The Laffer Curve - why Australia needs lower taxes

laffer.jpgFirstly, may I thank so many readers for their efforts in promoting the Conservative Leadership Foundation's writing competition. Your support will be invaluable to making this year's competition the biggest and best yet.

The competition (and all the activities of the CLF) is my way of investing in the next generation, something that many of you also do in so many ways.

This was brought home to me a few moments ago when I met with celebrated economist Dr Arthur Laffer.

Dr Laffer was a member of Ronald Reagan’s Economic Policy Advisory Board during much of the 1980s but is perhaps best known for his ‘Laffer Curve’. This is a concept detailing an optimal level of taxation that will deliver maximum revenue and where increasing tax rates beyond this will actually result in revenue reductions.

During the conversation, Dr Laffer suggested that all savings are the manifestation of a desire to ‘invest in the future’, whether for personal consumption or for future generations. To me, it’s a key concept of conservatism. We benefit today from the investment that our predecessors made and a conservative today desires to build upon these foundations for our successors.

Personally, this highlights a huge difference in the way tribal politics is played out. To politicise a biblical parable, the left give people fish (at someone else’s expense) whilst the right try to teach people how to fish in order to feed themselves and their families. Ultimately only one of these methods is sustainable.

If we reward those who don’t want to fish whilst penalising those who do, we’ll have less fishers and more fish takers.

And this concept is a key part of what our citizens (and those of many other Western nations) need to understand. You only get something for ‘free’ because someone else has paid for it. Every handout, every subsidy and every rebate is the fruit of someone else’s labour.

Now no one is seriously suggesting there shouldn’t be a safety net in a civilised society for the truly marginalised and dispossessed, but we shouldn’t be encouraging their ranks to swell. It has oft been said that a nation cannot tax its way into prosperity nor can the poor spend their way to riches.

We need to find the optimum level of taxation that maximises economic activity and government revenue whilst eliminating the bureaucracy attached to the government ‘money go round’.

There are as many ways to achieve this as there are views on any topical issue; flat taxes, consumption taxes, income tax, property tax… I could go on. Our current problem is that we have all of these and more!

Our tax act needs to be radically simplified. Let’s eliminate the 'take and hand back' tax mentality. Keep the rate as low as possible and minimise deductions/rebates/subsidies. Perhaps then we might see more private investment delivering more jobs and opportunities for all Australians.

If my brief conversation with Dr Laffer did anything, it reaffirmed my belief that more problems are created by government than they will ever solve. That means the best investment we can make for future generations is to live within our means, save for the future and limit the size and impact of government on our lives.