The country of Changeland has, for many years, operated as a military dictatorship. Last year, though, a people's revolution brought a democratic election for the first time in living memory. The newly elected Government has pledged to better housing, healthcare and levels of education. It has also promised a 'fair' system of taxation which should be fairly a contrast from the corrupt means of raising revenue that had previously operated under the military dictatorship.
Explain the key policy decisions to be made and the main options available to the new Government when establishing a suitable tax regime in Changeland.
When establishing a suitable tax regime there is, in the first place, a need to decide upon certain broad policy decisions.
Overall tax requirement
Fiscal policy relates to the level of taxation and expenditure that a government decides upon. What is known from the scenario is that Changeland's newly elected Government has pledged to improve housing, healthcare and levels of teaching so these represent significant commitments to spending. These commitments require to be costed in order to determine the overall level of taxation and revenue that must be raised.
Overall taxation policies
Once the revenue requirement is measured, overall taxation policies require being determined. The Government has promised a 'fair' system of taxation, but fairness is inevitably based upon subjective judgements. There are a number of actors that the government requires to consider when deciding upon an overall taxation policy.
One is the balance of tax liability among individuals and businesses. The Government will also wish to encourage certain industries (e.g. based upon the scenario housing, healthcare and education). For these particular industries it might be introduce tax breaks and concessions to encourage continued investment. In terms of personal taxation the Government must consider a number of issues containing the income below which no tax is paid by individuals, (so recognising he requires to protect the low waged).