- "The art of government is to make two-thirds of a nation pay all it possibly can pay for the benefit of the other third." – Voltaire
I've been thinking a lot about taxes and how the desire to receive without payment has been a recurring theme in democracy. Everybody wants a free ride, but few of us want the responsibility for building and maintaining the roller coaster. Hence we create little provisos to ensure that as many people do their bit as possible and, in typically populist fashion, the solution is usually to lower taxes and cut spending so as to create a more direct connection between paying and receiving, with the added bonus that you don't end up with a huge prize pool to bait the private sector into lobbying for hand outs. It's just unfortunate, however, that while this strategy makes a lot of sense prima facie, it neglects the fact that taxes often do a lot of good
First, consider the economic benefits of taxation. As recent analysis of the last decade has shown, John Howard and Peter Costello's emphasis on tax cuts promoted spending without spurring productivity — a formula that only leads to inflation. Indeed, just contrast this with the genius of requiring all Australian workers to sacrifice a minimum percentage of their income on superannuation, as the Keating government legislated, which meant that spending was constrained while simultaneously creating a pool for investment in private enterprise and preparing the public for their retirements.
Second, as much as we might hate the middle men and public sector bloating, the funding of government services can provide effective insurance against catastrophe. For instance, a poorly funded health system creates a disincentive for people to see a doctor in the early stages of a contagious disease, which then increases the chance of it spreading. And as Dmitry Orlov noted in his analysis of the Soviet Union's collapse, the tendency to overbuild made it a lot easier to deal with economic disaster. Put simply, the fat comes in handy when a famine shows up.
Now, at this point it I am more than willing to concede that taxes can easily manipulate the market by not allowing it to set prices according to genuine supply and demand. And in a similar vein I can imagine that some of you might make the case that high taxes can bate the practice of economic planning. But my retort to these assertions is simply that the emphasis on the individual is short sighted and neglects their context, thus overlooking the more systemic problems. The challenge is to promote fairness through fluidity, and not by an arbitrary redistribution.
To this end, high taxes can promote civic engagement by funding public forums and giving citizens the sense of having a stake in spending outcomes. This does not necessarily have to mean a nanny state either, since public demand often motivates the desire to find new money in budget cuts. The Australian Broadcasting Corporation is just one case in point: for much of the last century, it has given voice to critics of the government and was more than willing to report when it was being threatened with funding cuts or privatising. Hence, it has consistently set the standard for media practice in this country.
The reason big corporations have more influence on governments than their citizens do is simply because they create more tax revenue than anyone else. In making up for a free-riding citizenry, governments have found themselves dependent on big industries, like our mining sector, to balance excessive middle class welfare with increasing public expenditure. Instead of squandering money on chasing tax havens to fund our wildest dreams, we should be raising taxes across the board.