Help Kochie talk some tax sense into the government

Bob Stewart says:

07:36am | 01/09/11

Scratch that. The carbon tax is based upon a scientific environmental fraud that is unraveling by the day

acotrel says:

07:55am | 01/09/11

I suggest that money paid into Empoloyee Share Ownership Programmes should be treated similarly to money paid into superannuation.  These schemes are an important motivating factor which bring both sides in industry, into accord with a common goal. They give workers a very important sense of ownership, and if coupled to a productivity gain sharing incentive could dramatically change our manufacturing industries for the better. It is a fundamental issue which should be addressed.

Big Jay says:

08:27am | 01/09/11

@Acotrel..Excellent point. Employee Share Ownership Schemes have been ignored by governments of all persuasions in Australia for too long!!  It’s a great opportunity, to provide worker motivation, and make for a vigorous entrepreneurial landscape, with more innovation, knowledge generation and the on-flowing job opportunities.

acotrel says:

09:12am | 01/09/11

@Big Jay
We desperately need a paradigm shift toward a more democratic and cooperative mindset if we are ever to become globally competitive.There is a power play involved with ESOPs.  In industry there is an ever present issue related to democracy, and control.  The union approach is ‘pay us the money and we’ll choose our own shares’.  The employers’ approach is often one related to basic insecurities of their managers.  The accountants don’t like ESOPs because they tend to empower other groups in businesses such as the engineers. The trouble is that without this common motivation the ideological divisiveness which exists in Canberra etc. extends to shop floor level in every Australian business.  Divisiveness even seems to be one party’s reason for existing, and the others react to it !  I’d point out that when Telstra privatised, there was a ‘loyalty share issue’ for employees.  Apparently every subsequent shareholders’ meeting has extened over three days mainly consisting of their managers answering ‘dorothy dixers’.  Many Telstra employees have sold their shares, which demonstrates something about their confidence in their own company ! Managers have to learn that cynicism doesn’t pay ?

acotrel says:

09:30am | 01/09/11

‘Managers have to learn that cynicism doesn’t pay ? ‘

And that includes union leaders too !

SJ says:

10:19am | 01/09/11

@acotrel
ESOPs have been recently reformed - see http://www.treasury.gov.au/contentitem.asp?ContentID=1559&NavID;=

Most of the focus of the review was on stopping high wealth execs gaming the system.

For average workers, most don’t pay tax on the first $1000 or so (can’t recall the exact figure) of shares/options they get, which is concessional (as they would usually count as a form of remuneration for tax purposes).

acotrel says:

10:33am | 01/09/11

@SJ
’ the Government’s 2009 Budget commitment to better target the concessions for employee share schemes and reduce the opportunities for tax avoidance.’

Paranoia that the wealthy in companies might exploit the system is hardly a positive approach to something which probably has great potential benefits ?

Adam Diver says:

09:56am | 01/09/11

I agree, raise GST and up the tax-free threshold on income tax to match. It would be a great incentive to work.

libertarian vegetarian says:

01:33pm | 01/09/11

No Thanks.  Most small business are charging the same prices as they would be exclusive of a GST, ie: the highest price the market will bear. Therefore any increase in GST will be simpy another cost to business.

Adam Diver says:

02:31pm | 01/09/11

@ veg,

As a small business owner I understand but the price of products generally depend on your competitor, not any price point. For example I used to buy paddle pops for 50 cents, now I am lucky if its under $2. I know thats is due to inflation, but its an example of how we will pay whatever price we have to.

As a business owner the trick is never include GST in your income, or even think about it as your income. Once you consolidate into your revenue the GST bill becomes very hard to pay.

libertarian vegetarian says:

03:16pm | 01/09/11

@Adam
There comes a point where people just won’t buy paddle pops.  Once something goes beyond the price the market is prepared to pay, unless it is an essential, people just don’t buy, or buy less. 
The reality is the business person is the one charged with convincing the customer to purchase the product at the price it is for sale for. The government is entitled to 10% of that price, regardless of whether you even make a profit on it. The customer doesn’t care who gets the money, they only care how much they pay. Increasing the GST will only make products harder to sell.
It would be fairer to remove all GST exemptions. 
Also pay business a commission for collecting the GST and PAYG.  The government is relying on business to SELL to the public so they can get their 10% cut. Business then has to bear the costs of calculating and remitting this 10%.  A commission would go a long way towards covering the cost to business and would certainly make you feel cheerier when customers complain about the price.

Jane2 says:

03:18pm | 01/09/11

The reason why the federal government does not want to increase teh GST is because all the money raised by teh GST goes straight to the states.

It makes no sense to increase a tax which they will get no benefit from.

Paul says:

11:09am | 02/09/11

Enkl, I wondwer if this is because so many collectors you find on the streets are actually “employees” of collection companies, who get paid a commission based on % of monies collected, the the companies take their share as “administrative” costs, which means the actual charity gets what is left.  If the general population actually donates $1, the collector gets their %, the company takes their %, the charity may be luck to get 30 cents of that $1, which fits in your sample above.  That is why I never donate to collectors, I send monies directly to the charities I support on an annual basis.

L. says:

08:48am | 01/09/11

“Majority of new roads are toll roads.”

Care to substantiate that..?

MadKat of Melbourne says:

09:51am | 01/09/11

Utopia Boy - “Superannuation - taxed going in, tax coming out. This has to stop” - self-funded retirees over 60 don’t pay tax on their pensions - reasonable benefit limits (RBLs) don’t exist anymore -

egg says:

01:04pm | 01/09/11

@utopia boy, umm, don’t know how much you understand the superannuation system, but there’s only one amount of tax taken, unless you withdraw before retirement.

if your contributions are taxed on the way in, there’s no tax on the way out.

n_dude says:

01:10pm | 01/09/11

The flat tax rate idea is a good one. I talso reduces the incentive for negative gearing by reducing the refund you get on your deductions. It also simplifies administration and encourages people to work harder and earn more. Would you propose removing the tax free threshold as well?

