Sorry - I mislead you - Equity

I must confirm the rumours that ths blog may not necessary be "something besides tax". My first opinion for the day (see if you can tell if this is the poor researched or the better researched one).

OPINION: I think the GST should be on everything.

Why do I think that? Allow me to mention some criteria that a "good tax" must fulfil. It has been commonly accepted that a tax must be equitable, efficient, and simple.

Equity - this means that the tax should be 'fair' and perceived as such by the community. Admittedly, a lot of people in Australia still think they are paying more than their fair share. I would argue that this may be a cultural thing. Folks in Japan love paying income tax, they see it as part of their civic duty.

Equity often finds its expression in the personal income tax system through the use of progressive income tax rates. That is, as you earn more money, the more tax you pay on that extra money, and therefore your marginal rate increases, and therefore so does your average rate. An increase in your average rate of taxation means that a greater proportion of your income is paid in tax. This is often referred to as vertical equity. This expression of vertical equity upholds the principle that those who earn more should pay a higher proportion of their income in tax. Some may or may not agree with this principle, however, this is the system as it stands.

Another aspect of equity is that people who earn the same (or are in similar economic circumstances) should have the same tax burden. Therefore, a person who earns a salary should be taxed the same as a person who earns a wage, or who makes money on the sharemarket, or who develops property or who runs a business. If all these people are earning $50,000. they should all pay the same amount of tax. This is known as horizontal equity. This is not manifested well in Australia. I'll tell you why later.

Okay, time for another section break - I'll talk about efficiency in the next post.