A New Tax System: The Theory

Last time I introduced the need for a fairer and simpler tax system and explained the benefits of an idea of mine. In this post I’ll explain how it works.

We start with a clean slate. Get rid of all existing taxes. GST, excises, stamp duties, FBT, income tax, company tax, superannuation tax, payroll tax, everything. Wipe it clean and disinfect it while we’re there… because it’s really dirty!

Now, charge a flat rate for the “costs of managing the contribution to the economy” for each and every financial transaction made in exchange for goods/services at all levels of the economy. The focus is on taxing the transaction rather than a company or individual.

Tax = Cost of Goods & Services x Government’s Take

Or

T = C x G

A good example of G to work with is the Australian Government’s current GST of 10 percent or 0.1.

However, not all things are created equal. The purchase of some things should be discouraged more than others. Introducing:

The D-Factor.

T = C x G x D

Where:

  • D = 1 for neutral dis/encouragement; no change to G (most stuff)
  • D > 1 for more discouragement (stuff that Big Brother – that’s the Government, for all you young reality TV buffs – on behalf of the voters/society, thinks we shouldn’t have as much.)
    • Zero < D < 1 for more encouragement (These things should be easier to afford.)
    • D = zero for full encouragement, cancels out G, ie. no tax.
  • D < zero for a rebate. Government actually pays you to buy these things, like the private health insurance in Australia which currently has a 30% rebate. It’s kind of like a bribe.

The total price paid is then:

P = C + T

Or

P = C + (C x G x D)

That’s it.

Next time I will explore the implementation; how we can build this friendly little beast of a system.

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