TaxRambling.com

If you have been reading this blog (poor you) you will have noticed I am pretty sure the Australian public finances are pretty sad and need fixing (and if you don’t please don’t say “we have a triple A rating” as all this means we are likely to pay back our 20 year bonds issued today – in 20 years time if we keep going the way we will be going we will be relatively as bad a greece is today – read the MYEFO and weep). Also I don’t believe you can fix this just by increasing taxes.

But someone has emailed me saying that if I had an offer on the table where by the “spendies” (His word not mine) where willing to reduce spending by $2 for every $1 of increases in tax (and real increases in taxes, not bracket creep) what would I put on the table.

So if the structural deficit is $30 billion, if I can find $10 billion in additional tax they will give me $20 billion in expenditure savings…

This would be easy if I was politically naive as I could say “increase the GST to 12.5%”. However, lets make it hard for me. I have to do this while not destining a government from spending a lifetime in opposition.

1. When the previous government announce to was removing the statutory method for car fringe benefits, the packaging companies yelled “this will be the end of the car manufacturing industry in Australia”. Unfortunately, that will happen in 2016 so lets save just under a billion and get rid of it now.

2. Division 293 tax is the addition 15% contributions tax charged on concessionally taxed super contributions for those earning over $300,000. It is supposed to raise about $330 million a year. The argument was, if you are earning more than $300,000 you don’t need large tax encouragements to save for your retirement. However less than 1% of taxpayers (of the 10 million taxpayers) earn more than $300,000 and even with this additional tax the tax rate on their super contributions is only 30% rather than 47% (from 1 July 2014). So lets decrease the threshold to $180,000 (where the 47% kicks in covering 3% of taxpayers) and increase the rate to 22% so the tax on their contributions is 37% rather than their marginal tax rat of 47% – they still get a 10% encouragement to contribute to super. The decrease in the threshold means we triple the revenue, and the rate change adds another 50%. So this will get use another $1.5 billion.

3. Yes economists capital is mobile, but non residents already don’t get the CGT discount so lets reduce it from 50% to 25%. There still is a benefit, but not as big. BUT WHAT WILL IT DO TO THE SHARE MARKET AND THE INVESTMENT PROPERTY MARKET! With interest rates at record lows it is unlikely a massive flow of investments will move to debt. Saving $2.2 billion.

4. And now I give you a choice. Either increase the marginal rates on the top 10% of taxpayers (those earning greater than $110,000) by 2% – I mean there effective tax rate not the marginal rate so something like an increased medicare levy for the  top 10% only – raising $5 billion OR increase the earnings tax on super funds to 19% (the second lowest marginal tax rate) and refund the earnings on super accounts with members who earn less than $18,200 a year (where the 19% rate kicks in) – raining about $4 billion.

5. The R&D tax incentive costs $1 billion a year. Currently if your turnover is greater than $1 billion you are ineligible as you are so large you will do R&D anyway. I would suggest (of course without an evidence other than claiming the R&D concessions for hundreds of companies) the same applies to any company with a turnover greater than $100 million. Give me $0.5 billion for making this change.

$10 billion easy, without touching the GST and without smashing any one politician can’t pick on.

Now I am being disingenuous as we all know the hardest part is writing the rules transitioning from one rule to another but lets grandfather cars, CGT assets… and in four years all the saving will be in full swing.

So lets see what the budget does… Cut expenditure Joe, cut it hard.