Thoughts on tax

The tax return

My 2008-09 tax return took ages to come back. What happened to it? An old fashioned IT screwup:

We know some people have experienced delays and frustration caused by our essential systems upgrade. Unfortunately, the size of the systems we deal with means they are incredibly complex. Also, given the importance of the tax and superannuation systems to Australia, we need to ensure the reliability of our processes.

Australian Taxation Office

Apparently an investigation has been started, though on the bright side, other than wondering why it was taking so long, it didn’t cause me any heartache.

Henry

The Henry Review and the government response were released on Sunday.

I had hopes there’d be some genuine, wide reform. Certainly Henry noted a lot of different options, some 138 recommendations in all.

With my PT hat on, the one I was watching most closely for was a rollback of the ridiculous fringe benefits tax on cars, which has a sliding scale which encourages people to drive further — and is costing taxpayers more than $2 billion per year. Henry recommended making it a flat 20% (compared to the current 7% to 26%). The government has been silent on this one though.

How about the idea of the optional tax return?

Tax returns would be made simple and effectively optional by giving everyone a automatic standard deduction for work expenses, freeing most employees from the need to prepare a return, ”instead allowing them to lodge a default return prepared by the tax office”.

Taxpayers who wanted to claim more ”would still have the option” of submitting receipts. Mr Swan said yesterday he was ”attracted to the idea” of making tax returns simpler and hinted he would announce changes soon.

The Age

Being a lazybones, I love that. I hope they do it. (Though actually I’d want to claim my donations.)

But overall, the government’s response seemed like a fizzer. Only about 10 of the 138 recommendations will be implemented — and they’ve specifically ruled out 18.

Sure, a few changes are being made, and the miners aren’t happy obviously about their new tax. (Can’t remember where I saw it, but one wag wondered how the miners might move operations offshore if it involved digging stuff out of the ground.)

But in terms of really making a difference, really simplifying the tax system, it’s ardly the kind of revolutionary reform we might have expected.

Well at least, not yet. We’ll see what happens after the election.

Working families

You can tell how much spin is going on from the number of times the tired old cliche of “working families” gets mentioned.

The count from Rudd’s interview on AM on Monday morning: 5 in an 8 minute interview.

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16 Replies to “Thoughts on tax”

  1. RE; “Working families”:
    I hate the Labor parties reliance on this phrase. If you happen to be in a “nonstandard” family situation (single, retired, unemployed, childless etc), especially if by circumstance rather than choice, it makes you feel very marginalised.
    Anyhoo, I love this clip from GNW of Jackie Loeb impersonating Julia Gillard.

  2. With regard optional tax returns, I’m surprised you favour that for yourself (despite “lazy bones”). I gather you are an IT contractor who also has a website that earns income. Therefore you would have lots of (genuine) IT tax deductions to claim, much more than the “standard deductions”.
    Whereas someone like me, who can’t even claim a hamburger when working back late, would benefit from not needing to submit a tax return.
    Or have I missed something??
    PS Rudd was prepared to take on the mining industry (<1% of the population) but not motorists!

  3. I noticed the ‘working families’ phrase has reappeared. It appears governments only govern for working families, whatever they may be.

  4. Why do you hate drivers Daniel? And why do you feel the need to nanny people out of doing so? I’m a full-time driver, mainly because it is preferable for me to do so, and my travelling needs aren’t served by PT, as I don’t work in the city! But you don’t see me pushing that everyone drives! I rarely use PT, but you don’t see me rubbishing it- in fact, I want to see improvements in PT as much as you do, as I know many people who use it, but not at the expense of roads!

    With regards to the tax review, that ain’t true tax reform! Robin Rudd’s effort at stealing from the mining companies smacks of socialism! And before you all hound me about it being for super funds, just consider this- mining stocks lost $9 billion in value since Sunday’s announcement, and seeing as it has been the most profitable industry in the last decade, don’t you think super funds would have investments in the mining sector? So instead of helping them, he’s probably buggered them up!

    Real tax reform would be lowering tax rates for all- even the implementation of a flat tax! For those of you who think lowering taxes lowers tax revenue, consider the Laffer Curve:
    http://en.wikipedia.org/wiki/Laffer_curve
    Art Laffer was one of Ronald Reagan’s economic advisors. When Reagan took office, the top marginal tax rate was 70%. Coming out of a disastrous economic period in the late 1970s, Reagan lowered the top marginal tax rate to 28%. This encouraged growth in the economy, as business owners and employers had more money to expand their businesses, and thus hire more people! So, not only were businesses taking in more revenue, and thus paying more in tax, there were more people employed, and thus more people paying tax! By the end of Reagan’s 8 years, income tax revenues in the US had doubled! Many critics will say it was a failure, as the national debt increased under Reagan, but that was primarily because of the massively increased spending in Defense that was required to rebuild the military after Carter gutted it, plus outspending the Soviets, which ultimately brought about their demise!

