A long overdue taxation
reform is in progress in Australia. It was announced by Treasurer Wayne Swan in August 2008, due for completion in 2009,
sometime. The question is, will it ask the questions we need answered? Examining only
what is there will not deliver the reforms we need. We need to look at the problems inherent in the system,
evident to every taxpayer in the nation, and look for what is there that caused them and what is not there yet, that could
70% of all taxation
revenue comes from 20% of the turnover of Australia as a nation, and it is mostly paid by the PAYG taxpayers.
Many of the thousands of major corporations and multinationals pay little or no tax, through either running their corporations
at a taxation loss, or shifting their incomes through elaborate structures to disperse it, or simply taking the profits offshore
to a regime where a much more favourable tax rate would apply. The same can be said of companies and GST,
as registered businesses can claim GST payments back from purchases, effectively passing on almost all of the GST they pay,
down to the consumers.
Again, it is the wage earners who have very few tax deductions, no way of passing on the GST and
effectively carry the burden of taxation in Australia.
Worse, the taxation level is not enough at
the current levels, to fund future development of the country of Australia, especially when considering the number of baby
boomers retiring in the next decade, reducing the wage earners number as a proportion, reducing the tax base, and considering
the new infrastructure needed, much of which is already inadequate and under funded. This is partly why
the “Future Funds” concepts have been created, to offset the problem. However, that can only
go so far. Either the capital value of the fund will be reduced, or only the earnings capacity of the fund
Our medical and hospital systems, and eduction systems are crying for increased funding, we have
shortages of both medical and teaching professionals, and no current budget to fund their education or the facilities to provide
it. The Murray River system has only months before the river system becomes virtually dead, but the current
budgets plan to take over 10 years resolve the problem. That’s too late! And there
are so many issues just like these in our community and in our nation.
The list goes on.
With another really nasty side too. This taxation system taxes initiative, and many good people
become criminals, by trying to keep more of their hard earned income in their pockets or bank accounts. Again,
this can involve extra bank accounts, expensive accountants, and energy and initiative that would be better directed into
enterprise than tax avoidance.
However, there IS a solution. An incredibly simple solution,
but it will require political guts.
What is it?
A TRANSACTION TAX at a rate of 1.5% on every bank transaction.
How does it work?
A simple explanation is that a person has their money put into their bank account each week, as they currently
do with their salary or wage now. When they go to withdraw all or part it, 1.5% is retained by the bank
and passed on, free of transfer fees, to the government treasury.
The same with corporate and company
income. Where many corporations now regularly shift funds from one account to another, under the Transaction
Tax regime, each time they shift funds, it would cost them 1.5%. They will find they will be better off
to leave it in one account until they need it for purchasing or wages or other genuine costs!
costs, fees and wages would remain the same as they are now, the difference is that when the recipient of the wages goes to
the bank to collect their wages and salary, all but 1.5% of it is there for them instead of between 15% and 46% less than
they were paid.
What could really upset some people is that they will see that their CURRENT bank fees may exceed
the total amount of tax they would pay under a transaction tax regime! That could force some welcome and long overdue
changes in bank fees policies!
The benefits of the Transaction Tax system:
It will give huge
amounts of money back to the people who earned it, and gather a small amount from the companies exporting profits and taxation
revenue and currently not contributing to the Australian economy where the profits were generated.
It will give purchasing
power back to the people.
It will boost the economy through increased purchasing power and a genuine
increase in living standards, through goods and services being more affordable to the people who can currently least afford
ALL OTHER TAXES ARE REMOVED, including stamp duties, GST, income tax, fuel excise, land tax and
any other taxation and/or government revenue raising scheme.
Huge amounts of bureaucracy can be removed,
as the need for taxation accounting will be virtually eliminated. There will be two types of accountants,
almost as there are now, but more precisely defined. The first type will be the bookkeepers we know today,
that simply do historical, monthly, quarterly or annual reporting of what has happened. The second level
of accountant will be the strategic management accountant that actively advises companies and corporations on business strategy
and future directions that will best enhance their performance and profitability. There will be no need
to lodge tax returns, although reporting of productivity and profitability will still be necessary for accurate national productivity
and infrastructure management.
