Frogs and taxes

Welcome to Finance and Fury. Question: Would you be comfortable paying an individual carbon tax? Most people may say yes, depending on how much.

In this episode we look at the history of taxes and look what I believe is a new type of tax that we will face, being a tailored carbon tax based around your spending – and why there probably won’t be much opposition to this

To start with – look at a bit of a history of taxation – as all taxes that we currently have were a new tax at some point

1. To help explain the implementation of taxation – Jean-Baptiste Colbert who was the French minister of Finances in 1665 said it best – “The art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing” – taxation policy changes so slowly between generations so that it doesn’t create an outcry by those the government impose these laws upon
   1. if you were to take an Australian in 1900 and place the taxation laws we face today on them – I would guess that there would be some major kick back – But if taxation policy is slowly expanded over 100+ years, gradually ever increasing the levels of taxation, then you can keep plucking the goose slowly and the population won’t hiss
2. The taxation system in Australia originally was based purely on different forms of consumption taxes – dependant on the colony that you resided under
   1. Australia’s colonies operated as separate economies up until Federation in 1901 – Therefore each state needed to raise their own revenue – this was primarily done through a range of indirect taxes – being Customs and excise duties
      1. From 1813 – customs duties were imposed on major export products such as alcohol, tobacco, timber, wool, seal and whale oil, and seal skins – these revenues went to fund orphanages, gaols, hospital equipment and building works around colonies
      2. By 1840 – customs duties had been extended beyond luxury goods to essential items such as tea, sugar, flour, meal, rice, grain and pulses – this started to be imposed on locally produced goods along with imported goods
   2. Later – colonies also introduced a number of taxes on services – included: liquor retailing fees; auction licence fees and stamp duties – a form of tax everyone today is familiar with
   3. Other sources of revenues for the colony’s came from fees on grants of land and leases
      1. New South Wales in particular relied heavily on revenue from land sales and rent, which in 1875 contributed half of the Colony’s revenue
      2. Another form of tax was based around the ‘gold rush’, which began in Australia in 1851 – this offered a new opportunity for governments to raise revenue by charging mining rights and a percentage of the claims on gold found
   4. But throughout all of these taxes – This was money raised from economic activity – the more that was produced, bought and sold, the more the government could raise – so the governments prosperity was tied directly into economic growth – the higher the growth, the more the revenues would be – inbuilt incentive to increase economic activity, or the number of transactions that occurred within your state – or at least not impede these
3. The tax system really changed at Federalism – the federal Government imposed uniform tariffs and excise duties were introduced in 1901 in return for interstate free trade between the colony’s
   1. Although the states retained control of land and income taxes, customs and excise duties were by far the greatest source of taxation revenue at the time of Federation – which the Federal Government now took over
4. Skip forward a few years and all of a sudden in 1915 – A federal government income tax was introduced – the reason – to be a temporary tax to help finance Australia’s involvement in the First World War
   1. Once the war was over – these taxes would no longer be needed – but following the war, the federal government continued to impose income tax – but these levels of income tax were still relatively low – so the population didn’t kick up much of a stink – There was also corporate taxes introduced during this time period – slowly boiling the frog
5. Things continued as normal for a few years until all of a sudden, another war breaks out – In 1942 the federal government introduced legislation that increased the federal government income tax rates to raise more revenue – more than doubling the previous individual tax rates – but this was again only meant to be temporary to fund the war effort, and it was the patriotic decision – if you don’t pay these taxes to help fund the war effort you must hate your country
   2. Around this same time – governments introduced Payroll taxes – at a 2.5% levy on payrolls – then by 1971 the federal government handed over payroll taxes to the states – but over the past 50 years has doubled in the percentage taken – where in many states companies are charged 5 to 7% of the salaries that they pay people – as a pre-tax prior to any other taxes being enforced on the population
6. 1975 – Medicare – It introduces a Commonwealth scheme of free treatment for public patients in public hospitals and subsidies to private hospitals to enable them to reduce their fees. It is eventually replaced by Medicare, with a 1% levy on incomes in 1983 – now it is 2% as long as you have private health at a minimum cost of normally $1k – if you don’t you pay up to an additional 1.5% of your income – 3.5% of the income in total
7. Then in 1985 – Australia had no general tax on capital gains, with most capital gains excluded from the income tax base – today this is not the case
8. 1986 the fringe benefits tax was introduced. The primary motivation behind these base broadening measures was to address gaps in the income tax base, which had led to growth in tax avoidance and evasion activity.
9. 2000 – GST was a big deal at the time – but this was agreed upon to introduce to replace stamp duty – but as many people would be aware of, we now pay both GST and stamp duty – as states reneged on their end of the agreement – but 22 years later, nobody thinks about this major promise that was broken
10. So as a quick summary – Every stage of Income tax and company tax – it was either, only meant to be temporary to fund wars but never went away, small and insignificant, just to be increased later like the Medicare Levy was only meant to stay at 1% – but with the surcharge levy can now be 3.5% of your family income – or like GST, was only meant to replace stamp duty but didn’t
    1. I hope you get the pattern – Every time there is a new tax introduced, there is a justified reason behind this – the population goes along with the political promises
11. Concept of mission creep – introduce something small, then expand on this over time – once the foundational policy is in place, easy to add amendments to this over time
    1. The incremental increases over time – frog in a pot – Just look at the history of taxation as a comparison to GDP – At the federation – the population between state and federal taxes paid 5% of the % of GDP produced – this really kicked up over the years – especially with additional mandatory taxes after WW2 – increasing to over 20% of GDP – today, it is over 35% – in 100 years, we as a population are responsible for paying the government for 5% of our economic activity to 35% – increase of total taxation of 7 times – discounted by the economic growth and output of GDP
