What is the purpose of Taxation?

I received a letter in my tax return with this note

"The Australian Government thanks you for your tax contribution for 2017-18. This statement details Australian Government debt levels
and where your personal tax was spent, based on 2018-19 Budget estimates"

It is misleading for the ATO to state that the Government spends the money we pay in tax.

Does the general Ozbargain population agree that the Government spends the money it collects in tax or do they understand that when tax is collected it no longer exists in the monetary system so it is impossible for the Government to spend it.

Comments

  • +2

    Taxation is arguably theft.

  • +3

    Hey citizens,

    Give me some of your money so I can spend it "properly". Do it or else! I have guns and you don't.

    I promise that I will spend it in your interests, but I don't really care what your interests are. I'll also continue to take more of your money each year to give to other people, because I can and it makes me popular. People like getting gifts and even though you bought them, I signed the card. If I don't have enough money in the bank to buy stuff for all these people, I will borrow a bunch more and you can pay it back over many years to come.

    Sincerely,
    Governments and/or standover thugs.

    • Well said that man.

    • Brilliant! By spending it 'properly', is meant taking the money from the poor and giving to the elite ruling class (public servant) and people with high disposible incomes (so called 'middle class welfare').

      • Sorry I don't agree with this, it is only the upper / middle class that pay net tax in this country… the tax brackets are weighed heavily against higher income earners who receive lesser / no welfare benefits… many poorer people effecetively receive more than they pay, so its definitely taken from the rich to give to poorer

  • I'd love to see OP's face right now

  • +7

    Just occasionally on this site you get questions posed that are so intrinsically dumb that they aren't worth wasting our time commenting on.

    So I won't!

  • +3

    Ahhhh, Now I'm beginning to understand how some of the dingbats get voted into the Senate.

    • -1

      You think OP votes for the very politicians who steal our money!?

      No, OP is taking a stand and voting for old bazza who somehow made it onto the ballot who shares OP's beliefs. Old bazza with the total of 32 votes.

      • Unfortunately there are enough dingbats like bazza who do get get into parliament with their 32 votes - usually as a result of the preferences that the more viable parties do to avoid voting each other in. Then we end up with a hung senate and people do deals with the dingbats to get legislation through.

  • +1

    OzFruitCake

  • Is this a modern monetary theory thing?

  • +1

    It gives self identified tax payers a reason to hate on poor people, or so I understand from reading the herald sun

  • The majority of money doesn't really exist. It's all credits based on gold reserves that would not cover the credits in circulation. This is why it's illegal in most countries to hoard gold bullion.

  • +2

    I suggest very slowly standing up, and getting off the Internet, then outside into the fresh air, and pursuing a hobby that does not include googling random thoughts you have.

  • What they (the Government) should do is increase the GST, but lower Income Tax.

    Therefore the majority of working people get taxed less, but that would be covered by an increased GST, this would also catch people who conduct themselves in a "grey area" of tax, or who conduct illegal activities, you can't avoid buying stuff. But if you don't have a job, you don't pay income tax.

    This would also lead to a larger conversation that would need to be had, with regards to lower income families, disability (and pensions) and the unemployed.

    my too sense

    • The problem is that less well off people spend more of their income on GST taxed stuff than higher income earners. My personal preference would be to increase the tax free threshold, and pensions, which will give a greater proportional boost to the lower paid people, increase the GST and then create a second tier GST for luxury goods.

      • I'm sure it wouldn't be too difficult to compensate through welfare if necessary.

        I'm unemployed but I still reckon income tax is a bad idea and a consumption tax fairer.

        And I reckon you tax every sale within your country (including exports), but you don't get to touch imports.

        Whether we need duties on imports is a different matter - but it has nothing to do with GST.

        Our GST is a typical poorly implemented government initiative.

