Taxation and Society

Hey, everybody. It's James from Consensus. Back again with another Brief Explainer video. This one is going to be about tax, which doesn't sound great, but I promise you it's going to be fun. I love this subject matter, not because I'm an accountant, nor am I particularly good with money, to be perfectly frank. But I do find it really interesting from a behavioural standpoint how tax works, how people perceive tax and the different types of ways that governments use tax to change behaviour. So that's what we're kind of going through today. And obviously we're going to be talking about debating throughout this particular process. So, you know, strap yourselves in because, you know, this is going to be the most exciting version of tax that you'll you'll hear about today. Probably. Probably. I can't guarantee that. I don't know where you get your tax videos from aside from a debating website.

All right. So just to remind you that Explainer videos are just like the ten-minute versions of Jules and I going through a particular concept related to debating or public speaking. Normally, our kind of meaty-er videos, our meaty-er kind of content is on video. So it's like a ten minute long thing where we get questions from the community saying, can you please explain this to us and how it works in debates? And so this is a question that I got about tax in society. And so here I am answering that question.

I'm going to do a couple of things in this video. The first thing I'm going to go through is talk about the different types of taxes that we have. I'm going to be using an Australian context. Obviously, that's because that's what's what I know the most about. I'll be using some overseas examples, if that helps. I'll also go through and talk about some of the underlying assumptions that we make about tax and whether there are things that we need to challenge a little bit. And then I'll look at some of the most common types of debates that taxation plays a role in as well as like how you can utilise it in terms of your arguments.

Right? Let's get a-cracking. So the first thing I'm going to look at is the different types of taxes we have. So let's have a look at personal tax. Okay. So personal tax is pretty simple to understand. That is that a person exists, they earn money, and then based on the amount of money that they earn, there is a certain amount that's put aside to go to the government. That's just how personal tax works. That's how personal tax works in pretty much every country as well. Okay.

In Australia we have a progressive taxation system which is also known as a graduated taxation system for personal tax. Basically what that means is that as you get more money paid to you by your employer, that means that your taxation rate also gets higher, right? Not substantially higher. We're talking about kind of 7% jumps up each bracket, but I suppose you could look at that as substantial. But the idea is that as you earn more, you pay more tax, right? So that's about wealth distribution in terms of us trying to create, I suppose in theory, a more equal society. There's also this tax-free bracket that you might have heard of as well, which I think is from 0 to 18000 at the moment where the government doesn't take any of your money. So you just get all of that money yourself, right? And so everyone gets a certain amount without having any kind of tax applied to them. And then as they go up the brackets, they pay more relative to how much they earn. Okay.

Then we have a look at things like business tax. Now business tax is the tax that a business or an entity would pay after they've paid for all of their other stuff. And when they look at their profit that's left over, there is a flat amount of that that goes straight into the government's coffers. So that is if I earned $100,000 in my business and then $90,000, if that went on operating costs and paying wages and getting my thing delivered, that means I made $10,000 profit. Right. And then of that $10,000, I would pay a percentage, a flat percentage of that money back to the government to say, this is your chunk and I'll keep the rest of it. Okay.

Now, business tax, you know, is a flat tax in Australia. I think it's about 25% at the moment. You can just look that up. It's going down over the next couple of years. Sometimes it yoyos a little bit, with the idea that businesses are always asking for lower taxation rates so they can keep more of their profits supposedly so that they can distribute those profits to shareholders. But that will be a different conversation.

Either way, we've got a progressive taxation system for individuals. So as individuals earn more, they pay more tax. And then we've got a flat taxation system for businesses, which is as businesses earn anything, they pay a flat tax. Okay? And those rates vary from country to country.

We've also got particular types of taxes, and those types of taxes might be like usage taxes. So if you own land, you might pay land tax. If you own a car or a luxury car, you might pay a luxury car tax. And those are particular types of taxes that when a certain right was given to a particular person or an enterprise, in some cases, they have to pay extra amounts to the government. All right. I also won't be going into those in great detail either, mostly because it's complicated and I don't know a lot about it, but also because they're probably not that particularly common in terms of a debating perspective either.

All right. So why do people dislike tax? I did a lot of thinking about this, and I think I figured out why people don't like tax. I think it's mostly behavioural, to be honest. I think it's mostly like when you're a kid, you are witness to your parents agonising over tax time or you witness to, you know, discussions going, Oh, how much did I pay in tax this year and I make more and then the government takes X. And you kind of witness to this cycle of chat about tax that doesn't seem particularly, it doesn't make it look like a particularly good thing. Okay. And maybe it's not. Maybe that's just one of those things that people just don't like giving up their money, and they definitely don't like giving it to a bigger entity, like a government. Okay. That's because they also have their own grumbles about the way that the government functions, to be perfectly honest. And some of those are absolutely fair.

However, taxation also —to give you a little bit of the other side—taxation is also really important because it allows our society to provide to provide us with stuff. So that is that we don't have roads being built for free. You know, they exist because of tax dollars. I mean, in Australia we have largely free schooling and it's quite a good schooling system, probably under-resourced as most of my teacher friends would tell me. But like, you know, it is a good schooling system and we do put a lot of government dollars into that. We have a variety of different things, like a health care system that's universal. We have police and we have a sewerage system that exists. All of these things exist as part of the things that the government provides for us as well. Right? But they use our money to do that. It's not like the government is a business in and of itself, right? So it takes tax and then it allocates that to particular provisions of service inside our country.

