Will Trump drive us to a better tax system?

[00:00:00] And we've been taken advantage of because others have charged us VATs. As an example, the European Union charges us 20% plus plus plus a VAT tax, called a VAT tax, very similar, and it costs us an absolute fortune. We are treated so badly they don't take our cars, they don't take our farm products essentially, they don't take almost anything. This is the Debunking Economics podcast with Steve Keen and Phil Dobbie.

[00:00:28] Well, those words from Donald Trump do make me wonder whether the US president really understands anything about VAT, or the VATs tax as he's called it, the value added tax tax. Because if he did, he'd be wondering why people in Europe wouldn't be buying American cars because of VAT, when everything else, including European made cars, have VAT on them as well. Does he not get it? Or is he just looking for an excuse to introduce tariffs, more likely, and hoping that nobody thinks it through too much, just like he hasn't.

[00:00:57] So what does Europe and just about every other country do? Drop VAT or GST? Well, maybe it's an opportunity we shouldn't miss, and look at some alternatives. Call his bluff, if you like. That's this week on the Debunking Economics podcast.

[00:01:18] So it's a very bizarre thing, isn't it, Steve? It looks like from next month, from April, that Donald Trump will be imposing wider tariffs. Obviously, he's dabbled already with steel and aluminium or aluminium. Now, it looks like he's going to impose a tariff almost everywhere in the world, anywhere that has VAT or GST. So in Europe, for example, in the UK, that's 20%. In Australia, it's 10%. In Canada, it's 5%.

[00:01:45] The Scandinavian countries, they're going to get hammered hard, 25% VAT in most of those countries. But if you've got that tax being applied to American imports, then he sees that as something which is an unfair tax, and he believes that he should impose tariffs in equal amount. That is what we are expecting to happen next month. Of course, that VAT that we pay on American imports, we also pay on imports from anywhere else in the world, and we pay it on anything that is produced domestically as well.

[00:02:14] So is there any logic at all, just an ounce of logic, in what Donald Trump is proposing? Oh, God. I mean, there's a... Starting from that proposition, you end up going in the loony bin trying to work what the hell he's doing. It's more a case of what tortured brain cells have communicated to other tortured brain cells to make a proposition that VAT against imports from America is discriminatory,

[00:02:44] whereas every, as you said, domestic goods face exactly the same VAT. So... But I think his argument is, isn't it, that he sees it as an unfair advantage in that we're not taxing our own exports. So, for example, if you've got a Harley Davidson that's made in America and we ship it into the UK, you pay 20% tax. If you make a motorbike in the UK and you ship it to America, it's VAT exempt, so it gets into America untaxed. So I think that's what he sees as being the...

[00:03:12] Yeah, but I mean, Americans have sales tax. I mean, this is one of the... Yeah, yeah. Well, and also, before you get into that, and we were talking about sales tax, because that's the crazy thing as well. But if that is his problem, then it's a very easy answer, isn't it? We should just say, well, OK, rather than you getting that 20% that you're going to tariff on goods that we sent to you, tell you what, we'll apply VAT on them. So that levels the playing field. We get the tariffs, not you. I mean, I'm trying to sort of make sense of why he's associating tariffs as raising money in the first place,

[00:03:40] and then associating and linking tariffs on imports with value-added tax or sales tax on any sales inside a country whatsoever. And the only logic I can... The only way I can try to work out what the hell's going on in the brain that leads to these so-called conclusions is that if you look back to the 19th century, and he does this a lot,

[00:04:07] he talks about how tariffs were the main form of revenue raising for the United States. And he wants to get back to those days. Now, it's true. I mean, import duties were a major source of revenue for the government back in the 19th century. But the reason that could be done is that the government was globally, and I mean, you're looking at countries which were, you know, 19th century, countries continuing on to the 20th century. So there were quite a few that weren't in that situation.

