A Fair Tax & Welfare System


Looking increasingly like a viable career option for todays youth, post budget

It was a very simple and, I thought, unarguable proposition, encapsulating my visceral disgust at the Budget. A budget for which the government – and lets be very clear about this – has no authority. I posted on Facebook:

“In a decent well run democracy, it is the governments job to provide a good education, useful and remunerative work, adequate food and clothing, a decent home, adequate medical care, and protection from poverty due to old age, sickness, accident and unemployment. It is society’s job to pay for it, each of us in proportion to our means. This budget shows this government is refusing do its job, and should be fired.”

“But they won the election Doug. You can’t argue with that!”

Actually, I can. I have written before about how, despite a large majority of lower house seats, this government has never had the confidence of a majority of Australians. On top of that, it has clearly – and despite the spin coming from Canberra, there’s no way round this – lied its way to this narrow victory, holding the reins of power through an act of fraud on the public.

“When a political party hides the real agenda and lies – there is no mandate. The Muslim Brotherhood in Egypt got elected doing the same thing – look where it got them,” Ian Rudd, commenting on The Conversation.

Despite this almost non-existent authority, the Coalition government has now produced a budget of monumental viciousness – a cowardly and bullying act attacking people who cannot hit back, and what’s worse, going against everything liberal democracy stands for.

My post on Facebook articulated the implied contract between citizens and government, as I understood it to apply in the country of the “fair go”. It was hardly an original proposition – it was first put forward by US President Franklin D Roosevelt.

I was astonished to find that some people strongly disagreed, calling my statement “communist.” How can people even begin to disagree with the basic proposition that we are all responsible for one another? None of us exists in a vacuum.

Certainly there are arguments to be had about how to fulfil the obligations. Communism would say the state should provide everything. Laissez-faire capitalists say everything should be provided by them, at a suitable profit, of course. My own view is that it doesn’t do to be doctrinaire. Some things are best under government control, some in private hands under government supervision. Nor do I think that all inequality can or should be eliminated.

. . . some economic inequality is necessary. Society still needs to reward those with specialised skills and talent, and reward entrepreneurialism, hard work and risk-taking. But a high level of inequality curbs economic growth and promotes poverty; creates crime and terrorism; and erodes the very foundation of democracy. (Business Spectator)

To all those who say that everyone should take responsibility for themselves, I tend to agree. But what about those who can’t, for whatever reason? Are we to avert our eyes, stick our fingers in our ears, and step over their corpses in the street? Of course not. That only creates a world in which crime, drug dealing, founding a religion, and prostitution become attractive and viable career options, like the USA. No, whether we like it or not, it is not just our duty as citizens to look after all members of society, whether we like them or not. It makes economic sense.

It costs $2,100.00 a week to keep a person in prison, and that’s without costing the damage caused by the crimes themselves. Paying a decent level of dole is a cheap insurance policy. Which is why we pay taxes. It’s the price of citizenship. It’s the price we pay to live in a safe, decent society. But how to set the price?

At the bottom of the pyramid it’s fairly easy. The people who need help cannot afford to pay anything, so we have to give them enough to do so, and thereby have them ‘buy in’ to the social contract. This gives us a benchmark: the scientifically established minimum income necessary for an individual to house, clothe and feed themselves adequately, buy fuel, water and telecommunications, and meet the necessary expenses that enable them to work, such as transport. With a bit over for entertainment and socialising. And pay their tax.

This also establishes the correct level of  the minimum wage, and the benchmark from which we can derive the correct level of benefits. Then, once everyone’s income is brought up to this decent minimum, everyone – no exceptions – pays a flat tax of 10% – no exceptions, allowances, offsets, deductions or any other dodge. That takes care of the bottom segment of society.

Leaving aside the middle for the moment, let’s look at the top. Senior managers, directors are paid very high multiples of the wages paid to their workers. In the past this might be somewhere around 12 times, at the most. Nowadays it can be 500 times, or more. Let’s be generous and allow that the highest paid individual in a corporation may receive up to twenty times the salary of the lowest paid person in the company. Up to that level, their taxes should be the same as everyone else. All income above that, should be taxed at 95%. What! 95%??

Yes, because, quite simply, they do not need the extra money. No-one does. And giving it to them does no good. It does not incentivise. It employs virtually no-one. Almost none of it drives any economic activity – trickle-down economics doesn’t work. Mostly it just sits and accumulates, draining life out of the economy. As Business Spectator puts it:

Since the wealthy spend a lower proportion of their income than either low- or middle-income earners, it logically follows that higher concentrations of a country’s income and wealth among the few weighs on demand for consumer goods. Money that is taken out of the pockets of lower income earners is money that won’t be funnelled through department or retail stores and money that won’t find its way to employees, business owners or shareholders. A cut to welfare for the poor is a cut to a business owner’s bottom line. [And by the same logic, excessive pay to the rich has the same effect – Doug]

If they don’t want to give the money to go to the government, they can give it away to charities of their choice, on condition they have no connection with those charities. They must genuinely give it away, retaining no control, to bring their incomes below the threshold at which 95% tax applies.

