We do not live in a perfect world. There are many issues today. Take, for example, the monetary system; the recent financial crisis has proven that it is completely out of line with the "real" economy. Our monetary system is based on the abstraction of infinite growth, whereas our economy is rooted to the physical and finite nature of the planet.
There are many reasons why we have the current monetary system. I will not dwell into all of these but I would like to look at one issue/aspect of our monetary system and that is its link to taxation. I would like to argue that the current way in which taxation links to our monetary system does a disservice to humanity. At present, governments have given bankers the licence to print money in the creation of credit. This has not always been the case in the past. I argue that this pact is inherently unsustainable and broadly detrimental. Governments rely on a monetary system to be able to gather taxes. However, the monetary system is in the hands of a group -bankers- that do not have the broad interest of society - not democratically elected either - and are implementing a monetary system based on the unreasonable assumption of infinite growth.
However, let us imagine that we were able to bypass the current monetary system to gather taxes. What would be the benefits of an alternative system? How would it work? What are the obstacles?
Denmark is a country where a sizeable amount of tax revenue comes from energy taxes. We have the most expensive electricity in the world when all taxes and duties are taken into account. We still survive and thrive as an economic entity despite these high taxes. My view is that it would be sensible to go over to a system where taxes are paid on the point of consumption of energy. I will come back later to reasons why this would be largely beneficial.
A tax system based on the consumption of energy would however need to meet some conditions that are currently not in place: firstly, a global market for the price of energy with some form of global electric grid to allow free transfer and exchange to fiat currency. Secondly, the provisions of large scale storage of electrical energy. Thirdly, to avoid non-payment of the taxes, all devices within a country would have to have their consumption measured in real time.
The concept of having an energy-based system is not new. It would allow for the recollection of taxation aswell as a means of exchange, that is money. I would like to point out that the means of paying taxes can be attained in a radically different method than that used today. Also, that in so doing, we would also have a more reliable currency to buy and sell goods and services.
|Country||Tax spend (€ bn.)||Primary Energy consumption (Twh)||Kwh Tax (€/kwh)||current overall tax burden (income, VAT, etc)
Table 1: The value of the tax per Kwh for various countries based on their current tax spend and their primary energy consumption. *total taxes, at federal, state and local level. (data source: Wikipedia)
My suggestion is that the customs duties for imports should be based on the energy “content” of the product – taxed in the same way as if manufactured locally.
In my ideal world, all energy would be consumed in electrical form from renewable sources. All electrical devices would be connected to the Internet and there are consumption measured in real time. The tax would be charged in kilowatt hours (Kwh). If citizens had deposits of electricity in large scale storage devices, then as they use the electricity, the tax amount of this electricity would be transferred to the government.
So the tax would become due only when the electrical energy was dissipated. Otherwise there would be no other taxes at all-no income tax, no VAT, no property taxes-just energy tax.
Actually, it would not be so necessary for all energy to come from electricity, as the energy in say, petrol or gas, can be compared by taking the megajoule value. A kilowatt of electricity is equivalent to 3.6 MJ. A litre of petrol (Euro 95) is 43.5 MJ; therefore it will follow that a litre of petrol is worth 9 kW hours. A litre of LPG has a value of 26 MJ, equal to 7 Kwh.
In which case, a litre of petrol in Germany would cost €3.28 as opposed to €1.39 today (including supplier’s price). So what about the poor? I hear you say. This tax is entirely about consumption and the choices people have. If someone chooses to live in a small, well insulated house in the country and live off the land, collect rainwater, then they do not require too much income to achieve this.
Bear in mind that people would have a lot more disposable income – unless wages would fall so that countries would remain competitive. All that negative economic growth! But there would not be a loss of growth, just a re-basing.
As in Denmark today, the incentive for individuals and businesses would be to produce goods more energy efficiently. Is this a bad thing? No. In fact we could go over to a system where a car company might produce a car and lease to the customer for the life of the vehicle, the tax being amortised over the period. When the car is returned to the manufacturer, it would be best to re-use the components, because melting iron or aluminium ore would be incredibly expensive in energy tax terms.
In Denmark, 43% of the tax revenue is paid in welfare handouts, so it may be feasible to transfer Kwh in the form of electronic credits to pensioners and the other people living on transfers. People could then sell the credits or otherwise use the credits to buy food and pay rents, but only pay tax if they use energy. (I propose that renewable energy in the form of solar panels will also attract tax on consumption).
Is this tax system otherwise fair? If a citizen purchases a car that has a 40 kW motor, he may use around 25 kW hours per hour to get from a to B. If a wealthier (in monetary terms) citizen purchases a car that has paid 200 kW motor he may use five times the amount of electricity and pay the tax for it accordingly. If the citizen does not want to pay any tax, he would ride a bicycle-as they do in Denmark. He may also choose to use public transport, which being proportionally less energy intensive would be far cheaper than driving a car.
People and utilities producing renewable energy would be free to sell electricity on the market without being taxed. However, if the energy produced was from a fossil fuel source, a tax in terms of kilowatt hours would be paid at the point of sale to market.
Is it possible to monitor all the energy use? Not now, but at some stage with the Internet of Things (IoT) and big data. Real time 24/7 communications, it will be, And then it will be very hard to be a tax evader. Burning fossil and bio fuels directly would be banned without heavy carbon taxation (paid in Kwh). Thus, externalities such as SO2 and NO2 pollution would be held in check.
So, there are several parameters that are not quite there yet , but could be there as technology develops.
Enough to digest for now. I would appreciate comments, so we can start a discussion on this subject and I will follow up with further, more detailed investigations into the “whys” and “why nots”
Sources of research and inspiration:
NEF - Energising Money by Josh Ryan-Collins, Senior Researcher, Monetary Policy,Tony Greenham, Head of Finance and Business,Leander Bindewald, Researcher/Project Manager, Complementary Currencies, Ludwig Schuster , Consultant and Researcher, Complementary Currencies
"Fuel's Paradise: Energy Options for Britain" by Peter Chapman (published in 1979!) available on Amazon.