Making Work Pay

The Progressive Policy Institute has released a paper proposing an expansion of the US Earned Income Tax Credit, which happens to be one of my favourite policies. It also contains a useful discussion of the various presidential candidates’ proposals to expand the EITC.

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32 Responses to Making Work Pay

  1. Kevin Cox says:

    I quite like EITC myself but it seems to be complicated, administratively complex and it requires everyone to go into paid work. There is a simpler way of achieving the same result that will cover other people – such as women who want to stay at home, artists that are prepared to work in an attic, craftspeople who would like to start a business etc. The idea is to give everyone a basic flat living wage that is untaxed. This included billionaires. Everyone who now earns any income automatically gets tax taken out at the time of receiving it. This can be “progressive” in the sense of the more you earn in a year the greater the amount and it can be done “in real time”. A system like this would reduce the cost of administering the bulk of taxation receipts and spending of taxes and save heaps.

    It does not discourage people working and if people decide they are happy to live on the basic living wage then so what. Everyone else gets the wage so it cannot be seen as “bludging”. My rough back of the envelop calculations suggest a wage of the old age pension for a married couple as the basic wage for adults with 50% for children up to the age of 18 will require about 25% flat tax if it was decided to be a flat tax would work for Australia.

  2. Equitist says:

    Whilst the EITC has its merits, I also favour replacing the GST (and other Taxes) with a truly simplified Tax system revolving around the no exceptions Debits/Financial Transactions Tax (FTT) of, say, 1%.

    I note that some claim that as little as 0.02% FTT would suffice. Personally, I would advocate for 1% because it is simpler to estimate.

    The FTT was never seriously considered in Australia but was given some attention in New Zealand, before being shot down by vested interests. No doubt this was because the FTT is infinitely more progressive than the GST.

    One of the main advantages of the FTT, is that it relieves small-medium sized businesses of the unreasonable red-tape burden of playing tax collector. Moreover, the FTT would free up many skilled workers who are currently involved in shuffling and auditing Taxation paperwork and would shift the collection and reporting burden to those financial institutions who are already well-placed in terms of IT capability.

    Of course, a FTT would trigger some fairly predictable Tax-minimisation behavioural changes at the corporate level – but this could be relatively easily modelled on a worst-case scenario.

    I really think it is time to close some of the Tax-free loopholes enjoyed exclusively by indivudals and corporations at the top end of town, who are presently able to avoid GST on domestic investment and off-shoring transactions because they have discretionary income to play with that the majority of us simply do not have access to. A no-exceptions FTT would therefore seem to be the most progressive way to Tax the activities of the elite and incorporated in the most parasitic sectors of our economy.

    If a FTT proves equally or more successful in generating broader-based revenue relative to the GST, then it would be appropriate to address a whole raft of other overly complex and regressive Income Tax deductions, rebates, offsets and concessions, etc. For obvious reasons, the nett socio-economic impacts of the FTT and EITC could be simultaneously modelled.

    PS Meantime, we should be promptly addressing the increasingly counter-productive and regressive Superannuation Tax Concession scams which are draining current Federal budgets, and primarily benefitting white wealthy males – without significantly addressing the purported intergenerational inequities nor substantially increasing the self-sufficiency of the majority of retirees. In lieu of the current regressive scams, I personally favour a national collective Superannuation scheme similar to the Future Fund. Perhaps AL could start a new thread on this in due course.

  3. backroom girl says:

    “My rough back of the envelop calculations suggest a wage of the old age pension for a married couple as the basic wage for adults with 50% for children up to the age of 18 will require about 25% flat tax if it was decided to be a flat tax would work for Australia.”

    Kevin – unfortunately, I think it would cost rather more than that. Peter Dawkins did some work on this some time ago (late 1990s I think) and from memory the flat tax on private income would have had to be over 50%. Most people would not consider that a real improvement on what we have now, even though it would be a lot simpler.

    What I would say on the EITC is that we do not need another layer of tax/transfer complexity on top of what we already have in Australia. As far as families with children go (the main target for the EITC in the US), we already have FTB, which some would think has the virtue of not being targeted only to people in paid work. For people without children, I do not believe that there is really a problem with work incentives in Australia (at least not with the incentive to move from unemployment into full-time work – incentives to move from part-time to low-paid full-time work can be a little more problematic).

    Most people do not realise that Australia does in fact have one of the most comprehensive systems of income supplementation for low-paid workers in the developed world – a fact confirmed by the OECD in its regular surveys of the interactions between wages, taxes and benefits. It’s just that we don’t label any of our programs “Earned Income something”.

