What makes this series unusual is not any single idea in isolation, but the combination: a jurisdiction aiming to fund a modern Western welfare state without oil rents, with 0% income tax, a high, highly visible consumption tax, a partial input recovery that embeds tax in the supply chain (not only at retail), and a welfare gross-up that does the equity work income tax used to do. Elements of that stack exist in debate or in other countries; the full formula does not. The sections below spell out why that gap is structural—not an oversight—and how the model compares under the standard three pillars of tax theory.
Why this exact formula has not been adopted before
No country currently runs this precise configuration: abolition of personal and corporate income tax, a universal 20% GST with only partial refundability on business inputs, and a deliberate use of that partial recovery as the primary business contribution in place of profit-based company tax. Pieces of the picture appear elsewhere, but they are almost always paired with different bases, different politics, or different fiscal starting points.
Control and social engineering. Income tax gives governments fine-grained levers—credits, brackets, sectoral incentives—that disappear when the base moves to flow and consumption. Removing income tax therefore feels, to many treasuries, like surrendering a toolkit they have relied on for a century.
Visibility. A 20% GST is obvious at the checkout. Politicians often prefer taxes that do not surface as a single large line on a receipt, because visible taxes are harder to raise without public backlash—even when they are economically efficient.
International pressure. The OECD push toward a minimum corporate tax is aimed at profit shifting. A model that rests on 0% corporate income tax and a flow-based wedge is, in diplomatic terms, a deliberate outlier: it trades alignment with that consensus for a different theory of the base. A pre-emptive reader-level response (Pillar Two, “tax haven” optics, and substance-over-label framing) sits in the risk framework.
Citizen arithmetic. The model assumes electorates can weigh a visible price increase against a full paycheck—a trade that sounds simple in a spreadsheet but is politically rare because it asks voters to trust a wholesale redesign rather than incremental change.
Close relatives—and where they diverge
Treating 20/7 as sui generis does not mean it floats without analogues. Three international reference points clarify both the lineage and the gap.
The United States FairTax proposal
The closest legislative cousin is the recurring US FairTax idea: abolish federal income, corporate, and payroll taxes and replace them with a single high national retail sales tax, with a "prebate" to protect low-income households—conceptually similar to a welfare gross-up. Like 20/7, it targets 0% income tax and uses consumption plus transfers for equity. The difference is architectural: FairTax is point-of-sale retail. The 20/7 design embeds tax in business-to-business flow through partial input recovery, which supporters argue is harder to evade than a retail-only base.
Estonia’s distributed-profit model
Estonia is often praised for not taxing corporate profits until they are distributed: reinvestment faces 0% company tax; dividends face tax on extraction. That strongly encourages growth and retention—much as 20/7 aims to do—but Estonia still levies personal income tax. 20/7 pushes the same "tax the take-out, not the reinvestment" intuition one step further by freeing the individual wage base as well.
Low-tax jurisdictions and resource rents
States such as the UAE, Qatar, and The Bahamas have long run with 0% personal income tax, often backed by oil, sovereign wealth, or narrow tourism-and-finance economies. As they diversify, many are layering VAT and corporate taxes on top. The 20/7 proposition is different in intent: it is a blueprint for funding comprehensive public services in a diversified, high-income democracy without a hydrocarbon windfall.
Embedded tax design versus standard VAT
The partial recovery rule places the model between a conventional VAT (which tries to be neutral on business-to-business prices) and a historical turnover tax (which compounds at each stage). The design trades some neutrality for collection simplicity and a stable wedge on operational flow. See Cascading, raw materials, and tiered GST recovery for tax-on-tax through the chain, white-list raw materials, optional tier-2 100% refund, and filing design.
| System | Business-to-business (B2B) treatment | Why it is used |
| Standard VAT (global norm) | 100% refundable on inputs | Prevents prices from spiralling through the chain; requires substantial audit and compliance infrastructure. |
| Turnover tax (historical) | 0% refundable | Simple to collect, but tax-on-tax makes final goods disproportionately expensive. |
| 20/7 model | 65% refundable (35% retained on inputs) | A deliberate middle: the state keeps a stable fee on business operations while limiting the worst price-compounding effects of a pure cascading tax. |
Three pillars: efficiency, equity, and sustainability
Public finance textbooks still organise judgments around three pillars—efficiency, equity, and sustainability. The table below situates the 20/7 velocity engine beside New Zealand’s current hybrid and the high-tax Nordic welfare model often treated as the equity benchmark.
| Feature | 20/7 model (velocity engine) | Current NZ system (hybrid) | Nordic model (high-tax welfare) |
| Top marginal income rate | 0% | 39% | ~55% |
| GST / VAT rate | 20% (partial refund on inputs) | 15% (full refund) | 25% (full refund) |
| Primary strength | No statutory penalty on extra effort or accounting profit at the personal or corporate income level. | Familiar, stable, globally legible hybrid. | Very high equality via large transfers and services. |
| Primary weakness | Cascading and pass-through risk: the base taxes process through the chain, not only final consumption. | Brain-drain pressure at the top; complexity at the boundary between income, capital, and profit. | High marginal rates can dampen entrepreneurship and hours at the margin. |
Equity: horizontal and vertical
Horizontal equity—equal treatment of equals—is strong when everyone faces the same consumption rate and the same recovery rule. Vertical equity—higher shares from those who can pay more—is weaker if you only look at statutory rates on income, because there is no progressive schedule on the paycheck.
The re-framing in this series is that progressivity moves from marginal rates on earnings to total dollars paid on spending plus transfers. Higher spenders remit more cash to the state at a flat rate on a larger base. Without a welfare gross-up, that story fails for the bottom; with it, the model tries to supply a floor without a ceiling on pre-tax success.
Prosperity: plugging the "leaky bucket"
Many large economies run complex wars of definition between income, capital gains, and profit, with planning around trusts, timing, and jurisdiction. If labour and profit are not in the base, several classic avoidance games lose their payoff: the bucket leaks less, at the cost of shifting political heat onto prices and compliance on the GST ledger. The ambition is to turn the whole economy into something closer to a special economic zone for talent and reinvestment—while accepting that the visible consumption tax must carry more of the narrative burden.
Sustainability through the cycle
Income tax revenue is volatile: it collapses with employment and profits in a downturn. Consumption and core operating spend tend to fall more slowly—people still buy food, pay rent, and use power. A wedge on business inputs that does not disappear when accounting profit goes negative is, in that narrow sense, a stabiliser for the treasury—again traded off against pass-through and fairness debates in specific sectors.
How the trade-offs read in plain language
Against the current New Zealand system, 20/7 is best read as superior on growth incentives and administrative simplicity at the income-tax margin, but more exposed on inflation and supply-chain friction if pass-through is imperfectly understood. Against the Nordic benchmark, it is less aggressively redistributive on pre-transfer market income, but more aggressive about removing tax from the act of earning and reinvesting.
The reason the package sounds almost too tidy is historical: a century of policy discourse has equated "serious" tax with intrusive measurement of private lives and firm accounts. A model that funds the state chiefly by clipping velocity on invoices and trolleys is both intellectually coherent and politically unfamiliar—which is precisely why it has not been rolled out as a full national system before. Read charitably, it is the "Formula One" option in tax design: very high potential speed for effort and enterprise, with narrow margins on execution and politics.
The rest of this site walks through mechanics, sectors, risks, and implementation in the same analytical register. Start with the executive summary if you want the blueprint in one pass; use the conceptual guide for arithmetic and incentives in depth.