The big scary labyrinth at the heart of the tax system

Shelly says:

07:22am | 30/08/11

I had a real thing for David Bowie when this movie came out. I watched it again several years ago and was overwhelmed by a feeling of ewww, he’s a creepy old dude trying to get it on with the kid.  *Shudder*

Markus says:

09:19am | 30/08/11

Made even more creepy by him being the Goblin King - instead of being a mid-30s creep, he is a millenia-old one!

I had a huge crush on Jennifer Connelly growing up because of that movie.
Still do.

egg says:

05:02pm | 30/08/11

@carz, right on! i blame watching this movie at the age of 8 for my men-in-makeup fetish.

acotrel says:

08:18am | 30/08/11

We have a pretty disgusting taxation systenm which discourages saving. Our parliament cannot even get the law related to superannuation right.  Most retirees are in the age group where they have aged parents who are likely to die and leave them money.  Lump sums which are paid into super are handled in a very strange way.  Under age 60, there is a cap on contributions which can be exceeded by ‘bringing a year forward’.  If you exceed the cap and you are over age 60, you stand to cop a 43% tax slug.  I really wonder which party placed the cap, and why ?  Was it simply paranoia about the wealthy investing their money and getting richer?  Also I understand that a lot of the public servants in Canberra have been doing salary sacrifice, exceeeding the cap, and getting themselves shafted.  I always believed that super was about saving, and investing money for the future of Australia?  If our politicians cannot get something as simple as this right, there’s not much hope for any of us !  I wonder what restrictions apply to the politicians super schemes? ‘Disingenuous’ - could that word be describe our government’‘s approach to super?

dovif says:

08:32am | 30/08/11

Are you mimicking Acrotrel,

For once, I agrees with everything you said.

The changes to the Superannuation law was draconian, to penalise people for a simple mistake of putting in the wrong amount and taxing them at 40% is pure revenue raising. On the one hand the government want us to save for retirement, or the otherhand, the government wants to grab as much money as possible.

It is time the government figure out what they want to do. And if it means fewer bribes to the electorate, it is time for the government to cut back

Tim says:

09:35am | 30/08/11

acotrel,
if someone stuffs up their own Super then it’s their fault. The rules about what you can put in are very clear.
I do however believe that they could make it simpler so that people could save more into their super when younger.
Obviously what the government doesn’t want is oldies near retirement age pumping everything into Super and not having to pay tax on it (only 15%) but we still need to make it easier for people to plan to be able to look after themselves in retirement.

MadKat of Melbourne says:

10:31am | 30/08/11

acotrel - its called the “bring forward rule” and you have to be under 65. It allows you to bring forward up to two years of non-concessional contributions. If you exceed your super cap at any age you get slugged with extra tax, not only when you exceed your cap over the age of 60.

acotrel says:

11:10am | 30/08/11

@Tim
‘Obviously what the government doesn’t want is oldies near retirement age pumping everything into Super and not having to pay tax on it (only 15%) but we still need to make it easier for people to plan to be able to look after themselves in retirement’

Serious question Tim - what do you mean?  If someone is under retiring age, and pays an inheritance into super, I can understand them copping the 15% tax.  If they hold off until they retire, after age 65, the cap applies.  If you pay money into your regular super, then later pay more into a bank superannuation account, there are no checks and balances to ensure you don’t exceed the cap.  But I cannot see how anyone could work a dodge? A short time ago the cap was $1 million. Now it’s $150,000 per year.  Sounds like bullshit to me !
Surely if someone had a lot of money before they retired there would be better ways to handle it?  Considering that you need a super containing $800,000 to live decently in retirement, the $1,000,000 cap doesn’t seem unreasonable?  If a person owned 5 houses, and sold one off per year, the money would end up in the stock market through the super fund.  I thought that was what super is supposed to be about? So are you saying the lower cap is all only about the govt. being paranoid about not getting the 15% tax?

MadKat of Melbourne says:

12:03pm | 30/08/11

acotrel - couple of questions I don’t get in your explanation and some points:
- what is a bank super account as opposed to a regular super account
- I don’t understand what you’re talking about with caps - caps apply under the age of 65 as well?
- why is $1 million cap on super balances not unreasonable when there are plenty of super balances exceeding $1 million
- the $150,000 contributions includes those for which you do not claim an income tax deduction (i.e. after tax super contributions and do not received concessional tax treatment)

You need to study up on which super contributions receive which tax treatment - otherwise your argument doesn’t make sense -

Tim says:

12:56pm | 30/08/11

acotrel,
the concessional cap is to stop people earning massive amounts of money, putting all their cash into super and not paying their full marginal tax rate.
The non-concessional cap is the same. Because tax on super earnings is only 15%, it is preferable to put all your cash in there so you do not have to pay full marginal rates on earnings.
This makes it harder for people to save for their own retirement but the government still wants you paying tax if you have the means.

