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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Don’t look now – you are almost certainly poorer than a year ago

I am sorry to kick off the new year with some gloomy news of your finances.

It is never nice to discuss how much money you have lost, but if you are a home owner in Sydney, Melbourne, Perth or Darwin and if you have a superannuation nest egg, the odds are you are less wealthy today than you were a year or two ago.

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The Australian stock market, where the bulk of your superannuation assets are likely to be invested, has slumped 11 per cent since August, reducing the value of stocks by around $200 billion.  No doubt your superannuation has suffered part of this loss.

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Falling dollar reflects global concern all is not well in the Australian economy

Mon, 07 Jan 2019

The article first appeared on The Guardian website at this link: https://www.theguardian.com/business/2019/jan/03/falling-dollar-reflects-global-concern-all-is-not-well-in-the-australian-economy 

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Falling dollar reflects global concern all is not well in the Australian economy

The Australian dollar was hit hard overnight, Australian time, slumping below 70 US cents before a sharp and more extreme move saw it temporarily crash to a low of 67.40 US cents. It subsequently recovered marginally, but remains weak at around 69.40 US cents.

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In January 2018, the Australian dollar was trading at 81.50 US cents.

There is increasing concern from global investors that all is not well with the Australian economy. Policy is in a do-nothing phase. Entrenched low wages growth is hampering growth in household spending. This is being complemented, in a negative way, by a sharp fall in wealth as house prices drop and the share market weakens, both of which will be a negative for the economy during 2019. This is because householders are simply not getting the income growth nor wealth accumulation needed to allow them to keep spending at a rate that will see the economy expand at a pace that will generate upside wage and inflation momentum. Strategies aimed at reducing debt and paring back new borrowings mean, by definition, weaker economic growth over the near term.