Removing this level of bureaucracy will free up hundreds or thousands of internal
working hours within individual corporations each year, time that can be redirected into profitable productivity.
will also remove the necessity for the department and branch of government known as the ATO – Australian Taxation Office.
It can be replaced with a simple function within the Treasury Department, which records and collects the 1.5% Transaction
Tax and provides those figures to the government.
One of the disadvantages
that will be claimed by the current recipients of GST and other state and local government based taxes is that they will fear
the future distribution of funding from the federal level of government. However, in other strategy documents,
I will suggest that many of the functions that are currently funded by those levels of government need to be funded instead
from a federal level to be effective and efficient, such as having a national health department administration, and a national
standardised education system, both funded and managed directly from a federal level. While implementation
can be at a state level, a unified, national strategy is best in many areas of national infrastructure and policy.
Other funding can be disbursed as needed, into non-competitive areas such as roads, rail and port, infrastructure etc.
Currently, education and health compete with each other from state to state for funding, personnel and infrastructure
development. When federally funded, it becomes merely an administration of funding and development.
Real Estate and Building Industry Changes
A second disadvantage that will be seized
by opponents of the concept of transaction taxation is that the real estate marketing industry that has grown specifically
around negative gearing of property, may cease to exist. There are also people who will say that is
a great bonus. However, it will mean that people who currently invest in property for tax management purposes
will no longer have a reason to invest in property. In fact, they will have no tax management problems
at all – none of the population will!
However, there will be a genuine effect on the building industry, without
those particular investors in the market. What it will do though, is remove at least one third of the costs
of building houses and housing will become more affordable. The market will change and evolve, with the
previous investors perhaps not remaining property investors, but other people investing and becoming either property investors
and landlords, or new owner-occupiers. Property prices will level out to their new values, and buyers will
adjust to their new level of purchasing power, minus tax limitations, and the new market situation will develop.
There will be winners and losers along the way, but ultimately, the market will enable thousands of people currently
unable to buy a home, or unable to rent because of either price or availability, to achieve their goals of affordable housing,
and a fresh start into property and home ownership.
Australia relies on excise
duties on fuel for a huge proportion of revenue, used to financially run the country. With a transaction
tax, this excise would be removed, as income from the transaction tax would replace the income from it. The
benefit here is that we could then set the price of oil at its real price, which is the cost of production, refining, and
delivery, plus a profit margin, in exactly the same way that every other item of goods and services is priced.
“Singapore” parity pricing policy could be abolished and the cost of fuel would be halved or close to it.
The flow-on effects to our economy would be enormous – we have seen the incredible economic damage that the doubling
of fuel prices has caused in the last two years.
Currently, people and businesses earning larger incomes look
for ways to reduce their tax burdens and that is legal. however, when the amounts run into millions of dollars, a third
or half of their income earned, many look for tax havens overseas. This transaction tax regime has the potential to
reverse that trend and encourage people to keep their money in Australia, at our new lower tax rate.
It could also
have the effect of making Australia a place for multinational companies to headquarter their operations, rather than just
having branch offices here. The benefits could be in major employment initiatives for those administrations, plus the
investment in building and manufacturing should they move their operations entirely to Australia. We have some of the
best ports in the world, more space than most countries, room for expansion envied by all, and a basic infrsastructure that
is ready to expand. We also have a safe and friendly environment to work in. Adding a low tax business base to
that combination and major international investment is sure to follow, further boosting our economy and tax yield.
WHAT CAN YOU DO?
Look up TRANSACTION TAX on the internet; a GOOGLE search for Transaction Tax
will bring up websites such as FAIRGOTAX.ORG and other websites that explain the concept. The search will
also bring up sites discussing GST and other tax issues, and propose taxes ranging from .33% to 1.5%.
yourself about this crucial part of your life. Then talk to other people about it, write letters to the
editor, the treasurer, finance minister and Prime Minister, and at election times, ask your candidates the questions that
demand to be answered.