IP: Re: "Political Dynamite" Fails to Explode: Extreme proposals of Treasury'sO'Neil

[David Farber <dave () farber net>]

> From: Jamus Jerome Lim <jamus () internationaleconomics net>
> Reply-To: "jamus () internationaleconomics net"
>         <jamus () internationaleconomics net>
> To: "'dave () farber net'" <dave () farber net>
> Subject: RE: Re: "Political Dynamite" Fails to Explode: Extreme proposals 
> of Treasury'sO'Neil
> Date: Thu, 21 Jun 2001 17:13:07 +0800
> X-Mailer: Microsoft Internet E-mail/MAPI - 8.0.0.4211
>
> As an economist, I felt it necessary to place the comments of Mr. Cochrane
> in some perspective.
>
> The GST, in itself, it not inherently evil (much as we would like to make
> it out to be). There is a very fine economic argument for the
> implementation of a GST - individuals who consume more goods and services
> should pay more tax, and this form of taxation is far broader and
> infinitely harder to dodge, not to mention its contribution to promoting
> greater equity.
>
> However, what is happening is that governments are taking a good idea and
> getting the implementation all wrong. Ideally, the GST should replace
> income taxation entirely - and if the economic calculus is done right,
> there should be no significant changes in the tax burden faced by
> individuals. Obviously, reality is not that simple, due to differences in
> preferences and lifestyles between consumers, and the unwillingness of
> governments to completely forgo income taxation.
>
> However, even granted these variances, there shouldn't be major changes in
> the taxes paid by individuals. This is obviously not happening is
> Australia, at least on the basis of anecdotal evidence. It has somehow
> failed in its homework, or has intentionally done so to enrich its coffers
> (for which, if true, they will likely pay the price at the next elections).
>
> I would argue that this failure to correctly implement the GST is not
> inherent in the theory itself. As a counterexample, consider the case of
> Singapore, which implemented a GST system some time in the 1990s. As part
> of the tax reform package, it slashed income taxes at all levels, and
> imposed a small 3 per cent GST. Despite the initial fears, most
> Singaporeans do not now suffer from an increased tax burden, nor are they
> clamouring that the government has 'mugged the economy'.
>
> Hence, rather than instinctively striking out at the failure of the
> programme in Australia, perhaps we should also look at why it failed. Was
> it due to negligence on the part of those who planned the tax? Or is it
> simply a matter of teething problems, due to unanticipated realities in
> implementation? And how fast is the Australian government working to remedy
> this problem?
>
> As a final note, the OECD does maintain a blacklist of known 'tax havens',
> and as a matter of fact, these countries are in the midst of an ongoing
> struggle with the OECD. See the FT article reprinted here:
>
> http://www.globalpolicy.org/nations/haven/2001/0117truc.htm
>
> You can view the OECD tax haven report to ministers here:
>
> http://www.oecd.org//daf/fa/harm_tax/Report_En.pdf
>
> Hope this clarifies the issue.
>
> ----
> Jamus Jerome Lim
> Regional Economic Studies
> Institute of Southeast Asian Studies



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