The tax changes are relatively easy to implement but it is necessary to prepare the way. There needs to be a full explanation of the changes and benefits particularly to people like Trades Unions and Business community so that they fully understand that the workers already pay all of the taxes and when the PAYE is removed they will continue to receive their net pay and not their Gross pay. There is no intention of giving the employees an increase in their wages when the PAYE and other costs are removed. This action would also retain but not increase the wage gap, the difference in net pay is far less than the difference in gross pay.
Now bear in mind that by retaining take home pay at existing levels things stay as they are whereas a large increase in pay would result in a boom and a devaluation in the currency.
Although the rate of VAT may be increased the cost of local products and services will go down so that there should be no increase in selling prices. Companies not only get a saving on employment costs but all of their other inputs as well. At the same time the cost of entertainment such as football matches, theatres and the like should also stay firm with tax applied or even reduce. There is no intention for business to make extra profits or individuals to gain because of the change in government policy.
While taxes on profits would fall away a tax on excess company profits at 50-70% may well be required for a couple of years to ensure that businesses do not benefit from the tax change. Even future profits could be tax free say to give a 20% return on capital but any excess would be taxed on an on going basis so that business develops a strong capital base through more shares or higher value shares. Different countries would have different conditions but part of the object would be to ensure that companies have a strong capital base in the country in which they operate.
A further consideration is that governments and businesses must look at smaller local manufacturing units rather than large units which will supply the world. It will be vital to remember that business is reliant on end consumer markets. Governments would need to examine the balance of payments very carefully to see what goods and services are being imported and exported. They have to look to putting their communities into work and generating work ethics. The employed generate tax whereas the unemployed consume tax. Even Conservative Governments may need to consider the financing of new companies to provide employment opportunities.
Governments will need to examine how much of the imports are paid for by monetary transactions that have no employment benefits. They will need to look at having a World Exchange currency to curb business and individuals gambling in currencies. The object will be to create stability in the World.
It will be vital to look at the community itself. Some countries like Britain have serious immigration problems while Africa has a growing population problem related to poverty and many people leave to find work elsewhere. Work and an increasing standard of living helps to reduce population growth. At this point in time the World’s population growth is a problem. Some countries have started to tackle the problem, China and India have tried to reduce the number of children being born. Sweden, I think, is reducing the number of hours to be worked. World leaders will need to direct their energies to these World problems while resolving their own internal problems.
In making the tax changes necessary to create economic efficiency there will be a new set of problems relating to the fact that as countries become tax havens through the removal of income tax so the amount of money for investment may become more in demand and interest rates may need to be controlled.
I have not worked out the amount of tax that governments now collect, but it is quite considerable when one takes in all of the different taxes and then brings in its relationship to the eventual tax payers. However In making the change to a VAT tax based economy I would not expect that the rate of tax should be any more than 25% and as the economies become more efficient could be 20%.
The rate would need to cover the central as well as the local government expenses. This could be collected into one treasury and distributed or a portion of the tax could be paid into local government as in the American system. The cost of government would be considerably reduced by the saving in employment costs and the reduction in manufacturing costs. There should be similar savings in the costs of health and education. With the objective to push for full employment in the interests of the community and business and tax receipts the cost of unemployment would result in a huge saving in places like Britain and America.
An assessment would be required for a percentage of the tax to go into future pension benefits. This however would create a fund which could be used to fund capital investments which would then also earn interest.
Preferably at the end of a financial year the tax changes would take place. The VAT would increase and all of the other taxes would fall away. The result would be a possible increase in spending power particularly at the bottom end, if not a relatively small increase in minimum wages may be justified. Shop prices should be maintained as far as possible but understandably there will be increases due to the increase in VAT, however after the first 1-3 months the prices should come down and the economy make an upward swing as the increased spending power becomes effective. There would be an initial hiccup in tax receipts but they would soon pick up. Dependent on the size of the VAT increase the commercial sector may be able to absorb some of the costs of the transition, after all they can look forward to future gains. The government may need to increase borrowings for a few months as the change takes place.
As the system settles down so the pattern of government spending and tax receipts becomes more predictable. The cost of government incomes will immediately show savings and then all of government expenses will reduce as taxes are removed from inputs.
If government has done its publicity well then the business sector will have started to expand with the change in the environment. Places like Britain and Europe should realise that austerity measures are the wrong way to go. It reduces spending power and the tax receipts. History should show that countries are better off under expanding conditions. Britain has a prime example with the Poll tax which curbed the spending power of the poor and teenagers. Recessions should be a thing of the past. A relatively small increase in the minimum wage can turn the economy around when income tax has been removed.
Countries like Greece and Italy urgently need to make the change to improve their investment and employment situations. Countries cannot survive with such huge unemployment positions. Of note is the fact that China’s economy despite its huge earlier growth has and will continue to suffer with the unemployment situation throughout the EU.
While Capitalism has problems so does Socialism and it is necessary to adjust the political laws and thinking to get the economics right. Communism while ostensibly will provide jobs for people creates a controlled society while education creates a free thinking society which will not accept that system. Todays best example is Hong Kong (where people have been educated and want freedom of choice) and China. Then there is North Korea where the people have a very controlled life and will have limited education into that way of life.
Because the writer knows more about the situation in Zimbabwe a more detailed solution can be identified.