[00:04:36] We knew newly formed countries. But if you look at ones which existed for that whole two centuries, in the 19th century, on average, the government was between one-sixth and one-tenth the size that it is today since the Second World War. So like America, roughly speaking, you could say that 30% of the Americans' GDP is accounted for by government activities. If you go back to the 19th century, despite all the Westerns you've seen,

[00:05:05] and obviously the Westerns Donald Trump has seen, where the sheriff features, you know, and you've got the army driving in and knocking out the Indians, yada, yada, yada, all this wonderful heroic stuff that seems to set the American mindset. Back in those days, the American government was about 3% of GDP. So it was much, much easier. Right, but I mean, okay, it wasn't just to raise revenue by that means. But I mean, I mean, he'd say, well, it doesn't mean we still can't do it now. Obviously, it's not going to raise all the revenue that we need, but it's going to, it's, you know,

[00:05:34] for every dollar that's paid by somebody overseas, and of course it's not paid overseas, that's the thing. But anyway, for every, every kid's paid by the importer, so it's actually paid within the United States. But anyway, it's private. In effect, it's the private sector. It's just another tax on domestic companies. Yeah, but I don't know. This is one thing I'd like to maybe look at historical documents to work out. But it's a question of how were the import duties in the 19th century? Now, I know the Australian case.

[00:06:04] When Australia was established as a colony, with the British sending out the First Fleet and setting up operations in Sydney Cove, when you read the documents of the military who came out, you know, because as well as getting convicts, of course, you've also got to have waters. And the Macquarie family were the main beneficiaries of this. And Lady Macquarie wrote to one of her friends explaining why her husband had taken the commission to go and work in this far distant country,

[00:06:33] you know, New South Wales, it was called at the time. And the answer was because we expect to make... It's a posting from which we expect to make the most marvellous material advantage. So she was expecting to be creaming off some money here. Now, how did they do it? Well, it turns out that when the province was established, of course, the British government had to bankroll the whole establishment. They weren't taxing the Aborigines because there was no domestic economy, a monetary economy.

[00:07:02] So they had, you know, covered by the British Treasury to cover their costs. But what would happen when merchants arrived in the province to sell goods to the military administration at the time, they would find themselves confronted by the... what became known as the Rum Corps, the soldiers under Macquarie. And they basically were told, here's the price.

[00:07:31] You've got to pay us this amount of what's coming in. Take it or leave it. Now, you've sailed your ship 150 days or 200 days from somewhere in, you know, Europe or Asia or maybe America. You can't refuse the deal. It's that all your goods are worthless. Right, so the supplier was paying, not the importer. The supplier was paying, that's right. Now, it's possible and likely, again,

[00:07:58] that import duties and customs duties in the 19th century in America were the same thing. So you bring goods you want to sell to America and they then tell you, right, well, this is the price you've got to pay in probably British pounds at the time to be able to bring the goods in. And so that money came from the exporting nation fundamentally paid the tariff. And this is, I think, this is why Trump thinks today that if you wax a tariff, it's being paid by the foreigners, not paid by the locals.

[00:08:29] Well, that was true in the 19th century. It ain't true anymore. And he's applied these tariffs already. Surely someone's told him, hang on, now we've introduced it, we've seen it's not working that way. No point in this process are we actually sending an invoice off to the Canadian government. No, he won't hear that until there's some catastrophic consequences from it, at which point he would have known it all the time. I mean, pardon me, speaking from my own experience of being involved with a narcissist at one stage.

[00:08:58] But yeah, everything is redefined, so they never made a mistake. So when he starts, if it ever becomes apparent in a catastrophic way, it has to be something which just completely changes the picture. If he comes up aware of it in some catastrophe like, you know, re-govern your revenues collapsing or the prices exploding, which is more likely in America because the tariffs are going to be hit

[00:09:25] multiple times given the globalised nature of production and the costs go through the roof, then he'll suddenly discover that he knew this all along. Right. And so, you know... Until he does discover that, though, what's actually going to happen is that the importer is going to be paying that tariff. It's going to be, in effect, a charge, which means money from the private sector is going to the government sector, the government sector where he's trying to reduce the spending. Yeah, yeah. And it's also a question of what does that do to various forms of demand?

[00:09:53] So, like, the dilemma that importers face when they face a tariff is do they pass on the costs or not? And the conventional thinking, you know, classical-type thinking, depends upon elasticities of demand and supply and things of that nature. In the real world, you get importers facing... They can see the prices that domestically produced goods are being sold for, and they know that if they put their prices up, they're going to lose part of that demand.