Utopia Boy says:

04:14pm | 01/09/11

Thanks for the feedback L., MadKat & egg,
Indeed I struggle with super rules and regs. Problem is how much the goal posts get moved!

acotrel says:

08:54am | 01/09/11

Kochie, the right wingers in politics complain long and hard a bout ‘dole bludgers’ but they never complaind aabout the whole breed of ‘money bludgers’ who hang off our retirees and pensioners.  There are thousands of Centrelink employees, financial advisers, tax agents all bleeding the system with trailing fees, and services which really achieve nothing.  A tax system which recogises income from any source including pensions as being taxable could be a good thing.  We wouldn’t need assets tests or experience any inhibition about working anywhere at any tiime.  The intrusion into our lives by morons such as those employed by Centrelink is a travesty !

MadKat of Melbourne says:

09:36am | 01/09/11

acotrel - if you tax pensions, especially those of self-funded retirees, you are double dipping. The funds have already been taxed going into superannuation - that is why they’re not taxed coming out -

acotrel says:

10:58am | 01/09/11

@MadKat
Sorry I wasn’t talking about allocated pensions paid by superfunds.  I mean the age pension which is paid by Centrelink.  Most self-funded retirees get a part pension, otherwise they have no health care card, and pay ten times the amount pensioners pay for their medication.  Centrelink then intrudes, and if you earn over $250 per fortnight, your payment gets cut.  That sort of thing shapes our judgement, and makes it less likely that we would even seek any form of paid part time work. I find answerring to Centrelink about my financial affairs a major impost, however the pittance I get from them, I need to live, and support my wife while she is away in Melbourne caring for her mother, in conjuction with her siblings.  There is no carer payment for that ! While Centrelink is involved the system is all bullshit.  They are a major negative influence.

Dissident says:

10:59am | 01/09/11

MadKat is right - you have to avoid double taxation at all costs because it is a massive disincentive to productivity.

Incidentally, that is why you must keep negative gearing. Otherwise you end up with people paying yet more tax on income from an asset acquired with post tax dollars without the commesurate deduction in the early years when the asset is not profitable.

Kochie, you do realise that negative gearing means the owner is making a loss? You know, renting the house out for less than it costs to hold it?

MadKat of Melbourne says:

01:44pm | 01/09/11

acotrel - but if you are working you only deserve a part pension or none at all depending on what you get paid - it is taxpayer money afterall. I don’t believe that they should stop having a cap on what you can earn while on the pension but I do believe that pensioners don’t get enough money in their pension payments to live on properly. Too much wasted money wasted in the welfare system is not being filtered into where its needed most -

Paul says:

11:21am | 02/09/11

Mahhrat, I agree re remove income tax and apply a spectrum based on what you purchase.  I was overseas working many years ago, where the local populationdid not pay an income tax, they paid a Goods tax based on what they could afford.  Sample is: buy staple items for basic food and lifestyle purposes, pay 10% tax on those products; purchase a plasma TV or other entertainment system, pay a hefty 45% tax…teh higher the item is levelled as a luxury, the higher the tax that is applied.

acotrel says:

08:41am | 01/09/11

@BarraBob
I believe that all people over retirement age should be paid a pension, then it should be simply treated as income, and taxed on that basis.  Then we could choose to work when and where we wish without Centelink getting paranoid, and imposing penalties which kill incentive.

marley says:

09:54am | 01/09/11

@acotrel - why should I get a pension?  I’m retired, I have a more than adequate income from a defined benefits pension scheme, super and investments.  I don’t need a pension, but you’re offering me one.  That’s just middle class welfare, and I don’t agree with it at all.  Leave welfare for those who do need it,.

MadKat of Melbourne says:

10:07am | 01/09/11

Acotrel - do you understand how much it would cost to pay ALL people of retirement age in Australia the pension? - ALL people would include those still working, self funded retirees and wealthy people who don’t need it - where is the money going to come from to pay for all this - the government is already worried about funding future pensions from tax revenue as it is

And if you intend to tax welfare benefits then you’ll have to increase the staff at the ATO (which would cost the tax payer) because this will create a whole new group of taxpayers -

My parents collect the old age pension - they don’t need to lodge tax forms with the ATO because its classed as welfare not income - this would create extra work for them when they should be enjoying their old age - and if you intend for theses tax lodgements for pension payments to be done by Centrelink then it moots you’re point of less Centrelink involvement in pension payments -

Though if you put this forward to Gillard she might take it up - its full of enough waste of taxpayers money and increasing the public service -

acotrel says:

11:04am | 01/09/11

@marley,
all it would mean to you is that your taxable income would be slightly increased, and you might move up into the next tax bracket.  For the rest of us it would remove the assets test which Centrelink applies, and the disincentive to find paid work?  Would that be all bad?

acotrel says:

11:14am | 01/09/11

@MadKat
‘My parents collect the old age pension - they don’t need to lodge tax forms with the ATO because its classed as welfare not income - this would create extra work for them when they should be enjoying their old age - and if you intend for theses tax lodgements for pension payments to be done by Centrelink then it moots you’re point of less Centrelink involvement in pension payments ‘

I’ve been asked by Centrelink if I keep a folder with all their correspondence.  I answered that if I wanted to do that, I’d get a full time job, and get paid for doing it !  The biggest stressor in my life is when I have the need to go and talk to those idiots.  They have little idea of empathy, and if you hand them documents, you must always check that you get the originals back.  If there is an issue, they always start in the middle and work to the ends, even if you are putting what you believe to be a sensible case.  If you believe that putting in a tax return is a problem, wait until you retire and those morons get involved in your life !

