The ProMoney Blog

The Carbon Tax (2) – what impact will this have on income tax rates?-

2011-07-21T17:47:00.000-07:00

The Federal Budget announcement in May was the first time in 8 years we had not seen any tax cuts, but it seems the Government was keeping these in reserve to help smooth over the introduction of the Carbon Tax. The changes also go a long way towards implementing many of the changes recommended in the Henry Tax Review. So, those who were complaining about the ‘lack’ of action when the Review was released simply need to consider that not everything has to happen within the timeframe of a 30 second soundbite…

The Government has announced that the average household increase in living expenses will be $9.90 per week but through the compensation package they will receive an average of $10.10 per week, so that they are $0.20 per week better off.

The compensation package for Australian consumers will include:

§ pensioners and self-funded retirees will get up to $338 extra per year if they are single and up to $510 per year for couples (combined);

§ families receiving Family Tax Benefit Part A will get up to an extra $110 per child per year ;

§ eligible families will get up to an extra $69 in Family Tax Benefit Part B per year ;

§ allowance recipients will get up to $218 extra per year for singles, $234 per year for single parents and $390 per year for couples combined;

§ taxpayers with annual income of under $80,000 will all get a tax cut, with most receiving at least $300 per year ;

§ the tax-free threshold will increase from $6,000 to $18,200 which will also include an increase from 15% to 19%, and the next tax bracket from 30 to 33% ;

§ the Low Income Tax Offset (LITO) will reduce from $1,500 to $445 ; and

§ the new effective tax free threshold will rise from $16,000 to $20,542.

The real impact of these changes is hard to determine in a ‘one size fits all’ type tax scale. This has been the case since the Low Income Tax Offset and the Family Tax Benefit scale was implemented. In effect, the tax rates change depending on how many children you have, how old they are, what income you earn and how the income is split between spouses. As a result, the net benefit of these tax and welfare changes need to be reviewed on a case by case basis. Even the calculator on the “Clean Energy Future Website” makes very general assumptions, rather than enabling you to enter your precise details to determine the net effects of these changes.

The New Tax Scales

	Current		2012-13		2015-16
	Threshold	Marginal Rate	Threshold	Marginal Rate	Threshold	Marginal Rate
1^st level	$6,001	15%	$18,201	19%	$19,401	19%
2^nd level	$37,001	30%	$37,001	32.5%	$37,001	33%
3^rd level	$80,001	37%	$80,001	37%	$80,001	37%
4^th level	$180,001	45%	$180,001	45%	$180,001	45%
Low income tax offset	Up to $1,500	4% withdrawal rate on income over $30,000	Up to $445	1.5% withdrawal rate on income over $37,000	Up to $300	1.5% withdrawal rate on income over $37,000
Effective tax free threshold	$16,000		$20,542		$20,979

Some points to note…

The government is claiming to increase the tax-free threshold from $6,000 to $18,200 and have an effective tax-free threshold of $20,542. This is misleading for a number of reasons. First, the current Tax Free Threshold is effectively $16,000 (for incomes up to $31,000) and so the increase is not as large as they say. Second, while normal income tax may not kick in until $20,542 (with the new tax rates) the Medicare levy kicks in at 10% for people earning over $18,839. So the actual change in the Tax Free Threshold is from $16,000 up to $18,839. That’s the first bit of good news.

In winding down the Low Income Tax Offset, the government has had to adjust some other tax rates. It has been reported that they are increasing the 30% bracket up to 33%, but that isn’t right. In reality (as seen in Table 1 below) the current rate is actually 35.5% for people on $37,000 – $67,000, and that doesn’t change under the new scheme. Also, the current rate is actually 20.5% for people on $30,000 – $37,000, and that doesn’t change under the new scheme. People earning between $30,000 – $67,000 will be paying about $300 less tax per year and will not face higher marginal tax rates. That’s the second piece of good news.

But not everybody is so lucky. People on $20,500 – $22,200 will see their marginal tax rate increase from 25% to 29% and people on $22,200 – $30,000 will see their marginal tax rate increase from 16.5% up to 20.5% (see bold tax rates in the tables). As can be seen, these rates remain regressive due to the absurdity of the Medicare levy 10% bracket. While these low-income earners will actually be paying less tax thanks to the higher TAX FREE THRESHOLD, they will be facing a higher marginal tax rate. This is important because it is the marginal tax rate that determines the incentive to work. Somebody on $21,000 per year will now have an effective marginal tax rate (EMTR) of 72% (up from 70%) once you factor in the 60% withdrawal of welfare. In reality, not much change there.