[00:10:22] So they then face the dilemma. How much do we pass on at this cost? How much do we absorb? But it's definitely... It's either paid by the importing company within the country involved, which is America in this case, or it's paid by the consumers because the increase... You know, the tariff is either passed on by the importer to the customers or absorbed by the importer. It's not something that's paid by the foreign country. And is it inflationary is the question. So Jerome Powell from the Fed says,

[00:10:50] well, he thinks it's transitory. You know, there'll be an uptick in prices as a result, obviously, but it's not sustainable. It's just a one-time. It's a one-time. So it's transitory. Mind you, he did say the inflation that we saw from COVID was transitory, and then he pretty much changed his view and started hiking up interest rates. So it's a bit of a deja feeling around all of that. But it is inflationary, isn't it? Because not only, say you import that motorbike into America and you get a 20% tariff applied to it,

[00:11:20] domestic producers will say, and say people are happy with that, so they actually pay whatever the constituent part is. Maybe they do pay 20% more, the full whack, in terms of the price the consumer pays. Other domestic motorcycle manufacturers will therefore say, oh, look at this. People are paying 20% more for these imports. That means we can put our domestic prices up as well. Depends. I mean, that's another competitive issue. You might want to take advantage of that. No, you only put it up 15%, then you're still 5% cheap. Oh, yeah.

[00:11:50] But all those decisions are going to be domestically taken. And it's quite feasible. This comes down to the capacity of firms to put a markup on their primary cost of production. Because, again, the neoclassical nonsense vision of this upward-sloping supply curve and downward-sloping price curve for every commodity. And they basically treat those as pretty much unchanged by the tariff in some way. So you get a disequilibrium outcome coming out of it.

[00:12:19] Demand is unfilled demand because the price increase isn't matched by an increase in demand. But in the real world, firms have constant or falling per-unit variable costs. And they then make a markup on that to determine what their price level should be. And the markup reflects the average for the industry. This is what the great Polish or Czech? I can't get a better check on that.

[00:12:47] Better check on that, pardon me. Mikhail Koleski worked out a markup pricing formula where he said the scale of the markup is constrained by the degree of competition in each of the sectors. But they make a markup. You say it costs $5,000 for a fancy motorbike. And then the average price they're sold for is $15,000. So you've got a three times markup on your underlying costs. If you come up with a new model,

[00:13:16] which you think is not as good as the competition, but cheaper, you reduce your markup below those average. If you think it's better, you put it up. So it's all decisions about the markup that are going to determine whether these prices are passed on or not. Right, well, 20% is a fairly hefty slide into that. It's a pretty hefty hit, yeah. So, I mean, does that mean then, if you're a manufacturer that exports a great deal to the United States and you're hit with this, I mean, you're just going to find that you've got a sudden fall in demand. I mean, there's a...

[00:13:46] Or you get a large fall in profit and it's a question of can you absorb that within your markup, you know? If you can, then you'll... If you want to hang on a market share, then you might well do that. So the extent to which these prices are passed on depends upon a whole range of competitive decisions which can't be reduced to the slope of the demand and the supply curve as neoclassicals do it. But it then comes down to the real way where the competition occurs is through diversification. You have different types of products.

[00:14:16] So if you talk about a motorbike, it gives a simple question to point out how stupid neoclassical theory is. What's the equilibrium price for a motorbike? Yeah. There is no such thing, okay? There's Kawasaki's, there's Honda's, there's... I'm out of date with motorbike manufacturers. There's also a whole lot of electric motorbikes now as well. I mean... Yeah, that's right, yeah. So if you look at the Americans, what are the American industry as a whole producing? And like you mentioned the Hog beforehand,

[00:14:45] the Harley Davidson, American motorbikes from what I've seen, and I haven't seen many to be honest except when I go to the States, seem to be fitting into the Hog category. That's the sort of machine, a big, bulky, powerful, noisy, etc., etc. If you put the tariffs up, it means that the stuff... Belay their president in that respect, ACA. You just described him perfectly, big, bulky and noisy, just like them. And a Hog. And a Hog. Yeah, okay, it all goes together. But yeah, it's the imported stuff which is going to be sleek, racy,

[00:15:15] electric perhaps, etc., etc. So our consumer is going to be willing to forego the technological leap that the overseas manufacturers represent to go back and buy a Hog. Well, that's the problem. So that's the problem with protectionism, isn't it? That's often the argument for protectionism. You protect industries, those industries don't move forward. You don't get innovation. Well, that's the... When you look at what the Chinese and Japanese did, no, that's not what they did. Yeah.