MadKat of Melbourne says:

11:26am | 01/09/11

acotrel - but why get rid of the asset tests - that would mean that people that shouldn’t be getting the pension have access to it - ??? The assets test is only applied where a person’s assets exceed the allowable limits for full pension. The assets test also only applies if it produces a lower rate of payment than the income test.

MadKat of Melbourne says:

11:39am | 01/09/11

acotrel - you have a beef with Centrelink and think that a whole system should be redesigned to revolve around you and that other people in the community should be put out just to please you. Two days of bitching about your personal problems with Centrelink acotrel - give it a rest - on one wants to hear them -

Tim says:

11:56am | 01/09/11

So it appears acotrel is a left winger until it comes to himself.
Then it’s give me money,money money.
Stop trying to waste taxpayers money on more unnecessary welfare.

acotrel says:

09:24am | 01/09/11

@Dash
‘Talk sense into this government? Good luck!’
We have more hope of talking sense to Gillard than Abbott.  The free market was introduced into Australia by the ALP, and most of our major infrastructure projects have been initiated by that party.  They have a more positive approach to the ‘big picture’ than the LNP which only serves one section of society.

Dash says:

10:07am | 01/09/11

acotrel, will the ALP address the concerns I have listed in my post? Koch ignores the PAYG taxpayer and wants to increase the dispartity between the corporate tax rate and the top marginal PAYG rate.

The ALP need to drop the carbon tax. The wealth redistribution tax policies of this lefty rabble need to go!

I notice you’re avoiding the Malaysian debate today Alan. Why’s that?

MadKat of Melbourne says:

10:21am | 01/09/11

The beginning of a free market started before the Hawke. During Fraser’s government the Campbell Committee has an inquiry into economic reforms in Australia - alot the findings of this committee were taken on by the Hawke government. The options market first opened in 1976. The Treasury Note tender system was introduced to replace the ‘tap’ system for the sale of these government securities. Price for these securities was now market determined for each issue. In 1980 the first cash management trust was established in Australia and interest rate ceilings on trading bank and savings bank deposits were dismantled from this time. In 1982 the Trade Practices Commission (TPC) granted interim authorisation for stock exchanges, previously exempt under anti-monopoly provisions of the Trade Practices Act 1974. So no acrotrel the free market was well on its way before the ALP came in -

acotrel says:

11:25am | 01/09/11

@MadKat
I suggest it was Gough Whitlam who first saw the advantages of getting involved with China ! Perhaps we should give him credit for the current excellent state of our economy?

Madkat of Melbourne says:

11:47am | 01/09/11

acotrel - I suggest you stick on topic when answering questions - relations with China come under trade - free market means markets free from government intervention. “Excellent economy” - I’ll just let you live in your dream world -

Tim says:

11:59am | 01/09/11

Dash,
I agree with your points but would the Libs address your issues either?
Very unlikely.
True reform I fear is an impossibility, as to get into power both sides of politics engage in far too much vote buying.

acotrel says:

09:56am | 01/09/11

I could like negative gearing a lot more if it was directed at the construction of new houses.  As it is it simply put the price of a family home out of reach of the kids coming along, and makes rents excessive.

Dissident says:

10:26am | 01/09/11

Everybody listen very carefully. If your landlord has a negatively geared property, then he is making a LOSS. Yes, a LOSS. That is what negative gearing is. The consequence of this is that your landlord is subsidising your rent. Your landlord is letting you live in the house for less than it costs to keep and maintain the house. If your home is negatively geared, THANK your landlord, don’t get upset at him.

The only way that you can equitably remove negative gearing on investment property would be to say that all income ever collected on said investment property is specifically tax-free. Why should somebody commit after tax dollars (that is what happens if you take out negative gearing) to an investment only to pay more tax on the income you derive? That is taxing you twice!

Aaaarrrhghaarhaghahhghagh! DON’T TOUCH NEGATIVE GEARING.

Tubesteak says:

11:22am | 01/09/11

You’re not taking much of a risk by investing in property. Especially in areas like Sydney with a chronic undersupply of property. Therefore, enabling you to negatively gear a property to reduce your income tax bill isn’t doing anyone any favours.

All you’re doing is crowding people out of the market by increasing demand which you’re able to do by leveraging your investments which only happens because you were in the right place at the right time (like the Baby Boomers who only had to pay about 3 times their average income for a place in Strathfield, whereas it is now more like 8-10 times average income for the same place).

You’re not adding to housing stock and are not investing in a productive asset. Essentially, residential property investment is one of the most inefficient forms of investment from the persepctive of social equality and nation building. That money would be better in the stockmarket enabling our companies to do more with more capital invested in them. More money for companies = more employment opportunities = better economy = more consumption = more money for companies and so forth.

If the investors were somewhat discouraged from the market by removing negative gearing then house prices would fall and more people would be able to afford a home.

Moreover, not so much money would be tied up in paying for a house and people would be able to increase their discretionary spending = more money for companies and thus the cycle continues.

This is not to suggest that our housing problems are solely the repsonsibility of investors, state governments have been woeful in funding and encouraging construction to increase supply for decades.

To negatively gear the family home would be pointless and imposible. What you’re suggesting is making mortgage payments (or like the US interest on mortgages) deductible. You’re paying $1 to receive the MTR back (maximum 45 cents). Not much use considering most people only have effective tax rates of less than 30%. Not very effective.

TL:DR….......

