Australian Tax Rates – Taxing the Economic Recovery
This week has seen further reference to the issues facing the current government as they face an up hill slog going into the election. Earlier in the week I referenced the budget deficit and now focus is shifting on where some “smash and grab” tax collections can be implemented to put a patch over the hole in the balance sheet. Enter ANZ bank and its $3bn profit – can Canberra find a way to grab some?
Australian Tax Rates effectively strips money out of the economy in one spot and re-deploys it elsewhere, with the hope that the money is put to good use for the greater good of society. There have been several discussions in the media this week that an extra dollar or two a day from people who are “rich” is not a lot to ask. It isn’t a lot to ask, when considered in isolation, but how about being on top of an assortment of other taxes?
For example, if you have private healthcare, why shouldn’t it get some form of tax treatment and benefit?
You are still paying to support the public health system through your taxes – a service you are never going to use, and in ADDITION, you are paying for private health cover too.
Shouldn’t you be rewarded for being less of a burden on the state, self funding your own health care, as well as subsidising the broader population and living up to the obligations of being part of a developed society?
If we tax business, it doesn’t have funds to reinvest – as such hires less people, who in turn pay less tax, which hits revenue for the ATO. Those people not hired spend less at the shops, resulting in less staff needed and so on. This is a relatively basic economics relationship called the multiplier effect. A dollar pumped into the productive system creates more than a dollar of value, hence the economy grows and this multiplies out.
However, a dollar stripped out may well have the equal and opposite effect ie more than a dollar is removed from the economy.
Pumping money into the non-productive areas ie welfare, does not have the same impact. It creates little more than dependency and entitlement – a dark path to go down.
Taxing super was this mornings chat I heard while sitting in the airport lounge (off to Malaysia today) punishes those who have saved hard and provisioned for their retirement in an effort to have a better life, in retirement and of course be less of a burden to the state.
Australian Tax Rates – ANZ Bank Profit
Encouraging people to invest for retirement keeps money in the market and our market needs it. Not just in terms of stocks, but also property, given the ability to now have property as part of super. Property and construction is at the grass roots of economic growth and needs support from super money to help kick things back into gear. ANZ bank profit of $3bn has also raised the eyebrows from those in need of a quick $12bn. The company will pay its taxes, and the coffers will get their share of it, but should it be taxed more? Is it fair it made so much money?
Why not ask the share holders – they voted with their money to hold the stock and not only have they been rewarded with strong gains from the stock – up more than 40% in the past 12 months, but will get the added bonus of a healthy dividend too. And rightly so – is it fair they get this – absolutely – they saved, they invested, they took the risks associated with holding shares and now they are rewarded.
If you have done this within super this dividend is fully franked – tax paid at 30% so you will get a franking credit (tax credit) – a nice bonus for you choosing to take control and manage your own financial future.
For many of our clients who loaded up on this trade – congratulations and enjoy the rewards – you earned them. For those watching from the sidelines, the party is not over yet – we have two more banks reporting this month – get in and fill your boots! If you’re not sure how to do this, we will show you for free – Click here to register. This is “endless summer” chasing the dividend calendar for maximum income and any client who has attended a boot camp with us, knows all about this strategy approach.
The other day, my article on the $12bn budget deficit prompted a lot of comments, which we had hoped for. Several comments to economics and economic theory, which can of course be very different. That said, we try to avoid theory and focus on real life, especially results. As for ANZ Bank and its $3bn in profits, I am very happy to hear it and more importantly that a slice of that has gone into the pockets of many of our clients – congratulations guys – markets reward action takers!!
If ten men go out for beer and pay their bill
the way we pay our Taxes
The story below is a great illustration of economic policy at best – enjoy – it is one of my favourites.
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100…
If they paid their bill the way we pay our taxes, it would go something like this…
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do..
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20″. Drinks for the ten men would now cost just $80.
The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share?
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.
And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).
Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.
“I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,”but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”
“That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.