The other group who face higher marginal tax rates are those earning between $67,000 – $80,000, who will see their marginal tax rates increase from 31.5% up to 34% and then 34.5% in 2015 (see bold tax rates in the tables). It is worth noting that these people will not be paying more tax (indeed, somebody on $80,000 will be paying $3 less tax per year), but they will be facing higher marginal tax rates on any increase in income up to that point. Conversely, tax planning and effective deduction claims have that little bit of added benefit.

It is worth remembering that income taxes are implicitly increased every year due to bracket creep, where inflation pushes people into higher tax brackets even through their real (inflation-adjusted) income hasn’t improved. When you factor in bracket creep over the next two years, these tax cuts are mostly gone, and anybody earning over $40,000 will see a tax increase. (Which is why the election cycle almost certainly leads to additional changes in the tax tables – both parties know that incomes will rise, tax levels rise as well, and they can marginally adjust the tax tables, without adverse cost to government revenue, and look like they are giving back ‘far more’ than the other side ever did!)
It is also worth remembering that these tax cuts are supposed to be compensation for a new carbon tax. However, while the carbon tax is designed to increase (from $23/tonne to over $100/tonne) the tax cuts will not automatically continue to increase. There is a tax cut in 2012 and another small cut in 2015, and then no further scheduled tax cuts. (although, we also face two elections around this time – in 2013 and 2016, so I would expect that there will be more tax changes proposed as we get closer to these dates – and beyond)

Assuming that, as the system moves from a fixed price to a market based scheme – with a progressive reduction in permits available – the price per tonne continues to rise, either one of two things should occur. A) Revenue from this tax / fee / price (however you wish to define it) will increase, and the government will have scope to increase personal and corporate tax cuts, increase pensions and welfare benefits, or b) Pollution reduction and energy efficiency is improved, with resulting reductions in costs, and the market will realise an overall reduction in effective costs, prices and hence, cost of living, meaning that further welfare or compensation will not be required.

I believe we will see more of the former initially, with a progressive change to a more energy efficient economy over an extended period of time.

Table 1: Actual marginal tax rates (2011)

		Marginal Tax Rate	Tax paid
$0	$16,000	0.0%
$16,000	$18,839	15.0%	$426
$18,839	$22,163	25.0%	$1,257
$22,163	$30,000	16.5%	$2,550
$30,000	$37,000	20.5%	$3,985
$37,000	$67,500	35.5%	$14,812
$67,500	$80,000	31.5%	$18,750
$80,000	$180,000	38.5%	$57,250
$180,000	$250,000	46.5%	$89,800

These tax rates take into account the Medicare levy and Low Income tax offset, and the subsequent ‘real’ tax rate as the Medicare levy is phased in, and the LITO is reduced on income above $37,000.

Table 2: Actual marginal tax rates (2012)

		Marginal Tax Rate	Tax paid	Tax cut
$0	$18,839	0.0%
$18,839	$20,542	10.0%	$170	-$256
$20,542	$22,163	29.0%	$640	-$616
$22,163	$30,000	20.5%	$2,247	-$303
$30,000	$37,000	20.5%	$3,682	-$303
$37,000	$66,667	35.5%	$14,214	-$599
$66,667	$80,000	34.0%	$18,747	-$3
$80,000	$180,000	38.5%	$57,247	-$3
$180,000	$250,000	46.5%	$89,797	-$3

Table 3: Actual marginal tax rates (2015)

		Marginal Tax Rate	Tax paid	Tax cut (from 2011)
$0	$18,839	0.0%
$18,839	$20,979	10.0%	$214	-$212
$20,979	$22,163	29.0%	$557	-$699
$22,163	$30,000	20.5%	$2,164	-$386
$30,000	$37,000	20.5%	$3,599	-$386
$37,000	$67,000	35.5%	$14,249	-$564
$67,000	$80,000	34.5%	$18,734	-$16
$80,000	$180,000	38.5%	$57,234	-$16
$180,000	$250,000	46.5%	$89,784	-$16

So, as a comparison, the tax payable (and effective tax rate) for someone on an income of say $30,000, $60,000 and $100,000 is:

Taxable income	2011	2012	2015
$30,000	$3,985 (13.28%)	$2,247 (7.49%)	$2,164(7.21%)
$60,000	$12,150 (20.25%)	$11,847 (19.75%)	$11,764 (19.61%)
$100,000	$26,450 (26.45%)	$26,447 (26.45%)	$26,434 (26.43%)

The benefit clearly can be created with some prudent tax planning and, for many business owners, effective income splitting and investment solutions.

