A tax encounter of the absurd kind

I couldn’t stand another minute of election coverage, so last night I crashed early – what happened next I won’t forget, Bob Breunig writes.

I wake, startled, perhaps only minutes later, blinking in extraordinarily bright light emanating from the backyard, strong enough to illuminate the entire house. I stumbled outside, shielding my eyes from the glare.

The light subsided to reveal its source: an extra-terrestrial transportation device, saucer-shaped. The Hill’s Hoist is toast, I think.

Descending on a ramp projecting from the starship is a vaguely humanoid being…I’m paralysed. Or at least I think I am. But when she presents her business card, held forward with two hands, I have little trouble taking it with my own two hands. I apologise for not having a card of my own to hand, but the Director of the Taxation Institute for the Federated Hockey Stick Galaxies, for that is who the card suggests she is, knows who I am. And she’s not impressed.

She tells me her name but I can’t pronounce it. Let’s just refer to her as Inter-Galactic Visitor (IGV for short).

IGV: I generally steer clear from the Milky Way, but…Australia…the anomalous…someone has to ask, and it’s fallen to me…

Me: uhhh, mmmm….

IGV: Why are your people so hopeless when it comes to designing a tax system?

Me: uhhh…yeah…how about that…

IGV: You’re the director of the Tax and Transfer Policy Institute. Do something about it.

Me: Like what?

IGV: Explain some basic ideas to your people. That tax is simply collecting adequate funds to pay for the things people want the government to spend money on.

Me: It is?

IGV: It should be. Yet in Australia, the tax system apparently exists so that, at election time, your political parties can offer handouts to people in exchange for their votes, devoid of any concept of how to pay for such things.

Me: Those who aren’t born yet can deal with that problem. Very conceptual.

IGV: That’s quite primitive and…evil.

Me: You’re beginning to understand.

IGV: Do you at least understand that the best things to tax are things with prices that don’t respond to tax? So that you ensure taxation has no negative behavioural effect on overall societal wellbeing? I mean the way your stamp duty affects wellbeing….

Me: Stamp duty stops people from buying and selling houses and reduces mobility, whereas land tax has no negative effect on economic interaction.

IGV: Exactly.

Me: Yeah, well we prefer our current system.

IGV: How inefficient! Do people not understand?

Me: Everyone knows. We just can’t change it.

IGV: Given your evolutionary progress, you should be more advanced…

Me: Yeah, well. We fail to respond to the obvious from time to time.

IGV:  On that…have you noticed the increasing temperatures?

Me: Some of us have.

IGV: Taxes can solve problems like pollution-related externalities.

Me: And miss out on watching all the young people fret about it? They love calculating their carbon footprint and buying used clothing.

IGV: They are cute. But cute is not a solution.

Me: Nice weather though…for 3am. Perfect for a sixties retro polyester skivvy with matching slacks, plastic belt and ––

IGV: Don’t change the subject! And this is not about appearances. Are you Australians just afraid of success? I think so, because if people work hard and make a lot of money, you slap them down with tax. Don’t you see the negative effect that has on people working hard? Taxes should incentivise work and create wellbeing for others.

Me: But we don’t want to have inequality. It’s not fair that some people have a lot of money and others don’t.

IGV: So extract more tax from people who get money through luck rather than hard work. For instance, put high taxes on inheritances. That’s a more or less universal standard. Will Australia not adopt it?

Me: No.

IGV: So let me see if I understand. Someone who works hard and makes $200,000 pays $65,000 in tax but if someone inherits $200,000 from their uncle, they pay no tax? That flies in the face of every basic principle of taxation.

Me: I have a nice cellar. Would you like a glass of wine? If I die without drinking it, the kids get it.

IGV: Tax free?

Me: Not going to happen then, is it…

…

I don’t remember much else. We discussed a few more universal principles of taxation: that taxes should be about economic efficiency; using the transfer system (family and welfare payments) for fairness; aligning the cost of infrastructure with the activity of users and so on.

I woke with the sun shining and the dog licking my face. The Hill’s Hoist was pressed into the bottom of a large bowl-shaped indentation (that I’ve since concreted and filled with water).

When I stumbled into my bathroom and looked up at the mirror, my bare chest and stomach were covered in scribblings that slowly became comprehensible. The mirror revealed a hastily marked outline written on my torso, one for an effective, equitable, efficient Australian tax system.

It read:

Recommendations:

Flat rate GST on all consumption

Flat rate tax on all inheritances at the GST rate

Flat rate tax on carbon and pollution

User charges for automobiles based upon kilometres driven and contribution to congestion

Rent taxes on oil, gas, mineral resources and financial services

Flat rate land tax with no exemptions

Low personal income tax with a progressive structure

No stamp duty

No corporate tax

No exemptions or deductions of any sort

Extensive use of the transfer system to redress inequality

…

I felt a pang of resignation. I took a shower, made some coffee, and got to work on coming up with yet another minor tweak to the existing tax system, palatable to the interest group of some politician, suitably over-complicated and with loopholes large enough for a drunken alien to navigate her flying saucer through.

This piece is published as part of Policy Forum’s new feature section – In Focus: Australia’s policy future.