  4. derrida derider says:

    I see Kevin has reinvented the Basic Income/Flat Tax proposal – first posited by John Stuart Mill in the 1830s, reinvented in the UK during WWII by Lady Rees-Mogg and re-reinvented in the 1960s in the US by Milton Friedman. Yea, verily, there is nothing new under the sun.

    bg is right – if we want an EITC we need to build our assistance to low income families around it, not just add it as another complex and incomprehensible instrument on top of the range of ones we already have. And it’s not clear that that would be any better than what we have.

  5. Kevin Cox says:

    derrida the difference between then and now is that we have the information infrastructure to make it happen. Lots of good ideas have never got off the ground because they were impractical. I would suggest people start to dust off a few of the oldies but goodies and give them another run. The Internet and massive computing power has changed things and it is now practical to do things that were previously impossible – and to do it in ways that do not infringe on our privacy or security.

  6. derrida derider says:

    Well, yes, here are many policies that once weren’t administratively feasible but are now – not all of them good ones, unfortunately.

    But a BI/FT isn’t one of them. It has always been more administratively feasible than any alternative because of its extreme simplicity. The problems with it lie elsewhere – and I say that as someone who (as bg will know) is a long-standing advocate of the idea.

  7. Kevin Cox says:

    bg here are some rough numbers

    What they say is that not even counting the 10 billion or so savings in administrative costs or the reduction in costs of individuals we would have the same income from tax as at present. Things have changed in the twenty years since Dawkins.

    Population 20 million
    Working 60%

    Individual Tax about 100 billion
    Transfer Payments about 80 billion

    Social Wage
    65 12000 20%

    Tax Rate 25%
    Assume average taxable income is 50000

    Social Wage
    65 28.8
    Tax Collected 150
    Difference 20.4

  8. Kevin Cox says:

    DD can you point me to somewhere that explains the problems.

  9. Kevin Cox says:

    Figures from spreadsheet without the less than and greater thans

    Population 20 million
    Working 60%

    Individual Tax about 100 billion
    Transfer Payments about 80

    Social Wage
    lt 18 6000 20%
    18-65 12000 60%
    gt 65 12000 20%

    Tax Rate 25%
    Assume average taxable income is 50000

    Social Wage
    lt 18 14.4
    18-65 86.4
    gt 65 28.8
    Tax Collected 150
    Difference 20.4

  10. backroom girl says:

    Those are all very nice numbers, Kevin, but:

    The labour force is around 10.6 million at the moment, not 12 million.
    Average earnings are closer to 45000 than 50000
    The basic age pension for a single person is worth closer to 14000 pa than to 12000 (plus another 5000 max if you are a private renter)
    I don’t think it costs 10 billion to deliver the current transfer payments

    That might all seem a bit nitpicky, but you get my drift …

    Seriously though, as DD knows, a Basic Income is never likely to be implemented precisely because of its lack of targeting. The public likes to think that income support is only paid to people who really need it and that people who need more will get more as well. Simplicity is only a subsidiary objective, not the main one, which is to ensure that everyone who can’t support themselves has an adequate basic standard of living. I’m not saying that the current system couldn’t be made an awful lot simpler (it could), just that it is possible to take simplificity too far.

    I would also say that, from my point of view, work incentives are not a policy objective in and of themselves. They are a byproduct of policy that is enacted for other reasons, such as that stated above. once you start doing things for the sole purpose of ‘improving’ work incentives (even if it was possible to that unambiguously, which it isn’t), you are on a fairly slippery slope – like the one that led us to the current humungous FTB system, for example.

  11. backroom girl says:

    I seem to have invented a new word – simplificity (cross between simplicity and simplification) – it does have a certain ring to it 🙂

  12. spog says:

    BG, you are, as always, a feast of invention. And I’m not just saying that because it’s nearly Xmas.

  13. spog says:

    Don’t forget that Australia has actually had an EITC in place for a few years now. Perhaps people have missed it because it’s not called an EITC, but the Mature Age Workers Tax Offset is an EITC for people aged 55+.

    Doesn’t that give enough of an inner glow, Andrew?

  14. Peter Whiteford says:

    Yes, as various people have pointed out every estimate that I have ever seen suggest that the flat tax required to replace current welfare payments would be over 50%, and it has probably risen in the last few years following the GST.

    I agree with Andrew that increasing the EITC would be very useful in the USA to address poverty, but it is far less relevant in Australia since we are already much more generous to low income working families with children than the USA.