So, while the doom and gloom that has been filling the papers and the airwaves around this whole process says one thing, a little digging under the surface will allow you to see where the potential benefit of these proposals are.

There is much still to talk about – and even more to plan for – with this Carbon Pricing arrangement

The Carbon ‘Tax’ – its impact on you and your business.

2011-07-12T22:27:00.001-07:00

The Government has released its comprehensive plan for tackling climate change and for securing a clean energy future with the release of a carbon tax.

The Key points:

- Carbon price to start on July 1, 2012, starting at $23 a tonne rising at 2.5 per cent a year.

- It will be paid by about 500 biggest polluters.

- It will be replaced by an emissions trading scheme from July 1, 2015.

- Price ceiling and floor to apply when trading starts.

- There will be two rounds of tax cuts and increases in allowances, payments and benefits.

- The tax free threshold will almost triple to $18,200 from July 1, 2012, and then increase to $19,400 from July 1, 2015.

- Every taxpayer with income below $80,000 to get tax cut from July 1, 2012.

- Costs for the average household will rise by $9.90 a week.

- Average household assistance, under the "clean energy supplement", will be $10.10 a week.

- $9.2 billion will be allocated over the first three years for industry assistance.

- Most exposed industries such as steel, aluminium, zinc, pulp and paper makers will get free permits representing 94.5 per cent of industry average carbon costs.

- $300 million has set aside help the steel industry move to a clean energy future.

- $1.3 billion has been set aside for a Coal Sector Jobs Package, targeted at mines that are most affected by the carbon price.

- A $10 billion Clean Energy Finance Corporation will be established to invest in new technology.

- $3.2 billion has been allocated to the Australian Renewable Energy Agency.

- Closure of 2000 megawatts of dirtiest power generators by 2020.

- Agriculture is not subject to carbon price, farmers to benefit from carbon farming.

- Small grants will be made for community-based energy efficiency programs.

- Transport fuel excluded, but heavy transport to start paying carbon tax in 2014.

- Climate Change Authority to advise on pollution caps and meeting emissions targets.

- Businesses with under $2 million in turnover will get a $6,500 instant tax write-off for assets purchased after July 1 2012, up from $5,000. (Remember that, with other changes related to the MRRT and other budget changes, the company tax rate drops to 28% over the next 3 years for these businesses as well)

“It looks like a tax, it smells like a tax, it must be a tax…”

But is it?

As explained here, while the government has been effectively railroaded into calling this a carbon tax, it is anything but that. It IS a carbon pricing mechanism, and the first stage in the implementation of an emissions trading scheme. But a ‘tax’ on carbon? Well, sort of, but really, it isn’t. After all, with a tax, the government is usually banking on an INCREASE in activity creating an increase in tax revenue. By its very design, the aim of this package is to reduce emissions, and as a result, reduce the amount of ‘tax’ that is paid. We all know that won’t happen, or certainly not for a long time…

The carbon tax will be payable by around 500 of the biggest polluters in Australia. To assist households with price impacts there will be tax cuts and increases in pensions, allowances and benefits.

With the changes in the tax rates, it is estimated that over 1 million individuals will not need to pay tax on their net taxable incomes. (This has been reported as ‘not having to lodge a tax return, but let’s be real with this – if you received any sort of welfare payments, hold a small number of shares, or have a bank account with interest income, it is likely that you will still need to prepare and lodge a tax return on incomes of around $20,000 p.a.

Assuming that, as the system moves from a fixed price to a market based scheme – with a progressive reduction in permits available – the price per tonne continues to rise, either one of two things should occur. A) Revenue from this tax / fee / price (however you wish to define it) will increase, and the government will have scope to increase personal and corporate tax cuts, increase pensions and welfare benefits, or b) Pollution reduction and energy efficiency is improved, with resulting reductions in costs, and the market will realise an overall reduction in effective costs, prices and hence, cost of living, meaning that further welfare or compensation will not be required.

