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How to permanently reduce public deficits (English)

Tax limits and refunding tax payers

In almost all countries, a vicious circle has been created whereby the more the State collects, the more it spends.
To stall the debt, limits are put on expenditure and borrowing. Then, the limits are reached and a lively debate ensues on whether to raise them, reduce spending or increase taxes. In reality, the limits tool (organized in different ways) is useful, but not always effective as it nonetheless enables the State to reach fixed limits, but then to bypass them by shifting expenditure and debts around in different ways.
It is right to ask ourselves if there aren’t any better systems than the limits’ one?
In a condominium, co-owners pay their annual fee based on the budget. If there is a surplus, the funds are returned to the co-owners as a down payment on the following year. The co-owners therefore carefully check the balance sheets, as they are interested to know whether their money is being well spent and if they will get any back. Imagine what would happen if all the money paid by the co-owners based on the budget was lost. The administration would have no incentive to reduce expenditure and, in the years to follow, would try to increase budgets.
The co-owners could only complain, but would not get their money back. Unfortunately, the State works according to this principle, inherited from the distant past, when kings and princes used to collect taxes and democracies didn’t exist.
With information technologies, refunding to tax payers can be easily managed. The time has come for a different relationship with citizens, also with regard to taxes. The relationship between the State and the tax payer must be rebalanced, adopting a rationale similar to that of a condominium. Without such a change, it is unlikely that we will see a turnaround in public accounts.

The machine of State taxation is complex, and changing the approach won’t be easy.
One possibility would be:

  • To oblige the Government to set out in advance the amount to be collected through taxes in order to fund public expenditure.
  • To establish that any surplus taxes paid will be automatically refunded to tax payers, as an advance on tax payable for the years ahead.
  • To establish that 50% of any savings in public spending will be returned to tax payers and the other 50% will be put towards reducing public debt.

Currently, taxes seem to disappear into a bottomless pit. The new system would instead be more similar to paying condominium fees. Surplus payments are not lost, but carried over to the following year.

Such an approach would have several advantages:

  • Budget and public deficit figures are so large that they are mind-boggling. By setting out expenditure in advance, a clear parameter is created for assessing the effectiveness of the Government. If the State refunds taxes to its citizens, it would be regarded as positive. Citizens could also easily understand how the budget might be expected to increase in the years ahead.
  • The possibility of getting money back would be an incentive, as citizens would be more vigilant and active where money wasting might be concerned. Even public officials, who are taxed to the hilt, would have an incentive to reduce spending in public administration.
  • It would be easier to convince citizens to pay taxes to improve public accounts. Surplus money paid would not vanish into a bottomless pit, but would be refunded.
  • The State’s goal would be to collect the taxes required, and no longer bleed citizens dry. The costly and ineffective battle against tax evasion could be reconsidered, having created a fiscal nightmare for some categories, with the systematic criminalisation of tax payers. Tax systems have become unfair, just look at what large groups are paying or consider the tax discrepancies between different types of income. The hunt for tax evaders is regularly translated into more procedures. A growing bureaucracy that, as well as being costly for the State, has a considerable impact on company costs and procedures, particularly for micro and small businesses. Information technology is not used to simplify, but to demand more details from businesses and invade the privacy of citizens.

This text is an extract of chapter 8.3 of a document named “Verso una politica in grado di orientare i cambiamenti” (Toward a politics that can master changes) written in June 2011, by Domenico Zucchetti, Lugano, Switzerland, and available on

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