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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The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

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What's ahead for the Australian economy and markets in 2020

Thu, 02 Jan 2020

What's ahead for the Australian economy and markets in 2020

Happy New Year!

2020 will be a year where Australia’s annual GDP will exceed $2 trillion, our population will get very close to 26 million people and we will clock up 29 years with no recession.

It is also a year where the economy will be a dominant issue for policy makers, will drive what happens to interest rates, will help drive investment returns and will feed into the well-being of the Australian community. 

2020 kicks off with relatively good news in terms of economic growth, even though the labour market is likely to remain weak, with wages growth struggling to lift and inflation remaining below the RBA’s 2 to 3 per cent target. The Reserve Bank may have one more interest rate cut in its kit bag, but by year end, the market is likely to price in interest rate increases, albeit modestly.

The ASX, which had a great 2019 is set to be flatten out, in part driven by the change in the interest rate outlook, but it should get a boost from better news on housing and household spending.

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