THE AUSTRALIAN TAXATION MORASS
(mostly extracted from Central Humanism Hub Footnotes)
The governments of advanced democracies like Australia make a considerable effort to treat people fairly, even if they create a minefield of complexities in the process. To what extent they have succeeded has always been a bone of contention - different sectors of the community perceive "fairness" very differently.
Fairness and equality in taxation systems are disparate concepts. An "equal" system, I presume, would impose a flat rate per head, i.e. the same absolute tax on every adult person, regardless of their financial status, but possibly exempting children and the incapacitated, or charging them half-fare. This, after all, is how we pay for almost everything else.
A less equal but much more equitable system would use a flat rate per dollar of income, or per dollar of income-plus-assets-growth. Most governments go a step further, however, and apply a scaled tax so that low income earners pay less tax per dollar than high income earners. Accumulated wealth may also be taken into account for certain classes of people or for certain purposes. Furthermore the poorest members of society have negative taxation, i.e. they are paid welfare benefits*.
Thus, in a general way, current taxation systems treat people unequally but with some degree of fairness. It is very obvious that taxation is applied unequally, but whether or not it is truly fair is questionable, and to some extent a matter of opinion. Doubtless some would say a flat rate per head is both equal and equitable! (For example, they might argue that a scaled system discriminates against intelligent, enterprising and hard-working people, or that a reasonable degree of equity would be better achieved through the control of salary differentials and scales.)
It is also very obvious that in most countries, especially in Australia, the taxation system is absurdly complicated. There are four main reasons for this.
Firstly personal taxation is mixed up with welfare, an intrinsically messy business, secondly corporations have taken too much control over how they are taxed (by developing tax reduction and avoidance systems), thirdly governments use the system as a way of controlling (I'd rather say "meddling with") specific sectors of the economy. Finally, there are just too many public servants of questionable intelligence creating red-tape ad libitum.
This endless fiddling around with tax and welfare and the unbelievable, out-of control escalation of taxation laws invariably leads to a lack of uniformity, unfairness, confusion and many more problems than solutions.
An example is our current (2002) government's short-term policy of subsidising first home buyers with $7,000 (until recently, up to $14,000) towards the cost of a new home. Intended primarily to give a boost to the building industry, the immediate effect was to increase the average price of real estate by much more than $14,000. In the longer term it has contributed towards an unprecedented boom in property values, putting a home of any sort far beyond the reach of many young hopefuls.
The next phase will presumably be a bust, with the potential for enormous damage to the economy. Undoubtedly there will also be an increase in interest rates. So while yesterday's new home buyers got a handout of $14,000, tomorrow's will pay at least another $100,000, plus around $7,000 a year (interest only) at the expected new interest rate*. Meanwhile the average Australian has nearly all their capital tied up in their home, very little in savings, and family expenditure actually exceeding income by 5%.
Surely the subsidy was unfair to start with. Why should a particular class of person at a particular time get a $14,000 handout, particularly if they were not the primary target? (Good grief! It seems now they're dealing handouts of $3-4000 to baby producers! What next?) A little bit of meddling and partiality now can lead to an enormous adverse rebound in the future, which may have to be defused by a much greater amount of the same kind of injustice.
*Initially, interest rates did not rise as much as expected, as other factors led to the Reserve Bank keeping the base rate quite low. However, there have now been (March 2008) at least seven increases in rates, and a massive increase in the numbers of mortgage defaults and home repossessions. Most home owners who have managed to stay afloat are paying around $20,000 or 37% of income. In early 2014 the pendulum has swung the other way again, with interest rates at an all-time low.
The taxation/welfare system is also riddled with inconsistencies, arbitrariness and dithering. An example of this is the way married couples (or should I now say "partners") are assessed. For some purposes the system treats couples as a unit, sometimes even when it's obvious that the issue under consideration really only applies to one partner; while for other purposes the partners are treated quite separately. For some purposes, both ploys are used together, some aspects of a couple's (or individual's) finances being assessed individually while others are assessed jointly. Since it's so unclear what "partners" are, I don't know why everyone can't be treated as an individual.
