Easytax redux redux

I got a brief run in the Murdoch press regarding Pauline Hanson’s revived proposal for a 2 per cent tax on all transactions (floated 20 years ago as “Easytax“). I was reported as follows: “University of Queensland school of economics professor John Quiggin said a 2 per cent tax would destroy small business and see a collapse in government ­revenue.” and the story was headlined “One Nation policy would ‘collapse the economy’” The headline is an exaggeration, but the quoted passage gets my opinion right.

Easytax is an example of a “cascade” tax, common in Europe a century or so ago. The point is that the tax rate is applied to the whole value of each transaction along the chain from primary producer to consumer. For a big firm, like Woolworths, the answer is simple: integrate backwards along the chain by taking over your suppliers. Then you pay the tax only once at 2 per cent. Small businesses, who can’t do this, end up paying the tax themselves, on goods that have already been taxed many times. So, they go out of business, and the total value of transactions falls far below the level used in the original calculation that a 2 per cent tax would be sufficient. Hence, government revenue collapses.

It was precisely because this process was happening that the French (the innovators in this field) dumped the cascade tax in favor of a value-added tax (VAT), the same model used in the GST. They were followed by the rest of the EU and then most of the world, except the US, which still relies on retail sales tax (levied only once, but still messy and narrowly-based).

The story also says “A spokesman for Senator Hanson said she had only advocated investigating the policy.” But the fact that such a nonsense idea is still part of One Nation thinking gives the lie to the suggestion of Hanson’s coalition partners in the LNP that this iteration of One Nation is different from the last. It’s just as racist and ignorant as ever. It’s not Hanson that has changed, but the LNP which is now indistinguishable from One Nation.

  1. Ernestine Gross
    February 13th, 2017 at 11:49 | #1

    Thanks for the history on “Easytax”.

  2. I am and will always be Not Trampis
    February 13th, 2017 at 11:57 | #2

    agree on all that.

    Can’t be a nonsense idea. That is putting two nouns together. please no americanisation of the english language.
    nonsensical is the adjective

  3. derrida derider
    February 13th, 2017 at 12:20 | #3

    I’ve always thought the economic losses from cascade taxes exaggerated a bit by the textbooks (said textbooks typically underestimating the economic gains from simplicity) but there is no doubt that the incidence of this one falls differentially on small business, including the family farm. Which whatever the economic effects should be enough to politically kill it in Australia.

    As a small point, while the French were the first cab off the rank to implement a VAT the idea was originally developed and explored by the poms – the (very innovative and influential) Rolls Commission IIRC.

  4. Collin Street
    February 13th, 2017 at 12:34 | #4

    Just to point out that dividend imputation eliminates the cascade effects of company/profit taxes in the same way that VAT does for consumption.

  5. Smith
    February 13th, 2017 at 12:45 | #5

    Easytax might be both an oxymoron and a moronic idea, but it’s got nothing to do with One Nation being racist. If they were to advocate a tax policy straight out of the orthodox textbooks they wound still be racist and if some party completely free of racism were to advocate a cascading tax then more fool them, but they wouldn’t be racist because of it.

    In other words the last paragraph adds nothing and subtracts plenty from the argument. You could have summarised by saying this tax policy is another example of One Nation being a bunch of meat heads. And of course the reasons the LNP are coquettishly batting their eyelashes at ON have nothing to do with their tax policies, about which they could not care less.

  6. Moz of Yarramulla
    February 13th, 2017 at 13:15 | #6

    How does that differ from a Tobin Tax? Or more accurately, how does a Tobin tax not have the same problems?

    Agree that the racism para doesn’t add anything. You might reasonably call them simplistic and ill-informed on the basis that what they’re suggesting has been tried and is known not to work. But racist… more explanation is needed as to how this particular fart is racist.

  7. John Quiggin
    February 13th, 2017 at 13:29 | #7

    @Moz of Yarramulla

    With a Tobin tax, a reduction in the volume of transactions is a feature, not a bug. I spell out some of the points here.

    To spell out the final para argument in boring detail

    1. In 1998, One Nation were a bunch of moronic racists, who held simplistic and ill-informed views
    2. These weren’t independent facts – they were racists because they accepted moronic, simplistic views such as “Asians are taking our jobs”
    3. Sinodinos and others say they are much more sophisticated now
    4. On the contrary they are as moronic as ever, and are pushing the same arguments as before
    5. On this basis, it is reasonable to assume that they hold the same racist beliefs as before
    6. In any case, there is ample evidence that they do in fact hold these views, with a change of focus to Muslims.

