For thousands of years, governments have used all their creative ability to think up new ways to tax the people. Recently, a subscriber asked me if I had heard of the debits tax and would I comment on it if I had. It’s been around for a long time, and to save reinventing the wheel I pulled out of archives a column I had written in February 1998 when GST was a hot topic.
A booklet sent to me recently proposing a debits tax is certainly food for thought. It pointed out that the total tax raised from all sources in Australia for the 1995-6 year was $151 billion made up of federal taxes $115 billion, and state taxes $36 billion. The biggest items were personal income tax of $59 billion, and sales and excise of $25 billion. Company tax, at $12 billion, was a relatively small part of it.
The proponents of the debits tax claim that $200 billion is withdrawn each day from all the banks in Australia – if a tax of just 0.33% (POINT 33) was placed on these withdrawals all other taxes could be abolished. This includes income tax, company tax, capital gains tax, payroll tax, land tax, stamp duty and excise.
Could this work? My first step was to try to verify the amount of daily bank withdrawals. The most reliable official figure available was $50 billion a day from cheques exchanged through other banks, so to get the true figure we would have to add the total value of cheques and other debits deposited directly with the issuing bank. Even if we guess that at $20 billion, it does give a figure of $70 billion for total daily bank debits. Let’s accept that as correct and raise the proposed debits tax to 1%.
Can you imagine what this would mean? A person earning $50,000 a year would pay $500 a year tax instead of $14,000 – their take home pay would increase by $13,500 a year. A small business with a turnover of $400,000 a year would pay just $4000 in total tax and there would be no FBT, CGT, payroll tax or stamp duty. The price of petrol would halve as excise would be abolished, and Australia would become a duty free country.
What does the government think of the proposal? A spokesman for Peter Costello laughed it off saying “if it was that simple somebody would have done it”. He then referred me to a Canberra media spokesperson who “was an expert on tax” and who “would provide the figures to shoot it down”. She didn’t – in fact she was quite intrigued by the idea.
Now I know it sounds too good to be true, but the problem is I can’t fault the logic. It does raise the question, “if we all pay less tax where does the extra money come from?” But we all know about wealthy corporations and individuals who pay little tax now. It would also catch every business – not just those making profits.
As fate would have it, a few months after I wrote this column I found myself in the offices of Treasury in Canberra having a chat with Ted Evans, who was then the Chief, and Ken Henry, who was his Deputy. I discussed the debits tax with them and they pointed out the major fault in it was that it disadvantaged small Australian companies, and advantaged international companies or Australian companies who were big enough to vertically integrate.
For example, an Australian grazier buys cattle and pays the debits tax, then buys feed and pays the debits tax, then pays staff with more debits tax, and then sends the cattle to market where there is debits tax on every transaction until they end up in the shop as a pair of shoes. In contrast, the only tax on imported shoes would be on the final retail price.
Sadly, it needs to be consigned to the too good to be true category.