[00:15:43] For example, the original Japanese motorbike was a bicycle with a two-stroke engine attached. I think it was Honda that first did that. And of course, that could only be sold to Japanese customers because nobody in the rest of the world would buy that stuff because in the aftermath of the Second World War, Japan was impoverished. So you had to have cheap things like that. And you were protected as well. I mean, you were protected two ways. First of all, the vast majority of the population

[00:16:11] couldn't afford the fancy overseas motorbikes anyway. And secondly, the technological level was too low to compete domestically. So you produce these extremely cheap motorbikes, which everybody buys because that's the only thing they can afford. And then with that demand coming in, Honda thing then industrially developed. So in a matter of a decade or two, Honda motorbikes are more sophisticated than the American manufacturing. Now, I haven't seen, like the motorbikes is a reasonable example to take.

[00:16:41] I've seen, at least with Tesla, you can say there's been innovation in American cars. I've seen nothing like that in American motorbikes. And most of the innovations you're seeing are coming from the Chinese, the Japanese, and the Europeans. So unless Trump puts Harley Davidson under pressure to come out with a compact electric motorbike, then you're not going to get the American industry catching up. So they may well not do the development

[00:17:10] as necessary to benefit from the tariffs. But maybe there's no need for it as well. So I mean, I was in Greece earlier this year, or last year, I should say. And, you know, those little tiny Greek towns where there's just, you know, you're almost walking through alleyways. You know, they don't have any roads built on a hillside, houses on top of each other. And people are driving through those alleyways on motorbikes. There's a lot of electric motorbikes there because they're smaller. They don't make as much noise. So it's actually more pleasant for everybody. And, you know, they're only going short distances.

[00:17:38] So they don't need to be filled up with fuel at regular intervals. So there's a market demand there, which perhaps isn't, you know, doesn't exist on the broad highways of America. And that's one of the issues. I mean, because again, this is why the Japanese got the lead because they had to have, you know, cheap economical motorbikes. The huge gas guzzles in America would never be suitable for the Japanese customer base.

[00:18:06] On the obverse now, the American stuff, you know, you go to America, it's a foreign planet compared to the rest of the world in terms of the shopping malls. You know, you've even got to, you've got to consider having a vehicle to drive from your vehicle to the shopping mall when you're in the vehicle parking lot. They're so huge. That is just not the common situation in Europe or Asia. So the domestic spur for innovation that existed in Japan to enable it to take out a niche

[00:18:33] that wasn't pulled up by American manufacturing doesn't exist in the reverse direction. So the way in which tariffs have been used to develop industrial might, including in America in the 19th century, just the conditions don't seem to be there for 21st century America. Well, interesting, you know, innovation is not something Donald Trump has talked about. He has talked about tariffs as a great way of raising revenue. That seems to have been his soulless argument. So on that, when we come back,

[00:19:01] let's talk, I mean, we've talked a lot about tariffs. I really wanted to talk about VAT, whether it's a good tax or not. So when we come back, we'll spend the second half looking at that on the Debunking Economics podcast. Back in a moment. This is the Debunking Economics podcast with Steve Keane and Phil Dobby. Steve, you mentioned in the first part that Donald Trump is applying tariffs

[00:19:29] on places that have got VAT or GST. You mentioned that America has it as well because it's just not at a federal level. So they've got... It's called sales tax. Sales tax. Sales tax. And some of them can be quite high. So the state level of sales tax in America is 7.25%. But on top of that, you've then got individual local authorities taxes, which in California can add up to 10.75% tax, which actually is more than the GST that Australia is paying. So really, Australia should be saying, well, OK, if we want to keep this fair,