    Having said this, I suspect that there may be some value in thinking about ways to further imrove the returns to work for the low paid in Australia, but it would need to be carefully designed not just to add complexity.

    On the EITC this is something I wrote a while ago over on Larvatus prodeo

    “This may be of interest for the debate about welfare reform and child poverty:
    [link] http://www.oecd.org/dataoecd/30/44/38227981.pdf

    … in Australia … the family benefit system (and the minimum wage) is the most effective in the OECD in reducing child poverty among working families. This is not the case in the United States, for example, where the minimum wage is much lower and the level of in-work family benefits is also much lower than in Australia (despite what everyone says about the US earned income tax credit).

    In fact a full-time working lone parent on the minimum wage and receiving all their family benefits in Australia would have an equivalent income that is around 83% of the median, whereas in the US, a similar lone parent would have an income that is only 36% of the median – less than half the Australian level. Even a short-hours part-time job in Australia would be more effective at reducing poverty than in any other country – see Tables 11 and 12 in the paper. “

  15. Kevin Cox says:

    bg thanks for pointing out where my assumptions are wrong. I have changed them and made the tax rate 30%. However, my main point was that the tax rate to have one of these systems is not over 50% but can be much below this. It should be at the company rate then it does not make sense to get companies to pay for things. I will address the other points you raise about the difficulties in another post.

    Population 20 million
    Working 52% or 10.4 million

    Individual Tax about 100 billion
    Transfer Payments about 80

    Social Wage
    lt 18 6000 20%
    18-65 14000 60%
    gt 65 14000 20%

    Tax Rate 30%
    Assume average taxable income is 45000

    Social Wage
    lt 18 12.48
    18-65 87.36
    gt 65 29.12
    Tax Collected 140.4
    Difference 11.44

  16. Kevin Cox says:

    bg and dd,

    First a disclosure. I am the founder of a company that has as its “mission statement” to give individuals control over their electronic identity. I started the company after 10 years as an engineer and software person, 25 years in a University teaching role of how to design and build usable information systems and after 4 years trying to get another “web 2” application going before web 2 was invented. That company failed because we did not realise the problem was one of identity. Now we have “solved” the electronic identity issue I keep looking for situations where we are able to make improvements in the way things are done. Hence my naivety and perspective on things economic.

    One of the areas where electronic identities can improve efficiency is in the area of government expenditures.

    Having got that out of the way here are some suggestions for how we can address some of the issues you raise.

    The first one is the cost of the current system. I suspect that no one knows but it has to be large. If over 60% of government collected tax is “redistribution” then we could estimate that redistribution costs about 60% of government admin expenditures. If a simpler system saves 50% of that cost then it is likely to be of the order of $10billion. At a personal level I pay $5000 a year in compliance and taxation related reasons to run my own very simple super fund. With an appropriately designed system this could be reduced to a few hundred at most. I do my own personal tax and it is very very simple and I do not try to claim all I can but it still takes about 2 days work to get it done even with ETax.

    There is a lot of money and time to be saved.

    I understand the equity issue as fairness in trading is one of my passions. I get very annoyed at the inconvenience I suffer simply because systems are designed to try to stop bad people not to try to make it easy for “good” people.

    I think you would be surprised at the response to a flat tax plus social wage.

    However, my solution to the political problem is the business of offering alternative tax regimes – which the government is moving towards with some of the simplified tax submission ideas. They could go one step further and propose different systems that encompass both taxation and redistribution and see what happens. For me a scheme for my super that would enable me to prove my transactions and that would automatically calculate the tax and pay the tax every time money went into and out of super would save me $5000. Any half decent company would be able to implement and run such a system and make a good profit with a charge of $200 a year. I think the self managed super funds is an excellent area for the government to start to test the idea by going one step further and replacing some of the rules on super taxation to permit different organisations to offer simpler taxation solutions.

    My guess is that many people on welfare benefits would jump at the chance not to have to go through the Centre Link hurdles even it did mean they paid 30% on all their extra income. Again such a system could be profitable for one or two hundred dollars per person per year and probably a lot less.

    Instead of trying to figure out – will it be popular, will it be equitable, what about this person, what about that one – devise schemes that people can opt into – and move between as their circumstances change. It is too hard to change the whole system in one go.

    What we have to do is to change incrementaly – either by slowly changing the existing monolithic system or as I suggest by allowing people to choose to move between systems. The argument against this is that people will move to the one of the best advantage to them. My answer to that is so what – that is what markets and choice is all about and that is how to stop the political backlash. If you do not like the system you are in at the moment then move to another one.

