Tuesday, May 04, 2010

Taxation's violent history

Any change in the tax system is a change in our relationship with the state.

But when the Henry tax review was released on Sunday, it was seen as a bit of an anti-climax.

The document has been sitting on Wayne Swan's desk for more than four months.  We've known about some of the big-ticket items for nearly as long:  a simplified tax return system, and increased taxes on mining companies (presumably because Kevin Rudd hates Western Australia).  We could have guessed some of the other ones:  volumetric prices for alcohol.  Since January, we've even known how thick the damn thing is:  10 centimetres of wonky glory.

But it's definitely worth paying attention to.

In the relative luxury of twenty-first century Australia, it's easy to believe government can never fail too badly -- what could possibly go wrong with a few tax increases here and there?

But excessive taxation has been one of the great driving forces of history.  Bad tax policy has destroyed industries, governments, nations, and empires.

Heavy taxes imposed by the Stuart monarchy led to the English Civil War.  Dissatisfaction with Spanish taxes led to the Dutch revolt.  Iniquitous taxation led to the French Revolution.  And, of course, the cry of "no taxation without representation" echoed throughout the American colonies as they rebelled against England.

High taxes can even be blamed for the fall of Rome.  The economic deterioration in the third century AD which left the empire susceptible to external threat was to a large degree caused by skyrocketing taxes.  Taxation was so heavy some free citizens renounced their liberty to become slaves, and therefore tax exempt.  This was common enough for the Emperor Valens to declare doing so illegal.

In the early Middle Ages, taxes levied on infidels helped spread the Islamic faith -- Muslim conquerors made it cheaper for conquered peoples to become Muslim than remain Christian.

Australia has its own violent tax history.

After all, it was excessive taxation which caused the Ballarat miners to rebel.  They believed the increase in the price of a miner's licence was tantamount to tyranny.  This was particularly bitter for those who had left the Old World to find liberty in Australia.  The Italian Raffaello Carboni wrote that he had travelled "16,000 miles in vain to get away from the law of the sword".

So those anti-tax strikers at the Eureka Stockade had more in common with modern free marketeers than modern social democrats.

Even some of the great social movements were tax inspired.

In the United States, suffragettes in the 1870s formed women's taxpayer's associations and anti-tax leagues.  In Australia, the women's rights activist Mary Lee asked why "Should not those who had their property taxed have a voice in the representation of the taxpayers?"

Excessive taxation shows up in popular culture.  The extremely high taxes of 1960s and 1970s Britain gave us The Beatles' Taxman.  In the Kinks' Sunny Afternoon, the songwriters complain "The taxman's taken all my dough".

No wonder:  the Labour Government in the 1960s imposed a massive 95 per cent "supertax" on high income earners.  And the rich did more than just complain.  Many, like the Rolling Stones, just packed up and left the United Kingdom altogether.

The proposed mining supertax will only be 40 per cent.  But, like British rock stars, mining companies keeping a close eye on their bottom lines will leave Australia as soon as it is no longer profitable to stay.

Tax has an ignoble history.

But many people seem to view our tax system as a series of levers by which Australian society can be directed, and the choices of individuals can be manipulated.  Increased taxes could shrink waistlines, eliminate traffic congestion, end lung cancer, and reduce drunken inner city violence.

In this view, taxation is not a necessary evil, but an end in itself.

Sure, the revenue from taxation can be used for good things.  That money pays for public schools, the court system, police, national defence, maintaining roads, hospitals, and the welfare safety net.

But, don't let the worthiness of some spending conceal the fact that the art of taxation is the art of plunder.  To tax is to confiscate money which individuals and businesses have legally earned.

And, of course, the government wastes a hell of money too:  the government ignored the overwhelming majority of the Henry tax recommendations, but the review still cost taxpayers $10 million.

The government's new taxes won't inspire revolution.  And, luckily, they won't leave us open to Visigothic invasion.  But take the proposed tax on mining.  It threatens one of our most valuable industries;  one of the sources of Australian prosperity.

That should be more than enough to worry about.  New taxes are a big deal.


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