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Editorial
02/2007 |
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Taxation adds value
Since January 1st, Germans have been paying 19 percent value-added tax (VAT). Before, the rate was only 16 percent. Of course, the tax hike was controversial with free-market economists bemoaning the government’s tax-and-spend attitude and left-leaning scholars complaining about an unfair burden on low-income groups. Indeed, the VAT systematically taxes consumption and spares the savings of those who can afford to leave some money with their bank or an investment fund.
In spite of the clamour, the Federal Government stuck to its decision. And in truth, public debate was not very hot. Most arguments raised were predictable. We hear them every time the VAT goes up, and some of the more subtle nuances are just as relevant. This time around, for instance, the compulsory contribution to Germany’s unemployment-benefit system – really nothing but an income tax in disguise – was lowered, compensating for some of the VAT-hike.
To the extent that was done, both trade unions and shareholder-value lobbies were not that unhappy, and rightly so. Our social-security contributions are collected according to an unfair flat-rate rule, which does not weigh more heavily on the well-to-do than on the bottom-rung, as might normally be expected of a social re-distribution system. On the other hand, everyone agrees that creating jobs is important. For that purpose, it makes more sense to tax consumption than wages. The example shows that tax matters are complex. Sadly, not all of the recent VAT-rise serves to reduce such social-security contributions.
What was not discussed in Germany, however, was whether the state was capable of implementing the hike. No one doubts that advanced nations are capable of designing and enforcing tax legislation. Rather, it is increasingly being argued that this capacity is something all prospering democracies have in common. Their governments must raise money to provide public goods, they have to spread the burden over the entire population, and revenue systems are at the centre of the policy-making they are publicly accountable for. Indeed, an efficient and accepted tax system is proof of developmental success.
Of course, that does not make taxes popular. Typically, citizens tend to lobby for lower, not higher rates; and it is yet another trait of democracy, that people stand up for their interests, with some pressure groups going over the top. Radical free-market enthusiasts tend to act as if having to pay taxes was an infringement of some kind of human right. In truth, paying taxes is a public duty of citizens who are, in turn, entitled to rights.
The turn of the Millennium witnessed a new kind of tax agitation. ATTAC is an international network promoting cross-border taxation. The initial idea was to tax financial speculation internationally, in order to stabilise markets on the one hand, and raise funds for development on the other. A similar proposal is to introduce a tax on airplane fuel, which would serve as a disincentive for emitting greenhouse gases besides generating revenue.
So far, international taxes have not been implemented. Some will eventually be, reflecting the fact that global challenges need to be tackled at an international level. But that does not mean that developing countries could neglect beefing up their own tax systems today. After all, an efficient and accepted tax system does not only raise money, it also adds value to any given system of governance.
Dr. Hans Dembowski
Editor in Chief of D+C Development and Cooperation/E+Z Entwicklung und Zusammenarbeit
euz.editor@fsd.de
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