A Harvard-schooled chartered tax lawyer has labelled the idea of raising the GST to scrap other taxes a “stupid panacea”, in an impassioned plea for the government to phase out taxation on labour and capital.
Commenting on a story about tax reform being a pill too hard for our politicians to swallow, Dr Terry Dwyer of Dwyer Lawyers said that current proposals for tax reform are “economic and political poison”.
“Since income equals consumption plus savings, raising the GST (the stupid panacea of so many pretended tax economists and accounting bodies) is simply equivalent to raising the income tax and exempting savings. Try persuading working families to vote for that,” said Dr Dwyer.
“As Adam Smith pointed out in 1776, all income represents the wages of labour, the profits of capital (produced means of production) or the rent of land (including all natural resources). There is only one of these that does not stop working or breeding, does not run away, does not flee across borders etc.
“The only tax reform worth considering is to phase out all taxes on labour and capital and shift back to collecting a rent from the lands of the Crown (including minerals, spectrum etc). That would reduce sterile and unproductive land speculation, lower market land prices, and increase returns to productive labour and investment, fostering a rise in real living standards.”
Dr Dwyer, who holds a PhD from Harvard and is principal of his Canberra-based firm, told My Business that labour stops working and breeding when it is overtaxed, and that the Australian economy is experiencing the side effects of precisely this.
“Capital either rusts out, does not get replaced or moves offshore. Look at how Australia is becoming a capital exporter even though it still gets a lot of foreign investment. It is a tax-induced, cross-border movement of capital,” he said.
According to Dr Dwyer, the government could credit land value charges or rent payments against PAYG for residential taxpayers.
“Australia was a tax haven in the 19th century when the Crown’s revenues came from land – it can be again,” he said.
“No other so-called ‘tax reform’ is worth considering – unless your real agenda is to send more people and wealth offshore to places less greedy or stupid than you are.
Dr Dwyer said that such a move to make the tax system as efficient as possible is not new.
“Even the OECD admits that taxes on mobile factors are inefficient and that, in theory, a land value tax is far more efficient than taxes on mobile capital or labour,” he said.
“But the OECD then weirdly tries to force all countries to tax mobile capital and ignores that fact that taxing labour creates problems. Basically, labour stops working or breeding when overtaxed – or emigrates.”
It is for these reasons that Dr Dwyer insists raising the GST, even as a temporary or transitional measure in overhauling the tax system, would be a mistake.
“GST is a tax on much more than consumption,” he argued.
“Money spent on raising children is not consumption – it is replacing the labour force. Money spent keeping body and soul together to work is also not pure consumption either.
“Labour is not an immutable eternal fixed factor of production like land … the OECD and business think labour can be taxed mercilessly without repercussions. Maybe they think we can just import a new population?”
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