    The government could implement this by writing the specs for alternative taxation schemes and then letting licensed organisations implement and run the schemes.

  17. Kevin Cox says:

    bg,dd

    It is my belief that with electronic identities there are many existing systems that can be made more efficient. To give you an example at the moment the tax office is “automating” a lot of the collection of things like interest payments to be included in tax returns.

    Let us assume I have a single electronic identity that I control and only I can tell it what to do. I ask it to go to my online bank account and extract all the interest payments for me for the year. I then tell it to include the payments in my income tax return and to tell the tax office that my interest payments from my bank account have gone in my tax return. (I ask it by clicking a button or calling a phone number). The tax office can then check all accounts that have had their interest included in the tax returns and only have to check the ones that have not been included.

    Contrast this to the current approach where I have to tell the bank my tax file number, the bank then tells the tax office that I have a certain amount of interest , the tax office then tells me the amount I should put in the tax return. I put it in and send it all back to the tax office.

    In the electronic identity case I do not tell my bank the tax file number all I do is get the interest payments from my bank account. I then pass this on along with the bank account number to the tax office. The tax office knows that bank account interest has been included in a tax return and does not need to know my tax file number. The bank does not know my tax file number, the tax office does not know my bank account number. There is less transferring of data and less checking required and more certainty that interest is included in the tax return.

    This one simple example would reduce the cost of ensuring interest payments are included in tax returns without any invasion of privacy or big brother issues.

    In other words it is my belief that almost any policy involving payments or receipts to individuals or organisations can be made more efficient if we give more control to individuals through the use of electronic identities. It also means that policy makers need not be too constrained by implementation issues as almost anything that can be specified can be automated and implemented efficiently without privacy issues getting in the way.

  18. Patrick says:

    I actually can’t see any improvement in privacy except I guess the bank not knowing your tax file number. The tax office still knows how much interest you earnt (what do you think they find out now? They don’t get your statements!) and still knows what accounts you have (otherwise how do they trust you to have disclosed accurately?).

    I can’t see that working because if the bank doesn’t know your tax file number it withholds tax, which means you effectively finance the government’s working capital, kindly foregoing interest. The reasons for that system are avoiding the avoidance of tax, and your system makes no difference to that.

    So, no gain in privacy.

  19. Peter whiteford says:

    Kevin

    As I said, every estimate that I have ever seen of the cost of a GMI to replace existing welfare payments has had a flat tax rate well in excess of 30% – there may be some estimates a bit below 50% but I think that all the recent estimates are over 50%.

    Maybe where your calculations go wrong is your assumption about the wage base. $45,000 is average earnings not average individual incomes, and from the figures BG gave nearly half the total population (i.e. children, the retired, the unemployed and other jobless) have zero earnings. So if you calculate the tax rate required on average earnings you need to double the rate you initially calculated, which gives the 50% figure others have been referring to.

  20. Matt C says:

    “Don’t forget that Australia has actually had an EITC in place for a few years now. Perhaps people have missed it because it’s not called an EITC, but the Mature Age Workers Tax Offset is an EITC for people aged 55+”

    Don’t forget LITO, either.

  21. backroom girl says:

    Yes you’re right Matt – the LITO looks more and more like the EITC every year. The only difference is you don’t have to have earned income to qualify – whereas with the MAWTO you do.

  22. backroom girl says:

    Kevin – as I said earlier, the main problem with an unconditional basic income (apart from the financing of it) is that to many people it wouldn’t look like a ‘social wage’ – it would look like ‘sit down money’. Your assumption that everyone receiving it would spend their time in productive endeavour is possibly misplaced – just ask Noel Pearson and many other people grappling with indigenous welfare dependency how helpful unconditional income support has been to the indigenous population.

    I have no doubt that many people on income support would prefer to just get their money no questions asked, but I know that generally the people financing the system through their taxes have another view. As a feminist I am also not in favour of paying women money to stay at home and take care of their husbands and/or their houses (as opposed to their children).

    One thing that always amuses me about the BI idea is that it is equally beloved by the warm lefties and the libertarians – CAtallaxy and Larvartus Prodeo have carried numerous blog discussion in favour over the time I have been reading them.

  23. Patrick says:

    Not by this fairly libertarian – mainly for the reason you give!

    Other libertarians probably would not like it so much if they saw it as what it really is – a variation of positive rights theories whose only advantage is that it is prima facie non-distortionary (but what about the lowest-paid section of the job market, which I would suggest is a pretty important one in terms of ‘social’ outcomes such as advancement and inter-generational equity?)