acotrel says:

10:45pm | 30/08/11

@MadKat
DEspit what Tim has said, the rules about super contributions are not clear, and they’ve cxhanged with the government.  I believe that it was the ALP who reduced the cap on the contributions you may pai in any one year without copping contributions tax of 43 %.  But I wouldn’t be sure.  It seems likely, because the ALP people are more likely to believe that $1 million is a lot of money. The fact is that under the new rules, if you receive a lump sum prior to age 65, you can pay up to 0,000 in one year, and bring a couple of years forward.  So the total you can pay into your fund is $450,000.  Any more than that you cop the excess contributions tax.  If you are over age 65, there is a fixed cap of $150,000 annd you cannot bring a year forward.  The superannuation bank account is provided bt the Commonwealth Bank for short term deposit.  If you pay money into it, the ATO is immediately notified, as are payments into your regular super, which you would normally do through a financial adviser.  The banks are a law unto themselve, and have no obligation to advise you when you pay money into such an account, as your adviser would.  Its easy to exceed the cap and cop the very nasty tax , if you inherit or win money in a lottery! And it happens when you are over 60, that’s when most of us stand to inherit !  I can understand you lack of information if you are still working.  I know I never took an interest in the laws about super etc. until I met the bastards at Centrelink when I was trying to get a health care card,so I could get my medication at a reasonable price.
Anyway it’s all bullshit.  I’ve had 3 strokes, and a double bypass op, and I’m just happy to be alive.  The ATO and Centrelink can go stuff themselves. If I have to I’ll simply go and find another way to make money, and retain my independence from that bunch of idiots, who our politicians cultivate. I have only one word of advice for when you retire , it is -  never let Centrelink affect your financial decisions !

MadKat of Melbourne says:

09:28am | 31/08/11

acrotrel - you said “I can understand you lack of information if you are still working.  I know I never took an interest in the laws about super etc.” - why is it that when you blog you always make assumptions about people as you have with me many times - I’ve worked in financial planning for 10 years so I think I understand the rules better than you - that’s why I’m asking you to clarify what you’re blogging because you aren’t making any sense - my father is very, very ill (two heart bypasses and half a lung removed because of cancer) and is on an old age pension and doesn’t have the problems that you are having - maybe you don’t understand the system -

All this rant about paying money into a super fund and not being told by the bank if you exceed the cap and paying an inheritance in a super account - that’s want financial advisers are for - if you don’t use the people that know what they’re doing and you try and do it yourself and get into trouble then you can’t blame anyone else -

Rick says:

05:09pm | 30/08/11

What ever it takes to keep that loser Abbott out of the top job!

Craig says:

10:17am | 30/08/11

Agree totally Big Jay.  I still don’t understand why the government is paying people to raise their own children.  This is always a private expense for parents in my mind.  Public infrastructure and services are suffering through lack of funds because of the amount of middle class welfare being paid.

Shane From Melbourne says:

11:40am | 30/08/11

Damn straight. Welfare should be for pensions, the disabled and the unemployed and no one else. Even then there should be major restrictions upon it to prevent rorting (the national pastime of Australians) Trusts should be taxed. The GST should be abolished and a financial debits tax placed upon all financial bank transactions. Crack down on transfer pricing and a 50% tax on any financial transfers to countries designated tax havens

Lisa H. says:

08:17pm | 30/08/11

I agree, Big Jay. I loathe that as a mother, I am expected to fill in forms and claim money through Centrelink. I resent the implication that I have oodles of time to waste on bureaucracy, and I also loathe handing over all my privacy just to get paid a few of my dollars.
Just give me tax relief, jerks.

dovif says:

12:37pm | 30/08/11

pot kettle do you know what you are talking about?

Wanna know how many times I’ve had to tell Joe Client that all the money they’ve spent on their discretionary trust through the year is not a claimable expense because at the time of the expense they were not presently entitled to a distribution? Lots.

A discretionary trust can claim a deduction, if it has incurred expense in relation to earning income. So as long as the trust has income, or it is likely to receive income and the expense is incurred to gain that, it is deductible.

Whether you get a distribution, does not affect the discretionary trust from claiming a deduction

Pot-Kettle says:

02:44pm | 30/08/11

I said “Joe Client” - as in an individual. A beneficiary. Not the trust.

I suggest you re-read your discretionary trust textbooks again. No beneficiary has a present entitlement to trust distrubutions from a discretionary trust until after the trust has done a distribution.
T-h-e-r-e-f-o-r-e… if JOE has expenses relating to the trust.. and the trust has not given a distribution yet (distributions are done *after* trust expenses are paid).. JOE cannot say his expenses relate to his income. At the time HE incurred those expenses, he has no entitlement to trust income, and even if the trust makes a zillion dollar profit - until it does a distribution, none of it is his - therefore *his* expenses do not relate to *his* income when he incurred them.

