KISS - the taxation system

The so-called “progressive” Income Tax system is anything but progressive. Annualised profit can be measured in as many ways as there are creative accountants, yet this slippery concept is the basis for one of the main sources of funding our government. The only time anything has a precise monetary value is at the moment of sale. A house may be purchased for $1 million but the next day a buyer may offer $2 million, or it may be in the path of a flood or bushfire and be worth only an insurance valuation.

Our government is charged with the responsibility of printing money, the lubricant of commerce. Yet the volume of money printed is in the hands of the soothsayers (economists) who depend on ABS statistics (months or years out of date, and with garbage-in-garbage-out data and data analysis - the complex ABS forms result in cursory answers just to be seen to comply) and probably as reliable as the Romans contemplating the entrails of chickens for strategic advice.

If nine major taxes, Personal and Company Income Tax, GST, Payroll Tax, Capital Gains Tax, Fringe Benefits Tax, Provisional Tax, Withholding Tax and Superannuation Tax were replaced with a simple Spending Tax, the government would have close to real-time information on the valuation of all goods and services being traded in the country as determined by every buyer and seller in the country, and could adjust the money supply to suit. Too much money sloshing around in relation to the goods and services being traded is inflationary. Too little is an impediment to trade. Capital Gains Tax is a joke as the value of money constantly changes with inflation, and with respect to other currencies.

A comprehensive computer model analysing six years of the Australian economy, breaking it out tax by tax, state by state, and industry sector by industry sector, demonstrated that by substituting a 2 per cent Spending tax for the abovementioned nine major taxes, every sector would benefit (the finance sector showed up as line-ball but would benefit with increased real economic activity). The manufacturing and primary production sectors would benefit enormously and the cost of all three tiers of government would be slashed by the minimisation of churning taxes e.g. Group tax collected from public servants and paid to the Federal government for redistribution. (See Your Future in Your Hands.)

The new take-home pay would be the same before and after the change-over, but the cost to employ would go down to take-home pay plus 2 per cent. Demand for employment would rise, paperwork demands on employers would fall, and a huge underbelly of unemployed and under-employed would emerge from the shadows of politically manipulated employment statistics.

The figures are stunning. The conversion process has been simplified since the introduction of the GST which the 2 per cent Spending tax would replace. BAS returns would be three-line statements: How much did you receive for the period? How much did you pay your employees? What is the 2 per cent component of these? There is also a simple accounting for tax on imports while tax on exports is accounted for in the normal process (the overseas buyer pays the tax to the local seller, and the seller remits this to the government).

The tax paper trail would be invoice and receipt - no exemptions, no deductions, no tax year. There could be a stock exchange beside every TAB in the country, where people could back companies with the same zeal as they back horses, and with the same predictability of the tax payable if they win. The horse race is over when the horses pass the finish line, the company bet is over when you choose to sell the shares (and that would be to suit the market, with the decision not distorted by which financial year is involved).

Every tax review, including the current Henry Review, is hamstrung by an obsession with a revenue neutral approach. This locks in the enormous waste of churning taxes, and opportunity cost of tax avoidance and evasion (going on the dole is a double-dip into tax avoidance/evasion as not only is nothing contributed to the tax pool, but something is taken out).

Motivation is the key to productivity, and punitive taxation is inimical to motivation. The best stimulus package is not a handout of money taken from some to give to others, but major tax system reform which would make this country an economic powerhouse. Australia would also become a continent sized tax haven, and our contingent of young bankers could return from exile on a barren coral atoll in the Bahamas and enjoy a full and productive life in their homeland. There are something like two million of our best and brightest working offshore in many diverse industries.

We need them here, and a tax revolution would be the stimulus for their return. Those people are surely our first choice for skilled immigration and some return on money invested here in their education would be realised.

Unless the Henry Review addresses the waste resulting from an archaic accumulation of political garbage, we will only add more layers through which to wade. It is not a Herculean task to clear the Augean Stables of our corrupt Tax Acts, but it does require courage and vision to tackle the job. Surely it is best not to pluck the goose at all, but to encourage it to lay more golden eggs.