  24. Kevin Cox says:

    bg,

    I understand the concerns about perceptions of sit down money and that is why I suggest we have a choice in tax regimes. Let us see what people will choose. We do not let people starve in this country and as a society it is in all our interests for all to participate as much as we are able as it makes us all more secure and all more wealthy. The current method of redistributing wealth is inefficient and costs too much. We need to try different approaches. Why not set up alternatives and see which one works the best.

    Patrick

    If a bank can prove to the tax office that account X has had the tax paid on it then it does not need to report it to the Tax Office Office. If I can prove to the bank that I have paid the tax on my interest then the bank does not need my tax file number.

    Giving people the ability to prove they have carried out an action simplifies most transactions as it means we only have to worry about exceptions. (accounts that have not been proved to have had the tax paid in this case). It also means that third parties do not have to check that I have done something hence we can keep bank account info away from the tax office and tax number info away from the bank.

  25. Kevin Cox says:

    Peter,

    my calculations are based on the average applying only to those earning. I must admit I was surprised when I did them and I know they are “back of the envelop”. Have a go yourself.

    Of course $14K is a pretty bleak income and so there is plenty of incentive for people to earn some money or to save for their non paid employment years. The fact is that governments get a lot of money from corporations and from GST. It is the “redistribution” taxes that we are concerned about.

  26. backroom girl says:

    Kevin – don’t forget that under your scheme you would bring into the tax/transfer system quite a lot of people who don’t work at present and don’t get income support either – mostly married women and young adults who are considered the financial responsibility of their partners and parents, respectively. There are also people who could draw income support but can’t be bothered with jumping through the hoops who support themselves through various semi-legal and illegal methods. Paying income support to all of these people at anything like current rates (and to all the people who are working as well) is bound to cost a lot more than the current system does, even if it is simpler to administer.

    So while I agree that it is important not to let people starve and that income support should be available to anyone who needs it, I also believe that it is appropriate that people who receive it should be doing their best to support themselves at least over the longer term. If women want to be stay-at-home trophy wives, let them negotiate support for that lifestyle with their husbands rather than receiving a social wage from the rest of the community. Similarly, if someone believes they are an artist but no-one else agrees sufficiently to buy their product, I don’t have a problem with them being expected to do something else to put a loaf of bread on the table. I just reckon that working to support yourself is what grown-ups do and unless you have a very good reason for not being able to do that you shouldn’t expect the rest of society to support you.

  27. Vee says:

    I don’t believe backroom girls figures are right.

    The median wages can be found on this blog I believe. I also believe the average wages are higher than the median wages. IIRC this blog also explains that.

    As I have many family members on the pension, its closer to 12000.

    As for KC’s figures, I can’t follow them but I’m no economist and no intuitive mathematician.

  28. Kevin Cox says:

    bg,

    The extra income to pay everyone comes from income tax being paid on ALL income. Most people on low income do not pay tax. Others on high income pay little tax. I for example pay little tax and next year will pay nothing because I am able to put income directly into super for 15% tax get rebates from shares income and so I remove all tax liabilities. This is wrong but that is the system. A tax on all income without deductions raises a lot of money.

    I do not have access to exact numbers but I have done my calculations as best I can and asked others to check and they seem to stack up.

    What I like about the system is that we remove “judgements” about what is appropriate. If we take the view that everyone is entitled to enough to live on and that if they want more they have to pay tax then it all becomes simple.

  29. backroom girl says:

    Kevin – I do understand why many middle class people in particular are uncomfortable with an income support system that makes judgements about who should be supported and to what extent. But, in the end, I don’t think there is any general community support for a completely unconditional system, or one that pays the same amount of money to someone with significant barriers to supporting themselves and to those who simply choose not to. In my experience, the people most opposed to unconditional income support are low-income earners (who know that they are not much different to many of the people on income support) and people who are on income support themselves.

    I also agree that if it was possible to have a flat tax on all income (which would I suspect not be all that easy to define) with no deductions, then you could probably have lower tax rates than at present. I suspect, however, that withdrawing the many current income tax concessions from people who benefit from them would be even harder than making income support completely unconditional. In the mean time, I guess we’ll just have to muddle along with what we have.