  8. Ikonoclast
    February 13th, 2017 at 13:31 | #8

    It seems “One Notion” doesn’t even have one notion when it comes to tax.

    Search interent for Pauline Pantsdown – “I Don’t Like It”. That’s funny, if somewhat repetitive.

  9. Moz of Yarramulla
    February 13th, 2017 at 14:16 | #9

    Aha, I see now. A tax that makes extra transactions expensive in order to discourage extra transactions… is the point of the Tobin Tax. It’s obvious after you explain it 🙂

    I’m not denying that One Nation is racist and stupid, just that this particular proposal doesn’t seem to be racist. So while your comments are true, I’m sure they add to the argument about the tax. And the song… is annoyingly relevant. Like The Herd’s 77%, and TZU’s “Horse you rode in on”. In that sense, Prof Q singing “they’re racist and stupid and their proposals are idiotic”… it’s the same old song. If only it wasn’t still topical and relevant.

  10. Luke Elford
    February 13th, 2017 at 14:23 | #10

    (Sarcasm warning)

    The explanation for Hanson’s support for this policy is straight-forward—she’s a secret Muslim and the tax is designed to pave the way for Australian family farms to be co-opted into vertically integrated corporations controlled by a global network of halal certification organisations.

  11. Smith
    February 13th, 2017 at 17:07 | #11

    @Moz of Yarramulla

    Just because someone is racist doesn’t mean everything they say is motivated by racism. Just recently I had a racist taxi driver, a fan of La Hanson, in fact, but his suggestion on which route to take was not racist. It actually was a sensible suggestion.

  12. chrisl
    February 13th, 2017 at 18:19 | #12

    So are we all happy with the GST? There was a time when it was not so…

  13. Smith
    February 13th, 2017 at 18:36 | #13

    @chrisl

    In the run up to the introduction of the GST, it was going to be the end of civilisation as we knew it. And the big day came, July 1, 2000. And it was …. meh.

  14. Tim Macknay
    February 13th, 2017 at 19:20 | #14

    @Smith
    The route suggestion may have seemed sensible from your perspective, but how can you be sure it wasn’t racist? It may be that, unbeknownst to you, the driver was actually trying to avoid a suburb he knew to be occupied by immigrants from central Asia, and the route just coincidentally happened to suit you. 😉

  15. chrisl
    February 13th, 2017 at 19:47 | #15

    Smith I remember those days! And the days after ! Hey here is a little test. Can you pick the common denominator out of the following terms…. Sales Tax , Income Tax, Value Added Tax, Carbon Tax, Stamp Duty Tax, Cascading Tax, Tobin Tax, Inheritance Tax, Capital Gains Tax,Company Tax
    Apparently one of them represents boneheaded stupidity

  16. Smith
    February 13th, 2017 at 19:53 | #16

    @chrisl

    More than one.

  17. Wayne McMillan
    February 13th, 2017 at 20:03 | #17

    Forget about silly easy taxes and introduce a credible mineral resources rent tax. Our common wealth is being sold for a swan song to make a small number of already wealthy Australians wealthier. When will the mining sector tell Australians the truth and admit that only a small number of workers are employed in this sector.
    The Commonwealth government should nationalise mining and share the profits with all Australians. Some of the profits could then be used for new research and development in environmentally sustainable industries. How long can we continue to rely mainly on fossil fuels?

  18. February 14th, 2017 at 00:48 | #18

    @I am and will always be Not Trampis
    Shakespeare: ” He out-Herods Herod”. That’s verging a proper noun. By your self-created rules, the Bard is beyond the pale. English has readily allowed nouns, verbs and adjectives to cross-dress for centuries. Consider the sentences: Google raised its dividend proper noun); John googled his own name (verb); the search gave over a million Google hits (adjective). All these are perfectly grammatical. Don’t be a grammar peeve, read Language Log.

  19. Collin Street
    February 14th, 2017 at 05:25 | #19

    Just because someone is racist doesn’t mean everything they say is motivated by racism.

    Sure. But remember: racism is [definitionally] irrational, and thus a person is irrational to the extent they are racist. More racist, more crazy: if you’re running a political party devoted to the task of excluding the wrong sort of people, you’re pretty damned crazy, and we can safely presume that this has overflow.

