Economical debate - minimum wage

Day 2,991, 02:48 • Published in Australia Australia • by Damian Gaby

As I promised earlier, I've decided to put forward to the taxpayers (and tax dodgers) a proposal to make changes to the Work Tax system.

First, a small explanation on how the system works. You are being paid a salary, let's say 100cc for ease of calculation. Off these 100cc, a percentage of it, called a Work Tax, goes in the country's coffers. Our work tax is currently set at 3%. Therefore, the employer pays 100cc, the employee gets 97cc and 3 cc goes to the state. All nice and good.

Now, as always, there are people dodging the system. The way they do this is they pay the minimum salary, currently 1cc, and the rest of the 99cc is paid by a direct donation to the account of the worker. Work Tax is therefore paid only on the 1cc, meaning the state receives 0.03cc for every work unit. The employee also benefits, as he now received the 99cc through the donation along with the 0.97cc that he takes as a normal salary, therefore getting 99.97cc instead of 97cc. Employee profits of course, state loses.

Now, there are two leavers we can pull to increase collection on the taxes: we can increase the Work Tax or we can increase the minimum salary. Let's look at each one individually.

Increasing the Work Tax - currently at 3% to say 5%. On a normal 100cc salary, this would mean that the employer still pays 100cc, but the employee takes only 95cc, with 5cc going to the state's coffers. On the lower end of the scale, the tax dodgers would now take 99.95cc instead of 99.97cc. The state's revenues would increase of course, but the biggest contribution would be made by the people who are receiving normal salaries, not by the tax dodgers.

Increasing the minimum salary - to say 5cc. This would not affect anyone that has a salary higher than the minimum, so whoever is paid normal work market salary would still be in the same situation. The tax dodgers however, instead of paying 3% on 1cc they would pay 3% on 5cc. This means that the salary they would take home following the same calculation as above on a 100cc salary paid 95cc through a donation and 5cc through normal game mechanics would be 99.85cc compared to the 99.97cc they are currently taking. The state's take would increase from 0.03 per one worked unit to 0.15 per worked unit. We are not going to become rich from this one, but any CC helps, especially when you are a small country like we are. If we were to increase the minimum salary to 10cc, then using the same example the 3% tax on that would mean 0.3cc, meaning that the employee would end up with 99.7cc instead of 99.97, so 0.27cc per work unit poorer, with the state being 0.27cc per work unit richer.

Downsides: as always with raising taxes, there are downsides.
If we raise the work tax, then the most affected people would be the guys on a normal salary. They would stand to lose the most, and to cut their losses they would probably start searching for employers that pay by donation. On the short term we may see some extra dollars coming in, but in the long term we risk increasing the tax dodging exercise and losing more money than we gain by the tax increase.

If we increase the minimum salary, then the only affected people are the ones who dodge the taxes. The risk here is that they may refuse to work for Australian employers and seek jobs with citizens of other countries where the minimum salary is smaller.

My personal opinion: I believe that the difference in take home pay from 99.97cc to 99.7cc for a tax dodging Aussie is too small to warrant a change of employer and therefore the losses linked to workers migrating out of the country would be negligible. Therefore, I am for increasing the minimum wage to 10cc.

As always, we are a democracy and there may be things I might be missing or reading wrong so by all means, let's start a discussion and see if we need to adjust the minimum wage or not.

P.S. The use of the term 'tax dodger' is correct, the only reason you would be paid through a donation is to avoid (dodge) the Work Tax. If the Work Tax would be zero, then there would be no reason to be paid through a donation.