Letter from the Cape Episode 4 March 31, 2023 In the Cobbler of Preston, which was a comedy play written by British playwright Christoper Bullock in 1716, we encounter the cobbler's wife, who accuses the local ale shop owner, one Madame Hackett, of sleeping with her feckless husband. Hackett rejects the accusation saying she is a Woman of Reputation and sleeps on a good Feather-Bed and would not consider hanging out with the often drunk cobbler. A resolution was sought with the local justice of the peace and the wife said she was sure the infidelity had occurred. The cobbler himself responded to this surety saying 'Tis impossible to be sure of anything but Death and Taxes'. You see, there is a literary element to this podcast. When people use that expression now, they know that taxes are an inevitable part of life, unless, of course, one has lots of cash to splash around on fancy accountants who know all the tricks. But most of us think of ourselves as 'taxpayers' and we are sure that our taxes are being used by government to fund their spending. That belief, reinforced daily in the media and by politicians, that it is our money the government is spending, has hamstrung government to the point that it fails to meet major challenges like housing shortages, the degradation of our education and health systems, and climate change, to name just a few. And us 'taxpayers' are also conditioned to think that to expand government services we either have to accept spending cuts elsewhere or pay higher tax rates. Neither option is very attractive to us. And, because of the divide and conquer narratives that create a 'moral' ranking among citizens - like hard-working taxpayers as opposed to lazy dole bludgers or welfare cheats - that sort of talk - it is usually easier for us to accept spending cuts, as long as we are not directly impacted, than it is to accept higher taxes which impact on us personally. At that point, we are on the slippery slope of austerity where all sorts of essential projects are abandoned and delayed. And then after years of neglect, we realise, in 2023, that we are decades behind where we should be on our response to climate change, on the uptake of electric vehicles, on retrofitting our houses to be energy efficient, on Closing the Gap with our first nations peoples, on dealing with mental illness, on making our cities better places to live, and all the other things that were scrapped or delayed because we made it clear to the politicians that we would boot them out if our taxes went up. A litany of fictions, piled up, one on top of the other, until the result is a fog of humuliating ignorance and dysfunction. Think about the MCG scoreboard that we discussed in Episode 3. The scoreboard can never run out of points. Issuing agencies can never run out of tickets. The Australian government issues its own currency and can never run out of it. We certainly pay taxes, and, in that sense, we are taxpayers. But our taxes do not fund government spending. It is not 'our money' that the government spends. We use the currency that the government issues. In that sense it is their money that we use to pay our taxes and they have to issue it - that is, spend it into existence - before we can get our hands on it to pay the taxes. Now, if they don't need our money, then why tax us? Good question. Think about a situation where all productive resources - labour, machines and the like are working at full capacity. We would call that full employment. Now say the government wanted to invest in a green transition, which would require it hire more labour in the public sector. The only way they could do that if there was full employment would be offer higher wages to lure the workers from their existing uses. That bidding war would probably creating inflationary pressures. So what to do? The government would have to reduce the private demand for those resources - that is, create idle labour. How might it do that? Well, in days gone by, government just enslaved workers and that was that. But now, the government imposes taxes, which reduce our capacity to spend and creates those idle productive resources. It can then offer work to those workers without entering a bidding wa and creating inflationary pressures. Tax revenue does not provide the government with any extra spending capacity. The taxation just ensures it can buy productive resources from the private sector without having to enter a bidding war for their services. There are other functions that taxes play like discouraging bad habits (smoking etc). I will talk about that another time. Next time, I think it is time we played a game together! Have your pencils and paper at the ready! Bye for now.