This article deals with fundamental and topical problems of taxation policy, viewing the subject from both a German and an international perspective. Traditional income tax regimes in developed countries with their progressive tax rates are still based upon the redistributive philosophy which arose in response to the disadvantaged position of workers in early industrialised societies. The author considers that this philosophy is now outdated, for the main problem of the 1990's is how to discourage excessive consumption with its detrimental impact upon the environment and its negative implications for future generations. He advances weighty arguments for confining progressive income tax regimes to that part of income which is appropriated to consumption whilst exempting from them that portion which is used for the formation of capital. Whilst conceding that such a radical scheme cannot be fully implemented at this stage, he urges that these two portions of income be subjected to separate tax regimes, Tax rates could then be so structures as to encourage capital formation. The author’s proposals raise matters of obvious importance to a ‘savings-poor’ country like Australia.

A second part of the article considers how the dual tax regime which the author favours could be put into practice.