    Vee – the age pension for a single person is currently $537.70 a fortnight, plus up to $105.40 a fortnight in rent assistance. While it is true that many people get less than that, under Kevin’s proposed scheme you would have to pay everyone the maximum amount to ensure that no-one was left with too little to live on, so that would be about $14000 plus $5000. As to average wages, for Kevin’s kind of calculation the average (mean) is the right figure rather than the median – the latest figures from the ABS for August 2007 were about $875 a week ($45500 in annual terms).

    Anyway – a merry Christmas and happy New Year (or the other way around) to everyone I have met on this blog over the past year.

  30. Kevin Cox says:

    bg,

    I agree with your sentiments and I do not know the answers – hence the plea for choice. The difficulty with the way we structure government policy when it comes to spending money is that we tend to take away choice. “Markets” are good because they allow choice not because they involve price or money. We can never know how or why others value things the way they do and “the solution” is not to try to work it out but to give choice and let each individual decide. For example, I value time more than money and so I am attracted to any scheme that involves less time but costs me more. A tax system that I can set and forget can cost me more but I will take it.

    The particular scheme I suggested is only one of many possibilities. People can stay with the current system so it is not true that everyone has to be paid an extra $5000. You allow people alternative taxation/welfare schemes. Most of the objections to the proposal “go away” if it is available as an alternative rather than imposed on everyone.

    The nice thing about this approach is that governments could forget about “tax reform”. Let people define their own taxation system and let the government choose whether to accept or reject the proposals. This is easy to do, could happen tomorrow and would lead to much innovation – and I expect collect more tax.

  31. backroom girl says:

    Kevin – but I would have thought allowing everyone the choice between intrusive, income tested scheme x that pays higher maximum benefits and non-intrusive, non-income tested scheme y which pays lower maximum benefits would result in most people simply opting for the one that delivers them the highest level of benefits. Wouldn’t this end up costing more money in total?

    Are you really suggesting that we should have two (or even more) totally separate tax/transfer systems, which people could choose between? How would you deal with people who wanted to switch from one to another – eg while I’m earning little or no money I’ll go for scheme x and when I get a job I’ll go for scheme y? Would parents opting into one scheme on behalf of their children mean that the kids would have to stay in that scheme for ever? I can’t really see how you would make your kind of choice model work.

    I am not against choice – but the issue is which things do you give people choice about and which not? I don’t think you can really run an income tax system based on what people choose to pay, nor an income support system based on what people choose to receive. Income support is in the end a communally funded insurance system, where some people pay more in than they draw out and vice versa. If we wanted everyone to choose how much they pay in and how much they draw out, why would we not just leave people to make their own private arrangements? (Many commenters on Catallaxy would apparently prefer this approach.)

    The point is that people don’t know when they are starting out in life what their likely needs for support in the future are going to be, so most are happy to pay their taxes and draw benefits in the event that they need to. And the majority don’t actually get all that upset if those benefits come with some strings attached. The ones that do are either those who 1) think that society owes them a living, no matter what they choose to do or 2) are actively gaming the system one way or another and wish to avoid scrutiny. I don’t personally have a lot of sympathy for either group.

  32. Kevin Cox says:

    bg,

    Yes indeed I am advocating that we have alternative schemes and that people can choose. People could change but it would be limited to say once every five years and children would be in the scheme of their custodial parent. Schemes would be like health funds and have to deliver overall results in the sense that the total delivers an outcome. We have different health funds why not different tax/welfare systems? The rules still have to be approved by the central authority.

    In fact we already have different tax systems. For example I can choose to use a flat rate for car use or I can use a log book. I can choose whether to make 100% salary sacrifice or not. The ATO appears to be moving to simpler tax systems for those who wish to do so and have done so with PAYG tax systems. I can already choose whether to be a contractor or work for a salary or whether to organise my affairs through a trust structure. People who can afford to do so are always structuring their affairs to take advantage of tax regulations to their own benefit.

    One of the things I am asking is to give the same opportunity for people who do not have the resources to take advantage of the current regulations. This is not such a radical idea. What is radical is making it available to those that traditionally do not have a choice.

    Another example is what has happened to remote communities in the Northern Territories. Those people are now living under a different tax/social welfare regime to the rest of the country.

    The way it could be administered is that the ATO would still control it. An organisation would come to the ATO and say “here is what we propose as a variation on the tax/welfare system”. Will you let us run it under your umbrella?

    This is one of the projects that I fully intend to pursue when I have completed my current projects. It has not been done before because the technology was not up to the task of keeping track of individual incomes in a reliable way but that is no longer a problem because we can now arrange things so that individuals can reliably prove they are following a set of rules.

    Another way of thinking about what is suggested is taking self assessment another step.

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