggle for that is your role, now get down on your knees and stay there until you stop being so insolent and thinking you deserve better”.
You can make all the suggestions you like but there will never be equality and respect regarding wealth and none of it has anything to do with “what will make the economy better etc.”, it is all about control, slavery and status positions.
The wealthy thrive no matter what.
All orders come from The City of London so bypass the guvmint and go straight to the top, and while you’re at it ask the RR Dynasty if they would be like to give back the billions they have swiped off the people, or better still just give up future billions, I think you know what the answer will be because if this was ever going to happen it would have happened a long, long time ago, in fact it would have been set up as our system many years ago.
Unless the elite make these recommendations themselves it will NEVER happen, I mean, since when have the slaves had a voice, and don’t get me started on “elections”.
I totally agreed with Colin. Tax acts as a disincentives to work hard. This country would boom if our taxes are cut to the lowest. Look at Singapore and Hong Kong. They don’t have any natural resources and have low taxes. Many investors invests in that country and as a result, their country boom. Low taxes attracts investors and investors will put their money in those countries with low taxes. However, Australia taxes is one of the highest in the world. Australian are over-taxed. Sad to say many Australian didn’t visit those low taxed countries and didn’t realised how important low taxes is to the economy of the country.
IMHO, Colin, you assume that the major incentive for people to work is money. Research suggests otherwise. I don’t think any person is worth a million dollars a year. Yes, I understand the concept of incentive. I believe the answer is balance. Do I think it will happen? No. A civil society is judged on how it cares for it’s people…..the money must come from somewhere….why shouldn’t it be fair? In order to have winners you must have losers to prop up the winners. Clear your mind and construct a system where you have NO idea where you will sit in the socio-economic order….e.g. You may be a winner or a loser, you may have the capacity to be a high achiever or not. To be sure, it’s not easy. Sweden and Japan have good systems. Are they perfect? No, IMHO. Oh, to address my first point the thing that makes us happy is to achieve something….equals job satisfaction. Should we be compensated? Of course! What have Buffet and Gates done with their fortunes? Started giving it to charity because they know what the deal is.
I have no idea what research you refer to but question its authenticity. We are surrounded by evidence that people tend to act in their own self-interest.
Sweden are dismantling their welfare state and Japan likely to follow. The only model that works is capitalism.
“In any horse race, son, always back the horse called self-interest. It’ll be the only one trying.”
~ NSW Premier Jack Lang advised a young Paul Keating
The problem is not a lack of efficiency, it is about an unwillingness to pay for the benefits to come. Everyone uses the benefits of a modern societies, part paid for by taxes. They only object to paying for them.
Truckers dislike taxes but want the roads developed. Supermarkets want to sell to beneficiaries but don’t want to contribute to their benefits. This thinking is common, and even understandable.
Making the process more efficient won’t make paying tax any more enjoyable.
Everyone is generally in favor of taxes — as long as you tax someone else, not them.