Dissident says:

12:36pm | 01/09/11

Tubesteak, you make some good points - negative gearing in residential property does push the price up. I don’t know whether the price would go down with the removal of the NG - most people will simply hold the house unless they are unable to keep paying the mortgage.

The issue is, however, that removing the NG results in double taxation - which I think we can mostly agree is a bad thing. Double taxation disincentivises a person from making an inteligent decision. Removing a legitimate investment option warps the market more than having deductability for a legitimate investment.

In the grand scheme of things, the benefits that owner occupiers have offset the benefits that the investors have. The advantage that a residential owner has over the investor is that at the time of sale, the investor has to pay capital gains tax (a tax on inflation!) whereas the residential owner gets to keep the lot. The investor may be able to pay more at the start because they can reduce holding costs, but they get to keep less at the end because they pay CGT.

Like I have said before, I would have no problem removing the deductability of expenses on investment properties, as long as you say that any income derived from said investment property is not assessable for income tax. Likewise, you should not have to pay CGT. That would put investors and residential buyers on equal footing.

As an aside, it is also nice to be able to put a comment on these pages without being called an idiot or Labor / Liberal Stooge.

Tim says:

01:35pm | 01/09/11

Dissident,
I think the main point is that we shouldn’t be encouraging people to invest in property that doesn’t increase the amount of housing stock available.
Property investment on old homes is inherently unproductive. It pushes up the prices of all housing, taking money out of the economy whilst adding very little.
As Koch states, perhaps we could limit NG to new properties and grandfather existing NG properties.
In the long term this should ease property prices, allowing more people to be able to purchase property and leaving more money in the economy for productive investment.
Housing is a neccesity and we shouldn’t be making it easier for people to engage in speculative property investment.

KH says:

01:53pm | 01/09/11

Dissident - I wouldn’t need a landlord if I could buy a property - but with most 1 bedroom flats going to ‘investors’ who abuse the tax system to pay for it and have pushed up prices as a consequence, I can’t even afford that any more.  Seriously - a crappy 1 bedder should not cost more than a quarter of a million dollars.  That is ridiculous.  Negative gearing only for new construction is fair enough.

Sam says:

02:04pm | 01/09/11

Houses are already affordable for the first home buyer who is willing to put in a little hard work.  Most people I have met that say they can’t afford a house think they should be living in Cettesloe or Subiaco on their secretary wage.

Glen M says:

02:05pm | 01/09/11

If negative gearing was removed from one sector of the market it simply distorts the market. Removing it may ease house prices , although my bet is on stagnation rather then reduction. But it would conversely increase rental costs. As mentioned by others negative gearing is the owner making a loss.  As tax rates are reduced the effectiveness of negative gearing is decreased as the deduction is reduced. Therefere if tax rates are reduced compenstated by say an increase in GST then negative gearing becomes far less desirable. Personally I would rather not invest in something that makes a loss.

Dissident says:

02:38pm | 01/09/11

Hey guys, I still disagree but like I said to Tubesteak before, your arguments have merit. I certainly appreciate that housing is expensive and that NG doesn’t help, but I don’t think that the housing affordability issue is caused mostly by NG. It certainly helps, but issues such as land availability, cost of construction, increasing and aging population (who all need somewhere to live) and a swathe of other issues are bigger deterrents to entry in the market than negative gearing. Also, the bigger profit on sale offsets the bigger entry price - so you end up in the same place.

When it comes down to it, I really just don’t like the idea of giving different tax treatment to investments when the fundamentals are the same. Nobody seems to have a problem with people purchasing shares with debt and then claiming a deduction for the interest expense. You can negative gear into shares. I am curious as to whether you guys think that should be banned too?

Anyone is entitled to a tax deduction (and potential negative gearing) as long as they have “expenses incurred as a result of producing assessable income”. Consequently, if you want to remove the expenses test, remove the assessable component and it stays balanced. You shouldn’t have to pay income tax on income obtained from an investment (property or otherwise) if you can’t claim a deduction for the expenses incurred on the very same property. Like I said, that results in double taxation which just ain’t cricket!

Think about this, too. The reason that the investor can pay more purchase price is because they will derive income from the property. Even without negative gearing, an investor can outbid a owner occupier.

If you have two people, each earning 100k, but only one who will have an extra 20k a year from rental income, then one of them is clearly better able to service any debt incurred on purchase, deduction or no. The only way you are going to stop investors from pricing owner occupiers out of the market is by stopping investors entering the market in the first place.

We should also be careful what we wish for. Investors just operate a zero-sum game. If they can’t claim deductions, they will simply jack up the rent.

Tubesteak says:

02:45pm | 01/09/11

Dissident and Glen H

We need to be careful around our terminology.

I am advocating the removal of negative gearing on passive investments. All passive investments (this would include loans to buy shares and residential/commercial property).

You are still allowed deductions but these deductions must be capped at the amount of income received. That is the “negative” part of “negative gearing”.

Right now we have the situation where a person can earn $20k in income from a property but have $30k in expenses. The $10k shortfall is the “negatively geared” portion and is used to offset the rest of the investor’s income. In my example, you would only be allowed to deduct $20k and would have to write off the remaining $10k.

Dissident says:

03:19pm | 01/09/11

Tubesteak, the reason that the NG is allowed is because in time the asset will be positively geared and produce net assessable income. It would be unfair to allow a person to be taxed on the income, but not reduce their tax for the loss on the same property.

Perhaps an acceptable variation on the Tubesteak plan would be to allow the person making the 10k loss to ‘bank’ the losses and offset them against gains made in the future?

I appreciate that the corporate finance people will talk about the time value of money and how 10k now is worth more than 10k in the future but this would at least nominally keep the ledger at a zero sum amount.

