The early state election in Tasmania is scheduled for March 23, 2024. The election was triggered when two members of the Liberal party defected because of concerns about the burgeoning cost of the proposed AFL stadium. It is the first election that will see an extension in the state’s lower house from 25 to 35 members. The election is described in the media as a referendum on the cost-of-living pressures. The Labor Opposition has already pledged to cut power bills by 22.5 per cent and to cap annual increases to 2.5 per cent. The ruling Liberal Party has responded by immediately scrapping the stamp duty for first home buyers on properties up to $750,000.

As the election campaign unfolds, the parties’ focus on cost of living pressures provides a unique opportunity to revisit an idea which germinated in the mid-1980s and has been continually developed to meet every contingency created by myriad changes to the Australian tax Acts in the interim. According to its promoters, this idea has the capacity to eliminate these cost of living pressures. The idea concerns a 2 per cent tax which, if implemented, could release the economic energy needed to make Australia a supremely wealthy country. Of course, ‘taxation’ comes within the legislative power of the Commonwealth since the 1942 High Court’s decision in South Australia v Commonwealth (First Uniform Tax Case). Nevertheless, the candidates for election as Members of Tasmania’s lower house, who want to stem increases in the cost of living, may generate an Australia-wide interest in this idea.

Thirty-eight years ago, Chartered Accountant, Derek Smith, conceived the idea of a simple and consistent low tax to adequately fund government and remove the complexity of existing taxes. In 1985 he made a comprehensive private 2 per cent tax submission to the Hawke Tax Summit, providing a macroeconomic study of the Australian economy based on Treasury figures, but he received no reply. This 2 per cent tax submission was sent to every federal politician, Premier, Chief Minister and Leader of the Opposition with no reply. Derek has made 2 per cent tax submissions to every Prime Minister and Leader of the Opposition since, again with no reply. Economists rejected the idea outright because they are taught that transaction taxes cascade and should be avoided per se. But rigorous economic modelling demonstrates that the hodgepodge of existing taxes cascades through even a multi-stage production chain to much higher levels than the low 2 per cent rate proposed.

A work colleague of Derek Smith, John McRobert (a civil engineer), was frustrated at how tax complications were anathema to good engineering design and planning of major projects. He did a microeconomic study of the cost of a loaf of bread through every layer of the production chain and demonstrated that half of the cost of a loaf of bread was taxation.

To enable a general understanding of a concept that seemed too good to be true, he authored and published a book, A Diet of 2 per cent – Can Prevent Harder Tax. (A ‘Diet’ is another name for a Parliament.) The pun of the book’s title went over too many heads, and it was to be found on booksellers’ shelves in the Dietary and Cooking sections (the splendid cartoon on the cover also resulted in it being found on the Humorous shelves).

However, the book attracted the attention of the NSW branch of the Australian Small Business Association which raised funds to commission mathematicians from Unisearch in Brisbane to build a comprehensive model of the Australian economy over two consecutive three-year periods using the latest available ABS and Treasury statistics, breaking it out tax-by-tax, industry-by-industry, and state-by-state, to show how the 2 per cent tax would impact on every sector. This model has never been faulted nor equalled since it was developed.

A summary of the results of the study can be found in McRobert’s second book Your Future in Your Hands – Total Tax Reform, published in 1998. There was no political interest in the 2 per cent tax proposal. But in 1996, Pauline Hanson was elected to the House of Representatives as Liberal Member for Oxley, a previously strong Labor seat. Her maiden speech was in such popular demand that Hansard eventually stopped faxing or posting copies, but it was mercilessly attacked by her political opponents as being ‘racist’. She was dis-endorsed by the Liberal Party for her strong views and in April 1997 formed her own Party – One Nation – and quickly rallied an enthusiastic group of supporters, largely from the small business sector which she well understood from first-hand experience. When a reporter keen to denigrate her asked a question she didn’t understand, instead of pretending to know the answer, she immediately said ‘Please explain!’ That expression became her trademark.

