"We think in generalities, we live in details"
RE: virus: A new paradigm for funding human capital
« on: 2005-01-02 01:51:20 »
[Blunderov] This system seems rational to me. It taxes consumption and
encourages saving. (See also Tobin Tax http://www.ceedweb.org/iirp/)*
One possible objection is that revenues will fluctuate according to the
economic climate and make planning difficult. I'm sure that ways and
means can be found to ameliorate this difficulty. One such approach is
already in place (in SA) with regard to the oil price - the
"equalisation fund" which is used to stabilise fluctuations in the price
at the pump.
NB "You could dispense with your accountants and tax lawyers." Read on.
Vol.4, No.15, 30 November 2004
A NEW PARADIGM FOR FUNDING HUMAN CAPITAL
The first week of December sees an international conference on education
in Johannesburg to consider progress in public education. Almost
everywhere it is declining in quality. South Africa is not alone in
requiring a new paradigm of thinking about the economics of government
Of course it is more difficult here. You cannot take over the apartheid
education disgrace and transform it to develop all our children without
a huge investment - especially where literally half the population lives
in dire poverty. That investment is largely in people - their salaries
and their training. It is permanent expenditure on a large scale. It is
unlikely to come from conventional taxation.
However, there is a way to fund it.
Let me say first that the same applies in the area of health, social
services and the justice system.
Especially in the light of the horror of the AIDS pandemic, the need for
skilled people at all levels is way above what we now produce. We lose
staff to exhaustion, stress and illness because we can't afford more of
Half our population lives in such conditions of squalor, over-crowding
and competition for resources that children's lives and future
usefulness are daily blighted. Every young person in those communities
lives with physical and emotional danger, the threat of abuse or
abandonment, the lure of gangs for security, unsafe sex and extreme
anxiety. Most are under-nourished at best. We need large numbers of paid
professionals to support families, rescue vulnerable people, and provide
for basics needs.
Everyone knows that the retributive system of justice fails the victims
as well as the perpetrators of crime, and deepens cultures of crime. Its
constructive alternative - restorative justice - is highly
people-intensive. It is a far better investment than prisons. But it is
expensive in terms of recurrent expenditure.
What all this means is that the best way we can invest for South
Africa's future is to train, employ, constantly upskill and support
professionals and researchers in all these areas of expertise. That
costs money. It is recurrent expenditure. Unlike building prisons or
roads or schools it is not one-off. Therefore in today's economic
parlance it is regarded as 'unsustainable'. All developmental programmes
are expected to limit recurrent expenditure, except where it is
self-funding. It is a waste of time to expect that.
But this requirement to commit to long-term support of incomes for
people is, in fact, a blessing in disguise, taken in the context of the
overall needs of our economy. We live in a post-industrial age.
Technology has given such productivity to producers of goods and
services that our greatest economic problem is how to sell those
products, because the technology puts people out of work. If it takes
fewer and fewer people to make the goods - which it does - how are we
going to employ the rest so that they can buy those goods.
That is what is happening all over the world. Only an average of about
70% of everything produced is sold. Some 30% is 'over-supplied'. More
accurately, it is under-demanded: people need the goods but cannot find
employment and hence the income to buy them.
Therefore we need a system that gives income to people - if only to buy
the goods the rest of us make. Noone wants to pay people uselessly -
for metaphorically digging holes and filling them in. Hence the beauty
of recognizing that the real investment needed for our future is in
paying people to do vital jobs that will revitalize communities and turn
round our economy and the lives of our people.
If a nation needs to raise revenue on a large scale, the best way to do
it is through its elected government. That does not mean the government
needs to spend it directly: representative agencies close to the
recipients may be more effective, more energetic, more accountable. But
government must raise the funds. We must end the practice by which
essential needs have to be met by currying favour with big business,
sponsorship and the exhausting competition of pleasing donors.
How could government raise funds on that scale? It is universally
recognized that taxing individuals and companies on the scale necessary
risks driving capital and entrepreneurship out of your country. That
will continue while we insist that capital may travel without hindrance.
But there is another way. It needs a new paradigm of thinking about
It is a transaction tax on all buying and selling that goes through
banks and other financial institutions. Every time anyone writes a
cheque or pays cash into the bank it would attract a small tax. It is
extremely simple, and it would bring the government a steady stream of
revenue without any other collection mechanism. It could be very small
because it would be levied on all transactions, and these run into
trillions every year. For instance a 0.7% tax (compare that to banks'
own transaction fees) would bring our government the same revenue as
they now raise from all other taxation - individual, corporate and VAT.
To make that concrete, calculate 0.7% of the income that you receive and
spend every year. Then double it, because you would pay the transaction
tax when you get it and when you spend it. That would be the total tax
you pay every year. And everything you buy would be 14% cheaper,
because there would be no VAT. If you are a business, small or large,
you would pay no corporate or business taxes at all, and your market
would be 14% larger. You could dispense with your accountants and tax
Immediately you suggest a new form of taxation you are told it could be
evaded. So what's new? Transaction taxes would be much more difficult to
evade than today's taxes: the only way to do so would be to drive about
with lorry loads of cash, providing as field day for muggers and
I am afraid the lobby against it - apart from the tax specialists -
would be large companies and rich people who now wangle ways to put
practically everything they do under the heading of expenses. They eat,
drink, take holidays, buy cars and generally make merry at the taxpayers
expense by describing these activities as marketing, PR and other
necessary items of expenditure. All of the transactions effected under
those headings would attract transaction tax. That is why we would need
such a small tax to bring in large revenues.
Without such new thinking about how to bring government revenue, all our
research, all our thinking and endeavors will result in disappointment
and competition between spending Ministries, because the annual budget
is simply too frail to provide half of what we need.
* Tobin Taxes are excise taxes on cross-border currency transactions.
They can be enacted by national legislatures, followed by multilateral
cooperation for effective enforcement. The revenue should go to global
priorities: basic environmental and human needs. Such taxes will help
tame currency market volatility and restore national economic
sovereignty. (The name Tobin Tax and the original concept derives from
James Tobin, a Ph.D. Nobel-laureate economist at Yale University.)
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