The mining tax shortfall – Why you can spend money when you have it, but not when the cheque is in the post
This morning, I was taking a look at my Bloomberg screen, over breakfast, and noted the big kafuffle over the Mining Tax and lack of money coming into the Federal coffers from it. The original forecasts, of more than $2bn in receipts as recently as October last year. Really are quite disturbing. Particularly as only a month before, Iron ore and thermal coal prices had tumbled to three year lows. If commodity prices decline, so too does mining profits. And therefore taxes payable – where is the surprise here?
The mining tax shortfall
Yet spending plans and the budget continued to be based on the premise that the “cheque is in the post” – Don’t worry. The mining tax will cover it. But it hasn’t and as a result there is another $1.2bn shortfall.
So turning to how to remedy the “cheque in the post” syndrome and instead, deal with income up front. This is one of the benefits of the covered call strategies that we operate. You get paid up front, in the bank the next day – not a dollar short and not a day late. This, in today’s uncertain economic environment, is an extremely appealing feature of the strategy.
When you have the money in the door, up front, in the bank, you have certainty and can make plans on what to do with that money. Chip a bit off of your mortgage, perhaps? Add it to your growing deposit for your next investment property? Buy more shares, from which to sell calls over. And increase your cashflow. Enjoy a nice weekend away, put a deposit down for your children’s school fees – really the choice is yours – after all, you actually have the cash. This is a very different scenario from speculation.
When speculation is involved, there is massive uncertainty – it could pay off, but then again, it may not. As such, it is far harder to make plans, create budgets. And make the books balance. Therefore, more and more clients are shifting from “Red or Black” toward the consistency and more certain model of covered calls.
Where is the certainty in covered calls?
Well, if I have a 1000 ANZ shares, and sell a call option for 96c, $960 less brokerage will be in my account tomorrow – simple as that. Now I simply sit back and monitor the position. My work effectively done. Time decay should do its thing – the option either expire worthlessly – and I keep all of my premium and my 1000 ANZ shares. Alternatively, if the stock moves up. I may get exercised and be obliged to sell my shares, locking in a profit, plus I get to keep all of my premium. And hey, if the share price falls, I have other strategies, such as stock repair. To help me manage the position.
The key thing is I already have the income/cash and that gives me choices.
Now consider the certainty of having the cash in my bank account. And also choices of how I wish to manage the position, versus something more speculative – well I am sure you get the picture. So, let me ask you this, when it comes to your super, how would you like to manage it? With you in control and the cash up front, or perhaps instead. Waiting patiently by the letter box, hoping that the cheque may arrive today?
Being in control is the key – it brings with it peace of mind and unlike the mining tax, this strategy is actually working!
Join us for a live event on cashflow trading next week. Where I shall run through live. Exactly how our clients are getting paid, up front, cash in the door – and what’s more you can come as my guest – it’s free for you to attend.
