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.

29 thoughts on “Easytax redux redux

  1. 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.]

  2. 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.

  3. @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.

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