This follows on from the previous post about the difference between a government and a household where I discussed how tax is not required to fund goverment spending, which leaves us with the question 'so what the hell does tax do then?'

The simple and most fundamental answer: tax is what gives currency its value. Without tax, the entire system would fall apart - not because we need it to pay for government spending, but because without tax there's no incentive to earn the currency. No incentive means no value.

Picture a brand new government of a brand new country. It decides to create and issue a currency to help people trade things. But why would anyone use it? Paper or digital numbers have no inherent value. Why would you trade 10 fish for a valueless coin?

But then the government says: "At the end of the year, you each owe us 5 coins in tax." Suddenly everyone needs to get hold of those coins. That need gives them value. That value means they can be traded for fish, or labour, or anything else people want. And just like that, you've got an economy.

Notice what just happened there: the government spent money into existence first (by paying for something), then collected tax later. Spending comes before tax, not the other way round. The government didn't need to collect money before it could spend - it created the money by spending it.

This also means the whole idea of "taxpayers' money" is backwards. It's not your money that you made which the government is now taking. The government created the money in the first place. You didn't make it - you earned it through economic activity that was only possible because the government spent money into existence.

People don't make money. The government does. People just circulate it.

Tax isn't theft. It's not the government stealing your hard-earned cash to give to scroungers. It's the mechanism that makes the entire monetary system work.

Without tax, your wages would be worthless. Remember that new country we imagined? Before the government introduced tax, those coins were just metal. Nobody wanted them. The moment tax was required, everyone suddenly needed coins - and that's what gave them value.

Your wages work exactly the same way. You accept pounds because you need pounds to pay taxes. Your employer accepts pounds for the same reason. The shopkeeper accepts pounds for the same reason. Remove that universal need, and pounds become worthless paper.

So tax isn't theft - it's the opposite. Tax is what gives your money value in the first place. Without it, there'd be nothing to steal. Your wages would be meaningless numbers, and you'd be back to bartering fish for chickens.

Turns out tax is pretty bloody important after all, even if the current system is a bit shit (but that's for another post).