Maximum freedom – minimum state

Relieving the burden on families through the family bonus is an important step. However, we need – and not only in Austria – many more courageous steps towards relief. A commentary by Karl von Habsburg.

A few years ago, Bulgarian economists published a study on the optimal level of the tax ratio. The result: if the tax ratio rises above 30 per cent, it becomes counterproductive. This sounds plausible. If the state restricts itself in the collection of taxes, it must use them sensibly and efficiently. If it does this, for example, by providing infrastructure, by creating a transparent legal system and thus legal certainty, and by establishing external and internal security, it creates the framework conditions that serve the development of citizens and entrepreneurs. Capital can be built up and prosperity created. For taxpayers, it remains clear what they are handing over money to the state for. The largest part of the earned income remains at their own free disposal.

If the burden increases, the state begins to use the additional money to interfere in things that are none of its business. It no longer merely creates framework conditions, but acts as an actor itself, one that is moreover not liable for its actions. Distortions are the result. At the same time, it becomes increasingly difficult for taxpayers to understand what they have to hand over their money for; their own room for manoeuvre is restricted by the state. Tax avoidance strategies become attractive.

The American economist Arthur Laffer also described this phenomenon. If a state with an excessively high tax burden starts to reduce this burden, state revenues do not fall, but rather increase. The money that remains with the citizens is put to sensible use again. This could be observed, for example, in Slovakia after the major tax reform.

The family bonus now approved in Austria must also be viewed from this perspective. Anyone who looks closely at the figures will see that this measure brings a clear advantage to the majority of families. It is logical that someone who pays no tax anyway cannot be relieved by a tax bonus. The – expected – howling set up in certain circles is not justified.

Families can therefore rejoice at a first step of minor relief. However, the governing parties should not celebrate too much, because the coming relief for an important section of taxpayers is only a fraction of what the state has already taken in recent years through other tax increases and, above all, fiscal drag. And, it is only relief in one specific area.

State revenues are bubbling

The Austrian state has no problem with state revenues anyway. They are currently bubbling over due to a good economic situation. This is the time when necessary structural reforms must be implemented. The state interventions of recent years, but even more so the distorting interest rate policy of the European Central Bank, have postponed necessary adjustment processes. The time for a comprehensive tax reform that leads to a massive reduction in burdens is therefore ripe. During the election campaign, a great deal was announced, especially by the two governing parties. But even with the easiest part of all reforms, the elimination of fiscal drag, a procrastinating hesitation can now be observed. Yet all that is needed is a minimal reform, for which motions in Parliament have already been introduced. And even with the tax burden, a great effect could be achieved relatively easily. All that would be necessary is an adjustment of the tax brackets to the basis of the last major tax reform at the beginning of the nineties. That, incidentally, was initiated by a Social Democratic finance minister.

A week ago, a symposium was held in Vienna to mark the tenth anniversary of the death of Vincenz Liechtenstein. The founder of the Jes student initiative was active as a politician in the ÖVP for many years. All the speakers at the symposium emphasised that he had always placed principles above the mainstream of party reason. These principles can be described very well with one slogan: Maximum freedom – minimum state.

Photo: European Communities 1998