Government Bonds?

[Michael Dervin OCS]

I was just thinking, that the Government could get more money in by issuing Bonds to Citizens, equal to the value of money they Give to the government (e.g. 1 Tolar = 1 Tolar Government Bond). This bond must be held for a minimum of three months then after which the Government will pay back, to its value (1=1), the Bond Tax Free!

This might be a good way of the government to issue its wages to the Ministers and Civil Servants and anything else which can be paid by bonds.

This allows the Government to put the Bond money in a High Interest Account for 3 Months or more if they do not claim the Bond (which has no expiry). It is a form of saving for the Bond holder as they escape paying taxes on their Wages (the Tax rate being higher than a 3 month interest rate) and all will benefit.

However, if the cash in their bond early they get a Penalty Cost deduced at thier cost from their bonds:

Less than 1 month: 75% = (e.g. 1= 0.25)
After 1 months: 50% (e.g 1= 0.50)
After 2 months: 25% (e.g. 1=0.75)

What do you think?

[Matt Kovac]

I like the idea and I am interested to hear the Prime Minister's view on this since he is the financial expert.

[Michael Dervin OCS]

Of course, Our Prime Minister is a true expert in this field, far more than I!

In addittion, I think we may need to set interest rates?

[nonette]

This is a good idea, but I am wary that there may be some confusion between the way bonds work in the real world and their use in Ocia, so I will examine it from first principles.

1. Why governments issue Bonds.
They may want to reduce the amount of money in the economy. This helps combat unwanted inflation, because inflation can be seen as the result of too much money chasing too few goods. But the most common real-world example is that the government wants to increase their bank balance to pay for something that taxation alone could not afford.
2. Why people buy bonds.
While it would be nice to think that people cared about inflation or increasing the investment capability of their govt, real world bonds are bought for profit. I'm not too sure about the taxation status of bonds in macronations, but I am sure the tax-free nature of bonds would help increase demand. The main reason is the interest gained in a very low risk investment.

So, if we were to follow the real world model, we would need to set a standard interest rate. This would be hard to do, considering that interest rates tend to reflect the profitability of business in a country. As we have yet to fully develop industry which gives money directly back to citizens (see my additional thread on this) it may be unwise to make an adequate judgement.
Thus, I would suggest that as opposed to the real world model (1=1 + x% interest earned), we use the (1=1) model - the incentive to invest being solely tax avoidance for the time being.

Such bond would have to be set at a fixed time - so that you cannot indefinately avoid taxation on all income - three months is a good length of time. The penalties suggested seem perfect to me.

I do have to disagree with the wages idea however. Firstly on the grounds that it could stall any alternative sectors of the economy such as a stockmarket, for 3 months. Secondly you should have access to your earnings soon after you have earned them and be able to do anything with them, including doing nothing, as you personally see fit. Thirdly I think that the number and size of the bonds should be able to be limited as the government sees fit, for a variety of reasons.

I think that possibly that this system could open up the possibility of a tax system that takes more from higher income earners and less from low income earners - encouraging greater equality and encouraging investment for purposes of avoiding tax for high income earners.

Overall, an excellent idea. I will work on some formal conditions and the process of how it will all work, and post these asap. On thursday, after I do the taxes, I will offer some bonds for sale, and we can get this started.

[Matt Kovac]

Ok we need to get organized and set up all of these things.

[nonette]

The Ministry of Finance, In Conjucntion With UNB Hereby Announces:

The sale of SIT100 of Secure Government Bonds, in the following denominations:

4 x SIT20 Bonds
2 x SIT10 Bonds

The Bonds have a maturation date of January 22 2008, and will be sold on a first-come first-served basis. To purchase a bond please post in this thread, and the Ministry will arrange the rest.

[Michael Dervin OCS]

I would like to purchase one Bond Please, thanks!

[nonette]

I'm guessing you want a 20?

I will purchase two SIT20 bonds.

So there are 2 SIT10 bonds and one SIT20 bond left.

[Matt Kovac]

I hate to go off topic but please visit the council of state their is some very important issues the cabinet needs to discuss.

[Michael Dervin OCS]

Sorry, Yeah Put me down for 1 20, thanks!

[curtissinclair]

With the repeal of the Tolar as the national currency, I, Minister of Finance, will be reinbursing all who bought Government bonds for their worth in Union Marks shortly.