Yesterday, I strolled around The Canberra Times office asking people if they had any $100 notes.
I was greeted with good-humoured derision.
“”Try the managing director and other executives,” some said.
I did. They didn’t have any, either.
Indeed, the front counter cashier did not have any. And this was Friday our busiest day. They only get about five or six a week.
Funny that. You see, the Reserve Bank tells me that there is $8399 million worth of $100 bills in circulation. The total value of notes is $19,182 million. So $100 notes are nearly half the value of the currency in the nation, yet you hardly ever see them.
Why? The cash black market. They are being used a few people for tax avoidance so they can pay and receive income without a record and not pay any tax.
There can be no proof, of course. But it is a good, practical illustration of a fault in our tax system that ordinary people can understand.
But there are not many such examples. Most of the explanations of why and how are tax system is failing are long and difficult. As are the explanations of the large benefits (which could be shared by all Australians) that can be got by tax reform.
Most people can understand how much tax they pay in a year and what their marginal rate is. They would argue both are too high. But that’s about it.
The Melbourne Institute of Applied Economic and Social Research put out a detailed paper on tax a week ago. It argued that earlier major tax reform failed because people did not have enough information.
But I think the difficulty of getting tax reform in Australia is more profound than that. There is plenty of information and the Melbourne Institute has done a splendid job in adding to it and clarifying it. The trouble is that the vast majority of Australians will not read it or understand it. Tax is too difficult or they are too busy earning a living (ironically to be taxed on).
In the absence of a majority of people understanding the issues and being persuaded, the only way for them to agree to change is on trust.
Now, if people thought their politicians were working in the best interests of all, they might do that. But trust is absent.
Too much policy seems to be based on advantaging one or other sectional interest that has the ear of the government, whether Liberal or Labor. In the case of tax, which affects everyone and is so often used to advantage or disadvantage particular groups, the suspicion is even higher.
But the warping, distorting, inefficiencies and unfairness in the tax system grow daily. The Melbourne Institute has highlighted them again with the underlying theme that as many present taxes are being eroded governments a required to rely even more on a few trusted ones, for example, PAYE taxes of the middle and now even middle-low income earner; state stamp duties and gambling. And these are increased accordingly.
Income tax on high-income earners is eroded by avoidance and income-splitting, as evidenced by summaries of tax returns showing large increases in people getting income from trusts and partnerships and more people using tax agents.
Income tax is being eroded as more people move to business income where more things are deductible as evidenced by tax-return summaries. It is also being eroded by salary packaging which attracts less tax, despite the fringe-benefits tax.
And it is being eroded through negative gearing where people can deduct interest payments for property purchases against income earned from labour.
Wholesale tax is being eroded as people spend a higher percentage of their income on things exempt from tax (notably, homes, services and food) and a lower percentage on things that are taxed (notably, consumer durables).
The total tax take is being eroded through the absence of taxes on the wealthy, notably the family home, wealth taxes and death duties.
Business downsizing results in less payroll tax and more consultants rather than employees. (The former have more opportunities to deduct, notably transport to and from work in the business car.)
The failure to tax services and much consumption means income, savings and production are hit harder. It means people who put money in the bank actually go backwards in real terms, which is madness for national wealth building.
Our complex system makes compliance with tax laws and their administration more costly by far than in nearly all developed countries.
I could rabbit on more about the inefficiencies and inequities of the tax system, but you would get bored and/or confused. And this is my point. Few people are going to be in a position to assess the merits of reform proposals. Many of the loudest mouths will be those who have things to gain or lose, including politicians. It is unlikley there will be agreement to tax homes, services, food and other presently exempt goods and homes in return for taxes that would catch the avoiders, make the wealthy pay a fairer share and reduce income tax for people on less than $70,000.
Rather deep suspicion is likely to triumph over trust and good sense. If I could find a $100 note I’d bet on it.