Holding common ground. Or, why do we pay tax anyway?

Holding common ground. Or, why do we pay tax anyway?

Tax may seem unavoidable, at least for those without the means to hide wealth and income through clever accounting. But societies make collective choices about the level of taxation they are willing to bear. Leaving aside some of the petro-states of the Middle East, the total annual tax take ranges from around 6 or 7 percent of GDP in countries like Ethiopia and Bangladesh to Denmark’s 34 percent of GDP. Of course, these figures depend a lot on the definition of tax used, but a scroll through statistics compiled by the World Bank shows some fascinating patterns. It is not simply the case that the tax take is higher in rich countries. There is some correlation for sure, but there is also significant variation at similar levels of wealth. 

Variation in willingness and ability to tax can be traced to broad differences in institutional endowments and historical legacies. They also reflect different political settlements: battles won and lost over what the public sphere is for, and who controls it. None of these are static. In democracies, citizens can generally choose between higher and lower-taxing alternatives. Their choices reflect personal calculations and beliefs about the relative merits of paying for things like public versus private healthcare, education, infrastructure and police protection.

Tax and community feeling

These choices are not made in a vacuum. Voters will take into account the credibility of the state. Will higher taxes actually mean better schools and roads, or will they disappear into black holes of corruption and waste? We can also expect voters to be swayed by a more emotional factor: how much do they care about their fellow citizens? Do they actually feel a greater obligation to those who happen to inhabit the same tax unit (also known as a sovereign state) than to people elsewhere on the planet? How strong are the bonds of nationhood? Do we even imagine ourselves to be a part of a national community?

We can expect the answer to vary from person to person, and to change over time. This is because all nations are imagined communities, as expressed in the hugely influential work of the late Benedict Anderson, under whom I was lucky to study many years ago. The apparatus of the modern state may wield distinctly material means of coercion and protection, but the sense of being part of a nation depends on our ability to imagine this shared community.

“we can imagine ourselves tied to a common project and bound by something of value that holds us together”

The nation-as-community has to be an imagined one: each citizen can only ever personally know a tiny fraction of his or her fellows. But we can imagine ourselves tied to a common project and bound by something of value that holds us together. In the current world system of sovereign states, the nation is the imagined community that endows the state’s enormous coercive powers­ with some legitimacy. We pay our taxes not just because we must, but because many of us recognize that mutual commitments to the “commonwealth” make our lives a great deal better.

The calculating rationalist can be stingy

Take the sense of community away, and we are left with a more grudging, transactional dynamic. The rationalist calculations that can find an efficient equilibrium between what blood and treasure we are prepared to contribute to the commonwealth, weighed against what we can expect to receive, provide a thin basis for the provision of public goods. And that is for public goods strictly defined as goods that are non-excludable and non-rival in consumption – things like national defence, for which there is no private option. A calculating rationalist can find even more reasons to begrudge tax payments that fund goods such as healthcare and education.

A calculating and conditional logic can probably sustain the night-watchman state, tasked with the administration of law, basic public security and the protection of private property. A more expansive public agenda requires more than this. It is all very well to make the case for public education, healthcare and income redistribution on the basis that such interventions are efficient, but I wouldn’t bet on the calculation always standing up to scrutiny. Actually caring about one’s fellow citizens as members of a shared community smooths the calculation. “Tax is love”, as ambitiously opined by a Green Party leader, will strike many as a bit too close to a declaration that war is peace. But feeling a bit of love for one’s fellow citizens probably sets one’s tolerance for tax at a higher point than one would choose if calculating strictly.

If a sense of being part of a national community is a useful foundation for bending the machinery of state to serve public purposes, those in favour of greater public provision through the tax system should wish to preserve it. After all, the bonds of nationhood can loosen.

Can we have a national community and a plural society?

It is not hard to find examples of countries where competing bonds – or religion or race, for example – are the primary imagined communities. When such identities replace a sense of shared nationhood, the political arena becomes dominated by the transactional logic of the plural society. The term “plural society” comes from the work of former colonial official-turned-scholar, J.S. Furnivall, who described its emergence in colonized territories of Southeast Asia. But the concept applied well to many other areas, where deliberate policies created or rigidly reinforced racial and religious identities, often pitted against each other.

The architects of such schemes claimed the best intentions, and they were often driven by limited administrative capacity more than any grand plan of domination. Nonetheless, the logic of divide and rule was also apparent at least by the later stages of colonial rule. As one colonial administrator observed, ‘the existence side by side of the hostile creeds is one of the strongest points in our political position in India.’

All of this sounds very old-fashioned in a modern, multicultural democracy in which, historically, there has been strong commitment to delivering shared public benefits. Even in the nineteenth century, New Zealand lawmakers stood out for their readiness to infringe on freedom of contract and private property in order to expand the protective and redistributive work of the state. They developed this impulse to grow the commonwealth in material ways with the advent of the welfare state in the 1930s. It is hard to see how these advances of the welfare state could have been made without a strong sense of shared, national community.

It is somewhat peculiar, therefore, that much of the political left in contemporary New Zealand appears bent on elevating the salience of group identities and loyalties that potentially compete with the nation as imagined community.

“It matters how the public sphere is imagined: is it the common ground that we all share as citizens?”

From one vantage point, the left need not worry. The redistributive state is secure, if judged by the share of GDP taken in taxes and mostly paid out again in welfare payments and public services. On this metric, the welfare state shows no sign of retreat. From another perspective, the situation is more perilous, given competing and urgent demands for spending on infrastructure, decarbonizing energy and other tasks. The political willingness to pay for an expanded public sphere depends on the credibility of the state that will spend and distribute the tax take. It matters how the public sphere is imagined: is it the common ground that we all share as citizens? Or is it booty, up for distribution among competing identity groups?

If the imagined beneficiaries of public spending are seen less as fellow citizens and more as parties to a transactional bargain, it is likely that a more stingy, calculating logic will come to the fore. It is relatively hard for ordinary people to evade taxes in New Zealand, but quite easy to vote for lower taxes.

Photo by Guillaume Didelet on Unsplash.


Natasha Hamilton-Hart

Natasha Hamilton-Hart has a PhD in Government from Cornell University and a BA (Hons) from the University of Otago. She publishes in the field of political economy, with a focus on state and private sector institutions, property rights and business-government relations.