    And for those who say that tax cuts for the “rich” are unfair, consider that 10% of $1,000,000 is $100,000, 10% of $50,000 is $5,000- the millionaire is paying 2000% more at the same rate! Heaven forbid success should be punished! You don’t need to make up for tax cuts in one bracket by slugging the top end- general tax cuts result in invigorated economic growth, which in turn brings in an increased tax revenue base.

    Real tax reform would be what Art Laffer and Steve Moore spell out in their excellent book “The End of Prosperity”- a flat income and corporate tax rate of 13%, eliminating other taxes, and eliminating loopholes, would encourage massive investment! They even do the maths to show how it works! Check it out on Amazon- well worth the read!

  5. Andrew V: Nanny people out of driving? C’mon, the current FBT regime nannys people into driving, and driving as far as possible. That’s just stupid. And surely from an economic rationalist point of view, that’s just the sort of subsidy you’d want to get rid of, not encourage.

    I think I’d need convincing that it was massive spending on the US military that brought about the Soviets demise. From where I was sitting it appeared the bigger influence was communism collapsing in upon itself.

  6. The company car scam is costing taxpayers about $9 billion a year, not two billion. The guys who come up with that $2bn estimate…. have company cars.

  7. As for the mining companies, it might pay you to look at the short-selling figures this week.
    The mining company shares are not being sold by investors, they are being sold by racketeers who are interested in manipulating markets and intimidating the government and who activities are generally inimical to the interests of the actual investors who provide the risk capital for the resources industry.

  8. My point is that you seem to have a bias against people driving. We’re a free society. Shouldn’t our State Government provide the facilities so that individuals can choose how they want to travel? As I said, I want a good PT system so people have the choice to use it, and plus it takes the burden off the roads!

    True, communism fell on itself in the USSR, as redistributing wealth never creates it, and thus can never be sustained, but by increasing defense spending, Reagan forced the Soviets to keep up with him, which ultimately bankrupted them! They would have eventually collapsed, Reagan ensured that it happened much sooner!

  9. See the Henry Report recommended reducing the tax on bank interest by 40% which in my view is long overdue. However any action on this front will be ‘in coming months’ according to all media reports and not immediately and even then we are not sure by how much

    I have to say I’m sick of governments crapping on about the virtues of saving and how we are in too much debt … and then they thank us by taxing interest earned on savings at the top marginal rate! Dare I say there is little incentive to save under the current system …

  10. Andrew V, I think you’re taking it as a black and white position.

    My particular bias is against things like big subsidies for driving (and particularly FBT, given its perverse sliding scale), and inefficient driving (eg fuel-guzzling vehicles when they’re not needed, single-occupant vehicles en masse when mass transit should be able to do it better, etc). Remember that Melbourne has an abundance of road space (more per capita than most cities), and no viable PT option for many trips, so yes, people need the choice of how to travel, but at the moment they don’t have it.

    Andrew S, yes, as I noted, most of the Henry Report recommendations have been left unfulfilled, apart from a handful to be implemented, and another few completely ruled-out by KRudd.

  11. Re “My 2008-09 tax return took ages to come back”

    Working for the Tax Office and seeing the work involved in the implementation of the new systems it’s a surprise there have’nt been more problems. It’s a huge undertaking that and has been going on for some years, the current issues are because we moved Income Tax to the new system in January, we did Superannuation and FBT a year ago and will move over Business Activity Statements and GST next year. Seeing it all from the inside I can’t see how we could have replaced our 30 year old systems with less pain.

  12. Andrew V: Yes, yes, 10% of $10million is more than 10% of $10K – but those people earning the million plus salaries aren’t doing a hundred or more times the work of the poor plebs on the shop floor. Why shouldn’t the rich contribute a bit more to the society that provides them with their extraordinary income? Increased rates of tax don’t “punish” success – the millionaire is still getting an increased net income, despite the increased proportion of gross income that goes to the ATO.

    A flat tax just pushes more of the tax burden onto the middle class – do you think that average Australians/the general public/wage earners (seriously Rudd et al., can’t you use expressions such as these instead of “working families”?) should cough up more so that the rich can take an extra first class flight to their holiday apartment of choice every year?

    The rich have a greater capacity for paying a larger amount of tax because far less of their income is needed for subsistence (ie. rent, food and other basics of survival). Those at the lower end of the pay scales pay pretty much all of their net income on the necessities…and can’t dodge taxes as easily as the rich do. Trickle down economics is all well and good, but doesn’t work when the rich keep looking for better nets to catch the loose change en route to the hoi polloi.

  13. Craig, I hate to shock you, but I’m one of those middle-class “poor plebs”- I run a production line, and do much manual labour! Yet, I am an unashamedly abashed supply-side, capitalism loving conservative, and fiercely damn proud of it! I have absolutely no problem with people making obscene amounts of money! I may have an issue in the way they do so (ie. Reality TV garbage), but good luck to them! What you don’t seem to appreciate is that poor people don’t create jobs- business owners do! By keeping tax rates low, governments encourage business growth, as companies are more likely to expand as a result of retaining more money! Expanding businesses increase employment opportunities, which reduces the unemployment rate! This has a bonus effect of increasing the taxpayer base, which adds to the tax revenue. When you add to that the increased earnings due to the growth, you will take in greater tax revenue.

