The tax system is being buffeted in many ways by the new ways the world works. What if we could have a new and painless tax based on governments capacity to create business models that beat commercially owned ones?
In Australia we have a Goods and Services Tax of 10% which currently does not apply for internet purchases from overseas under $1,000 but that will change in 2017, although there is some doubt of the actual result of that change in reality. Changes to the music industry mean that now that I use Spotify for music and don’t purchase music any more, the GST that used to apply to my music purchases has disappeared. As more products and the way we pay for them has moved from the tangible to the intangible the taxation flows have been affected. If we add the global efforts of multi-national companies to create their profits in low tax countries and the capacity for “digital nomads” to work anywhere in the world. there are multiple challenges to the tax system.
I would like to propose an alternative using driverless cars as an example of significant revenue effects and possible opportunities. In previous posts I have described that if we move to mass scale adoption of driverless cars then it will have massive effects on the global supply chain of cars and their associated service industries. If we project forwards to 2030 it is possible to envisage mass scale adoption of electric driverless cars linked to solar energy and battery systems as the cost of solar and storage continues to fall at staggering rates.
At the first level of implementation massive levels of government revenue disappear. if it is all electric vehicles then fuel excise disappears to a greater or lesser extent (roughly 5% of revenue at $18B). At other levels of government income from parking and parking fines, speeding fines and other traffic offences such as drink driving disappear. As examples:
In Victoria, it was revealed that road safety camera fines, police on-the-spot fines and toll road evasion fines generated $256.9 million, $125.7 million and $109.7 million in revenue respectively, in 2011-12
The city of Melbourne alone relies on almost $90 million in parking fines and parking charges annually. These all disappear with mass adoption of driverless cars.
Now the easy answer (but may not be that easy to implement in a modern world of permeable national barriers, Blockchain financial exchanges, and increased bartering systems in the sharing economy) is to implement a charge per kilometre traveled for every driverless car to replace these income sources. Given modern data recording systems for those vehicles that should be easy to measure.
An alternative is for Government to provide driverless vehicles as a mass public transport fleet tied to the current public transport system. The model that I have in mind is:
- Government purchases a large fleet and then allows each vehicle to be its own autonomous corporation programmed just to replace itself in an economic sense.
- For those concerned about government running stuff the fleet could be managed by commercial operators or by a group of competitive commercial operators.
- The cars themselves would decide where to purchase energy and where to purchase tires, maintenance, etc. I imagine that this would result in large scale servicing centres that would destroy all the businesses of local petrol stations, repair shops, panel beaters, tire outlets, etc.
- If this could be operated in real time then cars would be continually receiving bids for services and demand and supply would regulate themselves.
Other commercial operators could still compete with this system but the government owned fleet would form a base level service in the market that maximises economic efficiency and eliminates rent seekers.
So where does the painless tax come in?
My proposal is that government arbitrages its capacity to borrow money at low rates and lends that money to each car at a higher rate, collecting the margin between the two rates.
If 5 million cars were purchased at $40,000 each (there were 13.5 million passenger vehicles at the last census in Australia) then a margin of 4% over a 10 year payback period would raise $4 billion a year. If the service was a lower cost than the commercial models could provide then that is $4 billion in tax the government does not have to find and as a customer I feel no pain because the overall system is saving me money. Higher margins may be possible if we take a derailed look at the model.
If all driverless cars had a per kilometer charge as well then money raised would be higher and all entities would be competing on a level paying field.
I think the idea is worth exploring in more detail and it would be interesting to think where else it could apply in the economy. Of course it would take a huge mindset change for government in relation to their attitude to debt