Tax 101. I dont normally give free lessons. Next one will cost you a bottle of Johnny Black.

dovif says:

04:20pm | 30/08/11

Pot-Kettle

Sorry under 8-1 of the ITAA 1997, A taxpayer can deduct from assessable income or loss or outgoing to the extent that;
It is incurred in gaining or producing assessable income.

Note the term “gaining”, ie income dose not have to be derived already, it only need income to be earned and assessable in the future.

Therefore there only needed to be a nexus with the expense incurred and the gaining of assessable income and the timing of the expense does not matter.

It is the nexus that actually matter, if you buys trading stock, you have not gain any income yet, because there is no sale, however you brought trading stock to make a sale, therefore it is an allowable deduction under 8-1

It does not matter if you have not got a distribution from a discretionary trust at that time of the expense. As long as you can link the expense to the income it is deductible. Since Distribution income is passive, there are very few deduction you are able to claim to begin with.

Maybe you need to return a few Johnny black

Facepalm says:

05:12pm | 30/08/11

dovif… From one tax professional to an idiot - you best quit while you’re not ahead.

Try reading s6-5 and tell me where it says an individual is assessed on income held in a discretionary trust pre-distribution so that 8-1 can apply.. ah forget it. You obviously have no idea and yet that doesn’t seem to stop you loudly proclaiming your ignorance in public.

Do you often go out with your underwear on top of your pants as well?

dovif says:

06:53pm | 30/08/11

Face palm

s6-5 deal with income,s8-1 deals with deduction

if you are looking at deduction under s6-5 you will need to face palm your self

s8-1 does not prevent a deduction, under your scenario, maybe you need to speak with the ATO

facepalm says:

08:58pm | 30/08/11

As I said… continuing to display public ignorance.

you cant apply 8-1 against assessable income until you have assessable income under 6-5 to apply it against.
..thats highschool stuff.

St. Michael says:

11:28am | 30/08/11

You forgot the cricket gets started up around November or so.

Although I’ve thought of a good protest chant for the modern Australian idiot:
“What do we want?”
“Another drink!”
“When do we want it?”
“Now!”

Mahhrat says:

01:47pm | 30/08/11

St Michael, do you still watch the cricket?

I suppose the Big Bash is good fun.  Went to the TAS/NSW final last year.  Watched David Warner smash a ball right out of Bellerive Oval.  Damn he can hit a ball hard for a little fella.

Ben C says:

01:57pm | 30/08/11

@ Mahhrat

Warner just swings and hopes. If you watch slow motion replays of him taking a big swing, his eyes are closed and even if they were open the ball is nowhere in his line of sight.

John A Neve says:

10:10am | 30/08/11

Direct,
I agree in part, but to tax all financial transactions would be double dipping. Better to only tax withdrawals, that way there is an incentive for
people to leave as much in their bank as possible.
But there must be no exemptions, the tax would have to be on ALL
withdrawal/debit transactions.
Simple and cost effective.

SJ says:

10:12am | 30/08/11

That’s called GST and every business in the country collects it.

FINK says:

10:31am | 30/08/11

Direct,
Exactly and by doing this no need for the ATO, the Tax Return and its crooked auditors, If thjis was the case then 100% of Aussies would be compliant and 50% of Aussie taxpayers wouldn’t be criminals! How many of you claim that $300 tax deduction without real genuine receipts or having brought anything as a legitimate deduction. Even Tax accountants automatically claim if for you! Criminals all of you!

John A Neve says:

12:14pm | 30/08/11

SJ,
The GST (Good & Services Tax), is as the name implys on goods & services. It has nothing to do with banks or financial institutions as such.

SJ says:

10:16am | 30/08/11

Holding the tax forum will cost us $900k according to the Budget papers. I agree that the Government should just pick up Henry’s recommendations and map out a plan to implement them, rather than having a 2 day talk fest. The only thing that will be achieved is Rob Oakshott ticking one of his demands off the list he gave to Gillard.

truthnotfaith mike says:

12:58pm | 30/08/11

i am pensioner last 10 yrs, now at 50 due to health genetically screwing me, but every one of my kids has gone to or still at university, all 6. Your generalisation and perpetuation of propoganda is unhelpful. Obviously through your loose generalisation without any supporting evidence indicates to me you did not?! and if you did, maybe justa pass? hmm? see what it like to make subjective judgements about people.