[00:19:58] we want to charge 0.75% back at anything that's born in California. So it's... And then it gets complicated. But what is curious about this, because some of these taxes are quite low. So in New York, for example, the sales tax is 4%. You add local government tax that comes to a rather round 8.875% tax. That's how much you're paying is your sales tax there. OK. And that, supposedly, the way America works

[00:20:26] is there to pay all the stuff that the state needs, their infrastructure, their roads, their education, picking up trash, all that sort of stuff. That's a very low tax to cover all that sort of government stuff, isn't it? It is. And this is the whole question, because are taxes funding the government? Or are taxes taking money out of circulation? And you're looking at the state level, it's definitely funding the government. Yeah, they have no choice. They can't create money. So, yeah, and in that case, and that's why you get this ridiculous variation

[00:20:56] of the rates of sales tax across America charged at the state level. So if they don't have those taxes, they've got to issue bonds. So the states are in the situation that Donald Trump and Elon Musk think the country is. That they have to balance the books, basically. They've got to balance the books, otherwise they have serious problems. But my feeling, particularly having appreciated the very valid point that modern monetary theory makes that at the level of a currency-creating government,

[00:21:26] so that America obviously qualifies, the UK does, Europe does not, because of the bloody euro and the mess that's made of their domestic financial situations. But any country that issues its own currency, it's not funding itself by the tax. It's reducing the amount of money it's creating. And again, that comparison I made earlier between the size of American government in the 19th century and what it is now, it's of the order of 3% of GDP in the 19th century,

[00:21:56] 30% post the Second World War. Back in the days when it was just 3% of the economy, then it could spend and not bother taxing back, because 3% government deficit corresponds to effectively 3% increase in the money supply. And if you've got an economy growing at about that rate, then that's, you know, you're matching your rate of growth of the economy. Depends how often the money turns over, but that's the sort of ballpark you need to be in.

[00:22:24] So the fantasy that Donald Trump has of returning to the 19th century also involves slashing the size of the government from 30% of the economy to 3%. Now, at 30% level, if you're spending 30%, you've got to be, to have like a 3% rate of growth, you've got to be taxing 27%. You've got to be taxing less than you spend, and that's, you're taking money out of circulation. Now, is a value-added tax and is an income tax the best way to do that?

[00:22:54] And I think absolutely not. Because two, many, many reasons, but one is it's easy to tax the incomes and the expenditure of the working class, okay? You can't afford the accountants to dodge the tax, so you end up paying the full burden. If you're a billionaire, you whack your incomes through offshore trusts in little places like the Cayman Islands that don't charge any tax. You register all your profit there.

[00:23:22] You make no income domestically. You don't pay any income tax. So what it means is the rich can manage to accumulate the surplus money being created. If you look at a, imagine you want to have a three, roughly perhaps a 3% per annum creation of fiat money to match the expansion of the economy, but you're spending 30%. Then you tax 27% back, but that 27% tax burden is falling on 90% of the population

[00:23:50] that can't afford to disguise its income. So this, I think, is a major factor in the rise of redneck politics where what used to be working class union voters who'd vote for the Labour-oriented party, they now vote with the reactionaries, whatever you're talking about, it's Republicans in America or it's Nigel Farage in the UK or the Liberal Party in Australia these days. They vote for them because all they can see

[00:24:18] is the government's taking money out of their pockets and not putting it back in. So it develops part of the right-wing politics, I think, has come out of the fact that we use income tax to take money out of circulation where we should be using another method and I'm favourite, you know, transaction taxes at one level or degrading money, the gazelle's idea of the money that depreciates. Well, I wanted to, the transaction tax is really where I wanted to end up with on this podcast. We won't get there quite yet, but there we are, there's a teaser.

