Although not entirely obvious at first glance, this is a tax on consumption. Here's a simple explanation, taken from the clunkily titled Australia's Future Tax

Although not entirely obvious at first glance, this is a tax on consumption. Here's a simple explanation, taken from the clunkily titled Australia's Future Tax System Review: http://i.imgur.com/ocRMR0n.png http://i.imgur.com/ocRMR0n.png. Consumption taxes that don't create high administrative burdens for businesses (CFTs are arguably less burdensome than VATs), are a very efficient way to raise tax revenue. However, I do take issue with this part of the article, where they're talking in the context of wages being deductible under a CFT (so that only labour value-add is taxed): "Taxing wages is the thing that makes VATs regressive, hitting poor consumers the hardest." This is not entirely correct. Although taxes on gross labour might shift production towards higher capital intensity, I don't think VAT's actually tax the gross labour component of production (though I'm not 100% certain here). Value-added taxes, and consumption taxes in general (including CFTs), are regressive because they are levied at a flat rate and people on lower incomes usually cannot defer consumption: many have no choice but to immediately spend ~100% of their income as soon as they receive it. The inability to defer consumption also reduces scope to consume in an 'inter-temporally efficient' manner (e.g. volume discounts), further compounding the regressive effect. And although I have no real data to back this up (not that I've looked), I'd imagine the poor spend a larger proportion of their lifetime income domestically compared to the rich. I'll stop here. I'm not trying to say CFTs or consumption taxes are bad (in fact, I think they're good if done properly). But people should be aware that any consumption tax introduction must also be accompanied by upwards adjustments of low-income transfer payments and reduced low-income earner tax burden elsewhere in the system (and this should be part of the public discussion). Otherwise it will shift a larger amount of the overall tax burden on to the poor. EDIT: Giving it a bit more thought, this might be a good 'thin end of the wedge' to build towards 'basic-income/negative income tax'. And handing out some unconditional lump sum to every citizen also helps with some of the equity concerns.