Regional monopolies aren’t real competition though, are they? They’re better than one centralised monopoly, but still…

I disagree with Pommy when he says abolishing the income tax is politically impossible. It is merely very difficult. We got rid of inheritance tax and nobody speaks of it much these days.

Riley highlights a very important point which is the question of who really pays the higher income tax applied to high income earners. Putting extra tax on rare resources like doctors, professionals and managers makes little sense. Would anybody suggest putting a higher GST on essential services such as health care?

Then the states can compete on their tax/spending mix. Victoria can introduce a 30% GST and a state-based progressive income tax… and use the funds to support a fabulous health system and high pension. Qld can do the oppose (insh’allah). Different jurisdictions can try different mixes. Ah — the joys of competition.

Federalism is a great answer to a lot of political questions.

A GST and a basic income are analogous to a negative income tax, but for the efficiency advantages.

I think if we can look at this and the Medicare as HECS/vouchers, school vouchers and disabled care issues, libertarianism has a good chance of getting a lot more support at the next election.

That said, the cumulative and mutlisectoral impacts of taxation on the final price of any good is simply crippling to our economy. This has causes real suffering for real people, if any sceptics will quip “just theory” or “just data”.

Another way of selling GST as opposed to income tax is it’s effect on trade, since imports and local-produced are taxed evenly… we always talk up free trade (as we should), but locally produced stuff carries a huge tax burden. On that score, you might even be able to win over some of the protectionists.

I also think in terms of taxation the powers should be returned to the states so we can see competitive federalism at work.

I would be happy to try replacing income tax with GST as policy for the LDP. I know even “average Joes” can agree with the idea of taxing what you buy instead of what you earn. It encourages saving instead of spending.

If you assume 28.2 % of GDP, the tax needs to be set roughly at 39.2% to run a balanced budget.

This assumes no efficiency gains, no elimination of duplication and no libertarian reforms if there is a shortfall.

You would be better off. Your clothes would be at least 17.5% cheaper. Your new car when you graduate would be close to 30% cheaper. It goes on.

Basically the GST would be the direct resource cost excluding a much smaller proportion of deadweight losses. So it is efficient like a head tax but far more equitable and feasible.

The real sad thing about this is tax reform just isn’t taken seriously. We know the deadweight losses are high, the rates are high and taxes inefficient. What is even more alarming is that little comment is made to the fact that we tax nearly every stage of production directly and indirectly with a myriad of direct and indirect taxes which change incentives and lead to a loss of productive output.

Think of something simple like a carton of milk. How much did each input get taxed to give you a maybe $2.50 1 ltr carton of milk?

How much would it cost with a simple high and low GST with different deadweight loss scenarios?

Of course, what ever the starting rate (I suggest 20%) the idea is to incrementally lower it – libertarianism by stealth.

Of course I’m less interested in my own current finances than a more efficient tax system. I like the idea of a consumption tax- it is more ethical, but it has to be costed and it has to be salable. The other problem is leakage- a sales tax would have to apply to all imported goods (something the GST doesn’t now- like if I buy stuff on ebay). But there’s still the potential for a black market to evade GST if it makes up a larger part of the cost of goods.