FOR AN EXPENDITURE TAX

By Derek Smith ( Chartered Accountant )

( written back in the late 90’s )

INTEREST RATES AND THE VALUE OF THE DOLLAR
Right now Australians are concerned about where interest rates are heading and how high they will go in the coming months.

Because the Government and media have been telling Australians the economy is strong but that there are no immediate expectations of inflation getting out of hand, Australians understand that the recent and prospective interest rate rises are to prop up the value of the Australian dollar.

With the last interest rate increase in the first week of May, the media have made the point that the official interest rates in Australia are now the same as those in the United States and Europe, which should ease the downward pressure on the value of the Australian dollar.

This statement is worth of further analysis because there is a sharp contradiction between the value of the US dollar, the pound sterling and Euro dollar, all of which are high compared to the Australian dollar which has been towards an all time low. With the same official interest rates why is it that, of the four currencies the value of the Australian dollar is so seriously out of step?

To discover the answer, if we first look at the natural wealth of the related continents, we find that Australia per capita is one of the richest countries on earth, so that Australia has a high asset backing for its currency. In sharp contrast, countries such as the United Kingdom, lack substantial natural resources and have low asset backing for the pound sterling.

Clearly the low value of the Australian dollar is not a natural resources or asset backing issue.

Further investigation and discovery reveals that much of the Australian industry and commerce is foreign owned and the wealth generated in Australia serves the foreign owners, not the Australian community and not in support of the value of the Australian dollar.
Looking at the people resources of these continents, we find that Australians are well educated, technologically advanced, and with a demonstrated capacity in invention, design, and the creation of concepts in the demand throughout the global community. This inquiry reveals that many Australians with high levels of knowledge, skill and productive capacity, live elsewhere in the world due to the lack of opportunity in Australia.

Turning to the examination of the marketing of the Australian products and services, including its rural produce and minerals and energy, the conclusion is reached that Australians are price takers and not price makers and substantially undersell the value of Australian products and services, many of which are worthy of market premiums. This inability of Australians to sell up grossly understates the value of domestic production and resources which in turn puts critical pressure on costs, in particular of labour.

Putting the above in and economic context we discover that Australia is rich in natural resources but does not control the production and commerce of these resources. As a consequence Australian resources and production are sold below their market value and this loss of revenue denies Australia the funding to develop its own resources, in particular the output and productivity of its people.

So what has Australian government been doing and what are its current plans to put Australians in control of their own resources and commerce, obtain fair market prices, with premiums for its production, including rural produce, minerals and energy and provide the Australians the opportunity to enjoy personal development, employment and financial rewards in their own country ?

HIGH INTEREST RATES NOT THE ANSWER
The first place to look for these answers is in the marketing, both domestically and internationally, of Australian resources, production and commerce and to understand that the challenge is to become price makers and not price takers.

The starting point is to recognise that to gain market acceptance and achieve fair value including premiums has to be won by being competitive in all elements of the cost structure of goods and services with this cost comparison being against those who currently enjoy dominance in the related markets.

An early discovery in the process of competitive cost comparison is that all Australian costs are burdened by high taxation in all its forms from Federal, State, Territory and local governments with this taxation including the non-commercial element of charges and fees by Governments and its agencies.

This gross taxation distortion in Australia’s global cost competitiveness leads to an analysis where taxation is excluded. This global cost comparison, excluding taxation, shows that Australia is capable of sustaining a competitive position in global markets and over time securing fair prices, including premiums, where the quality of its products and services satisfy global consumers as best value for money.

To test this discovery we can turn to major foreign owned developments which have taken place in Australia over the past half century and what we find is that in both attracting these developments to Australia and retaining their ongoing presence, the Australian government provides substantial tax breaks and the repatriation of profits largely untaxed.

Since it is clearly evident that Australian governments understand the impact of their high taxation on Australia’s competitiveness it would be reasonable and fair minded to expect that all levels of government in Australia are actively following policies and practices to reduce the burden of taxation to give fair opportunity for Australian resources, in particular its people, to make their economic presence around the globe.

This process of discovery reveals that Australian governments year on year increase the burden of taxation in all its forms on the resources, production and commerce and people of Australia, whilst at the same time allowing foreign interests to escape this taxation.

As the foregoing discovery is neither complex nor difficult these realities should be known and understood by both the political and administrative arms of government, so the question arises – what are the politicians and bureaucrats doing to develop and implement plans for the future to redress the blatant imbalance where foreign interests are placed first and Australian interests, including that of the wider community, have to be content with the remnants ?

