The real free market [New Zealand]
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by Don KronoX
Ok, lets go through it again…. I hope i will be clearer now. I am not used to write specific texts in English, so forgive me for my typos.
Why isn’t free market a free market in game? Simply… because id does not work the same way as it does in RL…. Why… to put it simply… you don’t have a gold pack in RL!
So let go through mechanics… We have 3 types of taxes and 5 types of industry….
Lets focus on taxes first… Import, income and VAT. Similar to RL taxes. But there is one difference. MM market. So if we take import tax firs.
Import tax protects local businesses when needed and it’s a fixation tool for the government. With this tax you increase the cost of imports, so you can protect a local industry and give her advantage when needed. So if you raise import taxes, others will have to pay you and local business will have a small or big advantage (it depends on a % tax). So generally 1-5% is low import tax, 5-30% in normal tax rate and above 30% is abnormal tax rate (mostly implied to protect the market). Import taxes have one more function… they stimulate creating new companies. What this means a little later.
Income tax is the tax of choice. It burdens citizens and companies. But with one big difference. Citizens don’t have choice, but to pay taxes, companies don’t have to pay it. Why? Simply. MM market. All the profits can be transferred from company via MM market and the government doesn’t get anything. (Hmmm ist that true also for a real free trade market?? NO!!). Generally a low income tax means that citizens get more money, which stimulates demand. They can spend more. The higher the tax, the less they can buy. Income tax doesn’t effect company at all. They will gain nothing, they will lose nothing.
And finally VAT. Important TAX that is almost every time misunderstood, because everyone sees it as evil, because it effects the price of a product. But due to the fact that income tax has flaws, VAT can’t be misused. You just have to pay it. It effects the consumer. Thus makes it the perfect choice. Lower VAT, lower price but also lower income to the government, the bigger the VAT, the higher the price, but also bigger income. So generally 1-5% is low VAT tax, 5-10% in normal tax rate, 11-25% is increased tax and above 25% is abnormal tax rate. In RL we have up to 24% of VAT and free market still applies.
Now lets go to free market dynamics. Why free market doesn’t and does work in eRepublik at the same time. In RL rules work, but here due to MM abuse they don’t as they should. For example… if we take NZ market… you have 1% import tax and 1% VAT and 15% income tax.
Now lets take company from USA or Serbia or Iran (etc). They will dump all their products to NZ market at lets say 0.50 NZD. They will have great profit because they dont have to pay import taxes. Also there is no VAT. Yaaay!! The government get only 1% from import and VAT. The USA/Serbians/Iranian managers and USA/Serbian/Iranian government are happy “We getz more profitz”. NZ government is sad “Other governmentz getz all the goldz!!!”. The global competition also effects the local market. Low dump prices don’t give no profit and all the investors and managers are sad. “Those f***n Iranians and Serbian are dumping everything on our market couse of multies!!!! We cant sell s**t!!!”
If you raise import tax to a reasonable rate, you give local companies a small advantage, so they can sell for a small profit and everyone is happy. Almost everyone. NZ government getz some more goldz, evil USA/Serbian/Iranian/Etc don’t dump at 0 profit cost, managers and investors get some profits and create new companies. Only a price goes up slightly and a consumer is not happy. But we will fix that later.
Now lets take VAT. All that selling and only 1% income for government! Horror! Money is just laying there, and no one wantz to pick it up! VAT doesn’t discriminate! It effect that evil products from USA/Serbia/Iran etc and gives the NZ government all the goldz they want. That money will not go back to USA/Serbia/Iran but it will stay here, in NZ so the government can use it. Isnt that great? Well except for a small price raise. Again the consumer isn’t happy. But we will fix that.
Now let fix that. The price has gone up. The consumer is sad. Really really sad. “They want all my goldz! I cant buy s**t!!” Well there is the par for NZ government superhero! “Don’t be sad little consumer. I will help you! Here is all your money you worked hard for it! I will not take a big peace of money you earned! I will give all you earn and decide how do you want to spend it!! Do we have a deal?” So the little sad consumer doesn’t pay 15% form what he earns, but only 10% from what he actually buys!!
