Tuesday, October 30, 2007

The Black Economy makes Sense

No, the title of this post isn't really about slave labour but it might as well be.

New Zealanders have been beaten over the head over recent years regarding tax cuts. Labour has been taxing and spending their way through the last 8 years and National have promised to give back the stolen booty should they seize the Treasury benches in 2008.

What have these high taxes been doing to our economy and what do they do to economies in general though?

If New Zealand Inc was a business, apart from the fact that it would be a very small one on a global scale, its shareholders would be demanding higher dividends, more accountability for company spending and more investment back in the "business".

The high rate of tax removed from NZ Incs balance sheet hasn't gone back into productive spending, it has really been taken out of the business completely, washed through many levels of management and then spent on fast cars, big houses, expensive chocolate biscuits and left handed screw drivers for the company executives and their friends.

Certainly not the kind of spending that produces income and also not sustainable in the long run.

If this huge amount of tax money was allowed to stay in the business of New Zealand Inc then the company would clearly be manifold times better off than it is now and we would all benefit from some quite large special dividends.

Lowering taxes actually stimulates economies and business and in the long run more tax is collected because the business functions allot more efficiently because capital is not tied up or wasted in pockets burning to spend it on wasteful things.

One only has to look at economies with low tax rates to see how well they do. Ireland and Singapore are two excellent examples of how well economies do when they are not burdened with the weight of high taxes.

Of course the "black economy", where there is no tax and only two participants, the buyer and the seller, involved in the transaction, is the single most efficient form of economy or business there is.

The way of the world of recent decades has been to cut out the "middleman", chain stores like Walmart and The Warehouse get goods delivered directly to their warehouses instead of buying through an importer and most retail now works this way.

Perhaps the most obvious example of the middleman not longer taking his cut is business done through the Internet.

Musicians, writers, movie makers , individuals auctioning their household furniture and a whole host of entrepreneurs are now doing business without using a go between with his hand out taking a cut of your income.

It is so efficient, why wouldn't you!

This is why the Internet works so well for business. It is most like how the black economy in the "bricks and mortar" world works.

Lets strip out those extra burdens to business and economies, the high taxes, and then we will all prosper for our hard work, as we should.

Clearly there needs to be some sort of nominal tax, of about a 10% maximum, to allow defence and police to function but any more than that just encourages waste and inefficiency.

I wont hold my breath but it is worth writing about so at least it might plant a seed in some of my dear readers heads.

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  1. Just stumbled on your blog. Nice site.

    The idea that taxation is like slavery is a bit shrill and embarrassing.

    The idea that lowering taxes for the rich stimulates the economy has been debunked. What lower taxes for the rich means is more government borrowing, larger deficits, more money tied up in loans to the government (instead of loans to small or new businesses).

    Interesting that the only expenses you imagine are defense and police... sounds like a nice police state recipe.

    Yes, indeed do look at Ireland's economy. The bubble has burst.

    Supply-side economics does not work. We need to return to fiscal conservative ways that were available during the Eisenhower years of the US. Fair, progressive taxation, proper investment in infrastructure, and unprecedented economic growth.

  2. Thanks for your feedback but you have me wrong.

    I AM for lower taxes for the "rich" as you call them (those that earn more than $60,000 where I am from) because proportionally they pay far more tax than those that earn less. That is not only unfair but stifles productivity as well.

    A flat tax for everyone, as I mentioned would be fair for all and perhaps a tax free threshold of the first $5000 would be wise.

    Why police and defence?

    Well the reason we have high taxes in the first place is all the unnecessary stuff that is done better by the private sector when we get to choose who to pay for our education, hospital care and the like.


    Well, it was working well but banks who lend money to people based on inflated house prices hardly is the boogey man there, not lower taxes.

    It works where it is used.

    Don't be afraid anon, what is wrong with making your own decisions with your own money instead of letting a slacked jawed politician with no brains, an expense account and a mistress do it for you?


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