Book Sale

Tuesday 20 June 2023

A Terrible Idea


Image: Unsplash

For some people on the left side of politics a new tax is the solution to every ill in society. Hospitals are struggling, increase the Medicare levy. Roads are not being managed well, increase taxes somewhere else, or privatise road builds and allow private corporations to tax people for using things we are supposed to have paid for with our taxes in the first place. The housing market or the economy is struggling, so who can we tax? Show me someone to tax and let’s increase tax on them and their neighbour so the government has more money to spend. This is a constant call. The desire to give more and more revenue to a larger and larger state.

And because of this propensity to seek to solve everything with taxes, it is now being suggested we fight inflation with tax.

“Boomers are still spending. We need to hike taxes, not interest rates, to fight inflation…

…A simpler solution few people are talking about is raising taxes. Taxes also zap funds from consumption, and broad-based ones share the burden more widely than interest rates do.

The revenue must not be spent in an inflationary manner. But it could be spent on public interventions to unblock remaining supply bottlenecks and provide targeted subsidies for the vulnerable. Revenue could also be saved for later public projects, particularly in a downturn. Speaking of downturns, by distributing the burden more broadly, we mitigate the risk of sending particularly exposed households and businesses under and inducing a recession.

Presently, a mixture of corporate and consumption tax hikes would be appropriate. The New York Times’ Ezra Klein has called for a “progressive consumption tax” (a graded percentage of income minus expenditure). Income tax hikes aren’t the best tool right now, as wages aren’t a big driver of inflation, and what small contribution they make is wearable for the benefits. Plus, they too hit younger workers harder than asset-owning superannuants due to concessions.”[i]

This is a terrible policy and a terrible idea, the last thing our government needs is to increase revenue through something like a consumption tax (which we already have in this country by the way). But for some people every social ill is solved via a new tax, where money can be funnelled through government departments and spent in the economy at a reduced and inefficient rate to what it originally would have. But part of the reason we are in this inflation dilemma right now is because governments around the world decided to spend lots of money to prop up their economies so that they could do shutdowns. In 2020 alone, the Morrison government spent 320 Billion dollars[ii] and poured it all on an economy where people were then in turn banned from going overseas, so inflation was supercharged in our own nation. The only thing this could achieve is inflation.

Part of the reason we have inflation is because the government takes so much money and then borrows even more and then dumps a large amount of it back on the economy. Every time the government invests in housing to make it more affordable, the cost of houses increases, usually directly by the amount the government has given out for the stimulus. Every time the government dumps large amounts of money into the economy, we end up having an inflation cycle that makes everything more expensive for everyone else, like solar, and other “cheap” energy options for example. I remember this happening with gas cylinders when everyone was encouraged to put them in their cars. Once the government stopped the rebates, the prices of the cylinders came down dramatically. The current “no cost solar” schemes you see all over the place right now will cost you in the thousands for several years. You can have "free energy", as long as you are willing to pay through the nose for it.

The government already has enough of our money. However, there are exceptions to this which could be a wise way to go. We actually need the rich, you don’t want to tax the rich into oblivion, because all that high taxes do is change the behaviour of the wealthy. If taxes get too high they will simply move or move their money somewhere else. So, a good exception to these tax suggestions I would accept, is land taxes which would make it economically unviable for the wealthy to have multiple homes. The goal of such a tax would be to incentivize the wealthy to move their money out of investment homes, if this were coupled with tax breaks and subsidies for the wealthy to reinvest in production in Australia, actual local production, this could have a very positive flow on effect for the economy, pushing more money where it needs to be in production and the resulting jobs, rather than being hoarded in assets like housing and locking the less fortunate out of housing. So, taxes could be used to fight inflation, but they would need to be targeted in wise ways to redirect wealth, not confiscate it.

Also, higher taxes on immigrants and foreigners so that it is easier for Aussies to afford to live in their own country, would be another good idea. The Old Testament law made foreigners pay more in interest to function in the economy of Israel, and this acted as a defacto tariff which preserved the jobs of Israelites far more securely. My wife even suggested an idea that is based on the Scriptures, that family and locals should get the right of refusal on any property that is being sold, to be purchased at a fair price, that cannot be outbid, legally, by strangers, until family have said they will pass on the purchase. There are other ways to deal with these issues, such as the cost of living and housing, without simply giving more money to irresponsibly spending governments.

More direct means need to be taken, rather than giving the government more money to splash back on the economy (as if we can stop them doing that now). Negative gearing should be taken away, and other means which make planting money in the housing market less attractive for the wealthy. The kind of taxes that change behaviour rather than increase the governments pool of money are sensible. As I noted, we don’t want to punish the rich or get rid of them, we want them to be incentivized to put their money into productive capacity, something our current economy disincentivizes. Even better would be laws which place limits on how many homes people can own, a decrease in immigration, debt forgiveness for those who are in the harder parts of financial stress, temporary price fixing economy wide, so that inflation can be arrested - these would need to be short term, and society wide, you can’t just fix the price of rent, if the price of lightbulbs, door handles and plumbing continues to go up, because then landlords will not be able to maintain homes (which I suspect might be the intention of some of those supporting such policies, and this is understandable really, people are sick of the rich hoarding homes).

However, despite all of this, it is good to see people suggesting different policies to solve this crisis. Keep the ideas coming. Share them with the influential, perhaps this crisis can be stopped, and housing can be brough back into people’s reach. My ultimate policy desires in this regard would be debt forgiveness with moratoriums on debt being lent out. If we can’t get this, let’s see what else we can get.  

It is a terrible idea to encourage our government to take just to spend more, but redirecting where the wealthy place their money has potential to achieve some good.

List of references

No comments:

Post a Comment