The value of the Australian dollar is the ultimate barometer of how global interests see Australia and by default how we as Australians see ourselves. The value of the Australian dollar is in crisis and beyond the control of the Australian government and Australian interest because although we are asset rich we are performance poor and give preference to foreign ownership and not to domestic ownership of our own country, industry and commerce.

This alliance between global interests and Australian government policies and practices can only be broken by implementing a policy which substantially reduces the taxation component of the cost of Australian goods and services as a prerequisite to the Australian industry and commerce improving its global and domestic presence in global markets. The present and prospective expansion of global trade through e-commerce provides Australia with a timely opportunity to shift from a high taxation regime economy to a low taxation regime economy with immediate and ongoing improvement in the living standards of all Australians.

It is time for Australians to reject Government policy which says that the only way to support the Australian dollar is through high interest rates. What the above discovery shows is that Australians need their Government to immediately change to a low taxation economy which will give Australian industry and commerce new global competitiveness leading to the development and utilisation of Australian resources with wealth creation in the hands of Australians to reassert ownership of Australia and its industry and commerce.

This policy of Australia being a high performance producer in industry and commerce complements its high wealth in natural resources and in combination offers to the Australian community immediate and ongoing prospects for a new level of living standards and personal freedom of choice, free from Government and political incursion.

The economic reality of Australia, when related to the best interests of Australians, is that the Nation only needs half the Revenue the present Commonwealth Government raises.

Australia has lost control of the value of its currency due to the excesses of the Government forcing underutilisation of National resources, in particular its people. Australians as a Nation are living beyond their means and survive by foreign debt and selling off public assets.

2%EXPENDITURE TAX IS THE ANSWER
The politicians and media are still clinging to the misrepresentation by economists and academics that 2% Expenditure Tax cascades at a high rate.

They base this view on the assumption that other taxes remain because this is what happens under the GST which cascades on top of income tax, profits tax, payroll tax, fringe benefits tax. superanuation tax, capital gains tax and their derivatives e.g. withholding tax. All these taxes are abolished under 2% Expenditure Tax but the politicians, economist, media and academics refuse to apply their minds to understand how this is possible.

In a typical multi-stage manufactured product, 2% Expenditure Tax cascades to 13%, HALF the RATE of the 10% GST and OTHER TAXES which cascade to 28%.

The objective of 2% Expenditure Tax is to make Australian’s goods and services price competitive internationally and domestically as the means to achieve effective utilisation of Australia’s resources, in particular its people, for wealth creation in the hands of Australians to buy back ownership as a democratic community with freedom of choice.

This is to be achieved over a three year period by abolishing Australia’s existing unfair inefficient taxes to reduce the prices of all by up to 40% and all services by up to 30% so that existing take-home pays, incomes and savings can buy goods and services on a user pays basis to reduce funding required by Government.

This reduced funding for Government is to be raised by 2% Expenditure Tax is a fair and efficient tax which creates the incentive to work, save and invest for a standard of living second to none in the world. For Government 2% Expenditure Tax provides the means to give the underprivileged a standard of living enjoyed by other Australians and to pay back foreign debt, returning dignity to all Australians and putting value back into the Australian Dollar.

THE CURE FOR HEALTH CARE
The recent debate concerning nursing home care and standards is representative of what appears to be an unsolvable problem for Government and the Australian community. Whilst huge amounts of money can fix the under-funding of nursing homes for operating costs and capital costs including the need for major refurbishments, this alone will not fix the problem.

A more caring community has first priority and current social trends, even for the optimistic, are heading in the wrong direction. A characteristic of care is the availability of time to meet the needs of the individual, including those needing much attention.

Australia’s high cost of labour, due to its high personal tax rates, places a cost premium on time, forcing management to adopt standards of time per patient based on economic values, not caring values. An objective of 2% Expenditure Tax is to cut the cost of Australian labour by abolishing today’s high personal taxation.

As a consequence, 3 care workers will be able to be employed at the same cost today of 2 care workers.

The significance of this extends well beyond addressing the problems of nursing homes and critically address the needs of youth and future generations. Reinstatement of the family as the cornerstone of a healthy society is made possible by 2% Expenditure Tax by substantially reducing the need for income to meet both the necessities of life and for a standard of living in keeping with the expectation of Australians.

2% Expenditure Tax will relieve today’s economic necessity for both parents to work, providing the opportunity for parent care and guidance to take place in the home during critical times of the day when children need parental love and guidance.

All Australians substantially benefit under 2% Expenditure Tax. e.g. reduced cost of employment enables 3 educators, doctors and health care workers, defence personnel, primary and secondary industry workers to be employed for today’s cost of 2 workers.

