What must not be forgotten is that on the other side of the government's budget ledger is the spending of those tax revenues! This government spending is where we collectively have the chance to ensure that the needy are given assistance they need in order to buy adequate food, medicine, housing, etc etc.īut doesn't it seem inefficient to tax us on things and therefore deny us the ability to afford to purchase them ourselves? Well no - not for most people.

However, recall that the purpose of the tax system, is to collect tax revenues. Now of course, I know what you're thinking! We shouldn't be taxing stuff that you or I personally deem 'good' or 'necessary'! Everything is taxed to have a broad-based system that can have lower rates and minimize distortionary impacts on the economy due to the tax collection. It's the same as for food - no exceptions is simpler for the tax collection system. Why is medicine / diapers / water, electric and gas bill taxed? Businesses have been wasting heaps of resources trying to deal with this stupid change, rather than focus on providing more value for their customers.

Japan's introduction of multiple rates here illustrates the economic damage done due to the distortionary nature of the dual-rate system changing various economic behaviour. Broad-based taxes, as opposed to narrow-based ones, can consequently be lower in rate, than would otherwise be the case, in order to collect the same amount of tax revenues. Let's recall, the purpose of a tax collection system, is to collect tax revenues!Īnd it's good economics to collect taxes in such a way as to minimize the distortionary effects of the tax system on economic activity. You indicated the answer within your own question there :)

My question here is why is food (not Junk Food, sweets, candies etc.) taxed anyway?

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