Okay. So I think the second reason why people don't like tax is because they don't see where it goes. Or if they do see where it goes, they don't like where it goes. So the government, you know, might be misspending money and that makes the papers. And so that makes people feel like all of their money has been misspent when in actual fact it's pots of money. Right. And it's going to different places. But you can understand why people feel that way. And considering how hard most people work and how much tax they have to pay relative to how much they actually get to keep, they can feel fairly slighted by that type of behaviour. And I am never advocating for the government misspending people's money. I'm just suggesting that it's important that the government has some money to spend in order to keep things functioning. So that's how tax works.

Okay. Now a couple of quick overseas examples before I get into the meat of the debating part of this. Let's have a quick look at Greenland. Now, Greenland has a 45% flat tax. That is a flat tax for persons. So that's individuals pay 45% tax regardless of how much they earn. That's very extreme, but they also provide some really cool services. I'd Google some of those and have a look at those as well. But that's more of what we would deem in a debating context like a socialist country.

Alrighty. Now when it comes down to it, let's have a look at some of the debating examples that we get to use with tax a lot. The first one is called “sin taxing”. Now a sin tax is when the government puts a tax on something that it wants people to stop doing. Examples would include things like smoking or things like drinking, alcohol, and those types of things have been jacked up by the government, so they've been increased in price in order to deter people from actually doing them.

So, for example, you know, we have the highest smoking taxation rate in any first world country that allows smoking. So, you know, a packet of cigarettes these days whilst being completely legal for people over 18, are $50 plus for those particular people. And the idea is that the government has increased the taxation rate on that in order to try and get people to stop smoking. So they made it too expensive to keep doing.

Alcohol is similar. The prices on alcohol have been going up and up in order to try and stop people from drinking as much. So the idea is that they don't have as much money to spend on those particular things. And the government is saying, look, we're going to tax that.

And to some extent this is a useful way of getting people to stop engaging with those things as much. Obviously, it's a pretty complex equation when you've got things like addiction, for example, pulling the strings, on the other hand, saying that you should spend as much money as possible on me because I'm an addictive substance. So that's kind of one of the major pitfalls of tax. But that's one of the biggest things we talk about in debates from overseas.

You might want to have a check of things like New York and they've got a soda tax over there, which is their example of sin taxing. Their alcohol rates are still quite cheap over in the US in most states. So they don't sin-tax that idea as much. But that soda taxing was quite an interesting example that you can have a look at as well.

Examples of debates that might include sin taxing— “That we should put a tax on unhealthy foods.” And so this might be that we should tax McDonald's and KFC or fast food establishments higher in order to reduce the amount that those companies are able to just make a lot of people buy their products or entice a lot of people to buy their products for a very cheap amount of money. So, you know, in terms of that, a tax would theoretically mean that those consumers would pay more money. So instead of paying, you know, $2 for a for a Big Mac meal, you're paying like $5 for a Big Mac meal with the idea that you would buy less Big Mac meals because they cost more and because you'd be like, Well, I can get this other thing for about $5 and I think that it's healthier.

That brings me to the next part of this taxation video, which is talking about subsidies. And a subsidy is just the idea of the government providing a certain amount of money to the business or the supplier of a thing that they enjoy or they like, and giving them some money to make it cheaper to the consumer. So that might be that we want to subsidise vegetables. So we go, okay, we want people eating more vegetables. Therefore we're going to have the government step in and subsidise the cost of that. So they're going to reduce the cost artificially by saying, yeah, we want you to buy that. So we want you to do that more.

Other other things that they might subsidise, like, for example, the New South Wales Government putting in a rebate for electric cars or electric vehicles. So the idea is that they want people purchasing them. So we'll give people some money to actually go and do that.

And that's how taxation works in order to try and encourage particular behaviours or discourage particular behaviours. And so that's why I think it's really interesting from a debating context. I think that, just to wrap this one up, tax is pretty easy to understand once you've seen some of those basic examples play out. So that is that, you know, you increase the price of something and people are less likely to do it, then you need to discuss whether that's fair or not. Or you decrease the price of something or you prop up a particular industry for a particular reason. And then you've got to think whether that's fair in terms of, relative to all of the other businesses that are trying to make a living as well.

In terms of whether taxes are fair or not, these are principled questions, ones that require great interrogation and they are really fun questions as well. So should someone be, you know, paying extra tax because they are earning more money? Does that fundamentally make sense? It does to a lot of people, but it could be to those higher income people seen as fundamentally unfair. Should people have more of a say about how their tax dollars actually get spent and how would we actually arrange that? These are the types of questions that we need to look at when we're looking at it in a debating context.

So the next time you see a debate with tax in it, hopefully you remember some of these things. And if you've got any questions about taxation debates in general or just debating, please feel free to drop us a line at info@consensuseducation.org.au.