        • why not touch imports, otherwise it gives overseas companies an advantage over internal ones - that is just insane from the coutry's perspective. Taxation is always a tricky issue. In the words of Lord Vetinari (Discworld series) "it is about getting the maximum milk with the minimum moo". if you tax consumption rather than income then people who can afford it will just go overseas and buy products to evade local taxes. Income tax is a fair idea because everyone consumes government services like roads, public transport, hospitals etc and there has to be a steady stream of income to support them. I have no trouble with my taxes supporting people who weren't as fortunate as I was. Being lucky is often what makes the difference between earning a good living and not doing so; being born in the right family, being able to afford education, being able to get the grades, not having a serious medical condition, getting a foothold in employment etc.

    • I kind of agree with this. But obviously the GST increase should be in areas that non-essential. Food, health, transport. Things that people of all demographics rely on. Everything else should wear the increase. It becomes fairer. Yes people will be like, what so poor people can't afford non-essential items like video games?! Well yeah, I mean living within your means is a thing that people don't seem to understand.

    • This will disproportionately affect lower income households.

  • +1

    I feel like nobody bothered to try to understand what OP was saying and just went on the typical attack anything different…

    Anyway, if I try to understand what OP is talking about it seems like he's saying:

    "The government could simply inflate the monetary supply instead of collecting tax in order to pay for things. i.e. print money as it needs it, and collect zero tax."

    And yes, OP is correct. The government could do this, but it would be a terrible idea.

    • +2

      Yeah i think you are right - i dont think OP understands the effect of inflation if that is the case…

      • It not as stupid as it sounds. Yes there would be inflation, but there would be no tax. The net effect would be identical as long as the government spent the same amount of money as it would with just taxation.

        In effect it would be a tax purely on wealth rather than income. Your savings would be reduced by the amount of inflation and the governments coffers would be increased by the equivalent amount.

  • I think OP could benefit from visiting a particular practitioner

  • +7

    I wrote a (not very good) master's thesis on this stuff. AFAIK, OP is both right and wrong, and the reason he's wrong is the same reason HighAndDry mentioned earlier - that there is a political constraint (in that governments can't just spend whatever they want, and that's due to an independent reserve bank). This is a 'political' constraint because the institution itself is created by legislation, and is therefore self-imposed (likely for good reason).

    The line of Modern Money Theory (or MMT) is that there is no purely financial constraint in a fiat (that is, without a 'standard', like gold) money system, where all national debts are in your own currency. When the federal government creates money (or you make a payment to them), they literally just change the number of dollars you have in your account on a computer. The notion that Australia is in debt in the same way that I would have a mortgage is not quite accurate, in that sense, because they (well, the RBA, and this is the crucial point) create the money in the first place.

    Government spending creates money, taxes destroy money, and how much should be created/destroyed (that is, the size of the surplus/deficit) should be dictated by the private sector's desire to spend/save. This is why governments could simply create (spend) more when times are looking bad and people/businesses aren't spending, and destroy (tax) more in good times - that's the principal idea, and it's ultimately Keynesian. It argues that interest rate movements are a blunt instrument and that they rely on a buffer stock of unemployed people (4-5% by most definitions) in order to suppress inflation.

    MMT people argue that the only true constraint is a real one - if you don't want to create an inflationary situation, you can't create money without there being a matching increase in real economic output.

    I'm probably not doing the idea justice, but the Bank of England has an interesting piece for those who want to read more.

    https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

    PS - if you're following US politics and you see talk of the Job Guarantee, its economics is rooted in this stuff. Having a dig through the blogs of Bill Mitchell, Warren Mosler, Steph Melton and others might be interesting to you :-)

    • +3

      Nice bit of info

      So the government collect taxes to ensure that there isn't rampant inflation? And inflation is bad because people like there money to be worth something, but it's also good as it stops people hoarding money and makes them invest?

      • You got it dinna89

    • Great reply from onthefence. You are probably one of only a handful of people in the country who have done the research and actually understand the monetary system.

