I have just published a book, Its All In The Price, which initially defines what the economy is about. It is necessary for governments to understand what their responsibilities are.
Here is my definition of how the economy should work,
A community of people working to supply their own needs and wants, who may be organised by leaders and entrepreneurs into organisations and companies with tools and equipment to boost their productive capacity.
Monetary systems provide a means of payment to the workers that allows them to convert the result of their efforts into their personal requirements. The leadership will impose taxes and levies on the community to pay for its own expense and provide community services where necessary.
This definition shows that people should work to earn their living. Money provides them with freedom of choice in their needs and wants and money allows the business sector and government to work. If there was no money in the system the Chiefs would ensure that all the people worked and contributed. There was and is no reason why some should work and others not.
What no one seems to appreciate is that the economy revolves around the spending power generated by the people in the community so that they can buy the products that businesses make. This is a very simplified version of what happens, we recognise that there are many other factors concerning trade with other communities but trade should also be balanced.
Let us now examine the tax systems and show who actually pays the taxes and when. It appears that no one seems to know even that. For instance my book shows that despite everything that tells us we pay income tax, we do not actually pay our taxes at that point. The employers pay their employees more so that they can pay the income tax. It would make no difference if income tax was changed to an employment tax and paid by the employer and the gross pay of the employee reduced accordingly. The employer passes all of his costs including the cost of all the income tax supposedly paid by the employees, on in the price of the goods and services that he produces. The book shows how all these taxes are in fact paid by the consumer when he pays for his goods and services. All business taxes are passed on to the community one way or another.
We all pay our taxes when we buy our goods and services, Its All In The Price.
Despite all the arguments that are going on about companies that do not pay their fair share of taxes, none of it really counts, it just reflects how little is understood about taxation. Income tax including company income tax are the most disliked and most avoided taxes and in the end should not be in the system.
Governments have to appreciate how the cost of employment can be reduced and spending power increased at one and the same time. This again seems a contradiction in terms, but it is in fact possible. The country has to compete in the market place and for capital investment. The best way is to get rid of income tax, which includes company tax, and bring gross pay down to net pay. This produces huge savings in the operating costs of business and also produces huge savings in government expense. It will encourage new investment and help to create jobs.
I have already explained that most taxes including income taxes are paid by consumers in the prices they pay. To hear that shops are closing and retail premises are empty is a disaster. It is vital to maintain spending power in the economy. I have just heard that in Australia internet companies do not pay VAT while other retail outlets do. As the consumer is paying his taxes through his purchases what will that do to their economy. There has now been a news item of growing poverty in England another sign of poor governance. Poor people mean poor tax revenues.
There is an onus on business to pay their employees reasonable wages to maintain the market place and without income tax and other overheads it is much easier. The Chinese economy would outstrip America if the employees were paid the same average wage.
Austerity measures reduce spending power and lead into recession and the more austerity the deeper the recession will be. Europe is in trouble. Some of the people seem to know the answer, they need to work, just to live, while the governments have no idea what to do. Propping up banks does not help, they need business investment and jobs. It is time to change. We have to appreciate that tax revenues are a lot higher in a boom than in a recession. But does anyone, apart from me, know how to create and control a boom? With the economy working well paying off past government debts should not be a problem. With Austerity measures it will take far longer to pay off debts and with dwindling revenues it might never happen.
Have a good look at the system of taxation. Taxes will basically either increase business costs and consequently prices or decrease spending power or both. The result is the same – reduced spending power in the economy. A prime example was the Poll Tax in Britain. It had many good points to recommend it but it hit the lower income groups and the teens who spend all their money. The result was that the cut in spending power put the country into recession and it did not come out of recession until the tax was removed. Cutting benefits as threatened by the Chancellor will have the same disasterous results.
Governments need to know a lot more about how the economy actually works and then they might realise that free health and education is a must for pure economic reasons. They need to know why the present tax systems make countries uncompetitive and why they need to change. Businessmen should know what is happening and make their voices known otherwise they could be next to go.
Read the book, it is quite small and in a language the average person can understand, and get the answers. It is largely about getting people back to work and what governments need to do to achieve just that.
If you need advice contact:
Peter William Bailey
FCIS. ACMA. CGMA
4 Wellburn Drive, Ballantyne Park, Harare, Zimbabwe
Telephone +263 882531 email pwbailey@mweb.co.zw
Post published in: Opinions & Analysis