Art says:

06:24pm | 30/08/11

Well done Mike, but I must say that you and your family would be very much the exception than the rule.  And it is only going to get harder to achieve what you have done in the future as the costs of raising children, educating them and sending them to university inevitably rises.  In future people who have large families and who do so on welfare will inevitably be locking themselves into a cycle of poverty, unless of course they can be identified as a disadvantage minority, in which case they will be showered with all the help in the world.

Art says:

08:35am | 01/09/11

Mike, The other thing that must be said is that Australia now has a new class of citizen.  One from the developing world, whose first lesson when they get to Australia is that they are taught to navigate the Australian welfare system to get all the benefits they can.  And of course the one benefit these people like most of all is the baby bonus.  Where as the typical Australian thinks that you should only have the number children that you can afford, these people for some reason think differently.  They think it is normal to be raising children almost entirely at the expense of the welfare state.  I suspect a big part of the reason is that these people often have no skills that are recognized, they struggle with the language and can’t do anything else so they sit down on welfare to produce a mini version of their home country.  Why is this a problem?  Who pays for their education, who pays for their university education.  Essentially we are allowing our idealistic policies to create an ethnic underclass that will require significant and expensive policies for our future generations correct.  We already have one ethnic underclass that should be our main focus, we should not be creating another.

Max, of Rocky says:

10:53am | 30/08/11

Agree, Greece is a good example.

Shane From Melbourne says:

12:18pm | 30/08/11

But where would the Government get the money to bailout the a$$holes on Wall Street and the Bondholders (always the first in line)? Where would the Government get the money to pay the defence contractors that are always sucking at the government tit? The United States is on the verge of collapse due to capitalist free lunches.

Max, of Rocky says:

10:51am | 30/08/11

Good jobs going in heaps of mines in sunny QLD, pay heaps more.

Change is as good as a holiday 8-)

Tubesteak says:

02:34pm | 30/08/11

I’m starting to like that idea.

My uneducated unskilled unqualified barely-literate 24yo cousin managed to get a job in a mine in the Hunter Valley and he earns 6 figures from it.

I’ve got more letters after my name than in my name and am paid not much more than him.

I backed the wrong horse!

PW says:

01:45pm | 30/08/11

Matt, its not surprising you are all for middle class welfare since you are a beneficiary of it. Your landlord, assuming he in fact has a mortgage on the home you live in, no doubt is all for negative gearing too. Otherwise he or she is paying serious tax on the rent you pay.

I bet you can afford to buy a house. Probably just not in the area you would want.

Matt says:

03:09pm | 30/08/11

@PW, you imply that if I owned a rental property and benefited from negative gearing that I’d be all for that (like my landlord). Not the case, we’re not all greedy. And I’m not saying my specific landlord is, but the bulk of them are. I don’t believe their should be profiteering from residential property, it’s not an investment, it’s a necessity, like water and food. I guess the way this plays out in the long term is that you have about 20% of the population owning 100% of the residential property, then maybe there will be a voting body to get rid of negative gearing (which no one else has).

It’s not about the ‘area’, it’s about the city. I’m in Perth, I can’t afford a house in Perth that would allow me to get to my work with less than 2 hours travel each way. I could move 45 minutes south (by train), even that would require a >$300k mortgage, which I don’t consider affordable, and owning 17% of a house isn’t really owning it.

Tator says:

06:42pm | 30/08/11

Matt,
there is nothing stopping you buying a house, negatively gearing it until you have sufficient paid off for you to live in it and use the tax system to your advantage by reinvesting the returns into the mortgage during the first few years to knock a bucketload off of the principal.  The reason that residential property has the negative gearing facility is that it is an “income” producing investment and is treated the same way as all income producing investments such as shares and businesses where nominated costs involved in earning that income are all tax deductible.

Cate P says:

12:11pm | 30/08/11

So if you had say four children and a dependent wife, you would pay $66,000 per year in tax.  If you had seven children you would pay $99,000.  A retired couple would pay $22,000.  A single parent of one would pay $22,000.  A widowed or divorced person with three children would be up for $44,000, so would James Packer.  Julia Gillard would pay $11,000, so would the single personal care assistant in a rented flat.  Your idea might need a bit of work.

Max, of Rocky says:

12:22pm | 30/08/11

Far simpler and easier to dump income tax completely and put GST up to cover personal income tax. 

Save heaps on ATO employees and computer systems.

Everybody pays, you earn more,  spend more, pay more, only exemption unprocessed food.

Even those with handouts pay.  Could not be fairer.

St. Michael says:

01:06pm | 30/08/11

@ CateP:”

“So if you had say four children and a dependent wife, you would pay $66,000 per year in tax.  If you had seven children you would pay $99,000.”

So either earn sufficient income to pay the tax, or learn to use a condom.  We have enough complaints about overpopulation in Australia and the impost that families have on the welfare system.

