LM> In countries that have VATs, VAT evasion takes over
LM> from income tax evasion as one of the major past times.

RS> Sure, but its much harder to evade VAT than what we have now.
RS> Like he said, even getting paid in cash doesnt necessarily
RS> help, you get charged VAT on what you spend that cash on anyway.

LM> You evade the VAT the same way as you do income tax -

Nope. With income tax by far the biggest hole, one some people can
drive a truck thru, it to receive income in cash and not declare
that. Or declare considerably less income than they actually received.
And in many situations thats very difficult for the tax dept to police.

LM> with two sets of books.

That just doesnt help much with a VAT. Thats the whole point of a VAT.
Because its charged at every step along the way, the most you can do
is shift the step in price a bit, but you still have to pay it somewhere.

LM> A contract gardener, painter, electrician etc. simply fails to report,
LM> or under reports income, then fails to remit the tax to the Govt.

Yes, but you cant do that with a VAT to anywhere near the same extent.

LM> The GST actually adds to their income - as well as their normal
LM> fee which they fail to report, they can charge 15% GST on the top ...
LM> which they fail to report or remit.

There is some of that, but those would be avoiding paying tax on the
entire amount now, the extra say 15% isnt going to make much difference.
As most of them cant do that anyway. Say with a doctor, the patient needs
the paperwork to claim off medicare etc, so its not possible to conceal.

And the crucial difference is that that say gardener who continues to
receive cash for his work, has to pay the GST on all the goods and
services that he spends that cash on. THATs why its much harder to
escape. Yes, it doesnt fix the under declaration of income, but it does
ensure you slug them for the tax in what they used that income to buy.
And there is no practical way for them to avoid the GST on what they buy.

LM> The Govt. has already made serious inroads into the black economy
LM> with tax file numbers, both in the initial jobs and in the interest
LM> earned in financial institutions afterwards, and with the system of
LM> prescribed payments for builders.

And there is a vast array of areas where the cash society still
flourishes and just cant be policed. And you can even argue that
what we really need is savings incentives now with the low inflation
rate. One of those incentives is a different taxation regime for
interest so it doesnt have the current problem that it largely makes no
sense to save if you have to pay tax on it at marginal income tax rates.

LM> The idea of introducing this bureaucratic monstrosity
LM> just to catch a few drug dealers seems a ridiculous idea.

Yes, but its NOT to catch just a few drug dealers. It really does
catch the entire cash economy, they cant avoid paying the VAT on
everything they spend their money on. AND a single VAT across all
goods gets rid of the silly anomalys in the current system where
say spirit drinkers are vastly more heavily taxed than wine drinkers.
That stuff riddles the current system coz you have to have high
rates on some stuff coz you arent VATing big chunks of the economy.

RS> And you can get a much more equitable system too. The current
RS> system taxes some stuff like spirits extremely heavily, and
RS> other stuff like wine very lightly, so you get the quite ludicrous
RS> situation that winos pay far less tax than whisky drinkers.

LM> The anomalies are a function of implementation, not the system itself.

Nope, they are an inevitable result of not having a close to universal
GST on all goods and services. You raise far too much of the tax revenue
you need on a few items like alcohol, cigarettes and the like. That
results is a grossly warped sales tax and excise system which get that
sort of silly result you see with spirits and wine. A common VAT over
all the goods avoids that. You dont need the extreme rates on some anymore.

LM> However, this is a further nail in the "black economy" coffin. Many
LM> luxury items will actually reduce in price; spirits, as you've just
LM> pointed out, luxury cars, boats, perfume, entertainment electronics.

Yes. AND you also get a shift from income tax to goods and services taxes.
Part of the problem with the income tax system is that the marginal rates
are high enough to be a disincentive to more income. Very visible with
the taxation of interest where you often find that it makes no real sense
to save. Shifting some of the tax collection from the income tax side
to a GST allows lower income tax rates and helps with that problem too.

LM> What's left is a tax on labour, aka jobs.

Nope, nothing even remotely like a tax on jobs in general.

LM> Just what we need in times of high unemployment.

The answer to high unemployment is very very simple. If the total
Aust working population didnt work more than 40 hours a week on
average, you would wipe out the unemployment. Its got very little
to do with a GST, the problem is people are doing overtime for the
work that should be employing those unemployed. Thats partly the
government disincentives to putting on more work, but also other
factors like thats the minimum effort route for most employers too.

LM> the immediate hike in inflation,

RS> Thats a complete myth and is just an artifact of a silly way of
RS> calculating inflation. If the total tax revenue doesnt change,
RS> say in a move from the current grossly warped wholesale sales tax
RS> system, to a VAT, it doesnt have to hike inflation. And inflation

LM> The GST projections were for a 4.4% increase.

Only when that mindless way of calculating inflation is used. Its
just an artifact of the quite primitive way of measuring inflation,
just focussing on the cost of goods OTW. So the number you get when
you change the basics of the tax system, lets assume you keep the
total tax take constant, means bugger all in terms of real inflation.
Its just a meaningless number essentially coz the goods are taxed more
than the income side is now. And with the stuff like say spirits, they
see a big drop, but the inflation calculations are so crude it isnt
visible. What matters is the total tax take, and if that doesnt change,
you havent actually had a real increase in true inflation at all. Just
changed the taxing mechanism.

LM> The real figure would probably be higher,

Nope.

LM> seeing as these figures were provided by the coalition.

Thats a silly way to work out what is the right figure. The real
figure is actually lower, for the reasons I listed, the primitive
way inflation is measured currently.

LM> The immediate effect is to wipe that amount off the top of all
LM> savings and superannuation funds.

Nope, thats a myth too. In fact with savings it could well make them
viable again. Most people dont have that much savings anyway, coz its
heavily discouraged by the tax system. What they do have is stuff like
houses and super. They dont have the same simplistic effect on them
with the introduction of a GST. In fact an established house sees a
price increase coz it costs more to build a new one by the GST. THATs
where most people currently have their savings in the current system.
Particularly those on lower incomes, but also the well off because its

(Continued to next message)

--- PQWK202