I think this is a good example of the need to have a relationship between tax policy and tax administration. The focus has to be on being able to collect what should be collected so there is no point in a switch from a collectable tax to one that does not have the administration in place to collect it. This should also address evasion where the cost of collection is high in relation to what is being collected and minimising loopholes to eliminate avoidance. Then it becomes an issue of balance and equity, ensuring that distortions are minimised and disincentives to work are not rife. There is a great temptation to use tax too much when it should be expenditure policy (or neither) to implement social policy. As a result, tax administration can become over burdened and there are diminishing returns. (If people want to marry, marry for love not because of a small tax benefit, but higher tax thresholds are good for raising the disposable income of the lower paid and then expenditure policy can then take over with respect to education and health, as examples.)
I read over the weekend of advice to Greece to get out of the euro, devalue and default because it is the only way to generate growth to raise revenue to service whatever debt that may be left. Yet, one of the reasons Greece is in such a mess is that it does not collect the taxes that it should be collecting. Surely, that has to be the first plank in its reform package? Did not hear of any mention of that over the weekend!
