October 2009
By Katherine Gregory
Executive Summary
Tax has many associations. It has long been viewed with fatal resignation, likened to a natural but inevitable force. It has also underpinned our civilisation’s history. Whether we embrace positive or negative views of tax it has a deeply embedded role within society and our concept of citizenship. It is this relationship between tax and citizenship that we will explore. But first let’s look at the earliest historical recordings of tax and its role in facilitating societal engagement.
Although the targets of taxation have changed over time, some core functions of taxation have remained. These are tax as a form of public provision and citizen engagement. However, the tax debate has become increasingly embroiled in highly complex jargon. So it is no wonder that most of us can’t comprehend how it all works and what taxes are good for. That’s why it’s time we take a step back and think about why we tax. What role does it really play in society, and equally what does it offer for me?
Tax represents our social contract with government. We believe the taxpayer’s obligation of citizenship, and the government’s honouring of that, to be one of the most important considerations in the tax debate. Since this view is rarely defended in the public sphere, this paper will argue that we need to reposition tax as a public good. We will demonstrate how taxation provides valuable economic and social returns, which can empower both the individual and wider society.
We approach tax as a form of investment in social value creation. This includes an examination of how tax functions as a revenue raiser for the provision of public goods and services, and as a tool for redistribution and market stabilisation. All these functions of the taxation system allow individuals to have a legitimate exchange with government.
We wish to make clear that this paper does not advocate increased taxes or increased size of government. Simply it takes a functional approach to taxation and provides principles that can guide better tax policy development – a policy approach that focuses on needs over interests. This paper is the first in a series of policy briefs, focusing on five core functions of taxation that we believe should frame the tax debate going forward. These functions of tax are:
1) To fund essential social services, such as defence, emergency services, police, and public transportation;
2) To fund long-term social investment that provides returns in the form of social benefits and public goods (e.g. health, education and infrastructure);
3) To discourage individuals to consume goods that have negative externalities, or to incentivise those goods or behaviours which generate social benefits;
4) A macroeconomic management tool, playing a central role in fiscal policy by regulating economic cycles;
5) A tool for income redistribution and equitable access to resources and services.
