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29 March 2024

Why unfair taxation is politically incorrect

Published

The fairest tax is no tax, as the lucky residents of the Gulf can attest. For those of us lumbered with all manner of government schemes to part us from our hard-earned money, the burden is set to grow even heavier in the coming years as we try to reduce our enormous deficits.

Last week, the British chancellor announced that consumption tax (VAT) would rise to 20 per cent. Other taxes such as capital gains are also going up and income tax for the very richest is now 50 per cent. Ouch. Sadly, our years of debt-fuelled extravagance must be paid for and spending cuts and tax rises are the only way to do it. But fairness remains an essential element to any tax increase. Everyone must be seen to share the hurt or it breeds resentment, avoidance and even violence.

Tax increases can also be political suicide – just witness the fate of Kevin Rudd, who lost his job as prime minister of Australia last week. Mr Rudd decided to whack the mining sector with a 40 per cent supertax, which was bold in a country where natural resources are the biggest contributor to the economy. The supertax would have taken the effective tax rate on mining assets to nearly 60 per cent. People earning their living from the mining industry feared for their jobs and there was a general perception that Mr Rudd was unfairly targeting one sector.

Let's hope that politicians were paying attention to Mr Rudd's fate when they draw up plans for future tax rises.