[00:24:47] But just the way Donald Trump is working, though, by saying, well, okay. Well, I mean, his plan obviously is, he's, well, it is a plan, isn't it? Whether it's the right plan or not, obviously the plan keeps on moving, but the idea that he's going to reduce government spending as much as possible, then he's going to apply these tariffs. Those tariffs are going to be paid by the private sector within America, which means the private sector is then, in effect, being taxed and paying money into the government. So money is shifting from the private sector

[00:25:17] to the government sector. The government sector is starting to spend less. I mean, he's not going to have any deficit. And if we believe that the deficit is what creates money, other than obviously banks giving loans, if we believe the modern monetary theory approach that it's that deficit that is creating money, then what he's going to find is that his economy has plateaued because there's no new money creation happening. That's the major danger that I've seen all the way through. I mean, it's not a belief, it's a fact. When you look at the accounting,

[00:25:47] the government creates fiat money by spending more than it gets back in taxation. It gets reduced by secondary sales of bonds by the banks to the non-banks. There's all sorts of ways it gets undermined. But that's fundamentally how fiat-backed money is created. Now, he wants to abolish the deficit. That's the obsession that Musk has as well. If they do that, yeah, suddenly there's no domestic money creation. There's less money turning over. And people, if you want money, you've got to borrow it from the private banks, which means when you borrow it,

[00:26:15] you get the money as an asset, but also the debt as a liability. So you're not any better off, but you have something you can spend. That's why we go and borrow from a bank. It's one thing to be no better off when you've got a million dollars of debt than you have zero debt. But with a million dollars of money, you can do something with that cash. You might turn over that money and make a profit and service the interest and pay your wages and then come out with a profit yourself.

[00:26:43] But what tends to happen instead is most people don't have a handy car factory that they can put the borrowed money into. Instead, they think they can go and buy houses and buy shares and the prices will appreciate. And then they can sell the houses and the shares and make a profit that way. And we get caught up in a bloody speculative bubble over asset prices. So I wonder the extent at which that can actually work in America right now because we're still in the aftermath of the global financial crisis.

[00:27:13] And at that stage, American private debt hit 170% of GDP, which is more than three times the level it was at the end of World War II. And that is what caused the subprime bubble. But once it's burst, we're still carrying about 150%, I think. Maybe it's still 170 again, but it's three times again the level of the 1950s. The probability that people are going to be willing to borrow money to gamble and drive up house prices again or share prices,

[00:27:42] I just don't think the capacity is there. So I can just see this leading to economic stagnation in America. Suddenly you've cut out theat money creation and nobody wants to... There's not sufficient number of people who want to go and gamble at rising asset prices who want to borrow money from the private banks. So suddenly the money supply stops growing and you suddenly have constriction to the American economy, not liberation.

[00:28:10] And God knows who Trump is going to blame it on, but it won't be him. So VAT, we're leading ourselves very late in the podcast to talk about the pros and cons, in which case we might actually have to go and visit this again in a subsequent week. But, I mean, the easy answer to Donald Trump might be to say, look, you know, we've got VAT because it... We've got it as a tax because we see it, rightly or wrongly, we see it as a tax that's very difficult to avoid. We, you know, recognise the fact that it's...

[00:28:38] It has its limitations in that it's the less well-off, fair worse from it, but it also means that people who try to avoid tax are not avoiding tax on buying stuff. At least we're getting them there, even if they have got money, you know, sitting in overseas bank accounts. If they want to spend it in the UK, they've got to pay VAT on it. So at least they're paying some tax. I mean, that's part of the argument for it. If Donald Trump's got a problem with that, then maybe we say, well, I'll tell you what then, just keep you happy, Donald. We're going to abolish VAT.

[00:29:06] We're going to push up our income tax. And why don't you do the same? Why don't you abolish sales tax and increase your federal tax and then pay your money out to the States? Because that's, in effect, what we're doing and certainly what Australia would end up doing. So why don't you do that? And then, you know, he's got his level playing field. Because that's the only way, isn't it? If you abolish VAT, if you believe you've got the balance right between, you know, how much you're spending

[00:29:35] and how much deficit you want to build up, it's quite a useful instrument for fine-tuning that VAT, isn't it? Because it can be applied quickly. And changed quickly, yeah. But at the same time, the reason that people are opposed to it for legitimate reasons are that it falls on goods and services purchases. And overwhelmingly, it's the middle and working class who buy those goods. The wealthy, yeah, they buy expensive goods, but the extent to which they turn over their money is far lower than it is for the working class and the middle class.

