Why your tax is about to be pushed into the spotlight

Mon, 23 Apr 2018  |  

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/tax-pushed-spotlight-012812764.html 

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Why your tax is about to be pushed into the spotlight

The budget is just a few weeks away. The Federal election is likely within a year.

Over this time, you will be hearing a lot more about tax. Some will claim the tax-take of the government in Australia is high and that cuts in company and personal income taxes are a necessary policy aim. Others will claim a decent amount of tax revenue is needed to fund the services the people demand from government, namely health care, education, roads, defence, pensions and the like. Closing loopholes and getting rid of unfair tax breaks, collecting more tax in other words, will allow billions of dollars to be directed from the wealthiest so that these services can be funded.

All this assumes, quite plainly, that responsible economic policy delivers budget surpluses when the economy is strong and allows for deficits when the economy is soft or downright weak.

But let’s have a look at a few of these claims on tax against some hard and fast facts.

Despite the surge in tax receipts under the current Turnbull government, which is on track to deliver one of the Top 10 taxing budgets in Australia’s history, Australia remains a low taxing country.

According to OECD data, Australia is one of the lowest taxing countries in the industrialised world with tax collection around 7 per cent below the OECD average. For context, 7 per cent of GDP is about $130 billion per annum in extra tax we would have to pay if we were to get the average and is about the same again from the top taxing countries. There is no economic or indeed social need to have lower tax rates.

One doesn’t have to be John Maynard Keynes, the parent of modern economics, to see that cutting taxes from an already low level yet still balancing a budget means that government services must also be reduced.  There is no other way of balancing a budget if tax revenue is cut.

This is, effectively, what the advocates of the company and income tax cuts are suggesting – lower spending on education, health, roads and the like, to find the money to give away in company and income tax cuts.

At one level, most people probably want to pay less tax, but are nonetheless willing to pay some tax if they can see the tax dollars being put to good use. Specific taxes such as the guns buy back levy, the tax hike on the top 3 per cent of income earners which was used to lower the budget deficit and the first instalment of the increase in the Medicare levy, to help fund the national disability insurance scheme, were uncontroversial. There was almost no objection to any those taxes because they were being put towards a good purpose.

On the other hand, one only has to recall the horror budget of 2014 where Treasurer Joe Hockey proposed extraordinary cuts to services as he endeavoured to balance the budget. This cost Joe and Prime Minister Tony Abbott their jobs as the electorate shied away from policies that reduce essential services.

The interesting thing is that a lot of the tax talk over the next few months will be decided by you, the voter, as you mull over the idea of paying a little less tax but having services cut, or having tax changes implemented that drive up revenue, collected mainly from the wealthy, that allows the government to fund a decent level of service provision for education, health and the like.

The choice will be yours.

 

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Why Australians have lost $300 Billion this year

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This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/3665708-004156966.html 

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Why Australians have lost $300 Billion this year

The total wealth of Australians has dropped by close to $300 billion since the start of 2018.

How much of that is yours?

The fall in house prices and now the slump in the stock market is undermining the wealth of Australian householders.

This is an important trend given the solid link between the change in wealth and household spending. Numerous studies show that when wealth increases, growth in household spending is faster than it would otherwise be. It appears that householders view their extra wealth in a manner that sees them lower their other savings or use that wealth as collateral for additional borrowing fund extra consumption. They may even ‘cash in’ their extra wealth and use those gains to fund additional spending.

When they observe falling wealth, experience weak wages growth and realise their savings rates are perilously low, they will adjust their spending – down.

Labor almost home, not quite hosed

Mon, 22 Oct 2018

The extraordinary vote in the Wentworth by election, with the 18 or 19 per cent swing against the Liberal Party, presents further evidence that the Morrison government is set to lose the next general election.

There is nothing particularly new in this with the major nation-wide polls showing the Liberal Party a hefty 6 to 10 points behind Labor.

The election is unlikely to be held before May 2019, which is a long 7 months away. A lot can happen in that time but for the Liberal Party to get competitive, but for this to happen there needs to be a run of extraordinary developments.

In the aftermath of the Wentworth by election, the betting markets saw Labor’s odds shorten.

While the odds vary from betting agency to betting agency, the best available odds at the time of writing was $1.25 for Labor and $4.00 for the Coalition.

If, as most now seem to suggest, Labor is ‘across the line’, $1.25 is a great 25 per cent, tax free return for 7 months ‘investment’. Yet, punters are not quite so sure and seem to be holding off the big bets just in case something out of the ordinary happens.

While some segments of the economy look quite good, at least on face value – note the unemployment rate and GDP – others that probably matter more to voters – husong, share prices, wages and other high-frewquency cost of living issues are all looking rather parlous. And none of these are likely to change soon.

There is an old saying for punters – odds on, look on. But $1.25 for Labor seem great value.