Specifically housing tax, and in cases where a wizard lives in a muggle community, do they have to maintain a muggle tax identity to avoid suspicion? If so, there must be some legal restrictions on making a house unplottable.

The Ministry of Magic seems to operate as an invisible hand. As far as I can remember there are no references to any sort of social welfare programmes throughout the books. The political divide seems to be located mostly on the social scale in HP. We don't get the impression that some purebloods are secretly supporting Voldemort to get lower taxes or whatever.

We see the aurors, the civil service, and St Mungos. The ministry has control over Hogwarts' curriculum and has the ability to exercise direct control over the hiring and firing of staff, but Hogwarts does seem to be mostly independent.

So, in your understanding of canon, and in your own headcanons, what services does the Ministry of Magic offer, what are their main tax revenues, and how widescale is tax avoidance/evasion? Presumably some privacy focused magical families are permanently on the lam.

 

A few relevant observations:

1. We know Ministry employees get paid and we know that more senior people get paid more.
   
2. We know all the departments of the Ministry via the building layout in London and there is no treasury department or tax department.
   
3. Thematically, the Ministry of Magic is intended as a magical analogue to (and parody of) contemporary western Muggle bureaucratic and democratic government.
   
4. However, one notable difference between Muggle and magical government is that each branch of the executive is responsible for enforcing its own domain (Arthur both writes legislation and handles enforcement such as raids) rather than there being a general enforcement body (I.e. a general police force).

The most simple conclusion would be that wizarding government has broadly equivalent taxation to the Muggle world. The only problem with that is the absence of any top level department to handle tax. But that could have a few solutions:

• There is a department of the treasury but it is in a different building to the rest of the Ministry. Perhaps a literal treasury.
  
• Tax collection is a sub-department of another department such as Law Enforcement.
  
• There is no single tax collection department but rather different taxes are handled by different departments according to subject matter and each department is responsible for collecting its taxes.

However other possibilities would include:

• The magical government is more integrated with the Muggle government than is generally depicted and the Muggle Treasury funds both Muggle and magical government. Conversion from Muggle to Wizarding currency then becomes a question, however.
  
• Wizarding society is low tax and rather than there being anything like income or corporation tax there are an array of excise duties, licence fees, etc. However it is difficult to square this with the Ministry being such a large employer as a proportion of the magical working population. A large Ministry needs a solid inflow of funds.
  
• The Ministry is funded by magical fuckery such as a literal golden goose in the basement.

 

The Ministry was unable to tax purebloods for the longest time before they implemented a tax on Gringotts itself, Gringotts furious at the overstep launched a Goblin rebellion which in the end was only settled by the open dialogue between the Minister at the time and the goblin leader, Petro the Fungible.

The agreement stated that the goblins would now charge a service fee annually to all Ancient and Noble Vaults over a certain size, the Ministry would collect a quarter of this fee every year and the Goblin nation the other 3/4.

The galleon at this point also became backed by the unique minting practices of Petro the Fungible which led to them be knowing as the petrodollar and were of course made fungible for the first time.

 

Through bureaucratic drift, the original "gold gathering" department, or the 'Au'cerors eventually grew so large that they are the other, smaller departments. And their responsibilities.

This is why there is only Azkaban as a prison. All crimes are punished with either a fine, or Azkabanishment.

 

I was thinking that Gringotts might have a direct role in taxation which could both cause tension with the Goblins and make them a useful political scapegoat.

I think that it's actually probably a mix of your last two points, with the golden goose being located in Gringotts instead. Why? Because Philosophers Stones exist, and the fixed exchange rate between galleons and pounds being 1G:£5/£10 implies that gold isn't particularly valuable in the wizarding world if galleons are pure gold. The currency has been debased without being debased, and the ministry can just print gold. I think this works with sales taxes and the like being the ministry's main source of revenue because witches and wizards have to spend very little money on non discretionary expenditures. Land is plentiful, and easily acquired legally or not from muggles. Construction charms are probably easy to learn, building supplies can be duplicated. Agricultural charms can set up self sustaining farms, and food can be multiplied and preserved if not created. Clothing can be infinitely repaired and maintained. Waste can be vanished - there are no magical bin men.

As such, there is little need for welfare spending in wizarding society, and defense spending is just the Hogwarts charter and bursary. The government maintains a huge bureaucracy so that the economy doesn't crash, and so that idle hands aren't put to the devil's work.

