A profound explanation on Tax in Australia

A analogy on progressive tax, and tax cuts for the higher margins.

Let's put tax cuts in terms everyone can understand.
Suppose that every day, ten people go out for dinner. The bill for all ten comes to $100.

If they paid their bill the way we pay our taxes, it would go something like this -
The first four (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh $7.
The eighth $12.
The ninth $18.
The tenth (the richest) would pay $59.

So, that's what the 10 people decided to do.
They ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a problem. "Since you are all such good customers," the owner said, "I'm going to reduce the cost of your daily meal by $20."

So, now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes. So, the first four were unaffected, they would still eat for free.

What about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get their 'fair share'?
The six paying customers realised that $20 divided by six is $3.33. If they subtracted that from everybody's share, then the fifth and the sixth would each end up being 'PAID' to eat their meal.

So, the restaurant owner suggested that it would be fair to reduce each person's bill by roughly the same amount, and proceeded to work out the amounts each should pay.

And so -
The fifth, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. The first four continued to eat for free. Once outside the restaurant, they began to compare their savings.
"I only got a dollar out of the $20," declared the sixth, pointing to the tenth diner "but they got $10!"
"Yeah, that's right," exclaimed the fifth. "I only saved a dollar, too. It's unfair that they got ten times more than me!"
"That's true!!" shouted the seventh. "Why should they get $10 back when I got only $2? The wealthy get all the breaks!"
"Wait a minute," yelled the first four in unison. "We didn't get anything at all. The system exploits the poor!"

The nine surrounded and beat up the tenth diner.
The next night the tenth diner didn't show up for dinner, so the nine sat down and ate without number ten. When it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

That, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table any more.

Source: Anonymous Email doing the rounds, similiar to one in the USA


The Democrats and Rent Assistance

My thoughts on an ABC article about Rent Assistance and the Democrats:

Assistance boost 'bandaid' solution to housing squeeze
ABC - Wednesday, February 21, 2007. 3:48pm (AEDT)

The Democrats say a potential increase in rent assistance would do little to alleviate the growing housing squeeze.

Prime Minster John Howard says he is considering giving assistance to people struggling with rising rents.

But the deputy leader of the Democrats, Andrew Bartlett, says that is an election year bandaid solution to a problem that needs major policy reform.

"A hike in rent assistance will probably just mean a hike in rents and all the extra money, or most of the extra money flowing into the pockets of investors and landlords," Senator Bartlett said.

"The big problem is we've got no housing policy.

"The Federal Government has vacated the field for the last decade and until we have a coherent national strategy that looks at all the different angles it's just going to be continual bandaids while the structural problems get worse."


Of course Senator Bartlett is correct when he says that "a hike in rent assistance will probably just mean a hike in rents". And the worst of it is you are taking taxpayers dollars and putting them in the pockets of private or company investors.

There is no effective way to get around the problem - except to hit is at the true cause.

The problem? Land supply restriction by state governments (ie zoning and land release).

The solution? Massive deregulation, particularly in land zoning, so private land holders can flood the market with land. This will inevitably drop house prices and later rental prices.

NB: For the record - as much as I wish I did, I don't hold any large tracts of land!


Policy: Tax

Tax doesn't get much flatter than "TaxOnce"

Every government requires funds to perform it's functions.

I propose a vastly simplified, but radical departure to the system, which for ease of reference I call TaxOnce: It is a once-per-year-only, fixed-amount tax for all electors (ie those eligible to vote), with a mercy clause for those unable to afford it.

Annual Fixed Tax
  • Each elector (barring the mercy qualifiers) pays the exactly same dollar amount.

  • There are no tax deductions, exemptions or rebates.

  • No business activity is taxed.

  • Your TaxOnce replaces all other federal taxes including income tax, GST, import and export taxes, Medicare levy, company taxes, petrol taxes 1 etc

  • under current spending (which probably should be reduced) each elector would pay approximately $6,000 each (see "Questions about TaxOnce" below)

Mercy Clause

This applies if paying the tax would mean an elector would forfeit the basic necessities of life.

  • Unpaid taxes accumulate, though the mercy clause may apply to some electors for their entire life.