[00:30:04] So it ends up being that more of the VAT is charged on low- and middle-income earners and very little on the wealthy. And so it's yet another way in which our tax system ends up discriminating against the majority. Yeah, and it is largely goods. So we don't apply it on services. So we don't apply it on financial services, for example. And that's where it needs to be applied. If you want to see one area of transactions you want to reduce, it's the financial sector. So yet again, we've got the roving cavaliers of credit, as Mark's called them, calling the shots.

[00:30:32] And it is confusing as to what's in, what's out. So for example, obviously charities are out. Education, well, until now, actually Rachel Reeves wants to apply on private schools, financial services, houses. So there's the interesting thing with houses. So I don't pay VAT if I buy a house. Okay, I pay stamp duty, but it's nowhere near 20%. But if I want to improve my house, I'm paying 20% on the people who are doing those improvements. Unless they take cash, which of course is the other thing. Yeah, or unless they're not,

[00:31:02] unless they earn less than 90,000 a year, in which case, and you know, we're doing that, picking people to do smaller jobs. You know, the first thing you do is, are you VAT registered? So I mean, and then that whole thing about VAT registration is complicated as well, because you get people who apply for VAT actually claim back more on VAT that they spend than they're bringing in in VAT because maybe they've got, you know, they produce a VAT exempt good. So they're actually getting money back from the tax office. I mean, and you've got all the administration,

[00:31:31] all those rules. I mean, it's just a hellishly complicated tax. I don't know why it's taken off so well around the world. And that's equally income tax is the same story. I mean, filling out your income tax returns. It's a, this all, if you, if you look at how this all evolved, you go back to the, the dream time of Donald Trump when the government was about, you know, three to 5% of GDP and import duties imposed on the importer, on the, on the exporting company. That was the real world.

[00:32:00] And then when you had the dramatic increase in expenditure during World War I and then certainly during World War II, the development of income tax occurred at that stage. Now it was perceived as being a way of raising revenue for the government. And that's one reason it was imposed on individuals. Since then, the great, the financialization of the economy has enabled the wealthy to avoid most of those income taxes. They fall mainly on the poor. And, and that's, I think it's a huge part of the right-wing shift

[00:32:29] we've seen politically around the world as a negative reaction to income taxes and, and VAT. And it, we now understand, if we should have understood for decades because it was first realized at the end of World War II, quoting Barsley, Beardsley Rummel, who was then the president of the New York Fed, taxes for revenue raising are obsolete. We don't need it for that reason. We still treat it that way. And this leads to a distorted,

[00:32:59] complex schedule. So everybody's trying to avoid paying the tax. So there's, you know, law after law after law to close loopholes. And then the rich have got a loophole of relocating production or relocating distribution of profit within their own company. So it's just an awful situation. So it goes on. We do have to reform it. Yeah. And with GST as well, I mean, if you believe elasticity of price, which those people who'd be applying, you know, GST on us would believe, I'm sure, then you are actually holding back sales

[00:33:28] by applying it. So a number of times I've looked at something and I'm thinking, I might buy that. And then I discover it doesn't include VAT. So it's actually 20% more. And I go, okay, well, that's a bit expensive now. Maybe I won't do that. So there's all of that as well. And that is clearly the case. And governments recognize that because for example, in Canada, they had a holiday on VAT or GST through December and January because they're trying to boost the economy a little bit. So they obviously thought, you know, time and time again, when times are, you know, times are sluggish

[00:33:58] and they try and boost demand. Well, let's get rid of VAT. So that's, that's an admission that VAT is holding back sales. So why have it? I mean, it was one of these fantasy ideas about a simplified system. Remember, you and I remember the debate in Australia over VAT. Whether the birthday cake has got VAT and whether the candles on the birthday cake. which guy, I mean, I've had to look and say that went into the great tragedy. If it wasn't for that, we would have got John Hewson as prime minister rather than Keating and having met John Hewson

