Pluck, pluck, goose

by on 5 July, 2010

A creative tax policy would greatly benefit the Liberal Party and Australia, writes Michael G.

Rather than oppose new taxes simply because they are new, we should oppose the overall level and efficiency of taxation. In engagement against the resources tax, these two principles should have formed the basis of opposition. In its original form, it was an inefficient tax that increased the overall taxation level: it penalised miners to the point of project cancellation, and the revenue received was not wholly used to cut taxes elsewhere.

However, this should not mean that a substantially modified (further than Gillard’s concessions) mining tax is a bad idea. The implementation of the GST by the previous Liberal government was used to decrease or eliminate taxation elsewhere.  We should always be open to taxation reform even if it introduces new taxes, but provided it satisfies the two principles.

Ultimately, all taxation comes back to penalise the individual and their family. Whether in the form of corporation tax, alcohol taxes, or bank taxes, the payees are not corporations, bottles of beer, or even the banks—but people, regardless of circumstance. Therefore less taxation is always a good thing.

But the means of collection and what is taxed (the efficiency of taxation) matters too. All taxation is an economic distortion of one kind or another, favouring or penalising choices made by people and business. To minimise this distortion is to maximise efficiency. For example, taxes on savings are inefficient, as they distort people’s choices from investment to consumption and therefore inhibit growth.

Internally, the Liberal Party should begin a vigorous debate on the merits of our current taxation system and present ideas for change. For all the criticism of the Henry Review and the response of the Rudd government, not yet has a liberal alternative been offered. In reducing the deficit the opposition must be commended for sticking to a mantra of spending cuts, but we have much more imagination than that.

The art of taxation is to “pluck the goose with the least amount of squawking”. When Labor introduced their mining tax, Australia squawked loud and was set to lose many feathers. But an invigorated Liberal Party can see to it that there is much less squawking—and that the goose can keep more of its coat.

Michael G is completing degrees in finance and history at Flinders University and works in banking.

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