IP: Re: "Political Dynamite" Fails to Explode: Extreme proposals of Treasury'sO'

[David Farber <dave () farber net>]

> From: "Nathan Cochrane" <nathan_cochrane () hotmail com>
> To: dave () farber net
> Subject: IP: Re: "Political Dynamite" Fails to Explode: Extreme proposals 
> of Treasury'sO'
> Date: Fri, 22 Jun 2001 04:02:18 -0000
>
> Hi Dave
>
> Although not wishing to get into a tit for tat argument, I thought a 
> response might provide clarity. Feel free not to put it to the list if its 
> not worthy of the bandwidth.
>
> I never said the GST is "inherently evil". I said it was "hated", and it is.
>
> There's no doubt the system has been a shambles. The problem is a GST 
> tends towards a shambles. It requires virtually every man, woman and child 
> to be a sophisticated tax collector for the government. That takes the 
> responsibility away from a few, big enterprises and puts it in the hands 
> of millions of people, most of whom don't have the wherewithal to 
> understand the system and never will.
>
> You are asking 20 million people potentially, most who can't stop their 
> VCRs flashing "12:00", to overnight become tax agents. That's a structural 
> problem that cannot be overcome.
>
> The GST is part of the "New Tax System"; but most of the rest of the 
> system is constructed to support the unworkable edifice of the GST. It's 
> not simple, it's bloody difficult.
>
> For instance, if you want to be musician in a weekend band, you have to 
> have a global identification number (Australian Business Number). The idea 
> is to stamp out the black economy. Businesses can't claim tax  credits for 
> buying from other businesses or contractors without also getting the ABN.
>
> Problem is, the biggest black market economy is not B2B, it's when 
> businesses sell to consumers. Such businesses are usually service 
> providers, with few inputs, and the consumer has no reason to require an 
> ABN and so the tax office never knows about the transaction. So the 
> babysitter, cleaner, and lawn mower man just got 10 per cent pay rises 
> because they can charge the GST without ever remitting it, or offer 10 per 
> cent discounts for cash. And the black economy flourishes.
>
> The notion that if you consume more goods you should pay more tax is fine, 
> until you realise that wealthy individuals just re-invent themselves as 
> enterprises and evade the tax. Meanwhile, the regressive nature of the tax 
> hits those least able to pay: the poor and elderly. Perversely, the 
> charities established to help these people are also caught up in the GST 
> net, less able to help those in need at exactly the time when their 
> services are most needed.
>
> And lets not forget that the biggest consumers of goods and services, 
> harbors of wealth and polluters are corporations. Why should they not pay 
> their way?
>
> IMHO what we now have in Australia is the most taxed economy in the world 
> that delivers the least services from government. I don't mind being taxed 
> to a pauper if I get treated like a king. But 60 per cent of my income 
> goes in taxes, while I get nothing from the government. A corporation 
> would likely leave a country if that happened to its shareholders, so why 
> should I be treated any less?
>
> Our new tax system has the federal government levying taxes on other tiers 
> of government, and these taxes are then added to the levies and fees those 
> tiers charge citizens.
>
> For instance, GST applies on stamp duty paid for houses. Stamp duty is a 
> tax levied by a state government and can be up to nearly 10 per cent of 
> the value of the house, depending on how it is calculated.
>
> The top rate of income tax, with (two) Medicare levies, superannuation 
> taxes, gun buy-back levy, higher education contribution scheme (government 
> loans for tertiary study) and various other taxes comes to about half what 
> someone earns. The top rate of tax cuts in at less than $US30,000. After 
> that, add the 10 per cent GST, various government cost-shifting exercises 
> and degradation of services such as health, pensions, and education and 
> the picture gets much worse.
>
> Dave, you will be here in a few months. Have a look around and speak to 
> people and see what their opinions are. Maybe things will change after 
> these "teething problems" are ironed out.
>
> I doubt it.
>
> cheers
>
>
>
> > As an economist, I felt it necessary to place the comments of Mr. Cochrane
> > in some perspective.
> >
> > The GST, in itself, it not inherently evil (much as we would like to make
> > it out to be). There is a very fine economic argument for the
> > implementation of a GST - individuals who consume more goods and services
> > should pay more tax, and this form of taxation is far broader and
> > infinitely harder to dodge, not to mention its contribution to promoting
> > greater equity.
> >
> > However, what is happening is that governments are taking a good idea and
> > getting the implementation all wrong. Ideally, the GST should replace
> > income taxation entirely - and if the economic calculus is done right,
> > there should be no significant changes in the tax burden faced by
> > individuals. Obviously, reality is not that simple, due to differences in
> > preferences and lifestyles between consumers, and the unwillingness of
> > governments to completely forgo income taxation.
> >
> > However, even granted these variances, there shouldn't be major changes in
> > the taxes paid by individuals. This is obviously not happening is
> > Australia, at least on the basis of anecdotal evidence. It has somehow
> > failed in its homework, or has intentionally done so to enrich its coffers
> > (for which, if true, they will likely pay the price at the next elections).
> >
> > I would argue that this failure to correctly implement the GST is not
> > inherent in the theory itself. As a counterexample, consider the case of
> > Singapore, which implemented a GST system some time in the 1990s. As part
> > of the tax reform package, it slashed income taxes at all levels, and
> > imposed a small 3 per cent GST. Despite the initial fears, most
> > Singaporeans do not now suffer from an increased tax burden, nor are they
> > clamouring that the government has 'mugged the economy'.
> >
> > Hence, rather than instinctively striking out at the failure of the
> > programme in Australia, perhaps we should also look at why it failed. Was
> > it due to negligence on the part of those who planned the tax? Or is it
> > simply a matter of teething problems, due to unanticipated realities in
> > implementation? And how fast is the Australian government working to remedy
> > this problem?
> >
> > As a final note, the OECD does maintain a blacklist of known 'tax havens',
> > and as a matter of fact, these countries are in the midst of an ongoing
> > struggle with the OECD. See the FT article reprinted here:
> >
> > http://www.globalpolicy.org/nations/haven/2001/0117truc.htm
> >
> > You can view the OECD tax haven report to ministers here:
> >
> > http://www.oecd.org//daf/fa/harm_tax/Report_En.pdf
> >
> > Hope this clarifies the issue.
> >
> > ----
> > Jamus Jerome Lim
> > Regional Economic Studies
> > Institute of Southeast Asian Studies
>
>
>
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