Stumurray Governments DO need to tax to fund expenditure unless they have significant oil/other revenues. Nobody is going to loan money to a government that has no source of revenue. Government spending is approx. 35% of GDP in Australia. Therefore 65% of money makes its way through the economy without the assistance of government. In general governments and reserve banks will use interest rates as a primary tool to manage demand/inflation in the economy not taxes. If rich people leave the country they will most likely pay tax in a jurisdiction other than Australia and therefore it DOES matter if they become non-residents for tax purposes. The capacity of the economy to produce goods and services is based on capital flows, productivity and resources among other things not the tax system.
