Ever dreamt of an alternate social system? Glenn Thorpe has. This is what he came up with:

Liberals used to stand for liberty, they used to trust that the summation of individual decision created the society we want to live in. It is they that have moved to the left, they have become the Labor Party. It is as if the Greens had been told they could have power if they supported pollution, and they accepted it.

Nowhere is this more noticeable than in the size of government. In 1992 I undertook relatively detailed research into an alternate social system. The basic tax system outlined here would have cost a flat 44% of income in 1992. It was particularly ugly, Australia’s financial situation was then at its lowest. The basis of the system was:

  • Total-Tax-Take – 44% of income
  • Income Tax – 27% flat, to raise 60% of Total-Tax-Take;
  • GST – 12% – to raise 20% of Total-Tax-Take, equivalent to 8.5% Income Tax;
  • Asset Tax – 0.35% – to raise 20% of Total-Tax-Take, equivalent to 8.5% Income Tax;
  • Company Tax rate – 19% – because the Asset Tax is imposed on every entity, this provides relief from one Asset Tax imposition;
  • MCS payment – $3,400 (2004 $’s) – untaxed Marginal Cost of Support payment to every man, woman and child
  • UCOW payment – $900 (2004 $’s) – Unclaimable Cost Of Working paid to working adults not receiving any non-cash benefits from working. This is the tax payable on an income of the MCS, which at $65pw is a fair and reasonable amount for transport costs.

Details of this system were submitted to various reviews of government processes including, in 1999, to the Ralph Review of Business Taxation (Submissions to A Platform for Consultation, submission No. 84).

The amount raised by the GST is actually higher than expected. In its current form (10% with exemptions) it raises some 8.3% of income, which is close to what a 12% GST without exemptions was expected to raise. The (progressive) Assets Tax rate of 0.35% was selected to raise the equivalent of the amount raised by the (regressive) GST. An Assets Tax achieves the same objective as the higher Progressive Tax Rates, but in a more effective and efficient manner.

In the 12 years since I undertook my research incomes in Australia have risen by 71.5%, which is some 30.9% over the CPI increase for this period. If the same tax-take in CPI terms is taken today as was taken in 1992, a rather less ugly incantation of my advocated system would be:

  • Total-Tax-Take – 34% of income, down from 44%;
  • Income Tax – 17.5% – down to 52% of Total-Tax-Take;
  • GST Rate – 10% – as is, 8.3% of income, or 24% of Total-Tax-Take
  • Assets Tax – 0.35% – as initially proposed, 8.3% of income, or 24% of Total-Tax-Take;
  • Company Tax Rate – 9.5% – down in line with income tax reduction
  • MCS – $3,400 – paid to every man, woman and child
  • UCOW – $600 – Reduced from $900 as the tax payable on $65 pw has reduced to $612 pa.

In this system I have left the GST rate as is because the commitments made when the GST was introduced make it impractical to change it. The Asset Tax rate has been left as is because I believe should raise an equal amount as is raised by the GST. Reductions have therefore all been passed to the Income Tax and Company Tax rates.

The fact I am trying to highlight is that government spending in the past 12 years has risen astronomically. Much of this increased spending has been towards targeted assistance (childcare subsidies and the like), which used to be against the grain of liberal philosophy. Defining government responsibility as providing the marginal cost of support to all results in a default personal responsibility of providing a household and caring for dependents. This provides a system simple to administer, efficient to run, fully defined and perceived as just.

There are two things within the system outlined that stick in the craw of many people. Firstly the MCS is perceived as paying money to people for doing nothing. This is shallow and out of touch with reality. The only adults not getting equivalent advantage today are the self employed who happen to lose money for a year. All working adults get equivalent advantage in low tax rates on the first $22,000 of income. Anyone getting less than $15,000 pa gets a welfare payment which includes the MCS component.

The second is that the proposed Assets Tax is another tax and more impost on people. An Assets Tax of 0.35% provides substantial tax relief to income earners, and also to richer people who use their assets to generate income. People who use large assets to maintain lifestyle are those that are imposed upon, and for this I offer no apology.

Even without an Assets tax the Individual Income Tax rate, and Company Tax Rate, would be only 26% if government spending now was equal in CPI terms to 1992 levels. This is while providing full MCS payments to all, which replaces current income tested Family Payments, non working spouse payments and advantage from low tax rates. That current discussion on replacing the progressive tax scales with a flat tax rate focuses on a rate of 30 odd percent, that the discussion is also about income testing the advantage currently provided by low tax rates, and that there is no consideration of abolishing income testing on child payments is an indictment that the Liberals have moved so far towards government control of so many aspects of our lives. Liberty has been removed from the Liberal philosophy. A name change should be considered.

Glenn Thorpe is a social commentator and is responsible for producing MOTHER, a software package that calculates and compares Take-Home-Money and Effective Marginal-Tax-Rates for Australian families

Peter Fray

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