Poland’s Flat Tax

I missed this story yesterday, but it seems that Poland is joining the Flat Tax Revolution. The Adam Smith Institute has this take on the story:

In the UK, Chancellor Gordon Brown introduces his annual budget today. Since 1997 he has introduced new tax bands, plus a host of new taxes, and introduced such fearsome complexity that even tax accountants find difficulty in penetrating its arcane rules. Brown himself has invested too much in a tax system understood only by Treasury officials, but his successor will be forced to look very closely at the new system sweeping across Europe.

Tim Worstall for his part points out that the advantages are much greater in countries where compliance is bad.

I have a suspicion that one of the reasons why they seem to be working in Eastern Europe is because of the legacy of Communism, not the innate virtues of the system itself (and I’m well aware of and agree with those virtues). Thinking back to the early 1990’s in Russia it was technically feasible for a company to owe 110% of turnover in tax (yes, turnover, not profit) a situation which meant that everyone was cheating and bribing just to stay in business. The apparatchiks loved it of course, as they were the recipients of such bribery, rent seekers on the system.

I think Tim has hit the nail on the head. The short term benefits of a simpler tax system are much greater if half the economy is untaxed. All countries would benefit from such a simple system however as it gets rid of distortions and therefore generates faster growth. Well done Poland, I wish our Greedy Grabbing Politicians were as forward thinking as yours. Hopefully its another nail in the coffin of Tax Harmonisation.