One Nation needed a tax policy that reflected her quest for a better and fairer nation, and after extensive enquiries by her team consisting mainly of small businesspeople, it chose the 2 per cent tax proposal. Under the banner Easytax, the party ran a popular campaign in the 1998 election, and despite an intensive smear campaign to deride it, One Nation received over 1 million votes out of about 11 million primary votes in the election, but not one seat as all other parties colluded to put One Nation last in their preferences. Hanson lost her seat, but not her determination, and overcame extraordinary trials and tribulations to become a Senator for Queensland where she still asks the question that should be continually asked by every Senator who understands why they are there, ‘Please explain…’

The existing tax Acts, state and federal, are relics of 19th Century thinking that wealth should be confiscated and redistributed by an all-knowing and wise government. But in this process, the motivation to create wealth is lessened, and the unproductive on-cost of the workload irrevocably grows as administration becomes more complex with every election. Politicians effectively vie to buy the most votes with money confiscated from others. The increasing tax complexity engages in the impossible quest of defining the indefinable concept of ‘profit’ in order to tax it.

The taxation system is thus seriously flawed and must be fundamentally revised to galvanise the vastly underutilised resource of human motivation. To that end, Smith and McRobert continued in their determination to achieve a simple and fair taxation system, and established Tax Reform Ltd made two major Senate submissions, the latest of which was Submission 56 to the Senate Economics References Committee on The Structure and Distributive Effects of the Australian Tax System in April 2003, probably the only one not pleading for special subsidies or exemptions for special interest groups. It disappeared into the black hole of bureaucracy. Derek Smith’s latest initiative was to make personal submissions to a Senate Select Committee on the Cost of Living Inquiry held in Hobart – reference Submission 124 – as reported in Hansard. The purpose of Smith’s two Submissions to the Senate Select Committee Cost of living Inquiry and his advertisements in Tasmanian local newspapers is to have political parties and endorsed candidates commit themselves to making a submission to the Chair Senator, Jane Hume, to have her Inquiry recommend a 2 per cent Liberty Tax in its final report, due on May 31, 2024.

Now called the Liberty Tax, the 2 per cent tax proposal offers a practical pathway out of the swamp of debt and complexity accumulated under the current tax debacle. A front-page headline in the Australian Financial Review in its weekend edition of February 24-25, 2024 sums it up: ‘High taxes fuel avoidance schemes.’ If the amount of time spent complying with our complex, and ever-changing tax system was spent on the production and exchange of useful goods and services, our national real wealth would soar, but our official GDP would drop as it is based on the tax-inflated prices of goods, services, property, and labour – all of which would fall.

Australia has the highest cost index of the World’s top 25 exporting nations by volume. Consequently, Australia imports what it once manufactured, and exports, with little or no added value. In Australia, workers pay their taxes twice. Taxes are imposed a first time when deducted from their gross pay and super and paid on benefits and payrolls, and a second time when their taxes are included in the prices of the goods and services, paid for with their net of tax take-home-pay, super, pensions, and savings.

Smith and McRobert argue that such a complex and convoluted taxation system creates the current cost of living crisis. Indeed, existing tax and government charges amount to 50 per cent of the cost to build a new house, to buy a loaf of bread, a litre of fuel, and most household items. They argue that, with a Liberty Tax, existing homeowners can have funds to pay off their mortgages earlier and open up funding for private investment in much-needed housing and infrastructure developments.

A pre-electoral commitment to commission an independent study into the impact of a Liberty Tax would validate the work done to date and create a true renaissance in the economy of this country – and would surely be a vote-winner. Smith and McRobert note that, at a memorable meeting of the One Nation candidates prior to the 1998 election, the 2 per cent tax was dubbed ‘The Happy Tax’. No tax in history has ever been given such an accolade. The enthusiasm generated at the meeting was palpable.

A promise by candidates in the coming Tasmanian State election to support a fundamental review of the Liberty Tax would be a great leap forward in establishing a method of funding government that does not enslave its citizens to an unnecessary accounting burden. At present, citizens produce needed goods and services to account for a deemed ‘taxable profit’, and then wait until the end of a financial year to learn the penalty for their profit-making activities. What the ATO is seeking to tax is a realised gain through work, sale or change of ownership of something. By contrast, most political parties want to impose a tax on unrealised gains.

The Liberty Tax of 2 per cent has a curious trajectory in Australia, and it is in Tasmania that the story continues to unfold. Perhaps it could find fertile ground there in the coming election?

Gabriël A. Moens AM is an emeritus professor of law at the University of Queensland and served as pro vice-chancellor and dean at Murdoch University.  Moens is the co-author of ‘The Unlucky Country’ (Locke Press, 2024), available at https://lockepress.com/product/the-unlucky-country/

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