Why a debit tax?
Our current tax system is unfair and broken. Consider the following:
- Australians pay 125 different taxes.
- The Income Tax Assessment Act of 1997 is 351 pages long.
- Small businesses spend 500 hours and $28,000 per year on tax compliance.
- Big corporations and the rich utilize tax loopholes to reduce their taxes.
- Price inflation pushes individual taxpayers into higher tax brackets. This phenomenon is called “bracket creep”.
A debit tax of 1% is:
- Simple – see the example below.
- Adequate – it collects sufficient revenue to cover all government expenses.
- Efficient – it collects the tax at a minimal cost.
- Socially equitable – it treats everyone the same.
- Unavoidable – it is very difficult to evade the debit tax.
- Transparent – there are no hidden aspects.
How the debit tax works
The debit tax is very simple. There are two major rules:
- When you receive money – no tax is paid.
- When you pay for goods and services – your bank will deduct 1% and pay the Tax Office.
For example, when you buy a new TV for $1,000 – the bank pays the vendor the listed price and then also pays 1% of the price to the Australian Tax Office. The diagram below shows how this works.
In 2016-17 the Gross Domestic Product of Australia was $1,693 billion. The Reserve Bank of Australia records that during the same period, the value of all payments was approximately $57,582 billion. A mere 1% of such payments (i.e. $575 billion) is more than the total government expenses of $447 billion.
How the debit tax affects you
To determine how much tax you pay under the debit tax – have a look at your bank statement and do the following calculation:
- Add all of your payments (i.e. the debit entries).
- Calculate 1% of the total.
This is the total amount of tax you will pay – no more income tax, no more GST, no more stamp duties, no more property tax etc.
Who benefits from the debit tax
Professor Edgar Feige states in his report on the APT tax (which is similar to the debit tax) that the major beneficiaries will be normal wage and salary earners with limited assets.
The greatest beneficiaries will be those whose current level of taxes are considerably reduced, primarily wage and salary earners with modest financial asset portfolios… There is no longer a need for individuals to file tax returns nor for firms to file information returns.
Who pays the cost of the debit tax
Professor Edgar Feige also states that the parties that will see themselves as “losers” will be those that speculate in financial assets, and who earn a living trying to circumvent our current tax system.
Those most likely to perceive themselves as losers are individuals and financial institutions closely associated with the business of exchanging property rights in financial assets and those who sell advice concerning legal circumventions of the current tax system.