Join the new world

This article is in response to Joshu Whelan’s Creating an Economic Powerhouse - Economics Policy article.

Before addressing each point I’d like to congratulate and thank Josh for writing this article. Regardless of what I say below I’m so glad to see some discussion and thought going in to economics. Of course it is a somewhat dry topic and I can’t help but focus on the detail but I don’t want to discourage some creative thought.

Now let’s focus on the specific proposals:

Set income tax to 25%

The idea is to push people to work in communes. I can’t support this. Communisation is already entrenched in our economic system to the extent that the majority of people working for market wages are multies and new citizens. Commune work is readily available and rewards already are far higher than wages. It is not acceptable to screw over new citizens for a very minor increase in government revenue.

Taking the highest compensation for commune work in a MU environment is not valid as this is subsidised both by the commune owner and the government. Do the math - the price of weapons is only a small margin above the cost of WRM, the compensation from commune owners is a subsidy to commune workers and not an ‘efficiency bonus’. It’s also important to note that with our resource bonuses running a commune as an eAus citizen is not workable, all efficient commune owners hold citizenship in a full bonus country and produce double the quantity of weapons compared to an eAus commune. It doesn't make sense to produce in eAus either for the worker or the company owner.

So yes, by all means encourage commune work but don’t increase income tax. Instead use education and information to ensure new citizens know how to get work.

VAT 2%

We’ve already experimented with the level of VAT. The secret is finding a level of VAT where buyers are not discouraged because it is too high but revenue is high enough to cover government expenditure on MPPs etc. Lower VAT can/has increased government revenue due to the increased demand. We’ve found so far that 7-8% is the best number, prices are low enough to encourage use of our local market without reducing VAT income to levels that government programs can’t be funded. It’s probably worth taking another look, but we need to move slowly and measure the results carefully i.e. do it in small increments and measure the effect.

I also need to point out that VAT doesn’t apply to RM so if the idea is to ‘create incentives to push down WRM...costs’ it won’t work.

Import Tax 1%

This I agree with, the lower we set import tax the lower the cost of goods on the local market which can only lead to increased VAT.

We already have 1% import tax on weapons, a similar rate for food wouldn’t hurt. RM import tax at 10% (current rate) is not so bad as a) prices are unlikely to diverge from international prices with citizens able to buy foreign/sell local without attracting import tax and b) RM doesn’t attract VAT so increased sales doesn’t aid government revenue.

Currency Market trading

It’s true that the currency market can be used to generate revenue. Unfortunately everybody knows about this already so the potential income is not very high.

There are 2 ways to generate revenue; buy/sell and sell/sell.

Sell/sell entails selling gold for currency then selling currency for gold. Selling currency for gold can only be done at the rate of 10G per day, and usually takes a minimum of 10 days to turn around because nobody in their right mind buys currency for gold. With the exchange rate stuck at 0.005 and not likely to change due to mechanics and currency/gold at around $225/gold you can make $25-30 per gold per organisation every 10 days in a best case situation. Using 10 orgs means $900 CC per month at a best-case.

Buy/sell means buying gold low and selling high. An org or citizen can only buy 10 gold per day so there is a limit to the amount of speculation possible. The gold/CC exchange rate is determined by the quantity of gold available and tends to range between $220 (when a gold offer is in play) and $235. This usually only happens once a month so with such low margins the potential revenue from this type of speculation is low.

In short I can’t see how you’ll achieve the estimate of $56,000 per month from currency market speculation but I gave up on it a while ago so happy to be proved wrong there.

Summary

Thanks Josh for stimulating discussion. We ARE constrained by admin’s ham-fisted attempts at implementing an economic module and I sincerely hope that at some point we have an opportunity to debate the relative virtues of x-wing vs y-wing economics.

In the meantime I think the focus is on VAT and ensuring we have it set at a level whereby tax is not too high to discourage purchases and not too low to render us unable to afford MPPs.