“DEBIT TAX - KEY TO FISCAL PROSPERITY”

Article by Tony Cook (New Zealand)

Imagine New Zealand without income tax; without company tax; without sales, excise, GST, or any other hidden taxes. “In your dreams” you might say, and you could certainly be forgiven for your cynicism under the current circumstances of tax collecting.

However, much research has been done worldwide over the past ten years into alternative tax structures to the Income Tax – GST package, the best being the “Debit Tax” or “Withdrawals Tax” or “Cyber Tax” as it’s sometimes called. If you happen to dare to dream that things could be much better – look out! You may be right. Why shouldn’t we have a better democratic system – and – a better tax system as well? Why shouldn’t New Zealand rise to the greatest heights of civilization? Even lead the way! We could then be a force to be reckoned with in the global area. Every citizen would be able to hold their head up rather proudly to be counted as a privileged member of this individualist but thoroughly democratically oriented country.

It has been the most difficult job for governments in every country for hundreds of years to devise a system of taxation and revenue raising that is fair to all strata of society, that is relatively easy to administer, and that encourages savings.

We have therefore swung between left and right wings like a pendulum desperately trying to find its impossible balance. When the nation was having pangs of social conscience it voted Labour, and when we needed fiscal responsibility we voted National. You might have noticed however in the current climate that the pendulum has virtually stopped dead centre. Like the Coke and the Pepsi test, if you were blind folded and just shown a package of policies without labels, could you tell which belonged to which party?

Why is it so? The reason is that more people are educated and informed than at any other time in the history of the world. And the people now have access to uncensored Internet. They are asking more questions and accepting less political rhetoric. So the Left knows it has to pick up its game and not spend the People’s money willy nilly and the Right knows it has to pick up its game and not be so hard nosed in its treatment of the poor.

We live at a wonderful time at present where so much is possible and achievable. All we have to do is catch up with our thinking and know this fact. If the People want to change something, all they should have to do is pick up a phone and indicate their preferences. This could easily be a reality too, after the next general election, provided enough people vote for the NZSDP’s proposed televote system.

But there are many other things that need to be improved too, and it would be the easiest and most important undertaking to start with the current taxation system. GST has not been successful. Frankly, it’s a pain. The GST percentage tends to creep upwards, and the black economy flourishes more than ever. In addition, the ever-increasing complexity and cost of administration provides many grey areas and loopholes where those “in the know” can find exemption.

There is also the aspect of rebellion. David Giles, Professor of Economics at Canada’s University of Victoria says, “The more complicated the tax, the more resistance there is, and the more people will lie to get around it.” Peter McDonald, national director of the taxpayers’ Australia newsletter, calls the Australian tax system the most complex tax system in the world. New Zealand’s tax system is really no better, and not so far behind in similar complexities.

So, what does “Debit Tax:” offer? It was a concept that was evolved by Leonard Crisp in 1992. Independently of this, St. John’s University (USA) professors Colabella and Coppinger also prepared a comprehensive paper in which they called it “Withdrawals Tax” (WTX) or “Cyber Tax”.

Once you look at “Debit Tax” you may just wonder why we didn’t just go there in the first place for the fairest tax system for the 21^st century. Obviously modern technology makes the vital difference. We can thank the power of computers and electronics for finally giving us the power to transfer 0.33 (or 0.5 as the Americans have suggested) of one percent (yes, less than one percent) over to the Treasury in a twinkling of an eye at the time we withdraw any money from our account. No form filling, no manual calculations, just a gem of a little computer code.

According to the Debit Tax Council of Australia, “Every hour of the day money is withdrawn from savings accounts, cheque accounts, insurance companies, business and investment organizations, and financial institutions of all kinds. Indeed, all money transactions are withdrawn from some kind of bank or financial institution that holds money in trust. The Australian Payments System Council Report 1991 – 1992, issued by the Reserve Bank of Australia, states that $120 billion dollars is withdrawn from banks in Australia every working day in ordinary business and trading. This figure doesn’t include cash withdrawals made from ATMs and EFTPOS withdrawals made at weekends and public holidays, and if these were added the figure would obviously be substantially greater.”

