How it works

According to Robert Heinlein in his book, The Moon Is a Harsh Mistress”, ‘The power to tax, once conceded, has no limits; it contains until it destroys’.

 

Whilst that observation has been found to be very true; the question of how a Government is funded has been resolved historically by taxation and/or plunder. A monetary sovereign nation with their own fiat currency system does not, in fact, need to impose a tax system at all, but taxation has always been a most effective mechanism for controlling the people. This “power to tax” is the reason Government bonds, and the resultant bond market industry, is considered the safest form of investment. Historically, Governments have issued bonds as a means of borrowing money from the private sector, especially under the “gold standard” system when the Government didn’t have enough gold to support their ongoing wars. Inevitably, this has led to the current situation where governments around the world find themselves in perpetual and increasing debt, even in spite of the fact the “gold standard” system was officially abandoned in 1971. Cultural traditions decree that no one is entitled to something for nothing, hence this is the justification for the argument that everyone has a responsibility for sharing the cost of Government. This argument reinforces the continual, and unnecessary, imposition of a tax regime; apart from the controlling powers it gives the Government. There are options to the way a Government is financed and the selling of credit access to the private banks is one way. However, there must always be restrictions on the way a government is funded and the way it spends that funding. Because the taxation psyche is so inbred into the minds of so many people, it behoves the authorities, if they are determined to impose a tax regime on their constituents, to find the best tax systems that are demonstrably fair and equitable to the taxpayers. The Debit Tax system fits the requirement for a much simpler and effective tax system. If it is coupled to the modification of the Reserve Bank’s function in monitoring the productive and consumption factors of the nation, it would greatly enhance a nation’s economy and represent a major step in stabilising the shaky foundations of the present financial system. If the Government should also consider re-establishing a true Australian Bank along the lines of the original Commonwealth Bank of Australia, it would provide the public financial credit that rightfully belongs to the people. The Bank’s operations would also act as a benchmark for the operations of the private banks.

 

With all the talk and comments about the Budget and the tax system, nobody seems at all interested in finding out if there is a more equitable and fairer way to fund the Government spending.

What if we could come up with a mathematically proven way to show that the imposition of a single, universal charge could eliminate every other form of taxation currently in place, and especially, income tax, do you think people might be interested?

There is, in fact, such a system available, and all it requires is a half of one percent (0.5%) charge to be placed on every financial transaction that takes place every day in Australia.

The flow on benefits of this system are

  1. Small businesses would not be hindered by the time consuming, costly and complicated system currently in place. Small business will be encouraged to grow and employ more people.
  2. Big Multi-National Companies will be required to pay their fair share of tax which current legislation allows them to avoid.
  3. No tax cheating or tax avoidance necessary or possible.
  4. It would create a genuine and effective user pays system.
  5. It will also provide a continuous revenue flow to the National Treasury
  6. The application of off balance sheet accounting would be prohibited.

 

The other factor that needs to be taken into account when a Debit Tax system is introduced, and thus eliminating all other forms of taxation, is the very significant impact it would have on prices, on all types of costs and the resultant increased purchasing power for the consumers. These factors would result in a dramatic change to the entire economy and the inevitable reduction in the level of budget expenditure.

 

Low income people would pay a minimal amount of tax, and there would be no need for any exemptions. Essentially, it is a user pays system based on the level of financial transactions related to an individual or a Corporation.

To illustrate the effects - a pensioner couple on, say, $600 a week, would pay a total tax of $3 when they convert their pension cheque to cash.

A coal miner on, say, $2000 a week would pay $10 in taxes if he spent all his pay.

A millionaire "investor/gambler" who trades on the markets would pay $5000 for every million dollars of transactions.

Bear in mind, there would be no other taxes on anything, no GST, no duty tariffs, no payroll tax. A Corporation would pay the tax on every cheque it writes - in paying its suppliers, its employees and its shareholders. Each of those in turn, would pay the same amount of tax when ever they spent their "money".

As I said above, there is mathematical proof, based on the total daily financial transaction data supplied by the Reserve Bank, to show that a 0.5% Debit tax would provide the government with its current level of revenue. The collection of this tax is a simple computer program for the banking system to deduct the tax and automatically transfer it to a Government account on a daily basis. 

In 1991 – 1992, when a Debit Tax proposal was earlier proposed, the Reserve Bank of Australia issued a report stating that the ordinary working day business of the Banking industry involved non cash withdrawals amounting to $A120 BILLION.
At that time, they suggested a rate of 0.33% on every financial transaction which would, provide the Government with the daily cashflow of $A396 million and an annual revenue of $99 BILLION.

Obviously, the banking turnover has increased enormously since 1991-92 and later RBA figures, as of April/March 2009, show it is in the order of $258 billion a day. This takes into account all withdrawals, non cash and cash, including those made from ATM's and EFTPOS and withdrawals made on week-ends and public holidays.

A Debit Tax of 0.33% on DAILY withdrawals of $258 BILLION equals $774 MILLION IN FEDERAL REVENUE per ordinary working day.

This equals - $204 BILLION IN FEDERAL REVENUE YEARLY

This is not close to the 2009-10 budget estimates of $338.2 Billion.

If the debit tax rate were lifted to 0.5%, it would result in revenue of $340 billion.

In a fiat currency system used by a monetary sovereign nation, there is absolutely no need for any Government to make a surplus because; any surplus represents a drain on the savings of the private sector. A properly controlled budget would include the payment of interest as it becomes due and the gradual writing down of accumulated debts. Governments have no need to make profits out of their tax payers – Governments are there to provide the necessary essential services required by the society. However, the urge to make exorbitant promises to get elected does lead to wasteful expenditure.

For this reason, it is absolutely critical that the rate applicable to any tax regime chosen by a Government, whether it is a Debit Tax Rate, or some other system, must come under very rigidly controlled guidelines to prevent any Government from arbitrarily increasing the rate. Because even minor changes can result in significant windfalls for the Government, as shown in the example above, the most appropriate control would be to specify the rate in a Constitution. This would force any Government to go to referendum should they propose a change. It would also take control out of politics and give both sides of the argument ample opportunity to justify their case.