“A retired couple would pay $22,000.”

Plan ahead for it while you’re still working.

“A single parent of one would pay $22,000.  A widowed or divorced person with three children would be up for $44,000…”

(a) Plan who you marry better.  (b) You’re assuming the widowed or divorced person has no family or other people to assist them with the load.

“...so would James Packer.  Julia Gillard would pay $11,000, so would the single personal care assistant in a rented flat.”

Now we come to the class warfare bit.  To which the answer is: James Packer already indirectly pays the head taxes of thousands of people—his employees.  There is no earthly reason why he should pay more money than anyone else for the privilege of living in Australia, and many reasons to suggest he should pay less.

Julia Gillard is a politician.  So what? Why should a politician pay more for the fact of existing in Australia?

“Your idea might need a bit of work.”

I fail to see any arguments other than “won’t somebody think of the children” against it here.  Come on, think a bit.

Tim says:

01:44pm | 30/08/11

St Michael,
what are you going to do with all the deadshits who can’t pay?
Do you know how much it costs to look after someone in prison? far more than you are going to earn off the tax receipts.
If you’re willing to go to the final solution then your idea might work but otherwise it would fail on a simple cost-benefit argument.

PW says:

01:53pm | 30/08/11

@ StMichael Let me guess, you pay a LOT more than $11k now and would be better off under such a system.

This rivals Pauline Hanson’s 2% tax scheme for out-of-this-worldness.

N says:

01:56pm | 30/08/11

@St Michael - you’re mad. Where does the $11k figure come from? Does it grow as the population base grows? Does it decrease if the population does likewise? Do the unemployed pay, if so, how? What if I earn 12k - do I then live on $20 a week? Does a six month old child pay tax on par with a 45-year-old man?

What you’re suggesting doesn’t work and could not be made to work - what you think is imposing an equal tax on all people, is in fact imposing a varying rate of taxation depending on circumstance. $11k is 50% of a $22k income, but only 5% of a $220k income. To suggest people simply earn more is laughable. Haha. See.

A flat dollar value is unrealistic, a flat percentage rate, administered by an increase to the GST, is a very realistic solution.

St. Michael says:

01:59pm | 30/08/11

“St Michael,
what are you going to do with all the deadshits who can’t pay?
Do you know how much it costs to look after someone in prison? far more than you are going to earn off the tax receipts.
If you’re willing to go to the final solution then your idea might work but otherwise it would fail on a simple cost-benefit argument.”

I think they’d actually be a tiny minority.  Rational economics (see “The Logic of Life” on this) actually predicts it: crime actually drops when the perceived cost of the crime is high, i.e. prison.  If you imposed prison as a punishment, enough people would fall on the side of paying the tax than not.  Also, as I said, I’m also talking Child Support Agency-strength legislation to recover the funds: they can go in, garnish your wage, garnish your earnings to obtain the tax.  It doesn’t have to be imprisonment in every or even a majority of cases.

I’ve yet to see anyone with a convincing cost-benefit analysis against it—particularly when you consider the drastically reduced size of the ATO and freeing up of resources for enforcement and pursuit that result from compressing every Federal tax down to one.

St. Michael says:

02:10pm | 30/08/11

@N: “St Michael - you’re mad.”

Are you a psychiatrist? No? Then try and stay on the facts, not the ad hominem.

“Where does the $11k figure come from?”

Simple arithmetic.  267 billion divided by 22.6 million people.

“Does it grow as the population base grows?”

Assuming no stupid government overspending, it actually decreases.  More population with the same government spend means there are more people to take the load.  If you hit 26.7 million people and you’re still taking 267 billion in tax, that’s 10,000 for each person.

“Does it decrease if the population does likewise?”

If the population decreases, so does the necessary spending.  Fewer people, less money required to maintain the welfare state.  So, gradually, yes.

“Do the unemployed pay, if so, how?”

Get a job.  Failing that, try your family.  Failing that, try charity.  Failing that, look to the hardship provisions I mentioned in the post if you bothered to read them.

“What if I earn 12k - do I then live on $20 a week?”

Try not to earn 12k.  Or have a closer relationship with your spouse or your family.  Not the government’s problem.  In any event, charity agencies like to bleat we already have people living on $20 a week, so I don’t see how there’d be any change there.

“Does a six month old child pay tax on par with a 45-year-old man?”

Like I said: head tax.  You are trying to import a moral code to taxation, which doesn’t exist under our current system in any event.  Do you really think the gradated tax rates exist because of a lefty view that the rich should pay more? Wrong: the rates are at absolute tolerance levels, i.e. the ATO knows what rates can be imposed without causing tax default or evasion.