Well, the idea of treating people individually breaks down in the case of corporation tax. This would hardly matter if the acquisition of wealth was simply taxed at a flat rate, because who did the acquiring would not affect anything. The problem does not lie so much with people and corporate entities as such, but has more to do with defining the money transfers that are to be taxed.
And this is where corporations, especially the multinationals, have got it too good. It doesn't take much calculation to see that there's loads of money flying around everywhere, that much of the flying is done by wealthy corporations with too much political clout and that much of this is not taxed. (According to a Jan 2014 Oxfam report "Policies successfully imposed by the rich in recent decades include financial deregulation, tax havens and secrecy, anti-competitive business practice, lower tax rates on high incomes and investments and cuts or underinvestment in public services for the majority.") If large corporations were properly taxed, ordinary individuals would have to bear a smaller part of the tax burden.
To say that taxation is employed as a way of manipulating the economy is to make light of its real effect on society. In truth, the government misuses taxation to coerce people into behaving how it wants, for whatever ends it wants (e.g. to preserve "traditional family values"). Therefore the system as it stands makes unacceptable inroads into personal freedom, reducing the ability of individuals to make satisfying life choices.
On the other hand, the government should tax people and corporations that make money out of stuff that doesn't really belong to them; in particular there should be a resources tax, applied to the primary users of natural resources such as water, air, minerals and native forests. Similarly, there should be pollution taxes (such as the proposed carbon tax). A problem with both these is that resource and pollution management are global concerns, and the application of taxes in particular countries could lead to loss of exporting opportunities.
Unfairness, complexity and diminished economic freedom are close allies in Australia's messy taxation system. Here's my number one golden rule of ethical taxation. If it's possible for any person, corporation or other taxable entity to reduce their tax by shifting funds around, then the system contains unnecessary inequalities, complications and restrictions. Think about it! Our entire taxation industry seems to be geared towards doing just this. When this industry collapses, that will be the day we have a sound, ethical taxation system in place.
Admittedly to create the conditions for the golden rule would be problematic, considering the deep ramifications on society of the current system. As already suggested, it would obviously be much easier to install if we reverted to a flat income tax rate.
Another requirement for the operation of the golden rule, independent of the actual tax scale but crucial for simplifying the system, would be to tax all net financial gain in the same way, regardless of its derivation or purpose (Net gain = gross income or growth less the expenses involved in achieving it). Taxes that don't relate to personal gain (like GST, an extremely inefficient form of taxation) should be avoided as far as possible, but might find a place in the application of disincentives (or in negative form as incentives) for purposes of economic, health and environmental management - but only if the tax (or handout) clearly offered the best solution to a genuine problem, and only if it didn't hurt anyone. (And not for ludicrous pretexts such as distinguishing junk food from basic food!) These, as well as welfare payments, would be better handled separately and also kept simple.
Meanwhile, though you might escape death from cancer, you won't escape death from suffocation under a heap of taxation sludge.
Incidentally - on a related issue - why should certain broad classes of people get discounts on various goods and services? I'm thinking especially of discounted government services for the elderly. Why not give oldies a decent pension to start with, and let them choose whether they want to use it for (e.g.) railway travel or something else:
(a) some old folk might not want to go anywhere and (b) some old folk might like to think they're as good as the next citizen (which I'm sure they are). I say increase the pension and abolish the pensioners' card - and all the perks it stands for. (The main issues here are overt discrimination, freedom of choice and potential abuse of heavily subsidised services such as medical schemes.)
On the other hand, in an ideal world there would be no benefits of any kind, other than free healthcare and education. On the domestic front the government would put most of its resources firstly into ensuring jobs for everyone (even in the face of a decline in two of Australia’s most lucrative but envronmentally unfriendly and unethical industries - coal mining and animal production) and secondly into maximising individual responsibility, so that people lived within their means (including not having unaffordable babies) and saved for their retirement. Drop-outs would be exactly that - we'd just have to find somewhere for them to drop! Of course, all combined with a flat tax rate and (if appropriate) no assets excluded from assessment. This way everybody would enjoy a level of freedom befitting their competence as human beings.
*Footnote: It's regrettable that in Australia an entire ethnic group (or quasi-ethnic group) is considered impoverished or disadvantaged when it comes to handing out certain benefits. There's probably some rationale for this apparent racism, but I've never managed to discover what it is.
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