  • do you even do economics, bruh?

  • -1

    As an anarchist my view is that governments fry our livers with our own body fat. Taxation fuels social engineering, and brain washing programs.

    • But not roads, school and doctors right?

      Just brainwashing and social engineering lol

      • roads (Tolls) , school(brainwashing concentration camps) and doctors(vets who keep the livestock alive so they can be milked as long as possible)

  • +1

    Basic Economics - Flow of Income :https://upload.wikimedia.org/wikipedia/commons/4/4a/Five_Sector_Circular_Flow_of_Income_Model.jpg

    Money in a flowing economy will "leak" i.e. taken out of the flow via savings, taxation, and imports. (Money out of economy) - Money is brought back in via Investments, Government Spending, and Exports. A simplified model of an economy's money flow.

    Reason for taxation is the Gov't provides a public service and cannot be done freely. Money cannot be made out of nothing, it represents or reflects people's perspective of value.

  • +4

    We need to improve our public schooling..

    • Dude has to be trolling right?

    • I second that, we teach various unimportant things (in the world of the internet where devices will give you answers when you know where to look), yet the system outputs students who know nothing about economics / politics / currency / trade / investment (time value of money) / capitalism / business / basic laws - usually making it 'elective' subjects or vaguely covered topics. A basic understanding of this most important stuff to help our modern society function across all people would really help.

      • School is only meant to be a small part of a child’s life. Less time at school and more in the real world would easily teach all those things.

  • Mate I'd like some of what you are having, looks like a good high

  • -1

    It’s about robbing the rich and giving it to the poor I guess…. socialism/communism??

    High taxes to fund social welfare and all kinds of “allowances” so people can whinge about how it’s not enough to ‘live on’, Thought that allowances are supposed to be an assistance not the be all and end all?

    That is the purpose of taxation in Australia

    Perhaps raise the income tax so the highest tax bracket pays 99% tax, that should teach them a lesson

  • There is not enough money in the world to repay all the debt in the world.
    Just sayin’

  • -2

    Theft through democracy. Roads, defence and education are the only government programs that have ever benefited me. Thing is I pay far more in taxes than most people. So they all vote to take my money for their welfare, etc.

    • +2

      And imagine through misfortune you lost everything (money and health). Bet you would appreciate a free hospital, health care and some disability pension to get you by.

  • +1

    One thing I wish they would use our money towards is an equal funding for political campaigns for majority parties. It makes zero sense in the modern world where blatant bribery actually occurs. Companies and groups that have a vested interest do political donations. I fail to see how that isn't bribery? I would rather they forbid all politicians and parties from receiving any kinds of donations. I would prefer a part of our tax paid go towards the parties instead. How much funding should parties get? Well the major parties like Labor and Liberals will get X amount, and then the next smaller party size like the Greens would get a slight smaller amount, etc. But it would be great if our political parties had no donations that would impact their decisions made for the country.

    • They do already get funding. But it’s after the polling day. I agree though we should eat rid of campaign donations.

      https://www.aec.gov.au/Parties_and_Representatives/public_fu...

      • Yeah I know they get some, but I would prefer it's solely from us tax payers and there's nothing that can enable a party to have more advantage, currently the scope is whichever party has an agenda that attracts a major company that can donate a crap ton will win, more money and more campaigns, but if the playing ground is more event for both parties, then they would need to be more creative of using their alloted budget.

  • Slightly off topic rent: All I know is I pay Medicare levy, private health insurance, and thousands in cash everytime I see a medical specialist.. seriously I don't know how I would be able to afford it if I didn't work full time.

  • -1

    The tax system exist so we can create all the benefits so people from China can come here and enjoy them so they don’t pay tax and abuse the system

    1. Govt wants to spend more than they have (deficit spending)
    2. Govt creates a Bond (i.e. IOU) and sells it to bankers for cash
    3. RBA prints cash and uses it to buy the Bond from bankers
    4. Bankers uses the printed cash earned to buy more Government Bonds.
      Net effect: Government gets cash. RBA gets bonds. Bankers get a cut from being middlemen.