Now… we have a small problem. All the “free market” gurus will yell “Taxaiton lead so protectionism and bloated local companies!” Well lets leave that to a real free market. This is where a real free market comes to the rescue. All those local “protected” and “bloated” companies now face each other and the consumer who has all that cash. You want that cash? “NO!!!! You cant handle all that cash!! I will buy goodz from other marketz!!!“ And now local companies are sad. And they have to lower the prices to normal rates. And there you go. You have a real free market, normal prices and a happy government with lots of goldz!
Calculations on effects on consumer
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if this is true, why don't you get VAT tax on about 15-20% and leave all other taxes as low as possible...
for our companies and outside companies to stay competitive and still normaly taxed..
taxation on every front isn't fair obviously... since some companies pay all the taxes and some don't throu MM market...
with VAT tax set whole market will be comparable... import and income tax should be then kept at low hight....
Effectively, the VAT is paid by the consumers exactly as the income tax is paid by the consumers. The difference is that older citizens who earn more money than they need for their daily purchases will pay more income tax, while the VAT hits the younger citizens harder.
Import tax helps only a few company owners who are not good enough to manage their business under full competition. It hurts the citizens by making goods more expensive.
NO to VAT.
NO to import tax.
Good presentation! vote though i don't agree with all presented in this article. I am against a fixed position (ie free vs. protection), i am for continuous morphing and changing our tax following the actual situation of the market, in bref, i am not for an ideology, but for what proves to work at the current situation!
thanks Kronox for the thought provoking article
the voice of reason!
one solution, admins remove companies from MM, only orgs that own the companies...
with this way, everyone will have to "collect" money from companies first
@Linus Ben that would solve a lot of problems yes 🙂
voted. However, you could lend credence to your articl by not including words such as "goldz." Otherwise, a great summary for the not so economically minded.
A VAT is great if you are a super-tank, lousy if you are a noob. The big guys will still get around VAT by owning an org and buying their goods elsewhere.
that only means that taxes should be low enough for ppl to not even think about going around them lol...
the higher the taxes, the bigger the portion of ppl to try to avoid them ...
cheerz
VAT=sales tax, Income tax=Income tax (obviously). VAT(sales tax) hurts the poor the most, Income tax hurts the rich (high skill players). Although I fall into the second column, the government makes much more money off of me by taxing my income rather then my spending. I currently have a lot of unused money because I make a lot everyday and will save in case of war time etc. I can easily afford to eat everyday and still make a large profit, A new player cannot if taxes are too high. Income tax makes me have less overflow of cash and lets noobs work at 100 health so they and their companies are happy... (Sorry for going on so long)
a simply look at the price of food now shows that your policies hurt eNZ citizens
Effectively, the VAT is paid by the consumers exactly as the income tax is paid by the consumers. The difference is that older citizens who earn more money than they need for their daily purchases will pay more income tax, while the VAT hits the younger citizens harder.
Import tax helps only a few company owners who are not good enough to manage their business under full competition. It hurts the citizens by making goods more expensive.
NO to VAT.
NO to import tax.
"Income tax doesn’t effect company at all"
Do you have any company? If so, you would know that it does effect companies too, when you put product on market it's real price will be higher than you've set. The difference from this two prices will be collected by government(and some very very small part by eRep - but that's because computers have to round the float numbers) and MM offers you to go around paying those taxes for the second time. Is it done in RL? Who cares? Economy module is the best working module here, and it shouldn't be tempered with. The war and newspaper module require some changes, though.
No income tax, no VAT
No money back, no guarantee
Black or white, rich or broke
We'll cut prices at a stroke
God bless Hooky Street
Viva Hooky Street
Long live Hooky Street
C'est magnifique Hooky Street
Magnifique Hooky Street
"when you put product on market it's real price will be higher than you've set. "
? Isn't that VAT?
economy module is boring, it was better in V2 🙂
Some congressmen are biased as they have companies exporting to NZ from where they first came from
Others are biased because they have companies in NZ who don't like imports
Find out which is which, and treat their views accordingly. Usually their gold > their morals, but they won't tell you that.
Well I own a NZ company but I fully support no VAT or import taxes so yeah, daniecox..A lot of the people saying no VAT or import taxes also own NZ companys.
I dont own a company, i have a Q5 house so i dont need to worry about food and i save my money for weapons...So an income tax doesnt hurt me much...anyways,
vote for me as congressman and ill support higher income tax than VAT (not to say i support high tax, just higher for veterans). This is because we really need more new players, especially RL kiwis and for that, we need to make the game fun and appealing for them, not by taking their hard earned money