    That is why I said if you implement a flat tax, you eliminate all loopholes, so you can’t dodge taxes. Economics isn’t a zero-sum game- if one person gains money, someone else hasn’t lost it! Wealth is created by creating businesses and new opportunities. By the way Craig, if you think redistributive policies are so great, check out Greece right now! Those riots on the streets are a result of extreme socialist policies- generous government entitlements, retirements at 53 (yes, that’s right, 53), Public sector union liabilities, etc. High tax rates have created a tax-dodging industry in Greece, along with a lack of a significant industrial base there (you can’t survive on tourism and olive oil production alone), plus the entitlement culture there have put Greece in the position it is in! If you need an example of what is the better system, capitalism or socialism (redistribution of wealth), compare Australia and Greece!

  14. I was thinking that a mining tax isn’t such a bad idea. After all, pulling stuff out of the ground that is theoretically owned by all Australians and selling it offshore for individual gain doesn’t seem that fair. I am not suggesting that it is easy to pull it out of the ground, but once it has gone, it’s gone. Seems like the current scenario is ‘finders-keepers’.

  15. I think there is a lot 2b learned about people based on their capitalism v socialist attitude. Generally capitalism implies an attitude of selfishness and is, in my opinion, un-Australian. Now if we wish 2 create a country whereby the high rollers have everything and poverty grows exponentially then capitalism may be the means to that end. I am ashamed that anyone would advocate capitalism.

    As for a flat tax, well the country has already moved in that direction with GST has it not? I don’t think I would get much delight in seeing retail assistants and cleaners etc etc surrendering the same % of their pay as multi million dollar earning CEOs and the like who can afford to subsidise the poorer. I have always believed this country has pride itself to providing a quality of life even for the poor.

    As for the resource tax comments; has any1 even researched the proposal? Or just jumping the gun based on their political preference &/or misunderstandings? Given that the proposed tax will only target highly profitable businesses and grant rebates for exploration it will effectively help reduce the monopoly in the resources sector and increase competition. Now is it a surprise that the two largest most profitable resource companies object to this tax? Surprise indeed. NOT! If this tax can take from the existing duopoly, increase competition which is ultimately better for the company & fund super increases & much needed infrastructure development around the company then I say go for it.

    As to the decrease of the company tax rate to 13% I don’t see how any change in company tax rates will have a material effect on tax revenue collected. Due to the imputation system, company profits are effectively taxed at marginal tax rates anyway it is merely a timing issue as company retained earnings are eventually paid out in dividends. In addition, if company tax paid was only 13%, then shareholders would be left with a larger tax liability in the year they receive dividends due to the reduced imputation credit. The shareholders would demand larger dividends as their after tax return on investment has diminished. The larger dividend will decrease the timing benefit the company would receive from the reduced tax rate.

    Lastly I don’t think any comparison to Greece is valid and is merely trickery to bolster your argument by suggesting we will end up bankrupt like Greece should we not regress to a capitalist country. Garbage.

  16. I’ll wander in again – though may be talking to an empty room now (helloooo, anyone there?)…

    Didn’t suggest you were weren’t a “poor pleb” Andrew, just that I don’t agree with your argument about higher taxes for the rich being unfair. I do have a with people making obscene amounts of money (it’s called “obscene” for a reason) – it’s usually at the general populations expense. I don’t think CEOs are worth a hundred times one of their shop floor workers (which is what our economic system is saying by paying them so much more). Capitalism can contribute to the improved living standards of everyone, but taken to extremes it results in a small lucky few living it up on the backs of a majority slave class. The gulf between the rich and the lower income has stretched in the last ten years. A good, fair tax system should reducing that gulf and distribute some of the “obscene” wealth of the few back to those who helped provide that extreme wealth.

    Likewise with the super PROFITS tax. There are a couple of companies making bucket loads of money selling the finite resources that all Australians possess. We should all get a share of that profit.

    I’d call myself a conservative. I think far right “capitalist lovers” such as yourself are too extremist to be conservatives. From wordnet – “conservatism: a political or theological orientation advocating the preservation of the best in society and opposing radical changes”. Capitalism doesn’t advocate the best in society, but the highest gain for a small portion of society (and these are not necessarily the “best” of us), with the off chance that some benefits may trickle down to the rest of us. If it keeps going the way it is, our society WILL change radically, with some living a third world lifestyle. Our economic system at the moment is weighted too far in favour of the rich.

    And if you’re going to bring in the non-sequitur of Greece, are you really suggesting flat taxes with the rich paying no more than the poor are going to prevent anything like that happening? Americans and many others have suffered and are suffering from the global meltdown – I don’t think you can blame recent problems in general on socialist policies! In fact, weren’t they generally to do with the greed of the obscenely rich trying to get obscenely richer?

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