Free Market Tax Spending: Direct Initiative Tax Credit

This policy proposal is for a facility to encourage direct investment by taxpayers in public projects, at their own initiative. The facility is through tax credits for expenditure on a tangible public purpose such as capital works.

Taxpayers don’t like to pay taxes. They like it even less if they see their taxes spent inefficiently, ineffectively and even counter-productively. Taxpayers are often in the best position to tell where public spending is necessary. Almost always in a better position than those far away, physically and/or in perspective, from what is apparent to the taxpayer.

Public Purpose and Avoiding Duplication

The optimum mechanism for identifying the degree of public purpose and to avoid duplication of projects has yet to be determined. It’s foreseeable that the Australian Taxation Office (ATO) would maintain some sort of Register of Taxpayer Initiative Projects in which projects are described, assessed for public purpose and the relevant government authorities identified. Such a register would provide taxpayer with guidance as to what projects are proposed and current. Taxpayers could then perhaps elect to join in funding a project for tax credits commensurate with their individual involvement.

Where multiple tax-paying entities are involved in a project, it will be necessary for one to take the project lead to coordinate works as necessary. Entities would still report individually to the ATO to claim their respective tax credits.

Projects which are proposed by one level of government but which cannot proceed for lack of funding by the usual channels may be supported directly by taxpayer initiative, for tax credit, either by provision of funding or materials and services at normal market rates.

Tax Credit

The tax system already provides for write-offs for contributions to recognised charities. This proposal recognises that taxpayers spending money directly on public purpose is not only likely to be more efficient than funnelling revenue through the tax and government project finance “plumbing”, it is likely to be actually needed in that area. As such, a minimum tax credit of 100% is to be made available to the taxpayer for such expenditure.

All taxpayers; including individuals, corporations and superannuation funds must be eligible for tax credits through direct initiatives.

Tax credits of over 100% must be justified on the basis of the government actually saving money by not running the project. A ceiling of 150% is proposed as a first approximation of the case where the project is completely financed, performed and managed by direct taxpayer initiative.

Tax Revenue Redistribution

Regions or markets where taxpayers direct invest in public purpose must not be penalised by disproportionate reductions in government spending. Such would discourage further investment.

The proportionate reduction needs to consider the total government spending, not just in the specific area, but also in coupled areas. Other taxpayers regularly experience more than that one area in which direct investment is taking place. It will never be considered fair to penalise one area by 100% of the amount invested directly by taxpayers.

Who to Blame

Bernd Felsche (B.E. UWA) – not a member of anything significant other than the IPA and they have nothing to do with this.

Proposal Drafted: April 27th to April 29th, 2013
Minor grammar tweaks May 15th, 2013

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