[00:34:27] on several occasions, even though economically we're very different. I've great respect for him as a person and I think we lost out or rather than John Hewson. If we had John Hewson, we wouldn't have had John Howell. Yeah, well, there we are. That's something to think about. Yeah, I mean, I've spoke, I've interviewed him quite a few times and he comes across as a very genuine person and he's very, very, yes, yeah, and likeable. and concerned about human rights. Compassionate and intelligent, yeah. And I would never accuse Paul, I'll accuse Paul Keating of being intelligent. Compassionate's not a word I'd use for him. No,

[00:34:57] transaction tax, isn't it? If you're looking for something that's simple and it could be a very low tax. It could be, I don't know, I haven't done the numbers but half a percent on everything. Yeah, for example, including financial transactions. Something to reduce the, and also like the whole idea of gazillion money where the money, if you don't spend it, depreciates. So something to, reduce the excess money creation that is an obvious necessity when you have a government being on the order of 30% of GDP.

[00:35:26] So transaction tax, I mean, okay, people might see this as a privacy concern but very easy to apply. You just get the banks to apply it, don't you? You just apply it on every single, We all pass through the banking system. Everything in and everything out, just add the transaction tax. Yep. I mean, cash becomes an issue again in that situation but nonetheless, that's an easier way of making money depreciate which is fundamentally what's necessary to avoid an explosion in the money supply given the scale of spending which is a necessity for government these days.

[00:35:56] As America's going to find out the hardware. So Donald Trump might be doing us a favour maybe the way out of all of this is we say, tell you what Donald, we are getting rid of VAT. We've seen the error of our ways. We're abolishing it. Stop the tariffs. We'll introduce a transaction tax and he'll go, ah yeah, but you've got transaction tax. I'm going to tariff you equal to that and we'll go, fine, it's half a percent. Go for your life.

[00:36:27] We'll be doing it. And then maybe we've got to thank Donald for that. That's a possibility. Yep, yeah. The bull in the china shop can still do some good. All right. And then some people would say, well okay, just on the final point then on transaction tax. Well why have that? If it's a small amount and you're saying that the government can fund itself, obviously it can't fund itself completely because it's not going to generate all the money that it spends. There's got to be a balancing factor to try and contain inflation for example.

[00:36:58] So maybe the transaction tax becomes the replacement for VAT and maybe it also reduces our dependency on income tax would be the way to look at it, wouldn't it? That's what I'd like to see. I mean the income tax has been if I look at the political shift that has occurred over my own lifetime, the negative attitude that so many people have towards the government, a large part of it comes out of the taxation process. But what about those wealthy people who move money overseas? I guess you take... And you hit them with transactions or you start shutting down offshore. You know, what Donald should really be targeting,

[00:37:28] he shouldn't be targeting the UK, he should be targeting the Cayman Islands. No, he wouldn't want to do that. I'm sure he's got bank accounts there. I'm sure he has. But the million, the 10 million pounds that I send over to an offshore bank account, I guess I get... Every week. Every week, yeah. Okay, so I pay tax on the way out and then I want to repatriate it back to spend on stuff I pay back on the way in. So, yeah, at least I'm... That is the... Because it's the same as somebody going out and buying fish and chips and paying a transaction tax, isn't it?

[00:37:58] It applies to... Yeah, fundamentally, everything would be with a transaction. And it wouldn't... The VAT, the whole idea is, you know, it's the value added at each stage. So you'd be writing off what you've paid for VAT and getting refunds. That would disappear. You'd be... There's the number of transactions. Every transaction hits the same tax and you'd be double and treble and so on. So that's why I did compounds to a larger rate of tax than just you get with a V... You know, the low transaction tax can be equivalent to a high VAT. So you know that when I was living in Australia, though,

[00:38:28] you know somebody who thought this was a good idea? Yes, I know. Pauline the redhead. Pauline Hanson. Sometimes stupid people have good ideas. So, you know, that's partly the theme of this discussion. Yeah, it absolutely is the theme of this discussion. All right, very good. Well, it's been interesting exploring it. Thanks again, Steve. Catch you soon. Okay, bye. And incidentally, we have videoed the last few weeks of the podcast. You can find it... You have to hunt around a little bit on YouTube for debunking. The economics of the podcast

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