Systemic Fiscal Reform

Introduction

Systemic Fiscal Reform is a radical programme for the reform of taxation, subsidies and welfare.  It is designed to stabilise economies, improve quality of life, and facilitates the transition to full environmental sustainability.

The principles of Systemic Fiscal Reform are widely applicable.  Not only can they be applied to well established globally-scoped economies, such as those of the United States, Canada and the members of the European Union, but they can also be used by more bespoke or evolving economies such as Venezuela and South Africa.

The reforms mainly comprise the abolition of cumbersome and wasteful tax, welfare and subsidy systems, together with abolishing the bureaucracies which implement them.

In their place, a simple integrated tax and welfare system is introduced. The wasteful burden of personal and corporate tax returns is generally eliminated.

Systemic Fiscal Reform goals

Systemic Fiscal Reform is a process of reform moving from the current tax, welfare and monetary system to one based on based on economic, financial and moral integrity.  The endpoint of this process is a much more stable and productive society with the following features:

No Income or Corporation Taxes – Replaced by payments pledged by property owners

Income Tax and Corporation Tax are to be phased out (along with all payroll taxes, National Insurance payments and Gains taxes). In their place, government will be funded by payments pledged by landowners through covenants established on a voluntary basis.  These pledges are called Location Value Covenants (LVCs), and are inspired by or using the English legal instrument of land covenants.

No Value Added or Sales Taxes – Replaced by a Carbon Tax

VAT and sales taxes are to be abolished. In their place, a uniform Carbon Tax is levied on all extraction and importation of fossil fuels. This Carbon Tax is in proportion to the pollution and climate change potential of the fuel when used in the normal way.

No Estate (Inheritance), Gift, Transfer or Stamp Taxes

Estate taxes such as Inheritance Tax and Accession Taxes are to be abolished. All Stamp Duties are to be abolished, including those on share and real-estate transfers.

No means-tested welfare benefits – Replaced by a Citizens' Dividend

Welfare benefits based on poverty, joblessness tests or housing costs are to be abolished. Any welfare payments based on disability are retained.

Universal Welfare: A Citizens' Dividend

All resident citizens and lawful residents are entitled to claim a Universal Welfare payment called the Citizens' Dividend (sometimes called a Basic Citizens' Income). Such payment is made monthly by the local government, and may be directly used by home owners and their families to offset or cancel out their Location Value Covenant obligations under a system of Unified Billing. Citizens' Dividends for those in prison and state-funded care are retained by the state to help pay the costs incurred. Those in state-funded education will have an amount deducted from their Citizens' Dividends to help pay for their education costs.

Other taxes

Most other taxes, such as “Sin Taxes” (alcohol, tobacco and gambling), road and fuel duties can be retained or phased out according to political support.  These remain operated on the principle that they reflect the differing effects on society and public costs which have to be paid for through health and other spending.

A  Landfill Tax can be retained on the landfill disposal of refuse, reflecting the scarcity of suitable sites and the environmental harm.

An increased Insurance Premium Tax is levied on mandatory vehicle and other liability insurance to help pay for the police, fire protection, legal and social costs related to the insured activity.  This replaces the fire and police component of Council Tax.

The TV license is phased out, with Public Service Broadcasting paid for from payments under the Location Value Covenant.

Subsidies abolished

Many tax-based subsidies cease to exist with the abolition of Sales, Value, Income and Corporation taxes. For example, tax exemptions on aviation, fuel, public transport, education and food simply disappear. Business subsidies such as investment relief, tax rebates, pension relief also disappear.

Explicit subsidies including those on energy and carbon emissions trading schemes should be abolished. Banking subsidies are withdrawn by removing banks' rights to create new, government-backed money in the economy (seignorage) in exchange for increases in debt.

Effects of Systemic Fiscal Reform

General economic effects

Widespread effects are certain, because Systemic Fiscal Reform addresses core economic issues, such as the costs and benefits of business activity, land ownership and employment.

Enterprise is promoted by removing the tax and administrative barriers to employment and business activity. We get free trade within nations. Bureaucratic activity such as tax accounting, planning and advice are eliminated. Workers in these sectors move to other work, entrepreneurship, early retirement or reduced hours. The 'black' and criminal economies no longer gain an unfair tax advantage.

Labour intensive goods such as restaurant and other services, recycling, and education become less expensive. High value-add products such as software, music recordings or consultancy fall in cost as their tax burden falls. Fuel efficiency is promoted by raising the costs of fuel and goods particularly in energy-intensive industries. Economic output grows rapidly where real value is delivered. Waste is reduced.

Effects on housing, homes and land

The Location Value Covenant has far reaching and revolutionary effects: property speculation ends; new and second hand houses become a comparable market to second hand cars reflecting their size, efficiency, condition and quality; urban land prices fall, encouraging regeneration of poor and derelict land and housing; property price inflation becomes similar to that of other goods; housing becomes and remains affordable, contributing to a drastic shift in social mobility.

Effect on poverty

The universal welfare payment virtually eliminates poverty. All in society benefit from the “social dividend” created by a thriving society and effective government. The poverty trap becomes a thing of the past, with financial barriers to employment removed. Elderly home owners will generally have chosen to live in homes they can afford based on their circumstances, including Citizens' Dividend, pensions and other savings.  Where they find living in their home is unaffordable it will usually make sense to move somewhere cheaper, although they may be helped by arrangements similar to home equity release will be supported through a deferred Location Value Covenant or private sector finance.

Universal welfare is as significant a step forward for society as universal healthcare or universal education has been in most developed nations.

Effect on oil prices

By imposing a rising Carbon Tax on imports and production of oil, coal and natural gas, demand will be progressively reduced, improving the balance of payments (trade deficit) considerably. Suppliers will be forced to accept lower prices or reduce output (or both). If this policy is implemented by the major energy consuming nations, a substantial fall in international fuel prices will occur.  A Carbon Tax is particularly attractive to nations such as the US or the UK with rising dependence on fuel imports.

Effect on politics

At present, government spending on local amenities brings direct windfall benefits to owners of nearby homes and land. The spending is mainly taken from workers' taxes. This misalignment of taxpayer and beneficiary is at the heart of many political conflicts and failures. Systemic Fiscal Reform ensures the beneficiary of local spending (i.e. landowner) is the taxpayer, eliminating this fundamental conflict. Any excess benefit over spending is returned through the Citizen's Income.

Conclusion

Systemic Fiscal Reform answers the challenges of today and of the future. It resets the creeping state control and interest in every aspect of household and business life while ensuring an efficient, equitable, stable and free society.