  20. John Quiggin
    February 14th, 2017 at 05:43 | #20

    @chrisl

    So are we all happy with the GST? There was a time when it was not so…

    If that was aimed at me, you are way off the mark.

    http://www.uq.edu.au/economics/johnquiggin/news96/GST9605.html

  21. Julie Thomas
    February 14th, 2017 at 07:44 | #21

    Racism is not only irrational but the crazy thinking that underpins the racist attitude and behaviours clearly has had an overflow in the sad – in my opinion – life of Pauline Hanson.

    http://www.smh.com.au/good-weekend/gw-classics/pauline-hansons-bitter-harvest-20140828-109dbf.html

    It’s a bitter harvest indeed for herself and the people who are hurt by her unmet psychological needs.

  22. Greg McKenzie
    February 14th, 2017 at 08:09 | #22

    Back to the economic analysis of the One Nation simplistic tax plan. All tax reform, without exception, must past the dual tests of fairness and equity. Simple tax proposals appeal to the Aussie obsession with a “fair go”; but a good tax must be more than just fair. The economic test of equitable taxation is much harder to pass. If , as Professor Quiggin states, this tax will see exaggerated and distorted backward intergration, then this tax plan will fail the test of equity. Under this outcome, such a tax plan will redistribute wealth away from small wealth owners towards large wealth owners. Simply put, it will make asset distribution less equal. Surely such an outcome only benefits the few and disadvantages the majority of Australians. As a known racist has said repeatedly, this is a “bad deal” for Australia as a whole.

  23. February 14th, 2017 at 14:00 | #23

    But what about say a CAPITAL transactions tax setting in on transaction worth say $10 000 or more that are not subject to GST ?
    This would be similar to stamp duty, and at say 1% would be only $10 000.- on a 1 million capital transaction, or at 0.1% only $1000.- .

    How could that have a “cascade effect” putting out small businesses ?

  24. chrisl
    February 14th, 2017 at 17:04 | #24

    @John Quiggin
    It was most certainly not aimed at you. I just wanted to point out that new taxes are always portrayed as the end of the world as we know it. The GST was vehemently opposed at the time(by some who once supported it) It was regressive, socialist, out dated , you name it . Very scary. John Hewson probably lost an election because he couldn’t explain it. The point is that with all the taxes that we have what difference is one extra tax going to make? Taxes can do everything except fill up the government’s coffers.

  25. Rod
    February 14th, 2017 at 22:39 | #25

    Can anybody explain why the2% tax would be paid by the retailer rather than him passing it onto the consumer?
    His whole argument against the cascade tax is based on this point. To my knowledge the only time this tax was ever used was in Siri Lanka in the 1950s . It did not work because it was too complicated pre computers
    Hey , welcome to 2017

    @Ikonoclast

    @Greg McKenzie
    The Government has the power and authority to grant assistance to any group of people and is active in that area now. But it,s problem is collecting enough for the distribution so what the cascade tax does is move the collection and the equalisation of wealth to two different departments, thus diminishing fraud.

  26. Collin Street
    February 15th, 2017 at 06:26 | #26

    Can anybody explain why the2% tax would be paid by the retailer rather than him passing it onto the consumer?

    Changes to cost structures don’t affect demand curves: if the price is already set at the point of revenue maximisation then more-expensive supplies won’t change the revenue-maximising price. “Passing the cost on” isn’t really a thing, for taxes or any other sort of input cost.

    [… this is an oversimplification: the supply curve willl shift, and so the equilibrium / net-profit-maximising price will shift too. But with any sort of normal good it’ll be well less than full recovery.]

    [… aha! the whole point of the japanese GST raise was to trigger inflation. Of course.]

  27. Jim Rose
    February 15th, 2017 at 16:53 | #27

    1/2 of one nation voters 2nd preference for Labour Party. Yelling abuse at them is hardly likely to get those votes back. The reason why they are such a big threat is they attract support from labour as well is from the Liberals.

    Denouncing them as racists is polarising and will reinforce their beliefs.

  28. rog
    February 15th, 2017 at 19:36 | #28

    @Jim Rose They are racists and this should be shouted from the rooftops.

  29. Jim Rose
    February 16th, 2017 at 13:33 | #29

    @John Quiggin

    You are quite correct in your description of the Tobin tax.
    Oddly enough, the Robin Hood movement also look upon it as a major new source of revenue despite well knowing the origins of the tax. The notion that somehow you can raise a lot of money with stamp duties on anything is odd.