Over the past couple of weeks I've been giving a lot of thought to taxation in Australia, particularly given the passing of Gough Whitlam and the great impact he had on the operation of Australia.
For some time now I've been a supporter of tax equality. For those of you who are less familiar with taxation systems the concept of tax equality is that everyone should be taxed the same regardless of their financial status or any other factors that might cause a person to be taxed more or less than another person. Not to get too far from my intended topic but tax equality is great not only for promoting equality but it also means people are not being punished for their success or rewarded for their underachievement (not to say everyone in lower income groups are underachievers).
But my thoughts of late have been more pragmatic and focused on the application of taxation to the nation and the efficiency of the various forms of taxation.
At the moment we have three main internal forms of taxation which take the form of the income tax, corporate or business tax and sales tax. There are a whole slew of other lesser taxes such as capital gains, fringe benefits, etc. but the main points at which the government takes it's cut of all money in Australia is when it's paid to an employee, when someone buys a product and when it's received by a business.
Is having these three tax points in the life cycle of the dollar the most efficient way of obtaining government revenue? I'm not so sure. Now these three taxes all have long-standing traditions and all have their merits but to take a purely efficiency-minded axe to them we need to consider what they achieve and what is needed for them to achieve such goals. The goal of taxation is of course to keep government funded so that the public services of the nation can continue to function. The government needs a certain level of income each year to be able to function. To do this it has set up the several forms of taxation to extract money from the economy which it can then put back in as government spending. The idea is that government will allow for focused efforts on necessary services that aren't necessarily profitable and would be neglected or mismanaged by the private sector.
So the first question we need to ask is if the government needs X amount of dollars to fulfill it's commitments why does it need so many different kinds of tax? One reason is that to only have one tax might seem overly onerous on the applicable sector however we all know that any increases in taxation get passed on to me and you as a consumer. If the government adds a dollar per packet of excise tax to cigarettes the company doesn't pay that dollar for you, the smoker pays that dollar. This applies to both sales tax and business tax. Income tax is also clearly applied to the individual so when it comes down to it we can see that all taxation is carried by the individual people who make up a nation one way or another.
Which leads me to ask why tax it at different points in the cycle of money? Certainly I can see why some people or groups would want it that way but it's not efficient and it's not practical. The most practical method of extracting tax would be to do it in as few transactions as possible and with as little additional administration as possible. The answer is businesses. The vast majority of businesses already track all their incoming and outgoing expenditure in detail, that information is valuable and useful and enhances their ability to conduct business. So they have already done most of the work. If all tax were paid by businesses for us there would be no need for individual tax returns or sales tax, just a single tax payable by all businesses on money they are tracking anyway. Minimal administration, no need to have the bumbling masses struggle their way through a complicated tax return. The government wouldn't need to employ hundreds and thousands of people, publish detailed guides and have websites built to assist the entire population with understanding and filing tax returns and then auditing those people and punishing them for messing up the whole complicated system.
Could save us all a lot of effort and money.