In any event, theoretically a six month old child is going to consume more community resources (immunisation, dedicated children’s hospitals, etc) than a 45 year old man, so it’s still justified.  But in any event: you live here, you pay.

St. Michael says:

02:13pm | 30/08/11

@ PW: “Let me guess, you pay a LOT more than $11k now and would be better off under such a system.

This rivals Pauline Hanson’s 2% tax scheme for out-of-this-worldness.”

If you’re going to make ad hominem insinuations, I could just as easily guess that you pay comparatively little tax as against most of the country’s population and this system would require you to pay more.

As for Pauline Hanson’s scheme: not at all.  2% tax won’t pay anywhere near the amount required to run the country.  My head tax is calculated simply by the Fed. government’s own tax intake (267 billion last year, by their own numbers) divided by the population of Australia.  Why, do you think the Fed. government doesn’t need all the money we give it?

Debbie says:

02:17pm | 30/08/11

As an idea this rates as one of the stupidest ... sounds very much like someone who wants all the benefits of living in a civilised society but doesn’t want to pay the membership fees .... and also your theory on crime and punishment has been proven time and time again to be wrong. Next !

Andrew says:

02:21pm | 30/08/11

It is not workable. Minimum wage should be tax free and then a flat 30 % rate after that, people can afford to live and we can eliminate a lot of other taxes.

St. Michael says:

02:45pm | 30/08/11

@ Andrew: “It is not workable. Minimum wage should be tax free and then a flat 30 % rate after that, people can afford to live and we can eliminate a lot of other taxes.”

Yours also isn’t workable.  If anything it would drive wages down at the bottom end.

Assuming a PAYG system of 30% that the employer is responsible for (as they are), there is no incentive whatsoever to seek (or give) a wage rise past minimum wage, since after that point one third of your wages are grabbed by the government.  And that’s before you get into income-splitting shenanigans.  You would basically be reproducing the cash economy in another sphere.

St. Michael says:

02:50pm | 30/08/11

“As an idea this rates as one of the stupidest ... sounds very much like someone who wants all the benefits of living in a civilised society but doesn’t want to pay the membership fees .... and also your theory on crime and punishment has been proven time and time again to be wrong. Next!”

Actually, rational economics proves the theorem on crime and punishment right.  You’ve cited no sources that say otherwise.  Like I said, and unlike yourself in giving no sources for your high-handed dismissal of the idea, rational economists have done the studies: if you raise punishment levels, crime rates overall tend to drop because criminals are as capable as anybody of making rational decisions and weighing up consequence to benefit.  Yet again, read “The Logic of Life” on this subject.  What you can’t predict is which types of crime drop in frequency.

And a head tax *is* nothing short of the ultimate membership fee: if you live in Australia, you pay the tax.  Don’t want to pay the tax, don’t live here.  Simple as that, and fair across the board.  Maybe you should have another go at your silly dismissals.

Andrew says:

03:01pm | 30/08/11

Assuming a PAYG system of 30% that the employer is responsible for (as they are), there is no incentive whatsoever to seek (or give) a wage rise past minimum wage, since after that point one third of your wages are grabbed by the government.  And that’s before you get into income-splitting shenanigans.  You would basically be reproducing the cash economy in another sphere.

That is so different as to now?

Debbie says:

03:02pm | 30/08/11

St Tony   The USA generally has much harsher sentences for most crimes compared to Australia .. yet has a higher crime rate .. your theory doesn’t hold water sorry.

St. Michael says:

03:30pm | 30/08/11

@ Debbie: show me the numbers and then tell me I’m wrong.  I’ve cited my sources.  You cite yours.

@ Andrew: yes, it is.  Minimum Wage is presently $589.90 per week (per Fair Work Australia: http://www.fairwork.gov.au/pay/national-minimum-wage/pages/default.aspx ).  That is a wage of $30,674.80 per year, of which $24,000-odd is taxable at a rate of 15% (per the ATO: http://www.ato.gov.au/individuals/content.aspx?doc=/content/12333.htm).

You are proposing to impose no tax on anyone earning less than $30,000 per year and then double the tax load presently borne on anyone earning $30,001.  That is not an incentive to pay higher than minimum wage.

Shane From Melbourne says:

03:34pm | 30/08/11

@St Michael- I like this idea a lot. I don’t think it could be implemented politically. The breeders would raise a furious howl that they are having to face the consequences and responsibility of having a child.

St. Michael says:

04:31pm | 30/08/11

@ Shane from Melbourne: Oh, I don’t doubt it would never be implemented.  Thatcher already tried a poll tax on and it was one of the reasons she got kicked from office.

But it does remain (a) the fairest way of taxing a population; and (b) were it implemented, people would give more than a passing crap about how their governments spend their money.