Just one simple and moderate “Debit Tax” of say one third of one percent (0.33%) applied to such an amount per working day would realise a figure of some $99 billion over a year at least, and obviously the rate of “Debit Tax” can be adjusted to suit any economy anyway. The most important and fairest consideration is that everybody is taxed at the same low rate regardless.

At the Australian national Tax Summit of 1996, the criteria used to assess the different tax systems put forward were:

1. The tax must be simple.

2. It must have a low compliance cost.

3. It must be transparent (i.e. no hidden taxes.)

4. It must not be avoidable.

5. It must be adequate (raise sufficient revenue).

6. It must be socially equable.

7. It must be efficient.

The “Debit Tax” option fitted all these criteria and quite clearly outshone the rest.

For example, if you earned and withdrew $100,000 in a year, you would only pay $330.

Remember, what you leave on deposit does not attract tax, which encourages savings.

There are absolutely no other taxes to pay. Local body rates could also be included and bulk funded to local authorities from central government.

Businesses would also make huge windfall in extra profit that could be used to fund growth and expansion.

It seems too good to be true, but not when you look at it more closely. It has been estimated that about 90% of Australia’s current Gross National Product turnover is due to the activity of Multinational Corporations, who contribute only about 10% of the total tax take. Take into account also the vast amounts of illegal money laundering and financial transactions that go on throughout the country and you start to get a picture of how the re-distribution of tax burden can happen. The black economy would dwindle to virtually nothing because people wouldn’t be bothered with hiding anything when such miniscule amounts are involved. In fact they would probably put up their hands to contribute more in charity to worthwhile causes because they would be flush with funds. When you have a surplus it is natural to want to share your good fortune (well for most anyway).

Further, the Australian Debit Tax Council went on to point out the following superior advantages of the Debit Tax system:

1. Income tax and all other taxes become invalid.

2. No extra tax (or super tax) on profits, savings, investments, estates, or assets.

3. No taxes on income, payroll, perks, gifts, provisional, property, inheritance,

or goods and services.

4. No income tax means an instant tangible wage/salary rise for all employees.

5. Goods and services will be cheaper without sales and/or import taxes.

6. No sales or hidden taxes, means more in the pocket for those in the welfare system. More jobs providing more pay means less needing welfare.

7. The method of collecting the revenue will be effected by electronic transfer for ultimate efficiency.

8. No more time, money and paper wasted on daunting tax laws and complex tax returns.

9. Tax collectors will be re-appointed to other more productive areas.

10. Accountants employed by businesses large and small, would be able to use their training and experience in the manner in which it was meant to be used, i.e. making business more productive and cost efficient.

11. Small businesses will not be hindered by our present time consuming system, and will consequently be encouraged to grow and employ more people.

12. Multinational companies will be required to pay their fair share.

13. No tax cheating or tax avoidance necessary or possible.

14. It would create a real user pays system.

15. Continuous flow of non problematical revenue to Treasury.

16. Our large and expanding national debt will be settled quickly.

17. New Zealand will become a welcome tax haven.

18. Overseas interests would be attracted to invest.

19. People could save for retirement with no penalties.

20. Increased savings and deposits would accrue due to no taxes.

21. Increased revenues will mean a more appropriate defence force,

police force, and more money for health and education.

22. Increased revenues will also mean enough money for the supply

and maintenance of a fully funded government superannuation

pension scheme.

A tax such as this would revolutionise the way we operate our economy, giving real benefit and real wealth to small business and employees alike. In fact, every level of society would be better off and the huge wastage of current tax collection costs of gathering hundreds and hundreds of different taxes would thankfully become a thing of the past.

In short, “Debit Tax” is an absolute winner, and we should all look forward to the day when the entire Inland Revenue Department will finally be abolished altogether.

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The NZ Super Democratic Party's Website is:

http://homepages.ihug.co.nz/~tonycook/nzsdp/


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    "WE, THE PEOPLE of New Zealand, in order to form a
more perfect Democracy, establish Justice, ensure domestic
Tranquility, provide for the common Defence, promote the
general Welfare, and secure the Blessings of Liberty to
ourselves and our Posterity, do ordain and establish this
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