REFOCUSING BUSINESS AND COMMERCE
On the implication of this 2% Expenditure Tax, the focus will be:
Accountants, on their clients’ wealth creation, retention and growth (under the Government’s A New Tax System (ANTS) including the 10% GST, it will be on their clients’ survival and sale of personal and business assets to pay off creditors including the Government’s high tax take)
Solicitors, on their clients’ property (tangible and intangible including intellectual) and rights (personal and business entity) protection and exchange (national and international trade) (under the Government’s ANTS including the 10% GST, it will be on their clients’ bankruptcy/liquidation and personal protection as tenant labour in their own country owned by absentee foreign landlords).
Doctors, on their clients’ health protection and improvement through preventative care and the best available cure.
Other professionals and Australian workers including in Government, on the opportunity for meaningful and productive engagement as opposed to current workplace environments where fear and discrimination abound.

Importantly under the 2% Expenditure Tax, all Australians and visitors will have increased spending power from existing incomes and savings as a result of reduced prices of goods and services.

Also the incentive for wealth creation, retention and growth, taxed under this 2% Expenditure Tax will present the opportunity to all Australians to work and enjoy a world’s best living standard. Uniquely it will enable Australians to secure their ownership of Australia as a freedom of choice democracy. (Presently there are millions of Australians living in poverty, unemployed/underemployed in the richest country in the world.

Under the government’s ANTS including the 10% GST the minority rich will get richer whilst the majority poor will get poorer with an explosion in the number of the poor, including aged Australians who went to war in their youth to protect the freedom of all Australians. Critically, the low value Australian dollar will cause total foreign ownership of Australian businesses and property).

SEPARATION OF POWERS
The Australian Parliaments, Federal, State and Territory are parties to the abolition of a basic foundation stone of a democracy- THE SEPARATION OF POWERS.

The ATO and the ACCC are now the law Makers and Law Administrators and Compliance Enforcers.

REDUCTION OF COST OF GOVERNMENT
Significantly, 2% Expenditure Tax reduces the cost of Government at all levels and the wider use of user pays enables Government to focus on achieving a higher level of performance in National issues including defence, environmental protection, rights of the individual and Australia’s world standing as a democracy paying its way in the world and influential in world stability and growth.

FAILSAFE AND SIMPLE IMPLEMENTATION
2% Expenditure Tax is to be implemented over a 3 year term with a range of controls and failsafe systems to ensure that its objectives are met and not circumvented by minority vested interests in Australian and overseas communities.

A critical is the participation of representatives of the community in the process of distribution of the taxes to be abolished. A primary purpose of this distribution is in the reparation of neglect due to inadequate funding. To achieve this will require leadership to effect this reparation and the implementation of standards for a new future.

At the Senate Select Committee hearings on A New Tax System in early 1999, three representatives of Tax Reform Limited were presented with the usual political diatribe that the Commonwealth Government must raise revenue, principally taxation, of around 24% of GDP, e.g. in 1998/99, $146.5 billion or 24.7% of GDP. Any reform proposal which would raise substantially less, would not be considered.

The 2% Expenditure Tax is estimated to raise a minimum of $83 billion or 14% of GDP with the $63.5 billion or 10.7% of GDP supposed shortfall not being required because $65 billion of existing taxes are abolished thereby reducing existing selling prices of goods and services in Australia and for export. Australia immediately improves its national and international competitive position. This reduction in prices increases the purchasing power of existing incomes, savings and investments, giving the individual and industry, the financial capacity to pay on a user-pays basis outlays currently funded by the Commonwealth and leaving surplus capacity to buy back ownership of Australian businesses and property and to pay off net foreign debt.

Please see the attached statement of Commonwealth Government funding with the 2% Expenditure Tax which includes the abolition of State and Territories Payroll Tax in 1998/99, $8.1 billion.

Feedback shows that the time is right for 2% Expenditure Tax. What is now needed is for leaders in all sections of the Australian society to speak out and require the Senate to do the job that should have been done in early 1999, i.e. a fair and proper evaluation of 2% Expenditure Tax and a conclusion that it is eminently suited for implementation in Australia as a matter of National urgency. The suspension of the GST, PAYG and other changed to taxation raising for the Commonwealth, States and Territories is not difficult to manage.

The implementation of the 2% Expenditure Tax is easy on all parties, in particular business and consumers and, with the incentive for growth and increased earnings, can be expected to be willingly embraced. The political party that implements 2% Expenditure Tax can expect to remain in power for the long term.

No other tax system can achieve this turnaround in Australia’s economic position, with increasing surpluses to complete the payoff of foreign debt and put into the hands of Australians the wealth to buy back businesses and property in Australia.