Poland’s Flat Tax.

News today that Poland is following the trend towards flat taxation systems:

Poland is to join the flat-tax revolution sweeping Eastern Europe, switching to a single band of 18pc on income tax, corporation tax, and VAT.

All well and good...although I have a suspicion that one of the reasons why they seem to be working in Eastern Europe is because of the legacy of Communism, not the innate virtues of the system itself (and I’m well aware of and agree with those virtues). Thinking back to the early 1990’s in Russia it was technically feasible for a company to owe 110% of turnover in tax (yes, turnover, not profit) a situation which meant that everyone was cheating and bribing just to stay in business. The apparatchiks loved it of course, as they were the recipients of such bribery, rent seekers on the system.

As our own system, however good or bad one might think it is, does not suffer the same level of corruption, we might see less benefit from sweeping away the complexities that allow it, even make it necessary. The other way to look at it is that the tax advisors, lawyers, trust formers, lobbyists and the rest are exactly the same set of rent seekers, just legitimised. Your choice I guess.

The number that really shone out from the report was this:

Polish officials say the tax-free threshold on personal income is likely to remain, near its current level of 37,000 zloty (£6,400).

Poland is a much poorer country than the UK. Yet their tax free allowance is higher than ours. At a guess that number means that only those on more than mean (or median) income are paying income tax. How different from our own system where those working part time on the minimum wage pay income tax. I know the Tories put forward the idea that personal allowances should rise to 10 grand and I think it’s the one simplest thing that could be done to make our own tax system fairer (the second would be to raise the NI limits to the same number) but it won’t happen because the two together will blow a 25 billion hole in the Govt accounts.

There’s even a way in which it can be sold to the chatterati at the Guardian and Independent. They’re all falling over themselves applauding Richard Layard’s book on Happiness, thinking that it provides an intellectual justification for higher taxation. However, one can read it slightly differently, in that he calls for 60% marginal taxation on incomes over 10k a year (remember, both direct and indirect taxation) and that’s pretty much what is paid now, in fact, adding excise taxes, we pay more than that. But he’s quite clear that for those on under 10k a year, a rise in income does make them happier...so we can say that a Labour Peer, indeed, some would say the economic guru of the Third Way, thinks that the low paid should not be taxed at all, as this will make the nation as a whole happier....exactly what he is arguing should be the thrust of public policy.

But just to make the point as clear as possible. The poor in the UK pay income tax, the poor in Poland do not. Are we certain that we have this the right way round?