Andrew says:

04:41pm | 30/08/11

Doesn’t the employer pay the income tax on behalf of the employee, I fail to understand your point.
Did the henry report not advocate for increasing the tax free threshold?

St. Michael says:

05:42pm | 30/08/11

@ Andrew: did he advocate doubling the tax load for anyone earning above minimum wage, mate?

As for employers: PAYG responsibility is an administrative cost to business.  Business employs best when it has as low a set of costs to employ someone as reasonable possible.

Why can’t people be responsible for their own taxes? If they have sufficient brains to hold down a job, why don’t they make their own arrangements with the ATO?

The short answer being: because the ATO wants to assure it gets the money in more reliably, and it knows employers are more reliable than their staff.  What I’m proposing is far simpler: if you live in Australia, you have the responsibility for paying one Federal tax, whether you pay it off over 12 months or in one hit.  The government doesn’t mind brutalising deadbeat dads’ bank accounts, it shouldn’t have a problem doing the same to head tax evaders.

Lisa H. says:

09:20pm | 30/08/11

St Michael, your idea, has made me smile, because of the simplicity and ingenuity of it.
I also love the idea of shifting tax transfers out into the open, no longer employers’ reponsibility!
Shifting tax (and arguably super) transfers into the hands of the workers would make for a far more politically and socially aware society.
Of course, in the real world, politicians looking to minimise the visibility of tax would prefer a situation where employers make the payments.
There is the problem of a privacy-invading bureaucratic army which might be required to follow up on all the individuals who do not pay up?
But I guess if ‘deadbeat dads’ don’t have issues with privacy, and all the Centrelink mums on family payments don’t have issues with privacy, neither do the few of us who remain?
Your ‘head tax’ might help reverse the trend where low income and relatively unproductive people have the most kids… large families could become a status symbol! 

Brad says:

10:24pm | 30/08/11

St Michael, after everyone figures out how to use a condom, and the population plummets, and the head tax rises accordingly, what then?  As the population ages and the retired people who, according to you, should have thought ahead cannot pay the tax, what then?  You will end up with a country with no workforce, not enough prisons to lock everyone up (and no staff to man them), negative GDP etc etc.  I can’t believe I actually took the time to respond to such a ridiculous idea - it’s been a boring night….

St. Michael says:

10:30pm | 30/08/11

@ Lisa H.: in terms of the bureaucratic machinery required, looking at how the CSA works might well be a good idea (I haven’t.).  We also have the perfect database for counting heads: DIMIA and the Registry of Births, Deaths and Marriages.

And fortunately for this proposal most people in Australia have a tax file number, which as most would recall has a condition of “Give us your TFN when you start a new job.  If you don’t, we’ll just tax you at the top rate anyway, so you might as well give us the number.”  Similar conditions could apply under a head tax situation.  I don’t anticipate a lot of flatfoots running around trying to tackle deadbeat head tax payers to the ground, virtually all commerce is electronic these days.  Centrelink can be garnished quite easily, given most of the Federal databases (unlike the 80s) talk to one another now—ATO crossmatching of tax file numbers is how a lot of welfare cheats actually get caught these days.

St. Michael says:

11:50am | 31/08/11

@ Brad: the only reason it sounds stupid to you is because you’ve been too stupid to think it through.

If you have a lower population, the political and public pressure to lower the tax spending accordingly will be immense.  Less people means less welfare spend.

On the *other* hand, the head tax will also encourage foreign investment and immigration, mostly because we would be pretty well the only country on the planet to offer the condition that you keep every cent you make as the result of the sweat of your own labours.

It will *also* encourage small business creation and job creation because of the freeing up of upwards of 30% of revenue in the economy.  This is a virtuous cycle to beat all virtuous cycles.  You just don’t see it because you only comprehend the welfare half of the economy, which is understandable, but no less blinkered.

Your way does not work either.  Australia’s workforce is declining and they’ve already signalled that the pension age will be raised to 67.  Pensioners whinge they can’t survive on the pension anyway.  I’m not proposing to make their situation any worse.  If anything it’ll bring families closer into large units again if only for economic reasons.

My way works better and it’s a hell of a lot fairer.

Lisa H. says:

05:25pm | 31/08/11

Don’t worry Anna C., lots of families also feel like you.

It is true that many (apparently one in four?) families do not pay net tax - apart from GST, one would assume ,

However, there are very many families where government support, or even government respect, is non-existent.

Traditional families where mum helps support a hard-working Dad in a highly demanding job (ie stay-at-home Mum) get royally shafted.

Family tax benefit is laughable; we apparently don’t share income (‘split income) in families…Dad pays tax like a single man, and we stay-at-home mothering types aren’t meant to even exist any more.

Well, actually we run our own business, so I get to have my cake and eat it too.. But my point is valid…stay -at-home mums ARE working mums!!

