Time for common-sense economics

Carolyn Cooper, Contributor

My taxi man Pablo thinks he has the solution to our taxation woes. He's proposing that the Government impose a flat-rate income tax of $30,000 per year on all those small-business operators who are slipping through the net. That's less than $100 per day.

I'm not sure how Pablo arrived at that figure. Perhaps it's just intuition. Or a calculated guess at what the market can bear. But it's a sound principle: Spread the weight of the tax burden. If we could get 85,000 tax dodgers to pay Pablo's flat-rate tax, the Government would rake in $2.55 billion. One-one coco full basket.

Of course, no minister of finance in his right mind would ever think of asking a mere taxi driver to advise him on how to fill the gap in the Budget. After all, Pablo has no PhD in economics or political science. He doesn't know the specialist language of international financial institutions. He probably can't make head or tail of the documents we've signed with the IMF. Just like some of our technocrats, I fear. But Pablo does have common sense - a practical skill that's not so common at all. A lot of highly educated people don't have a scrap of common sense.

The key to the success of Pablo's dollar-a-day tax plan is getting the target market to buy into the system. We have to find a way to persuade tax dodgers that it's in their interest to contribute to the cost of running the country. I speculate that a lot of auto mechanics, hairdressers, barbers, massage therapists, florists, bakers, private-school administrators, minibus operators, recording artistes, record producers, sound-system operators and pastors, for example, are not paying any tax on the income they earn from their businesses.

TAX-DODGING DOCTORS

And it's not just small-time operators we're talking about. I suspect that even wealthy professionals are dodging taxes. Take, for instance, the medical doctors in private practice who ask you to pay cash for their services. You can bet your last overtaxed dollar that none of that income is going to show up on their books. If it's cash, it's invisible. Sort of. It goes straight to the bank, no questions asked. True, tax will be taken out of the interest earned. But the principal is not taxed at source.

Then there are all those registered companies that don't file income-tax returns. Why isn't the Government running them down? According to the Bankers' Association, 90 per cent of registered companies are delinquent. Why are they allowed to stay in business without complying with the law? At the very least, the Government should publish a list of these companies. Those of us who are paying taxes through every single orifice could then decide to boycott these tax dodgers.

And what about those companies that are collecting GCT and not turning it over to the Government? It seems to me that the real issue is not finding new goods and services to tax. It's compliance with existing tax laws that needs to be policed.

And talking of GCT, I believe that more money would flow into the Government's coffers if the tax were reduced to five per cent. The lower the tax, the more likely it will be paid. And the more people who pay, the lower the cost for all of us. True, there are crooks who will find ways of evading taxation no matter how low the tax rate. But most responsible citizens accept the principle that taxes are a necessary evil.

DEMANDING ACCOUNTABILITY

Another taxing issue is the criminal negligence of successive governments that shamelessly keep on squandering resources. It's the perennial problem of the left hand not knowing what the right hand is doing. You know the usual folly: one government agency fixes the road and another comes right after to dig it up. That's just a classic example of the failure of government to function efficiently. And then there's downright theft!

But we can't passively sit back and let the Government do as it pleases. We have to demand accountability. And it doesn't mean we have to set up roadblocks and burn tyres, adding to pollution. We don't have to take to the streets. We can use old and new media to make our voices heard. Our collective bawling over the wicked withdrawal tax worked. The Government was forced to back down.

The psychology of that tax was so perverse. To be taxed on a minus quantity, so to speak, is just so abusive. You are withdrawing money precisely because you need to spend it. It won't be yours for very long. On top of that, the money is going to be taxed again and again with each transaction! Definitely a lose-lose situation. Of course, you will get some benefit from spending the money. But that's not what most of us think of when we're paying bills. The cost often seems to outweigh the benefit.

We need a people's initiative to save the economy. And the minister of finance might just have to ask the people for help to figure out how the country is going to stay afloat. We desperately need some common-sense solutions to our recurring financial problems. Textbook economics is certainly not the answer. Just ask Pablo!