12. There is always a need for Governments to need additional funds – What is the next type of new tax that I think will be introduced – Carbon tax on the individual – an expansion on the current carbon tax system –
    2011. What is a carbon tax – The Australian government introduced a carbon pricing scheme or “carbon tax” through the Clean Energy Act 2011. The initiative was intended to control emissions in the country – control as a term here is a little misleading – as this act was a carbon pricing scheme – the intention is that companies that produced CO2 would pay a certain amount as tax per tonne of carbon that they released into the atmosphere
    2012. Initially – Each year, selected entities were required to surrender one emissions unit for every tonne of CO2 they produced – but surplus units could be purchased for a fixed price of AUD23 per unit, and in 2013-14, carbon units could be purchased for AUD24.15 per unit – i.e. per tonne of CO2  
    2013. Do you see the mechanism in play here – it isn’t a cap on companies producing CO2 – it is just a tax on those that produce CO2 above their quota – Many of the largest companies that produce CO2 don’t care much about this – they can pass on the costs to the consumer, so you are just paying more for goods and services – if a cost is increased across the board, the larger lower cost producers that experience economies of scale benefit when compared to higher cost producers with lower profit margins
    2014. Some companies even love this – like car companies going towards EV – they make money by selling their credits gifted to them by government – such as Tesla – banks and governments make a lot of money out of this scheme –
          1. As an economy – these carbon credits have become a $2 trillion dollar a year enterprise – estimated to become close to $10 trillion by 2027 – if you are one of the financial institutions that pushed for this, like the Rothschild Bank – you are making billions of dollars on this scheme through the clip you take on every bought or sold carbon credit – and there is no reduction in CO2 emissions – it is simply another indirect tax pass onto the population –
          2. This is a global program – Carbon pricing implementation globally has commenced – first focusing on 35 major economies – i.e. western nations – A 2017 studyestimates a tax of $49 per metric ton of carbon dioxide could raise about $2.2 trillion in net revenues over 10 years from 2019 to 2028 – where does this revenue go? And what is it used for? Who knows, just like most government revenues 
    2015. When it comes to a new carbon tax for the individual – We already have a voluntary form of this tax – when you buy a plane ticket, you can be asked to chip in some extra to cover your carbon footprint – But a new form of this on people would not be voluntary as it is today
    2016. Remember that a form of a Carbon tax already exists – it just isn’t charged directly to you but indirectly through the increased cost of the goods and services that you purchase – because the producers pass on the increased costs to you
          1. At the individual level – think of this as another form of consumption tax – more you consume, the more tax you pay based on the estimated carbon that went in the supply chain
    2017. How could this sort of system be facilitated? Wouldn’t this be too hard to administer? Well, your spending is already being tracked to measure your carbon footprint –
          1. In Australia, this started in 2021 – a pilot program was launched in October 2021 by CBA and soon followed by other major banks – where financial institutions started to track the carbon footprint for spending of everyone with an account – tracing the spending of customers carbon emissions data grouped into everyday spending categories like Utilities, Transportation, Shopping, and other transaction segments
          2. Bank data is already shared with Governments – so it isn’t hard for this to be categorised by banks and shared to Governments, particularly if cash payments are transitioned out
    2018. This type of taxation has already been proposed by global governance bodies, such as the WEF –
          1. These types of bodies were the first to put forward carbon credits prior to governments implementing these – the next stage, this is why I believe that carbon taxes on your individual spending habits will be the next type of tax
          2. There are a few options for this – it would either allow each person or household a carbon cap and tax you beyond any excess in your cap – or simply tax every unit of carbon produced
          3. This level of tax would likely be something that most people would go along with – its for the climate right, plus it will likely be low – until mission creep sets in
          4. But where this may have some issues with more authoritarian governments – is that it’s not hard for governments to turn around and cap what you do – Similar to the Chinese social credit score system – measure and mandate – if you just retired and want to spend the first year jet setting and seeing the world – too bad – you might have exceeded your carbon credit limits of travel
          5. Or if you want to travel around Australia in an RV – you might get from Melbourne to Carin’s and find that you can no longer fuel up your RV as you have exceeded your carbon points –
          6. To cap you fully would be a little extreme – which is why governments would likely allow you to top up your points – similar to free minutes talking on the phone – or with companies buying more carbon credits – Billionaires won’t care – they have the financial resources to get around this –
          7. Individuals – those on lower incomes will suffer the most – they already indirectly do through carbon credits in energy pricing
    2019. But governments do have certain emergency powers – as the last 2 years has made evident, so it is technically in their power to tell people what they can and can’t do in an emergency
          1. If the world is going to end in 10 years if carbon emissions are cut to 0 somehow, then limiting your consumption or travel capability to reduce carbon emissions is technically in the government’s power – not saying that they will – it is just a possibility
    2020. As far as timing – no idea, speculation at this stage – may be next year, may be years – but the framework is all ready to go
          1. But a new form of tax for carbon certainly isn’t out of the realm of possibility based around this already existing on companies, banks starting to measure your carbon footprint based on your spending and think tanks and global bodies promoting this sort of idea to government leaders
    2021. What to do – need more money to fund lifestyle – invest for retirement
    2022. Other option is getting off the grid and having a low carbon footprint
    2023. One of the two – I am diversifying – planning on both – self sufficiency and having the resources required to fund the additional costs through taxation imposed