Of course, investors will be discouraged from building houses if you got rid of negative gearing because they will no longer have any benefit from depreciating the house during its early years (since the loss would go to the ether). At that point they will more likely buy an established home and result in fewer new homes being built.

Its a tightly woven little arrangment, negative gearing!

Jane2 says:

03:38pm | 01/09/11

@Dissident: Could you please explain why you think NG stops double taxing? If an investment, whether its shares or property or other, is sold for more than what you bought it for the increase is deemed to be profit so is taxed. It doesnt matter how you financed it. In terms of property you can have everything from 100% debt to no debt on the investment and all are taxed in the same way on teh sale but only those with heavy debt get the benefit of NG.

Where is this second taxing you are talking about?

Dissident says:

04:22pm | 01/09/11

No worries Jane. NG itself isn’t the thing that prevents double taxation - it is the deduction that leads to NG that prevents it. The issue is that most people are negatively geared when they first acquire an asset. If you know of an asset that an ordinary Joe can buy that is positively geared even with a floating variable rate, please let me know and I will buy a million of them!

Back to the case, I am entitled to claim a deduction for any interest expense. This deduction reduces my assessable income which, in turn, reduces the amount of tax that I have to pay. Essentially I get to pay for the interest out of pre-tax income. Negative gearing is just the consequence of the deductions exceeding the income. Some day the income will exceed the deductions and then I will need to pay tax on it - but I will still not be paying tax on the interest expense.

Capital invested in a property is not an expense, because it retains its value whereas the expense is gone. The interest is the only actual expense of the property. Any capital amount invested is able to be added to the cost base of the asset at sale so it isn’t really an expense. Say you bought a house today for 200k, sold it in five years for 500k - you only need to pay tax on the 300k gain. The 200k that you initially invested is not taxed.

The capital gain you are talking about at sale is another issue. CGT is essentially a tax on inflation (since you increase the cost base with any capital improvements) which is why it is such a bastard of a tax! Of course it was introduced for similar reasons to Fringe Benefits Tax - because employers would otherwise be able to pay you with assets rather than income which would mean that you were not paying tax at all.

That is the problem with taxation summits. The whole thing is so interwoven that pulling one thread can bugger the whole thing.

They would need to do a full tax overhaul (and I mean full - put everything on the table and think about how we want to pay tax) otherwise you create little inequities within the system that will be mercilessly exploited by those in the know.

thats what he said says:

10:10pm | 01/09/11

Why fund people making a loss?
Are you saying that CG alone are enough of an incentive to own an investment property?
Get out of the market then, simple.

thats what he said says:

10:15pm | 01/09/11

Since he KRudd in and little johnny out, he must be a hero!
Viva kochie!

Mollybendium says:

08:51pm | 02/09/11

Exactly
This whole forum charade is for his benefit.
The notion of community spots on a tax reform panel is a lame ploy by government to try to appear inclusive.
Tax reform is an important issue which should be legislated by competent professionals who understand how tax works and what the implications of changes in tax policy are - not by armchair pundits with a fraction of the picture supported by flimsy anecdotal evidence, like Koch and most of his viewers.
If I tell a surgeon how to perform an operation I’d be laughed at, and with good reason - why do people accept that anyone can have a stab at national tax policy?

Brett says:

11:47am | 01/09/11

My thoughts exactly. Didn’t the govenrment pay a group of “unbiased” experts (not sure how unbiased they were, but probably less so than lobby and interest groups) millions of dollars to come up with good ideas on tax, who then released a report with lost of recommendations to balance the system and the books?

Didn’t the government then throw out most of the ideas and cherry pick a few others, therefore wasting money and achieiving nothing at all?

So what is the point of another summit? Also what is the point of suggesting anything if a panel of experts, that the government themselves paid to consult on tax, couldn’t get them to change anything?

For the record, consumption or transaction taxes over income taxes might be a good idea. Welfare (unemployment) should be higher but time limited. I like your idea about savings income.

Also the biggest barrier to employers employing more people and encouraging growth is not tax but employment law, the “Fair” work Act. Fix this so its not just a union tool to rape companies, whilst not totally screwing over disadvataged workers, and we might be getting somewhere.

kate says:

03:09pm | 01/09/11

I know!  Perhaps an economist or group of economists who don’t have vested interest are better able to advise the govt.  Alas politics is the agenda, not national interest.

acotrel says:

10:06am | 01/09/11

@Bo
It has a name! - It is ‘tails we win, heads you lose’ !

Tim says:

01:01pm | 01/09/11

So you want to get taxed less that single people plus get government handouts for your family?
Yeah that sounds fair. /s

libertarian vegetarian says:

02:03pm | 01/09/11

@Tim
Yes, it is fair. Single income households aren’t sticking their hands out for thousands of dollars in childcare subsidies because one parent is staying home and looking after their own children, rather than expecting single peoples taxes to pay for thier child care. Income splitting would make it more feasible for people to look after their own children/elderly parents etc, therefore reducing the burden to the taxpayer.

Tim says:

02:21pm | 01/09/11

libertarian vegetarian,
you know what would also reduce the taxpayer burden?
Not giving the childcare subsidies in the first place.
I can’t believe your argument for getting this kind of subsidy is that it will substitute for getting another subsidy.

Tell you what - you campaign for a removal of this middle class welfare and then i’ll campaign for income splitting.
Deal?

PTom says:

09:47am | 01/09/11

Stu, FBT for cars has been changed.

PTom says:

09:55am | 01/09/11

Some past retirement still earn more then you think as they are on boards or ceo.

Actual the second part could be applied even on the first job if you tax hours ie between 10 and 45 a week average rate therefore if you work over that it would not matter how many jobs. And no need for overtime rates for business.

