The Value of Simplicity: Flat tax?

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One of the universal burdens today is the increasing level of complexity in everyone’s lives. From the poor to the rich, everything seems to be hard to understand, time consuming and bureaucratic. Business has pushed a great deal of customer service back onto the customer, it saves them money, but it costs us time. Who wants to call any kind of customer service line these days? Increasingly, our contact with any kind of organization; private, public, whatever, is an experience to be dreaded. Some may see this as trivial, but such day-to-day experiences colour our world. Hanging on for 40 minutes to talk to Telstra, the ATO, a bank or insurance company, creates a ripple of cynicism, resentment and disengagement that affects every level of society. The almost universal hatred of call centres increases our feeling that even when we are spending money, we have no value. The customer, the consumer, the voter, the citizen do not matter anymore.

Yet, like recalcitrant adolescents, we are constantly being exhorted by governments of all persuasions to take more and more responsibility for ourselves.

I remember Mark Latham as a lowly backbencher speaking at a seminar I attended some years ago. He waxed lyrical about all the fantastic freedoms new technology would bring us; we would even be able to diagnose our own illnesses on the internet, he claimed. ‘But I don’t want to diagnose my own illnesses,’ I told him, ‘Because then I’ll have to diagnose my kids and my husbands as well. I don’t want any more tasks, any more responsibilities. I can’t handle the ones I’ve already got.’ He blinked at me, uncomprehendingly, behind his glasses. Just because we can do something, doesn’t mean we should.

Here is a real opportunity that the ALP, in their haste to be John Howard-lite, has so far failed to understand; the conservatives may have pushed their emphasis on personal responsibility too far, particularly for women. Women don’t want any more choices and responsibility; we want less. Mothers in the paid workforce, particularly, do not want any more work. We don’t want to choose our own super fund, for example. As long as we’re not being ripped off blind, truth be told, we’ll happily pay a little extra to gain a bit of time and simplicity. Every working mother, when she finally collapses on the couch at the end of her busy day, has a list of jobs she hasn’t yet done, most of them tedious paperwork and administration.

And if she or her husband are among John Howard’s chosen people and run their own business, the list of tasks she has not yet done is even longer and more demanding.

One of the major complexities facing everybody these days is tax. Nobody enjoys tax return time. If we could measure such things, it would be interesting to see what happens to the collective mood around the end of June. Forget IR or unfair dismissal laws, the thing that’s really holding back enterprise and business and infrastructure investment is the vast, unfathomable, ever changing complexity of our tax system.

Flat taxes have long been the hobbyhorse of the conservatives, but should they be? As Richard Denniss said, (Words are bullets, NM 7/6/05) ‘…there is no safer strategy than stealing your opponents ammunition. Not only do you rob them of their own arsenal, you can sit back and enjoy the confusion as they try to defend themselves against the weapons they so carefully designed.’ I am no economist, but I did run a small business for a while recently and it turned me implacably against our tax system.

Eight countries in Eastern Europe now levy flat taxes. Estonia was the first in 1994, levying a flat tax of 26%. Such was its success; they are now talking about lowering the rate to 20%. Russia now levies a flat tax of 13% and a ‘careful study’ (according to The Economist) by Anna Ivanova, Michael Keen and Alexander Klemm has found ‘a conspicuous increase in compliance with tax authorities…In the year before the flat tax, Russians in the two higher tax brackets reported only 52% of their income to the taxman. In 2001, after falling into the new all-encompassing 13% bracket, these same households reported 68%.’ Some argue flat taxes increase people’s incentive to work hard, but The Economist goes on to say, ‘Russia’s experience suggests the principal virtue of the flat tax is its simplicity. The government’s revenues did not surge because Russians suddenly squared their shoulders and straightened their backs. Rather, Russia’s tax system became easier to administer and easier to comply with.’

Other governments of a wide range of political colours are beginning to reconsider the merits of a flat tax. The Dutch Finance Minister, Gerrit Zalm, has said he is considering it, and advisers to the left-of-centre governments in Spain and Germany have done serious feasibility studies on flat taxes. Isn’t it, perhaps, worthwhile the ALP doing the same?

As I say, I am no economist, but wouldn’t it be worth looking at what might happen if we raised the tax-free threshold to, say, $25,000 pa, to protect the lowest income earners, and then took a flat percentage of every dollar earned above that amount, by both individuals and by companies. We could keep the GST (but levied on everything) to maintain a tax on consumption, but get rid of virtually all other taxes and government subsidies. No negative gearing, no primary producer’s status, no payroll taxes, no tax deductions, no point in paying accountants big bucks to minimise tax. Perhaps we could begin to unravel decade’s worth of complex tax law and really save Australian voter’s time, misery and money, while still maintaining our revenue base and the public services we offer.

Look, flat taxes are just an example and may or may not really be feasible, but there are lots of other new and innovative ways of doing old and cumbersome things that could improve everyone’s lives. And, I must say, I get a kick out of imagining the consternation on the other side of politics if the ALP ever did recommend a flat income tax.

Keating and Hawke understood the idea of simplicity very well back in the 80s and 90s. The GST was originally their Option C and Howard’s current identity card suggestion is a re-run of their Australia Card. Unfortunately, in both those cases, it is the Liberal’s who have stolen ALP policy and, at least in the case of the GST, made it work very well for them.

Perhaps it’s about time the current ALP started to do the same?

A couple of weeks ago, New Matilda published a policy piece of mine (link here) in which I argued that the progressive side of politics are the only people who really value true merit, because of our emphasis on equality of opportunity. In that article I also cautioned against appearing to punish those who succeed. My thesis is the perception that progressives and the ALP are opposed to success is one of the main blockers to achieving government. I believe a powerful and coherent argument can be put that emphasises the importance of equality of opportunity, the value of true merit (as opposed to membership of the lucky sperm club), and the importance of then rewarding those who do well, perhaps through the tax system.

We will only take the wind out of the conservative’s sails if we re-invent ourselves; if we can maintain our values, but find new and surprising ways to realise them. Mouthing motherhood statements won’t get us anywhere. Purism only makes purists feel good. We need to look at all our principles and recognise they only have value when we act on them. Instead of always appearing purse-lipped and disapproving, the left need to access their generosity of spirit.

References

Words are Bullets, Richard Denniss, New Matilda, 7th June, 2005

The Case for Flat Taxes, The Economist, 14th April, 2005

Flat is Beautiful, The Economist, 3rd May, 2005

The Burden of Complexity, The Economist, 14th April, 2005.

A Promising Alternative, The Economist, 27th November, 2004

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