I saw this headline and had a brief moment of confusion. How on earth could the black economy make Victoria lose $620 million a year? Was all the money going abroad or interstate? I read on to find out and it wasn’t long before the answer was apparent. Victoria isn’t losing $620 million a year at all.
A report by the Australia Institute think tank says cash-in-hand payments are stripping at least $2.7 billion from state governments each year by reducing the pool of goods and services tax with a cost to the Victorian government of at least $620 million this financial year. The federal government is also being deprived of billions in income tax revenue.
So what’s happening here? Is this equating of the state of Victoria with the government of Victoria as if they were one and the same just a bit of journalistic licence to save space? I’d grant the possibility but for the fact that there seems to be enough room there to add an ‘n’ to the end of ‘Victoria’ and follow it up with ‘govt’. Who knows, perhaps it was necessary to accommodate the article in the print version. But is there also some tinfoil-hatted theory that we’re being subtly programmed to accept that they are one and the same thing after all? Or worse (because it seems so much simpler and thus more likely) do so many people really not see the difference that there’s actually not much point in adding ‘n government’ to any part of that headline?
I worry that even if there are sound journalistic reasons for not distinguishing between Victoria and the government which rules sorry, I mean serves it, there might actually be something in that last one. And that’s a depressing thought because it means that few people will challenge what’s being said and point out that there’s an alternative way to view this situation:
Victoria is retaining $620 million a year that would otherwise be lost to the state government.
That is, of course, a huge oversimplification. Firstly, it ignores the possibility of value coming back in exchange for that money. We might criticise the efficiency of a system where a sales tax to create income for the states involves the rate being set for all states by the federal government in Canberra and the money being sent there by taxpayers before being sent back to their respective state governments – less various deductions for the feds, no doubt. We might argue about how much value comes back from government and how much it spunks away on needless crap and vanity projects (I’d say way too much of the latter – the $50+ million p.a. Grand Prix springs to mind – but I wouldn’t claim nothing at all for the former) but if you want a government that does stuff then it needs income. Even the very smallest government providing the most minimalist services would require a certain amount of income, and it’s naive to think that taxing something wouldn’t be the way to provide it. Even the Break Glass In Case Of Emergency minarchist state of my fantasies would need a tax, and GST might be it.
Secondly, it ignores the fact that governments are all too happy simply to run up debts to be repaid by future taxpayers when the tax revenue isn’t as much as they hoped. Government running on deficit spending is practically a hallmark of the evolution of western democracy as electorates have learned to vote for whoever most convincingly promises to give them expensive stuff to be paid for by someone else. State and local governments are different from national ones only in scale, and Victoria is no exception.*
But allowing for that, and assuming (incredibly generously) that every dollar of tax returns somewhere near a dollar of value, it’s still nonetheless a fact that individuals in Victoria are better off in the short term by an average of about $125 each. More realistically, many aren’t GST registered and more of us probably pay our taxes than don’t anyway, so some are thousands better off while others gained a big fat $0.00.** And, of course, that too is an oversimplification since it ignores the fact that those individuals will have more to spend. Even if it’s at second or third or Nth hand some of will end up with those of us who didn’t pay cash in hand to cheat the taxman. The builder who gets paid $1,000 cash in hand this week will have $91 more to spend on whatever he likes in November after he’s sent the Australian Tax Office a cheque for the GST he collected for them.*** Or he does the job for, say, $950 and both parties benefit.
Am I saying we should all not pay our taxes or that I approve of or condone tax evasion? No, not at all. Never mind the rights and wrongs, the morality of abusing a monopoly on force to take money at gunpoint from millions of people, many of whom are on below average incomes, to do what the government has decided in the hubris and arrogance it often mistakes for all knowing wisdom is in the best interests of everybody, tax evasion is a crime and you will never hear me say that anyone should do it no matter how much it might leave in the economy. If you believe there should be more money out there instead of wasted by vainglorious but clueless politicians then look at legal tax avoidance or vote for politicians who’ll actually shrink the state instead of the usual left/right dickheads. Dodging what current laws say you absolutely must pay is Not A Good Idea.
But what I am saying is that money hasn’t just vanished from the economy, and that even if a government or supporters of big state government in general want to think that lost tax revenue is the same thing actually it isn’t. It really isn’t.
The average official salary in 2011 was equivalent to $2 per month while the actual monthly income seems to be around $15 because most North Koreans earn money in illegal small businesses: trade, subsistence farming, and handicrafts. The illegal economy is dominated by women because men have to attend their places of official work even though most of the factories are non-functioning. It is estimated that in the early 2000s, the average North Korean family drew some 80% of its income from small businesses that are legal in market economies but illegal in North Korea.
And I’m also saying that maybe, just maybe, we might be a bit better off if that $620m a year could remain out there legally.
* The article does mention that the Victorian government is on track to return to a surplus of about $144 million this financial year, but since its debt is currently $15.2 billion the remaining debt will still be well over 100 times greater than the predicted surplus.
** I am scrupulously honest for several reasons, not the least of which is that I feel it gives me more right to bitch about taxes if I pay all I owe.
*** Yes, this does mean I have a quarter of records to go through, an ATO form to fill in and a cheque for GST to send by the end of the month, hence my current inclination to punch cute kittens until my own fists are bloody stumps when the subject comes up in the news.