A properly educated wizard or witch only needs to spend money on knowledge, luxuries, magical artifcacts and ingredients, and anything that they are not willing or able to craft themselves.

 

There's a few possible explanations that make sense.

Proposition 1: The ministry exists, it pays salaries, it does stuff.

Ergo: There must be funding.

Proposition 2: The ministry is not self funding.

Ergo: The must be some form of tax revenue.

So one of the following must occur:

1. There's property tax.
2. There's sales tax
3. There's wealth tax.
4. There's income tax.
5. There's import taxes.

Observations:

1. The ministry doesn't have a tax office. If they did, Percy Weasley would undoubtedly have worked there for narrative reasons.
2. Gringotts is the only bank.


Conclusions / Proposals:

1. Wealth tax is unlikely to be the source of funding in a system overwhelmingly controlled by rich people obsessed by heritage and generational wealth. Lucius Malfoy is hardly likely to lobby for inheritance tax, or capital gains tax, or business tax rates as an example.

2. Import taxes are a viable option, and there is a foreign office who might own that, and Aurors to enforce it. There's also bans on stuff like flying carpets. This mechanism probably is in place, and probably does generate revenue, but it's an awfully small and insular society, so it seems unlikely to be the primary source.

2. Sales tax seems a safe bet to adopt. Appropriately regressive, screws the mudbloods, doesn't need a lot of tax bureaucracy to implement in an incredibly tiny society, just an Auror division to spot check vendors. Also easy to implement on any service the ministry controls; the floo, sporting events, licensing for pets, schooling, apparition licenses, etc. The ministry does have an outsized influence in the wizarding economy compared to most muggle nations by virtue of being the single biggest employer if nothing else.

3. Very high sales taxes on property would also be appealing; the Purebloods already have their manors, only poor people (and mudbloods new to the wizarding world, but what's the difference?) need to buy a place. That might explain why the Weasley's haphazardly upgrade their place instead of just moving I guess, stamp duty is maybe 20% of purchase price. But that's tenuous based on what we see.

4. If income tax does in fact exist, it's administered by Gringotts by treaty. The fill the role of old school tax collectors as seen in the Ottoman Empire, or Rome, or Norman England; they get to collect taxes by whatever means necessary, they're not a government employee, they get to take a substantial cut whilst doing so. The Goblins would be exceptional at this, as they know exactly what you earn, where the money is, what your expenses are. Of course they do, they're the only bank.

 

I agree with pretty much everything you say here, but there are a lot of questions around property. Do wizards need to go through the ministry to buy land, or can it be acquired directly from muggles? It seems like an area rife for abuse with the amount of spells concerning both mental manipulation and the hiding of land.

 

I think there's a few ways you could go with that.

Option 1: The ministry claims authority over places where magical people live, but don't care how they get the property. If you want to buy from a muggle? Fine. Want to buy from a magical? Fine. Want to scope out a tasty little plot owned by a muggle, make it unplottable, put up muggle repelling wards, live there? Fine. Once you're in and register the address for the floo, or for your job, or an owl can find you there, you get a visit from the ministry, they assign a property value, they charge any stamp duty payable, you pay your ongoing property taxes based on their inspection.

I doubt this is the case, due to the potential risks to the statute of secrecy. You'd have muggles who can't find their house, property tax bills being returned, house insurance for a property that doesn't exist, utility bills for a place that doesn't exist on the map, botched memory charms, etc, etc. A little suspicious if it happens too often, so you'd think it'd be regulated.

Option 2: The ministry controls all wizarding housing. They can buy from muggles, they can buy from magicals, they can 'obtain' muggle property however they like. They manage the statute of secrecy risk. You buy from them. Property taxes are assigned when you purchase.

Option 3: A hybrid approach. The ministry issues licenses allowing you to buy a place. They ensure no risk to the statute of secrecy, you interact with the current owner. The license sorts any memory modification needed after the fact, and you pay your stamp duty and get assigned your property tax in obtaining it. Buying from a magical is cheaper as there's less work needed from the ministry.

 

How plausible is having a source of gold and having new galleons minted all the time? I know that ought to lead to inflation, but the large wealthy families can act as sinks on the other side. They'll keep the free money down low.

Perhaps Magical Britain runs a deficit and pumps galleons everywhere.

Or you could have the wizarding economy be generally booming, with populations going up from new muggleborns turning up all the time and the old in equilibrium.

Having a galleon be nearly indestructible doesn't allow you to do arbitrage with gold.