That leaves the middle band. For too long this group have borne the brunt of taxation, principally because they are, like a captive herd, very easy to milk. They are generally in professions or salaried employment, with little or no accumulated wealth, dependent almost entirely on earned income. On top of which, the Coalition has brainwashed them with the myth that tax = bad. As a result they are nowadays very resistant to paying tax, and who can blame them?

Caught between those below them, unable to pay, and those above, evading and avoiding their obligations, they rightly distrust the whole business. We need to regain their trust and, as far as possible, make them want to pay tax. The flat tax of 10% – no exceptions, allowances, offsets, deductions or any other dodge – that everyone will pay, including welfare recipients, should help them feel the system is fairer. The greater burden imposed on the truly wealthy would likewise help them to feel they’re not being unfairly targeted.

But a flat tax is still unfair, because it hits the less well-off harder than those further up the scale. Take 10% away from someone earning $40kpa and they will struggle. Take it away from someone earning $140k a year and it makes them slightly less comfortable. And on its own it would not raise enough.

A consumption tax like the GST suffers from the same problem: it hits those least able to pay hardest. On the other hand, it’s difficult to evade – unless you’re one of the wealthy. Perhaps an annual impost on high net worth individuals trusts, shares and property holdings, at the same rate as the GST, would capture that.

So in the middle tranche, I propose all pay a gradually rising percentage in tax on income over the minimum tax threshold we set earlier. So that first segment of income would be taxed at a flat 10%, the next segment at 15%, the next at 20%, and so on, however many segments we decide to create. The exact rates and thresholds will of course be determined by calculating how much money the government needs. And against these additional tax levels we can allow a few carefully targeted allowances and exemptions.

Another tax that should never have been done away with, and helps to make society fairer, is death duties. Without them, wealth tends to accumulate where it does little good. It leads to lazy money, and lazy people. But if they were brought back, there would be fewer idlers living on wealth accumulated by previous generations, instead of generating more wealth through their own efforts. Bill Gates of Microsoft understands this, giving away most of his vast wealth, and telling his children not to expect more than a – still generous – token amount.

I’m only concerned here with personal taxes. There are many corporate tax avoidance shemozzles which need to be shut down, like the export of profits to low tax regimes, and the corresponding import of losses to higher taxing jurisdictions. In the long run this can only be tackled by international agreement, but in the meantime we could try taxing the income or turnover, rather than the profits, of multinationals trading here. Or take a slice of the money as it moves through the banking system. Cleverer people that I will have to work this one out.

It’s time we heard, particularly from Labor, some detailed plans of this sort for a root and branch clean up of the tax and welfare system. It’s not enough just to shout, Bad Abbott, Bad Treasurer! They need to articulate what they would do instead.

Given the fraudulent way in which this government gained power, they have every justification for voting down appropriations bills and blocking supply, forcing the Governor General to dismiss Abbott & Co and bringing on a double dissolution election. But since they are apparently devoid of both courage and principle, there will probably be dreary ongoing unedifying skirmishing instead, which will give the Coalition time to backtrack and recover in the polls.

Perhaps I’ll leave the last word to Mr Abbott’s presiding deity, the Blessed Magatollah. I rather think she would like my proposal. Margaret Thatcher, talking to Women’s Own magazine, October 31 1987, said:

“I think we’ve been through a period where too many people have been given to understand that if they have a problem, it’s the government’s job to cope with it. ‘I have a problem, I’ll get a grant.’ ‘I’m homeless, the government must house me.’ They’re casting their problem on society. And, you know, there is no such thing as society. There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first. It’s our duty to look after ourselves and then, also to look after our neighbour. People have got the entitlements too much in mind, without the obligations. There’s no such thing as entitlement, unless someone has first met an obligation.”

About the author

Veteran gay writer and speaker, Doug was one of the founders of the UKs pioneering GLBTI newspaper Gay News (1972) , and of the second, Gay Week, and is a former Features Editor of Him International. He presented news and current affairs on JOY 94.9 FM Melbourne for more than ten years. "Doug is revered, feared and reviled in equal quantities, at times dividing people with his journalistic wrath. Yet there is no doubt this grandpa-esque bear keeps everyone abreast of anything and everything LGBT across the globe." (Daniel Witthaus, "Beyond Priscilla", Clouds of Magellan, Melbourne, 2014)