Geoff - Brisbane says:

01:30pm | 01/09/11

More support for the greedy boomers? These are the same boomers who forced house prices through the roof, out of reach of the younger generations.

The boomers also took their free government university education, turned around and slammed the door on x and y.

Now we have suggestions that boomers do not pay tax? What more can you greedy bloody people want? What a self centered, hypocritical generation.

Jane2 says:

04:26pm | 01/09/11

The idea behind no tax free threshold on 2nd and 3rd jobs is so you dont get a tax bill for not paying enough tax. I know it feels liek you are working for almost nothing but personally I would rather not get a bill, especially since the unpaid tax money would have already been spent

Nick says:

09:37am | 01/09/11

Surely the problem with quarantining losses is it adds an entry barrier for smaller investors who can’t afford to carry a loss so it would act as a wealth concentrating measure?  It would also make the tax system even more complicated, not less complicated.  There are stacks of silly rules that could be abolished - like not allowing a home loan to be repurposed as an investment loan.  The only beneficiaries of that rule are the banks.

Tax guy says:

10:33am | 01/09/11

Well personally I dont think negative gearing is the monster it is made out to be - but if we are talking about reducing it, rather than saying anything below zero is ‘lost’ a quarantine is fairer… a form of ‘carried forward losses’ if you like.
Could then also add the undeducted amounts to cost base for CGT if it is sold before it becomes positively geared.

That said.. I dont really think its necessary anyway.

Tubesteak says:

11:39am | 01/09/11

Rents will only rise according to what the market can absorb. Supply and demand theory from Microeconomics 101.

If landlords aren’t able to get enough rent to cover their expenses and deem the “asset” as not generating enough of a return then they will seel and leave the market. This increase in supply will lower price and possibly enable a lot more renters to become owners.

This is a better result for all concerned as detailed in my response to Nick above.

Glen M says:

02:12pm | 01/09/11

@ tubesteak.
In your scenario I suggest you get ready for a very long period of recession. The building industry is on its keens at the moment with very little investor movement in the purchasing of new properties or old properties. removing negative gearing or changing it would destroy any confidence in the market and ongoing investment opportunites would be considered risky with a government willing to make those changes. As i noted iin previous post reducin the tax rates and increasin ght egst would slowly reduce the effectiveness of negative gearing over time thus achieving your result without destroying the building industry.

Tax guy says:

02:24pm | 01/09/11

Tubey..

So landlords will sell at a cut price if they cant positively gear?
Doubtful.
More likely - reduce spending on maintenance aside from what is absolutely necessary.
Stop travelling to inspect so much.
Maybe find a cheaper real estate agent or self-manage.
Crank the rents up to as much as the market will absorb - and since all of them will be in the same boat, its hard to imagine any of them trying to undercut, except those who were already positively geared but then why would those guys not welcome a free kick in the form of universal rent increases by their negatively geared brethren?
Will people really go homeless than pay an etra 10% rent?
Then the negative guys would suck it up and hold for a price increase before they sell.

Your conclusions are based on too many assumptions and not enough evidence. Gearing was played with in the 80s - it resulted in almost immediate and near as damn universal rent increases, and no glut of property being sold at discount.

And besides… ‘negative gearing’ doesn’t just apply to houses. I can borrow to buy shares and if my dividend is less than my interest - I apply the blance of the interest against other income. I cant see the property people copping it sweet while share investors keep the ability to offset against other income.

Tim says:

02:28pm | 01/09/11

Glen M,
that’s why you would allow NG on new properties and grandfather existing NG property.
This would encourage growth in the new housing market while slowly lowering prices overall. It wouldn’t happen overnight as the grandfathered NG properties would slowly be sold off over many years.

Tubesteak says:

02:55pm | 01/09/11

Glen M
Reduced investment in property would not create a recession. There would be a period of uncertainty but not enough to push the economy into recession. This period would last only so long as it took for people to figure out the new price equilibrium. I think we could weather the storm.

Tax guy
Landlords will either weather it or get out as soon as it is announced. Most landlords aren’t very sophisticated investors. Legislation requires them to maintain their property to a liveable standard so no problem there. Inspections are done by RE Agents as part of the agreement. Yes, they may try to increase rents to absorb the difference and this would be expected. However, it will depend on how much renters are willing to absorb. If we have more in our pocket due to lower tax rates maybe we would be willing to pay a bit more. Maybe the property won’t intentionally be sold at a discount but if enough property goes onto the market this may cause a price reduction or another plateau in prices for a year or so.

As I said above, restrictions on negative gearing should be applied to all passive investments.

Nick says:

09:48am | 01/09/11

I see no harm in being taxed on additional wealth generated from post-tax money.  I hate paying too much of it but I think it is reasonable.

Enkl says:

10:22am | 01/09/11

@Tubesteak

I agree whole-heartedly with your point 3!

On consumption tax, I don’t want to make it broader. The exemptions make it progressive. The poor spend much of their income on things that are GST exempt, so the rich pay more GST, and in proportion with their consumption.

MadKat of Melbourne says:

10:31am | 01/09/11

Tubesteak - you’re making way too much sense - the government just won’t understand what you’re talking about -

Tubesteak says:

11:05am | 01/09/11

Nick
The problem with it is that it is counter to what the government want to achieve: self-funded retirees. The government cannot afford a pension for these people so they want them to fund their own retirement. No point discouraging that.

Enkl
If you raise the tax-free threshold to about $30k-40k and reduce the MTR then this will nullify the effects of broadening the GST base on poor people. They will have more cash in their pockets and won’t see much of a rise in goods (because companies won’t be paying as much tax, too, so it is not reasonable to assume prices will rise in accordance with GST increases).

