Another improvement would arise from increasing user fees and prices of goods sold by state enterprises. Note that such steps can actually decrease the overall tax burden. Reductions in public subsidies should bring down the amount of tax revenues required for government operations.
Even more important, is that gains would occur even if direct income transfers to poorer families were made in amounts that exactly offset subsidies that might have been paid to unprofitable state firms.
Payments to the financially weakest sector of the community would shield them from increased prices and so minimize political opposition to such a plan.
Net gains from increased efficiency that would lessen the burden on the environment because of more prudent use of natural and human resources.
A better approach
The decision to rely upon higher taxes for deficit reduction indicates an outmoded mindset. Perhaps things might be different if political choices were made solely on the basis of equity and fairness or service to the community. Few citizens in Asia believe that story.
A superior approach to reducing public sector deficits is to rely upon restoring economic growth that will bring about revenue increases without imposing new taxes or increasing rates on existing levies. Globalization reveals that high economic growth is a matter of choice for policy makers.
Selecting a path of high growth requires that governments take the initiative to implement policies and support institutional arrangement that provide incentives for private entrepreneurs to undertake risks.
In the end, only private sector actions can provide a sustainable source of job opportunities and additional wealth for a community. It is time to unleash more of these forces and allow greater scope for market transactions. In so doing, entrepreneurs can better discover what their fellow citizens want most on the basis of the prices they will be willing to pay.
In too many instances, raising taxes will place more money into a political culture tainted by mismanagement and corruption or a situation that might benefit more from less government presence in the economy. The choice of which path will bring better results should be clear.
Christopher Lingle is an independent corporate consultant and adjunct scholar of the Center for Independent Studies in Sydney who authored The Rise and Decline of the Asian Century. His E-mail address is: CLINGLE@ufm.edu.gt.
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