An Australian Tax Prospective 2014. (Any country really). By an average bloke, just having a mutter. (It feels better after!).

Bashing the rich for additional tax drives many of the prosperous and their businesses offshore to a more favourable location, thus, sooner or later, losing jobs at home with the end result that less tax is collected.  Increasing tax on the rich therefore results in less tax collected over time rather than the desired increase. And less jobs! A classic case recently was a European footballer who left his home country to play for a club where his tax break was better and stated that was the reason for doing so.  A business is no different, moving their financial headquarters to where the tax breaks are most beneficial, and shifting their manufacturing to countries where labour is cheaper.

One fairish tax in Australia is a Goods and Services Tax. A rich person might use a $400 a night hotel, a less well off person a $100 hotel. The GST paid by the rich person is four times that of the less well off. On the other hand, imports under $1000.00 are exempt GST because it would cost the government more to collect the tax than the money collected  (Never mind the cost of time wasted  by the receiver in clearing such a parcel through a post office or similar).  

It’s all very difficult.

Basically I have problems with any tax increase, levy or government borrowing.

Firstly, a tax increase makes a country less attractive as a business base. The result is less business, less jobs and less tax eventually collected.  Any tax will have this derogatory long term effect.  A tax or levy increases the cost of living and reduces job opportunities.  A country becomes less competitive, on the now global platform, and loses out. In the new “global” world, countries have to be competitive. Higher taxes reduce a country’s competitiveness  making it worse off. The creation of government jobs just increases the amount of tax that needs to be collected to pay for wages and associated infrastructure. New jobs, like it or not, are required in the private sector, not public.

Secondly, any increase of tax revenue going to a government, then that government will spend it and after not too long a period of time, there will yet again be insufficient funds. Passing more money to a spending addict makes no sense.

Thirdly, borrowing will put our children deeper in debt. This is not only selfish but totally unfair for our children.  What right do we have to do this? It’s un-Australian!  Interest rates will eventually go up to increase this already heavy burden making it more difficult for the next generation to repay. And why should they shoulder our debt?

Fourthly, selling off the government owned infrastructure means the present generation is living off the assets created by the previous generations.

Fifthly, we need a futures fund for any coming emergency. One will come, a pandemic, plant, insect or human disease, bioterrorism, natural disasters and the like.

Increasing taxes is the easy looking short term answer, but totally the wrong one for long term. Borrowing is a ruinous policy. We have no right to put the next generation in hock.

In Australia there has been considerable recent activity on trade agreements with China and India.  Yes, world trade is global and Australians are part of it, whether we like it or not. In the longer term, if we do not get our balance of payments under control, Australia will become easy pickings for those with the money. China for example will be able to buy even more Australian businesses and properties. China is already doing just that. India too, more so in time. Put bluntly, we have to start living within our means or eventually sell our assets to pay off our loans. We will become easy pickings. China and India may well do with money what the western world was unable to achieve by military domination over the centuries.

If we are to resolve this, tax increases do not solve the problem. One possibility is to cut our cloth to suit our sail. If so the sooner the better and the less bitter the pill will be to swallow.

But we won’t!

We will bumble along saying we need this, we need that, at the same time refusing to cut. We will carry on borrowing, feeling good in the lucky country, borrowing for what we cannot afford. This is a toxic attitude in the current circumstance.  Clouds are on the horizon as a precursor to a future storm.  Do our children deserve it?  This may be the “selfie” generation, but it is also the selfish generation. There is a culture of “What do we want? When do we want it- NOW”, borrowing from the future generation, selling  government assets built up over past generation (privatisation) and not voting for any party or politician who does not give us what we want.  Gimme, gimme, gimme.

Give yourself a little test and imagine you are in charge of the country’s finances. What action would you take?

A.   Raise taxes.  Which taxes and where?

B.   Continue borrowing.

C.   Reduce spending. Where?   Defence, health, education, the size of government itself?

D.   Carry on along as we are, hoping the problem will go away or be resolved by someone or something else?  “She’ll be right mate”.

E.    Sell off more government assets.

F.    Some other consideration or mixture.

The ideal world where we are pouring our money into schools, hospitals, aged care, foreign aid and all the other many requirements, has to be paid for. How?  I do not know of any country that has spent its way out of trouble. A borrowing  policy may have a short term beneficial effect but, in time, the money has to be paid back. Some politicians may like the borrowing concept because it keeps them in power a little longer.

But we need to secure our future.

Challenge yourself. What would you do? The medicine is going to be difficult to take. Scary stuff!  Especially when it is unlikely that the voters will be prepared to swallow the pill. The voters want ice cream and will vote for the party that offers ice cream for “free”.

The longer we leave it the more drastic the action will have to be in the end, and consequently the more damage done to the economy. There is an elephant in the room and it’s called “debt”.

So to heck with voting for this party or that. It matters not whether you like him or her as a politician. Nor is it of consequence which party does it, but we must reduce debt and hopefully move into credit for the rainy day. It is essential that someone gets into power who can sort out the deficit troubles. And, even then, if, miracle of miracles, we do to fix the problem, we will debate whether it was all necessary for many a year after.

Where to Australia?