Tubesteak says:

11:43am | 01/09/11

MadKat
I know. I said that in my first para.

It’s always my philosophy that I tell them what needs to happen (this mainly applies at work) then when they ignore me (often happens) and things explode (often happens) I can sit back and say “I told you so” (I always do) and then go in and fix it (like a boss).

Big Jay says:

12:04pm | 01/09/11

Again, tax on interests from savings should be a compromised position. I think interest under a certain threshold should be tax-free. I’d say about the $5k mark, that way a person could have up to around $100k in savings without paying tax on the interest, without giving someone who is already very rich (like $1mil in the bank) too much of a tax cut.

WD says:

12:21pm | 01/09/11

Absolutely Tubesteak - couldn’t agree more with all points raised. Specifically, 1 & 2 are key.

The amount of money / resources that could be saved by simplifying the tax system is astounding. Just think of the reduction in the burden to administer, not only from a tax agent perspective but from a govt audit / compliance point of view as well. We need to move away from this notion of primarily taxing people via income tax measures & instead move towards consumption based taxes i.e. you spend more, you pay more. Simple. If you earn lots of money & want to buy the expensive goods, then you will pay more tax on those goods. If you earn less, and want to buy cheaper goods, then you pay much less tax on those goods. Personally, I don’t see how anyone can argue that this is inequitable as the accountability lies entirely with the individual. On top of that, you remove the complex tax deductions that many claim via trusts etc. In short, You spend = You pay.

A consumption based system also reduces any disparity at a family income level e.g. single income families still consume at the family level but are taxed at the individual level. I don’t see how they should be penalised on this front.

If, as is inevitably the case, government is unwilling to forfeit the income tax approach, then at least make it some sort of flat tax system. Why not have a tax free threshold of 30k or even 40k. Above that, have a flat rate (maybe around 20%). Obviously, some sort of modelling would have to be done to determine the appropriate level. Then increase GST to 20% and apply it to everything. No concessions on what falls inside or outside the bounds of ‘Goods and Services’. Called it VAT, whatever, just apply it to everything…which would include the removal of the Luxury Car Tax etc.

When the government is taking almost half of every extra dollar you earn, then not only does it reduce the incentive to be a productive nation, it encourages people to be more ‘creative’ in the deductions they are claiming. Such creativity is born largely out of frustration at the way society is headed (speaking to point 3)...what is fair about slogging away 60hrs+ / week only for the govt to tear away half of your wage & promptly channel it to the folks (of both able body & mind) who sit there, motionlessly sucking from the teat of society.

Big Jay says:

01:14pm | 01/09/11

@WD…There is an argument that anyone working 60+ hours per week is taking away job opportunities from other people. Those motionless you refer too might get but be pulled into motion if companies recruited and trained more people, instead paying overtime. Same applies to people moonlighting and doing 2nd job etc.

WD says:

02:19pm | 01/09/11

@ Big Jay… But you’re assuming that 1) those people working the 60+ hour weeks are being paid for their overtime, and 2) that they are unskilled labour i.e. easily recruited (the current shortage of skilled workers shows this isn’t the case). From my own experience and that of the majority of my friends, I’d suggest that most people are in fact not paid any overtime at all as they are salaried employees. The argument then falls back upon the employer, ergo, why would they pay to employ an additional worker when the current workload is being met by a single salary…? It also overlooks the fact that people often work harder to get ahead long-term, as opposed to reaping the immediate benefit of their weekly paycheck.

As for the motionless, let me clarify… I refer to the willingly motionless. Those with any real desire to re-enter the workforce are displaying initiative by putting themselves out there or undertaking further skills-based training. Unfortunately, it is all too easy in this country to sit back & let others do the work. For my mind, it all comes back to a common thread of incentivisation. Let’s say the dole is worth $20k / yr, the reviews proposed above offer the incentive to get into the workforce & potentially take home $40k / yr without being taxed - and we’re only talking about a salary for very menial jobs at this point. Welfare should be a bare minimum or safety net to help people through tough times. Nothing more, and certainly not something that allows people to conclude that it’s easier / better for them to continue on without contributing to the society that keeps them.

Shane From Melbourne says:

11:26am | 01/09/11

Never happen- The government continually comes up with new ways to screw the singles and childless couples…..Let’s see Howard (Baby Bonus, Family Tax A and B), Rudd (Maternity Leave), Gillard (Carbon Tax). Can’t wait to see what Abbott comes up with.

FINK says:

10:35am | 01/09/11

“if there are major problems with the idea, I love to hear them.”
John,
“Us” the peasants would have definite control over our lives and our spending power based on our ability to earn as much as we can and distribute our wealth where we want to. This means the government loses control over us. Currently if you are on the top tax rate we work 2 days for OZ and 3 days for ourselves, add all the other taxes / levies and government fees we pay on a daily basis it actually works out more like 3 days for OZ and 2 days for ourselves.

John A Neve says:

10:45am | 01/09/11

Fink,
You are correct, tax today is more about control, than it is about revenues raising.
But we need to change the system, which is why Kochie should raise the issue of a FDT.

FINK says:

11:16am | 01/09/11

Sorry John,
I am in total agreement of 2% - 3% FDT. My response was to your “Major problems with it” , no problem with the concept but the acceptance of it by government will never happen due to the reason eluded to in my post.

The only negatives to FDT is the implementation of it by the Financial Institution’s, the compliance factors and re engineering of their systems would take quite a lot of analysis and re engineering and new build, which may be beyond the outsourced Indian IT companies capacity.
The only other issue I can see would be foreign transactions and how they are handled, I mean all the cash profits our mining companies send over to their HK based owners would be taxed as a transaction and we cannot in our collective good conscience have that can we!

