Turning your back on the tax man

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I recently moved to a new suburb and noticed an ad in the community news for a baby-sitting club. The scheme involves sitting other people’s kids in exchange for reciprocal services. The baby sitting club is a central broker and maintains records of who is entitled to what baby-sitting credits. In this case the medium of exchange is baby-sitting hours.

In a similar vein I remember seeing a TV story about an enterprising single mother who had managed to completely renovate her home by creating a system of exchange with a number of local tradesmen. She went one step further than the baby-sitting club and introduced an exchange rate. Depending on the skill of the tradesman she offered a different exchange of her time.

These relationships work well for those directly involved but the taxman is left out in the cold. The current tax system is well placed to get a pound of flesh from transaction based on dollars, but is ill equipped to benefit from 3 hours of baby-sitting credit.

Micro-currencies could lead to macro-deficits
While the EU is trying to hold together disparate economies by arguing the merits of various bail-out packages and austerity measures, local communities right around the world are taking a different approach. There are several towns in Britain which have introduced their own currencies to bind together local merchants and consumers as a panacea for the broader economic doldrums affecting centrally administered economies.

While the rest of Britain is accustomed to seeing the queens head on their currency, locals of Brixton are happily paying for a pint at the local pub using the Brixton Pound emblazoned with the face of David Bowie’s Ziggy Stardust character. 

Central Bank replaced by Central Time Banker
A number of new central time banks have already been established. Just like the baby sitting club, the central time bank tracks who has provided what services and how many hours they are owed. The central time banks can operate beyond local, national, and international boundaries.

Just like the enterprising single mother described earlier, hours accumulate at different rates depending on the skill of the service provided. An hour of a skilled tradesman or professional accumulates more hours (per hour of service provided) than an hour of unskilled labour. Importantly the balances are referred to in hours of time rather than expressing them as units of any official currency. By doing so, they deliberately make it hard for tax authorities to easily get their share of the pie.

What about the poor tax-man?
Throughout history governments have constantly created new taxes to capture increasing revenues and abandoned taxes with declining revenues. As economies and technologies change, governments need to change what and how they tax.

Although we take personal income tax as having always been around, it was only introduced in the US in 1913. Broad based consumption taxes (GST/VAT) appear similarly entrenched yet were only introduced to Australia in July 2000.

The emergence of micro-currencies, the creation of sophisticated barter systems, the creation of centralized time banks and the establishment of the internet as a facilitator of international trade all conspire to undermine the established tax regime and tax revenues of governments right around the globe.

It doesn’t appear that any of these changes are seriously threatening existing government revenues. However tax authorities around the world may need to start investigating how they will adapt to a changing environment.

So what do you think we should tax?

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