  • Tax debt cannot be transfered to other electors or posterity, though it may voluntarily be paid on an elector's behalf by a charity, relative or friend.

  • Assets left upon the death of an elector would be used for any tax debt

What are the advantages to "TaxOnce"

  1. Simple - there are virtually no loop holes to be exploited by dishonest people or crafty accountants. Your tax return could be done in 10 mins.

  2. Fair - every one uses the services of defence, courts, police, roads and every equally pays

  3. Incentive - once your annual tax is paid there is no penalty for working harder and earning more. Every extra dollar is 100% tax free.

  4. Cheap - The ATO would be dramatically reduced in size. Administration costs that are currently paid by Australians would be saved by Australians

  5. Accountable - because the tax is greatly simplified it will give the public an amount to latch onto. Come election time you are going to want to know how much tax candidates propose, and it will be obvious if that promise is not kept.

Questions on TaxOnce:

What about single income families?
Both parents would be liable for tax, though the mercy clause would consider the fact of dependants on a single source income. You might consider that this would disadvantage young families as they have the extra burden of children, yet also consider that those without children will need to save for their retirement (as they will not have children to support them in their old age).

What is the tax used for?
Since I oppose government welfare (vs private charity), the tax would be used only on the basics (including - defence, national roads, education of minors, police and courts). Let the citizens keep their money and decide which causes they will support themselves. The main focus is keep government small so you can keep the tax as low as possible.

No businesses tax? Won't this advantage big business?
Make no mistake - businesses pass on all costs to the end consumer, hence, all taxes that businesses pay are ultimately passed onto the consumer (who are taxpayers). If the market is free and open, industries that are making high returns will always attract competition, so extended profiteering is unlikely. (
see Free Market Essentials)

How much would TaxOnce likely be?
I use this simple formula:

Services divided by Taxpayers (= Electors minus Mercy Clause Electors)

Though I am not an economist, this gives me approximately $6,000 each.
(See Footnote 2)

Basic Government Services: $42,693,000,000 (footnote 2)
Population of Australia: 20,743,371
Approximate Electors: 10,000,000

Probable Taxpayers: 7,000,000

A likely trend is that most young families will be exempt under the mercy clause early in life, while many people later in thier careers will be paying the annual tax plus older debt.
Why not tax those below 18?
To quote the mantra "no taxation without representation". It is unfair to tax youth when they cannot help choose the government who tax them. This grace period will also give minors some opportunity to study, save, travel etc.

see also: Price Linking
Related Keys: 02-EQU, 15-LIM, 17-PRO, 20-TRN

1. Events or products that are damaging to others, if they cannot be immediately disbanded, should be taxed to make amends for their damages. See Price Linking
2. Referencing the 2005/6 Part 1: Australian Government Budget Outcomes Table 3 and including: Legislative and Executive Affairs, General Services, Government Superannuation Benefits, Defence, Public Order and Safety, Education, Agriculture Forestry and Fishing, Transport and Communication


Many of us still think about the government the way five year olds think about their parents, the source of infallible wisdom and a bottomless purse.


Libertarian or Libertine?

Am I a libertarian or a libertine or both? (definitions in footnotes)

Well, though I support the right of people to do as they wish (as long as it is not harming others) I do not consider that anything not illegal is morally right.

I remember getting this confused when I was a small boy. I was watching a show, which we would probably consider now mildly questionable for a 6yr old. And I thought to myself "This can't really be bad because otherwise they wouldn't have let it on TV". You wouldn't want to apply that logic now!

And so I support freedoms that I am morally opposed to. And though I might support a bill that keeps pornography or smoking legal, this doesn't mean I won't speak out against them or use other tools (like the boycott) to fight them.

There are pragmatic reasons for this too. Most often the law is weaker way to fight social ills. Look how well the Prohibition Laws worked in the early 1900s. If you haven't changed the individual people find ways to get around it (like making moonshine).

I am proud to be a libertarian, but that doesn't mean you have no morals, just that most of them shouldn't be enshrined in law. So I am a libertarian but not a libertine.


Libertarian: A believer in a political doctrine that emphasises individual liberty and a lack of governmental regulation and oversight both in matters of the economy ('free market') and in personal behavior where no one's rights are being violated or threatened.

Libertine: one who is loose in morals;