St. Michael says:

05:44pm | 30/08/11

Maybe to you.  To people who try and work a bit harder, who pay their way in their lives, it’s not quite so unfair.  In a way what I’m proposing is the ultimate socialist equation: everyone is treated equally by the tax system.

And calling the proposition ridiculous doesn’t make it so, regardless of how many times you do it.  Find a better argument than name-calling.

St. Michael says:

05:51pm | 30/08/11

P.S. according to minimum wage, the lowest paid in Australia are earning $30,000 per annum.  $11,000 K is 30% of their income, which ain’t that much different from what most people earning a wage are paying now in accumulated and passed-on taxes.

Debbie says:

06:22pm | 30/08/11

I didn’t indulge in name calling ... please read my words as they are written.

St. Michael says:

10:10pm | 30/08/11

No, you just call it “ridiculous in the extreme” several times instead of trying to fight the proposition on the facts or logic, not to mention the sneering tone.  Wow, what a difference between that and calling the proposer a name.  In either case that would amount to intellectually dishonest debating tactics, if you prefer that moniker instead.

You don’t come up with any statistics, you don’t come up with any expert who says it won’t work, and you don’t come up with any logical reasons against it.  So as far as I’m concerned there isn’t much difference between that and ad hominem attacks.

Not to mention that you’ve ignored the repetition part, which I find interesting.

St. Michael says:

10:16pm | 30/08/11

P.S.  On review of your responses, I see you addressed me as “St Tony” in one post.  Presumably that is identifying me with Tony Abbott.  As I assume it wasn’t intended as a complimentary reference, that seems to be name-calling in my book.

St. Michael says:

10:18pm | 30/08/11

The ABS records $267 billion (not 297 billion, I assume that’s a typo) in total Federal tax revenues for the financial year of 2009-2010.  It wavers up and down between 265 and 285 billion when you look back over the past 10 years or so.  It’s pretty straightforward to Google it.

St. Michael says:

12:02pm | 31/08/11

Yeah, the problem being the lattermost line.  The history of government and currencies from Constantine down is compelling: over 2,000 years, there has not been a period in human history when a government hasn’t given in to the temptation to print too much money or otherwise debase the currency.

Fiat money exists only on the perception of it having some intrinsic value; that’s why it’s collected by tax, because the people it’s collected from actually have provided some time, or goods, or whatever, of value.  If tax disappears, so does the value of the government’s money—it becomes as worthless as a Zimbabwe million dollar note overnight because it holds nothing of value at all.

The market simply then switches to trading in currencies—like foreign currencies, or gold at the worst—which *are* perceived as having value and which therefore are an acceptable medium for commerce.  Once that happens, the government’s printed money can’t be moved in the economy since nobody wants to use it.  Money is only paper without something that can be *trusted* behind it.  In our current days of no backing to a dollar note other than the “we will pay it” promise of a government, money has no intrinsic value.  And the government’s promise that “we will pay it” only rests on its taxation base, since that’s where the money’s value actually comes from.

St. Michael says:

12:04pm | 31/08/11

P.S.: This is not merely supposition.  Niall Ferguson’s “The Ascent of Money” explains how the system works in some detail, and is well worth the read for anyone contemplating tax, economics, markets, or—most importantly these days—the bond market.

St. Michael says:

12:41pm | 31/08/11

Huh, the Punch ate my first response to this proposition.

In brief: abolishing tax won’t work, because the fact the tax is drawn from stuff that has a value (i.e. the sweat and goods of taxpayers) is the only thing that gives the tax any value.  No value to the tax means no value on the government’s printed money, and thus automatic hyperinflation or people just refusing to use the currency for trade in any event.

Something new says:

08:18pm | 31/08/11

Don’t agree some countries already have no tax and don’t have hyper inflation. The productive capacity of the economy is what backs money. The supply needs to grow at the rate of GDP anyway. So why bother with pretense of tax? No tax, no tax avoidance. If inflation creeps in we will know the government is to blame.

St. Michael says:

09:30pm | 31/08/11

I notice you didn’t mention *which* countries.

Would that have anything to do with the size and complexity of the economies that have no tax rates? I can’t find a single large economy.  Andorra, yes.  Monaco, yes.  The Bahamas, yes.  The largest “country” I can find with a 0% next to its tax rates is the UAE.

The point being these countries are not developed or large economies.  They’re islands in various warm parts of the world that survive off corruption or being places to hide money from tax systems that do exist.  They also overwhelmingly trade in the US dollar, *not* in their own native currencies, which reduces the need for a fiat currency of their own because they use the US’s fiat currency instead.  None of them are credible arguments for removing all tax on a country with 20 million people.  There is a major economy of scale issue with suggesting so.