John A Neve says:

11:49am | 01/09/11

Fink,
In answer to your question:  Why not.
Once in place, based on all I’ve read, heard or thought on, we’d all pay less tax on a % basis and that would include companies (those that don’t dodge the system that is).
The trouble with any taxation system, is those that don’t pay. The more people who contribute to tax, the less each one has to pay.

PTom says:

02:25pm | 01/09/11

I have seen this suggested this before at an even lower rate of .01% as it would still make billions. Majority of the people just don’t know how much Aussie dollar is trade on the FX markets btw it is not that hard to do it globally but locally only would be a nightmare.

This was even suggested in the US I think under Clinton to tax all transaction that occur within the US. One of major trading infrastructure companies and a number of large banks told them they would close up and pull out as it would not only tax transaction in the US but also transaction that occur everywhere else in the world that did not even use US currency too.

John A Neve says:

03:00pm | 01/09/11

PTom,
I cannot comment on the American situation. But ask yourself, why large corporations and banks oppose the idea?
The reason is they are able to dodge the existing system. A FDT would catch us all and cost us, as individuals less.

PTom says:

04:25pm | 01/09/11

John,
I did not say it was good or bad.
I only stating what I know of it and why it keeps get kicked. The other thing that is a cocerns is at which level do you tax.
The reason I say it is a night mare is because it will bit like a GST just more extreme.

International FX Trade Bank buys Billions in Baht form oversea + FDT
Company buys Baht from Bank to pay company oversea + FDT
Consumer buys Baht from Bank to travel in Thailand + FDT

Then the question is it charged on paying your bills, transfer money to pay people wages, personal transfer between savings accounts or counter purchase at the shop?

John A Neve says:

04:48pm | 01/09/11

Ptom,
My understanding of a FDT, is that a % would be paid on ALL financial debits. There would be no exemptions, as a result the % paid would be very small.

ago says:

08:01pm | 01/09/11

KISS,
keep it simple stupid

if us pleebs can handle a big change like gst, and learn to add 10% and divide by 11, than surely banks that earn billions could handle a small % on each transaction,
as for the global implication, transactions within australia are conducted in aus dollars and taxed, international transactions, are taxed into and out of the dollar

as for banks whinging about shutting up shop, let them, the market will soon fill the void, remember they need OUR money to work

ibast says:

11:42am | 01/09/11

HECS sucks for employable degrees.  It punishes those that want to get an education and favours the offspring of the rich.  The current scale system is backwards too.  You pay less HECS if you do an arts degree because you are less able to pay it off, whilst Engineers pay more.  It should be the other way round to encourage education where we need it.

At the moment you have to wonder why you would do an Engineering degree because of all those years of lost income and debt.  You never catch up to labourers from an income perspective.  The system is arse backwards.

Get rid of it altogether or only charge those who are doing a degree just for fun

Jane2 says:

04:44pm | 01/09/11

HESC/HELP is a wonderful thing. Its an interest free loan that you can take your whole life to pay off and its a fraction of the cost of the education.

Would you prefer the US system where you have to take out a normal loan for hundreds of thousands of dollars that attarcts 8% interest (if your lucky) and which you MUST start repaying within 5 years, regardless of income level, or your in default which compounds and the IRS can confiscate property to cover the debt but it cant be discharged by bankruptcy?

If it wasnt for HESC/HELP I, and many other people from low to middle income families, wouldnt have degrees and wouldnt be earning decent money know.

Leave HESC/HELP alone unless you want to go back to the days of old where only those from well to do families get an education in anything other than teaching or nursing.

PS: I paid off my HELP in just 5 years of working (and earning less than $70,000pa so nice but not huge) and because it comes from your income before you recieve it you dont notice it. Next pay I get a huge pay increase of $80pf as payrole has finally sorted it out. Its going to go straight into an investment account.

Ed says:

01:24pm | 01/09/11

PTom that doesn’t make sense. First I am pretty sure that politicians are paid a wage and therefore pay tax at individual rates. A trust cannot claim mortgage repayments as an expense and can only claim the proportion of car expenses relating to income earned by the trust. Trusts also have to distribute it’s income to beneficiaries who will pay their marginal rate of tax on the amount distributed. Any undistributed income is taxed at a flat rate of 46.%.

PTom says:

02:59pm | 01/09/11

Ed.
I actual believe politicians are paid a salary and that does not stop it form going directly into income of a family trust.

I did make one mistake that is Trust funds don’t pay tax on undistributed income or profit.
http://www.heraldsun.com.au/opinion/when-politicians-have-trust-issues-reform-is-too-taxing/story-fn5sqiu3-1226036535897

Houses and cars can be purchased by trust as investment assets just like business.

You can already claim part of your mortgage/rent as a expense for home office.

truthnotfaith mike says:

04:35pm | 01/09/11

So what you are saying Ed, is that there is no advantage to having trusts?! Therefore let us get rid of them and simplify the whole system while makingit more transparent.

Ricky says:

12:50pm | 01/09/11

remove ‘religion’ all together. Biggest fraud of all time!

B. Wildered says:

01:19pm | 01/09/11

it lines the governments coffers, nothing else, it is a rip off and always has been

stevem says:

01:50pm | 01/09/11

It introduces an disincentive to move house as thousands of dollars get lost when you do. This means that people who change jobs prefer to commute across the city rather than move closer to their new jobs, increasing traffic congestion and wasting time and money every day.

Kate says:

03:21pm | 01/09/11

Also removes the extra adminstrative costs of Family Benefit Payments.  Like the FTB part B, to which your family is entitled for this very reason.  I agree with you though… really I do.  We should value people who choose to raise thier own children rather than sticking them in daycare - tax incentives are the correct way of doing this.