Taxation’s violent history

Any change in the tax system is a change in our relationship with the state.

But when the Henry tax review was released on Sunday, it was seen as a bit of an anticlimax.

The document has been sitting on Wayne Swan’s desk for more than four months. We’ve known about some of the big-ticket items for nearly as long: a simplified tax return system, and increased taxes on mining companies (presumably because Kevin Rudd hates Western Australia). We could have guessed some of the other ones: volumetric prices for alcohol. Since January, we’ve even known how thick the damn thing is: 10 centimetres of wonky glory.

But it’s definitely worth paying attention to.

In the relative luxury of twenty-first century Australia, it’s easy to believe government can never fail too badly – what could possibly go wrong with a few tax increases here and there?

But excessive taxation has been one of the great driving forces of history. Bad tax policy has destroyed industries, governments, nations, and empires.

Heavy taxes imposed by the Stuart monarchy led to the English Civil War. Dissatisfaction with Spanish taxes led to the Dutch revolt. Iniquitous taxation led to the French Revolution. And, of course, the cry of ‘no taxation without representation’ echoed throughout the American colonies as they rebelled against England.

High taxes can even be blamed for the fall of Rome. The economic deterioration in the third century AD which left the empire susceptible to external threat was to a large degree caused by skyrocketing taxes. Taxation was so heavy some free citizens renounced their liberty to become slaves, and therefore tax exempt. This was common enough for the Emperor Valens to declare doing so illegal.

In the early Middle Ages, taxes levied on infidels helped spread the Islamic faith – Muslim conquerors made it cheaper for conquered peoples to become Muslim than remain Christian.

Australia has its own violent tax history.

After all, it was excessive taxation which caused the Ballarat miners to rebel. They believed the increase in the price of a miner’s licence was tantamount to tyranny. This was particularly bitter for those who had left the Old World to find liberty in Australia. The Italian Raffaello Carboni wrote that he had travelled “16,000 miles in vain to get away from the law of the sword”.

So those anti-tax strikers at the Eureka Stockade had more in common with modern free marketeers than modern social democrats.

Even some of the great social movements were tax inspired.

In the United States, suffragettes in the 1870s formed women’s taxpayer’s associations and anti-tax leagues. In Australia, the women’s rights activist Mary Lee asked why “Should not those who had their property taxed have a voice in the representation of the taxpayers?”

Excessive taxation shows up in popular culture. The extremely high taxes of 1960s and 1970s Britain gave us The Beatles’ ‘Taxman’. In the Kinks’ ‘Sunny Afternoon’, the songwriters complain “The taxman’s taken all my dough”.

No wonder: the Labour Government in the 1960s imposed a massive 95 per cent “supertax” on high income earners. And the rich did more than just complain. Many, like the Rolling Stones, just packed up and left the United Kingdom altogether.

The proposed mining supertax will only be 40 per cent. But, like British rock stars, mining companies keeping a close eye on their bottom lines will leave Australia as soon as it is no longer profitable to stay.

Tax has an ignoble history.

But many people seem to view our tax system as a series of levers by which Australian society can be directed, and the choices of individuals can be manipulated. Increased taxes could shrink waistlines, eliminate traffic congestion, end lung cancer, and reduce drunken inner city violence.

In this view, taxation is not a necessary evil, but an end in itself.

Sure, the revenue from taxation can be used for good things. That money pays for public schools, the court system, police, national defence, maintaining roads, hospitals, and the welfare safety net.

But, don’t let the worthiness of some spending conceal the fact that the art of taxation is the art of plunder. To tax is to confiscate money which individuals and businesses have legally earned.

And, of course, the government wastes a hell of money too: the government ignored the overwhelming majority of the Henry tax recommendations, but the review still cost taxpayers $10 million.

The government’s new taxes won’t inspire revolution. And, luckily, they won’t leave us open to Visigothic invasion. But take the proposed tax on mining. It threatens one of our most valuable industries; one of the sources of Australian prosperity.

That should be more than enough to worry about. New taxes are a big deal.

City Car Levy Is Just Another Taxing Burden

There are two basic tasks governments have historically been very good at – collecting taxes, and thinking of interesting new taxes to collect.

So it was heartening to learn that the Victorian Government has rejected a proposal by its own Department of Infrastructure to levy a tax on cars in the inner city.

Sure, the streets of Melbourne’s CBD seem to be getting more and more congested. The Federal Bureau of Transport and Regional Economics estimated in June that congestion costs us $3 billion a year. At least we don’t have as many problems as Sydney does, where congestion is so chronic that watching traffic slowly crawl through tunnels is fast becoming a popular tourist activity.

However, we should be a little suspicious when after public servants have completed a long, careful study of a problem, the only solution they can think of is to take more money from the public. As Mark Twain famously said: “To a man with a hammer, everything looks like a nail.” To a bureaucrat, every problem looks like an opportunity to raise taxes.

But should congestion just be taxed away?

In principle, charging drivers to use busy roads at peak time isn’t a terrible idea. Driving into the city is essentially free. (Well, it is free if you ‘assume away’ – as the economists and bureaucrats promoting these taxes like to – the cost of petrol, the cost of parking, the cost of toll roads, and the cost of the car itself.)

People tend to consume more free things than they would otherwise do if they were asked to pay for them. If the government started giving away free beer, then there really would be a widespread binge drinking epidemic in Australia.

This logic suggests that if we started charging cars to enter the city, those individuals who were unwilling to cough up the money would use public transport or avoid going into the city at all. Fewer cars on the road means a higher average driving speed in the city, and, presumably, fewer commuters going postal before lunch.

That’s the idea, anyway.

But a congestion tax in Melbourne is one of those ideas that’s great in theory, and not so great in practice. The state government has already imposed a form of congestion tax – the $850 per year charge on long-stay car parks which they originally hoped would reduce the number of people who drive to work.

But if driving to work is now a lot less appealing, then car park owners and their investors haven’t heard anything about it. There are now over 200 more car parks in the CBD than there were before the tax was introduced.

Nevertheless, the car park levy hands $40 million dollars to the state government every year, so, as Roads Minister Tim Pallas so eloquently put it a few days ago: “The government sees no reason why that levy can’t continue to operate.”

New taxes always quickly find comfortable positions in government budgets. After all, from the perspective of Spring Street, $40 million is $40 million – who cares if the car park tax has failed to do what it was supposed to do?

A very high congestion tax would, no doubt, reduce the number of cars in the inner city. But, as London’s experience has shown, a reduction comes at the expense of city retailers, who have seen a 25% drop in business following the introduction of a congestion charge in that city.

And it would also add to the many, many taxes and charges the government already imposes on motorists.

Driving is already one of the most highly taxed activities a modern Australia can pursue. Simply purchasing a car can subject you to up to five separate taxes – stamp duty, the GST, registration, and, for those with slightly more exclusive tastes, the import duty, and the luxury car tax. Car insurance gets its own separate taxes, with its own stamp duty and a GST.

Finally, drivers have to pay the petrol excise tax, the GST, and soon the cost imposed by the federal government’s new emissions trading scheme.

That’s nearly 10 taxes just to back out of the driveway.

No wonder the state government has hurriedly tried to reject the idea of burdening innocent motorists with yet another punitive charge.

Just because you can imagine a tax, it doesn’t mean you should impose it.