Efficiency

Okay, back to my rant about a 'good tax'. A good tax, in addition to being equitable, should also be efficient. 'Efficient' in this sense takes on a specific economic meaning. It does NOT mean cost-effective, or that you get more kilometres per litre of petrol.

A tax is efficient if it does not distort economic decisions. A tax is understood to be 'inefficient' if people stop or start buying something because of tax considerations. The same can be said for producers and sellers. They should not be discouraged from selling something merely because of the tax system. Therefore, for a tax to be efficient, it must minimise any interference with the price mechanism of supply and demand. (I sound like an loyal capitalist, don't I?)

Put another way, an efficient tax is one that you don't notice as you go about your economic life.

In Australia, there seems to be little of that, especially with the myriad of concessions, rebates, subsidies and tariffs. These are designed specifically to modify economic behaviour. Now, this isn't necessarily a bad thing, especially with respect to market failures, such as pollution. It may in fact be desirable to heavily tax a particular industry that pollutes alot in order to protect the environment. It may in fact be desirable to provide concessional tax treatment to Australian film ventures in order to encourage Australian arts and protect Australian culture and identity.

Generally, however, it is desirable to have a tax that does not meddle with people's decisions.

Okay, another section break. Ah forget it, I'm going to bed. Goodnight.