May budget could reduce inequality, the size of government and its taxes?

The May budget could reduce inequality, shrink the size of government and its taxes, and allow most voters to become richer. The process would help build a larger, more self-reliant circular economy and foster a richer form of democracy.

What is required is a tax incentive for shareholders that allows corporations to issue free shares to all citizens. This would create a pathway for corporate dividends to gradually replace welfare payments and pensions.

Employee incomes would increase by about 12 per cent as the need for compulsory superannuation contributions is removed. Ownership of firms would be shared more broadly with citizen stakeholders in the constituencies represented by politicians who support the process.

Multinational corporations would gain an incentive to transition gradually while still earning larger profits. Dividend reinvestment plans would encourage the creation of newly incorporated offspring businesses, expanding the corporate ecosystem. This would create succession pathways for both shareholders and employees. New foreign investment would still be attracted, but with citizens progressively acquiring equity and, in effect, “buying back the farm”.

The export of Australian income to foreign investors would be reduced. Australia could become a much richer and more self-reliant circular economy. Professor Edith Penrose once observed that foreign investment introduces “the acceptance of an unknown, unlimited, and uncontrolled foreign liability”.

Government taxes used to fund welfare could be progressively reduced. As a result, the scope and size of government would shrink while self-governance could increase efficiency.

Self-governance

By definition, self-governance means removing the need for"Markets and States". This point was raised by Elinor Ostrom in her Nobel Prize acceptance lecture. The Nobel Committee noted that Ostrom had overturned what had previously been the "unanimous" view of economists, who believed that self-governance of shared resources was impossible. Such assumptions should be treated cautiously when framing the May budget.

Ostrom spent forty years documenting examples of self-governance in communities competing for life-sustaining resources. The key is distributed decision-making among politically competing interests. She described this as “polycentric” governance. It creates checks and balances that help discover or negotiate win-win outcomes.

Contested decision-making also appears in biological systems. The human brain, for example, contains no chief executive neuron. All living systems demonstrate forms of self-regulation and self-governance.

On two occasions I have designed corporate charters incorporating polycentric self-governance on two occasions for Australian national non-profit organisations. In 1974 I became the honorary CEO of the unincorporated Australian National Ski Federation. Each skiing state had its own self-governing organisation managing competitions among local clubs. I incorporated the national body as a polycentric federation to govern interstate competitions and represent Australia internationally within the global skiing federation, which in turn became part of the Olympic movement.

No new laws are required to introduce self-governing businesses. Evidence already exists in polycentric firms that have proved competitive and resilient over the past half century. Examples include the Mondragon Cooperatives in Spain, the John Lewis Partnership in the United Kingdom, and the VISA card organisation in the United States.

The self-funding tax incentive proposed to reduce inequality could also introduce self-governance. The cost of the incentive would be repaid to government by reducing forms of shareholder overpayment that current accounting practices cannot report. Accounting doctrines do not require the disclosure of shareholder time horizons. Yet surplus profits arising after investor time horizons are often substantial. What is not reported cannot be taxed. These surplus payments help explain how corporate ownership becomes so concentrated.