By Jason Piper, tax and business law manager, ACCA
History tells us that if communities are going to grow beyond a particular size then they will have to rely upon a level of infrastructure spending which can only be provided by the state. Philanthropy and altruism, on the part of private resource owners, get us only so far when it comes to providing sufficient quality and quantity of the pure public goods needed to support the sort of society that has developed over the last few thousand years.
There’s a lot of debate internationally at the moment on whether you can ‘tax yourself into prosperity’ with opinion clearly divided on whether it is possible. At one level, the concept seems to be nonsense. Taxation diverts privately controlled resources into state hands. Simply moving funds from one pot to another like this can’t possibly increase the overall level of funds available, can it?
It is what the various controllers of this revenue might do with those resources if placed in their hands that makes all the difference. After all, a bucket full of water can be left to stagnate by someone with no interest in gardening, or taken by a green-fingered neighbour and used to water their crops. By the same token, if a government can clearly identify resource owners who aren’t generating prosperity with their funds and take it from them to be put to some other use which might enhance prosperity, then it is possible that the tax system could be a mechanism towards that end. (nb that’s a really big “if” on identifying who can best use resources, and it’s keeping a lot of economists busy trying to work out how, or even whether, we could do it).
Taxation is an idiosyncratic and asymmetric process. At its core, it is about taxpayers more or less (mostly less) voluntarily surrendering resources which they could have used directly for their own benefit, to be used instead ‘for the benefit of society.’ That means clear parameters have to be created to help guide policymakers when they’re exercising this unique power, and perhaps even more importantly, to evaluate their success after the event.
Whether we agree with what a particular policy is trying to achieve is an individual value judgement. Regardless of this individual view, we can form an objective picture of whether the policy has been executed effectively, and measure the impact of the changes on the tax system.
When evaluation is done, changes should be assessed on the three core tenets of the tax system – simplicity, certainty and stability. While there is likely to be some compromise on at least one of those factors in any new measures, policymakers need to understand why they are proposing the changes, and what they could do differently to ameliorate any negative impacts without diluting the ultimate policy impact.