However they might ‘tinker’ with it, at least it is your money and it is there – whereas in most countries, you have nary but a promise as to a third party’s behaviour! To quote (loosely translated) a French waitress: I may as well smoke and drink, since the way things are going there won’t be any pension anyway!

It also seems too complex.

Wouldn’t it be better to make it less complex? There seems a rule attached to super even if you breathe close to it.

I’m suggesting that if we want to increase savings, it’s better not to put too much faith in tax policy because I doubt it will be very efficacious. Savings also correlate highly with wealth so to a substantial extent it means helping people in proportion to their wealth. So I’m not against some compulsion here and there are also smarter things one can do.

Well actually savings are made by the middle class and the rich, not just the rich.
However the question is how do we encourage higher economic growth through tax policy?

The fuel for higher economic growth is savings because savings are converted to investment and if you wish to raise the standard of living you want to raise the capital to labor ratio as much as possible. The higher this ratio is the better.

So the real quesation is how do we raise the standard of living and the only way is to incrtease savings thereby raising that ratio.

I’m generally in favour of freer rather than less free markets, but I’m more wary of ‘incentives’ when it comes to savings. That’s firstly because I don’t think savings are particularly sensitive to such incentives which means changing incentives creates large transfers and deadweight losses (though I accept one can define things to say that it’s the existing policies – like high marginal tax rates – that are creating the deadweight losses). Secondly savings incentives go overwhelmingly to the rich.

So the savings argument for a consumption tax doesn’t impress me much.

Given we’ve gone through the silliness and the agony of setting up a GST infrastructure in our country (the infrastructure that Treasurer John Howard ruled out fairly early on in a tax review he did in 1981 because of the “administrative nightmare” it would produce), increasing the GST might improve efficiency.

The problems I see are twofold. One the ‘compensation’ for the higher GST can be taken away without the higher GST being lowered. And two, I always wonder what mischief the self employed could get up to in accessing the benefits of being on a low income.

But these are initial reactions, not definitive conclusions.

Fair point.

How does that affect the supposed incentive benefits it produces? Especially given that people are generally spectacularly ignorant of the way in which the tax-transfer system works, and so won’t necessarily be “incentivated” by a LITO they don’t know exists.

Using the revenues to lower corporate and personal income tax (although merely raising and indexing the brackets might be enough for the personal rate)?

After all, there is not yet any (high-income-earner-appealing) way of structuring your affairs so as not to buy things, and this implicitly lowers the tax on savings, something that a lot of people (eg RBT) identify as important

I agree with using the LITO to target the increase in the tax free threshold. As you say it’s more targeted. I also agree with your surmise that churning should be a higher now than it was when Whiteford did his numbers. But I doubt if it’s a big effect.

Although I thought that LITOs were simply a targeted way of raising the threshold, and so, on the reasoning generally applied in your paper, a superior way.

Also, do you have any idea where the figures from the 2000 (or was it 1999) Whitehouse study on churning and targeting across the OECD are at now? If I understand it correctly we must be churning more now, with slightly less targeting, than then?

Change the system to a sales tax (Not GST)

1 Flat tax of 25% no deductions of any kind payable from 25,001

2 elimination of the captial tax which is just a tax on capital anyway

3 No corporate tax

4. Raise the GST to 15%

Make the system a transitory one while we are on our way to an expenditure tax.