    5. Govt now needs to pay the bond holders the principal + interest

    6. Govt collects taxes and uses it to pay off the principal + interest

    https://www.youtube.com/watch?v=iFDe5kUUyT0

    If there is any collusion between the RBA and the government or the RBA and the bankers, then the owners of the system become rich.

    • So when the Government collects taxes, where do the tax payers get the money from to pay the tax?

      It can only come from the Government or its agents (the banks)

      • From one of the other tax streams other than personal income tax.

      • Pretty much. It comes from the Government spending the cash they received from the RBA or from the cash magnified by the banks via fractional reserve banking.

        What this means in the grand picture, I'm too financially illiterate to know.

        • It basically means we're being ripped off. Hopefully this should change soon…

  • I think first you have to acquaint yourself with inflation and monetary policy

    2nd
    Ultimately the point of tax is to redistribute money in an equitable way back to the rest of society.

    The top 10% of people pay most of the taxes which is used for the other 90% of people

    If there's no tax then its every person for themselves and there will be even worse inequality.
    There will always be inequality but without attempts to create equity then it will eventually reach a point of inequality where revolution is more desirable than the status quo.

    • Tax is not about wealth redistribution at all.

    • You are correct, tax can be used for social equity purposes to redistribute purchasing power from the rich to the poor.

      You could also argue that taxing the rich to control inflation is pointless as the tax won't influence their spending habits.

  • Does the general Ozbargain population agree that the Government spends the money it collects in tax or do they understand that when tax is collected it no longer exists in the monetary system so it is impossible for the Government to spend it.

    I think you're splitting hairs. You pay tax to the government. They spend it. Simple as that.

  • Once the government collects the tax i don't believe there is any tax money for them to spend. There is just a record of the transaction. If your bank account is showing $5000 then you pay $1000 tax, the numbers in the account just change to $4000. The government doesn't have a big fat account with all the money it collects they simply have a spreadsheet keeping track of numbers changing up or down. It is difficult to believe.

    The government knows this is how it is done but they can't admit it as they will have to confirm they have been lying about this for years or they have to admit they didn't know and this makes them look ignorant.

  • Your post shows a basic lack of knowledge of economics. Of course the government spends the money. The only way in which the government does not spend money is through the retirement of debt. The creation/retirement of debt changes the money supply. Basic taxation and government spending has a net zero effect on the money supply.

    • This has been educational for me at least. I recall learning about "circular flow of income" in high school but it felt abstract without talking about how money was created in the very first place and how debt comes into the picture.

      So in the grand scheme of schemes, with the layers upon layers of financial abstractions removed, does it boil down to:
      1) Government/banks/RBA create money. Each dollar created "needs" to be repaid with interest. Thus both money and debt is created.
      2) Government spends this money on public works, war, etc. This injects the created money into society by paying social workers their wages. Money supply increases.
      3) Government taxes the people to get some money back and then decide to spend it on:
      - Repaying the interest/debt on the money that was created. This effectively destroys the money. Money supply decreases. National debt decreases or stays the same.
      - Investing in public works again, thus re-injecting the money into society. Money supply remains the same. National debt increases.

      And somewhere during all this, most of money (and debt) creation actually happens via fractional reserve banking. The RBA tries to control this via setting interest rates.

  • The National Government Debt could be more appropriately named National Savings. It is money the government has spent but not yet collected as tax.

    It is the savings of the private sector.

    I transferred a small portion of the national debt to my son this morning in the form of $10 so he could buy lunch at school. Was he upset that he has part of the national debt in his pocket? of course not, he was happy he could use it to buy lunch

  • Did someone say eBay 40% sitewide code?!?! :p

    • Make sure you pay some tax on your ebay purchase

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