Systemic Fiscal Reform

Introduction

Systemic Fiscal Reform is a radical programme for the reform of taxation, subsidies and welfare.  It is designed to stabilise economies, improve quality of life, and facilitates the transition to full environmental sustainability.

The principles of Systemic Fiscal Reform are widely applicable.  Not only can they be applied to well established globally-scoped economies, such as those of the United States, Canada and the members of the European Union, but they can also be used by more bespoke or evolving economies such as Venezuela and South Africa.

The reforms mainly comprise the abolition of cumbersome and wasteful tax, welfare and subsidy systems, together with abolishing the bureaucracies which implement them.

In their place, a simple integrated tax and welfare system is introduced. This includes a number of existing taxes which have been found to operate effectively where they have been tried.

The wasteful burden of personal and corporate tax returns is generally eliminated.

Systemic Fiscal Reform Policy

No Income or Corporation Taxes – Replaced by a Land Value Tax

Income Tax and Corporation Tax are to be abolished (along with all payroll taxes, National Insurance payments and Gains taxes). In their place a Land Value Tax is levied on landowners, equal to the value of their land, but excluding any buildings, crops or other improvements. The land values are calculated using a standard procedure applied by local assessors. Landowners generally pay the annual fee in regular monthly instalments to their local government.

No Value Added or Sales Taxes – Replaced by a Carbon Tax

VAT and sales taxes are to be abolished. In their place, a uniform Carbon Tax is levied on all extraction and importation of fossil fuels. This Carbon Tax is in proportion to the pollution and climate change potential of the fuel when used in the normal way.

No Estate (Inheritance), Gift, Transfer or Stamp Taxes

Estate taxes such as Inheritance Tax and Accession Taxes are to be abolished. All Stamp Duties are to be abolished, including those on share and real-estate transfers.

No means-tested welfare benefits – Replaced by a Citizens' Income

Welfare benefits based on poverty and joblessness tests are to be abolished. Any welfare payments based on disability are retained.

Universal Welfare: A Citizens' Income

All resident citizens and lawful residents are entitled to claim a Universal Welfare payment called the Citizens' Income. Such payment is made monthly by the local government, and may be directly used by home owners and their families to offset or cancel out their Land Value Tax obligations. Citizens' Incomes for those in prison and state-funded care are retained by the state to help pay the costs incurred. Those in state-funded education will have an amount deducted from their Citizens' Incomes to help pay for the education costs.

Other taxes

Most other taxes, such as “Sin Taxes” (alcohol, tobacco and gambling), road and fuel duties can be retained.  These remain operated on the principle that they reflect the differing effects on society and public costs which have to be paid for through health and other spending.  Fuel duty should include aviation and shipping, rather than retaining the existing subsidy those transport modes receive. 

For resources, a  Landfill Tax is retained on the landfill disposal of refuse, reflecting the scarcity of suitable sites and the environmental harm.

An increased Insurance Premium Tax is levied on mandatory vehicle and other liability insurance to help pay for the police, fire protection, legal and social costs related to the insured activity.  This replaces the fire and police component of Council Tax.

The TV license is abolished, with Public Service Broadcasting paid for through general taxation or a radio spectrum charge on commercial broadcasters.

Subsidies abolished

Many tax-based subsidies cease to exist with the abolition of Sales, Value, Income and Corporation taxes. For example, tax exemptions on aviation, fuel, public transport, education and food simply disappear. Business subsidies such as investment relief, tax rebates, pension relief also disappear.

Explicit subsidies including those on energy and carbon emissions trading schemes should be abolished. Banking subsidies are withdrawn by removing banks' rights to create new money in the economy (seignorage) in exchange for increases in debt.

Effects of Systemic Fiscal Reform

General economic effects

Widespread effects are certain, because Systemic Fiscal Reform addresses core economic issues, such as the costs and benefits of business activity, land ownership and employment.

Enterprise is promoted by removing the tax and administrative barriers to employment and business activity. We get free trade within nations. Bureaucratic activity such as tax accounting, planning and advice are eliminated. Workers in these sectors move to other work, entrepreneurship, early retirement or reduced hours. The 'black' and criminal economies no longer gain an unfair tax advantage.

Labour intensive goods such as restaurant and other services, recycling, and education become less expensive. High value-add products such as software, music recordings or consultancy fall in cost as their tax burden falls. Fuel efficiency is promoted by raising the costs of fuel and goods particularly in energy-intensive industries. Economic output grows rapidly where real value is delivered. Waste is reduced.

Effects on housing, homes and land

The Land Value Tax has far reaching and revolutionary effects: property speculation ends; new and second hand houses become a comparable market to second hand cars reflecting their size, efficiency, condition and quality; urban land values fall, encouraging regeneration of poor and derelict land and housing; property price inflation becomes similar to that of other goods; housing becomes and remains affordable, contributing to a drastic shift in social mobility.

Effect on poverty

The universal welfare payment virtually eliminates poverty. All in society benefit from the “social dividend” created by a thriving society and effective government. The poverty trap becomes a thing of the past, with financial barriers to employment removed. Elderly home owners with insufficient income to pay their Land Value Tax will be able to “roll up” payments secured on their house value, while others will choose to move house.

Universal welfare is as significant a step forward for society as universal healthcare or universal education has been in most developed nations.

Effect on oil prices

By imposing a rising Carbon Tax on imports and production of oil, coal and natural gas, demand will be progressively reduced, improving the balance of payments (trade deficit) considerably. Suppliers will be forced to accept lower prices or reduce output (or both). If this policy is implemented by the major energy consuming nations, a substantial fall in international fuel prices will occur.  A Carbon Tax is particularly attractive to nations such as the US or the UK with rising dependence on fuel imports.

Effect on politics

At present, government spending on local amenities brings direct windfall benefits to owners of nearby homes and land. The spending is mainly taken from workers' taxes. This misalignment of taxpayer and beneficiary is at the heart of many political conflicts and failures. Systemic Fiscal Reform ensures the beneficiary of local spending (i.e. landowner) is the taxpayer, eliminating this fundamental conflict. Any excess benefit over spending is returned through the Citizen's Income.

Conclusion

Systemic Fiscal Reform answers the challenges of today and of the future. It resets the creeping state control and interest in every aspect of household and business life while ensuring an efficient, equitable, stable and free society.