Fiscal devaluation on steroids

Gavin R. Putland explains how “fiscal devaluation” can replace not only employers' contributions to superannuation, but also PAYG personal income tax.

Payroll tax is a reverse tariff: an inland payroll tax feeds into prices of locally produced goods and services, including those intended for export, but exempts imported goods and services up to the point of importation. In contrast, a Value-Added Tax (such as Australia's GST) is border-adjusted so that it captures the value added to locally consumed goods and services, including the value added to imports up to and beyond the point of importation, but excludes exports. Hence, if payroll tax is replaced by VAT in a revenue-neutral manner, exports become cheaper and imports become dearer, while local prices of local products (on average) stay about the same.

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Read the full article “Fiscal devaluation on steroids” at MacroBusiness.