I believe we will see more of the former initially, with a progressive change to a more energy efficient economy over an extended period of time.

Already we have seen the papers full of the ‘massive price rises’ doom and gloom reports… very much like we had in the years before the GST was introduced. Did we have ‘massive price rises’ then? No, not really… sure a few people and businesses tried to price gouge – and got promptly whacked – either by authorities or by market prices – but overall prices did not rise JUST BECAUSE of the GST. And neither should prices rise significantly under a carbon tax – JUST because of the carbon tax.

With the steel, aluminium paper and other industries getting most of their initial permits for free, they should be shielded initially from the increased costs resulting from this change – and they should have the time AND THE INCENTIVE to change their energy consumption practices to reduce their costs. Certainly over the next 5 – 10 years this is possible.

As for the REAL impact on personal tax rates... well the next update will get behind the spin that has been in every discussion around tax rates since the low income tax offset and the family tax benefit scheme was introduced, and look at what the 'real' tax rates are as they currently apply - and what they will be after July 1, 2012.

Small Business need better access to finance, so that they can 'Move Forward'

2010-07-29T06:10:00.000-07:00

Hi there!

The article shown below is from the Smart Company Website - a very good resource for the small business and entrepreneur in Australia. I highly recommend that you got on and register with them - or access it via Twitter as I did to discover it!

However, I don't think they have gone far enough. The fact of the matter is, the Big Banks in Australia are taking an increasing conservative viewpoint when it comes to lending practices. Now, whether this is due to the new regulation requiring increased capital security, the fear that the ongoing European or American Banking crisis will impact on credit, business etc, or a genuine lack of 'cash' within the system, probably comes down to who you listen to and who you believe.

So what has been happening over the last few years, is a substantially increasing reluctance for the banks to lend to business - whether it is large or small. And this is now coupled with a progressive 'devaluing' of residential properties by the banks for commercial or investment lending.

Since the GFC cut in, I have had many clients express the fact that they simply cannot get bank finance of any amount for their business ventures. I have seen perfectly sound and extremely lucrative businesses with strong histories, fail to get ANY lending for expansion, acquisition, or even in cases, to refinance existing debt.

The banks may say that they are 'able and willing', but more often than not, they are all show, and no go.

So, in this election period, what do I think the new Government should do?

Well for a start, forget promising me that they will 'talk to the banks and seek ways to 'free up' the lending for small business. That is delusional! The banks will say 'but we are trying' and then continue to set tougher guidelines that make it impossible to borrow.

I had a suggestion that I formulated when all the stimulus packages were put into place. This is something that should have been put in place then to assist small business and is still needed now.

Take a portion of the funds from the Future Fund, to set up a Small Business Development Fund. Use this to provide loans, secured by the companies and the directors of the business entities, to the small business sector. Individual loans of up to $250,000 with terms of up to ten years. Or set a 'HECS fee' type levy based on the turnover of the business, so that the loan is paid out within a reasonable timeline - and if the business grows quickly and well, then the debt is paid out faster.

Interest rate? Set this at 2 to 3 percent above the Reserve Bank cash rate. Payment to occur via the monthly BAS system - with these businesses also required to pay their GST and PAYG obligations on a monthly basis. (and any existing tax and super obligations being the first thing to be funded out of these loans.) This keeps the system clean - and also transfers a lot of these debts BACK tot he owners of the business, hence increasing the security factor for the government) This ensures that the cashflow of the business is kept under control - and just as importantly - the fund keeps circulating funds.

And if the business does not pay the loan It becomes payable by the directors via the taxation system. i.e. the ATO collects, via garnishing of wages, future tax returns etc. Government Guarantee comes at a price!

After 12 months to 2 years, the funding could be increased - or transferred - by replacing the Future Fund's investment by way of investment by Australian Superannuation Funds i.e. sell investment bonds with 5 to 10 year terms to the Super funds - large as well as self managed - to provide funding to the Development fund. Treasury / The Future fund could continue to manage and maintain the process - and collect a 1% p.a. 'fee' in the process - i.e. charge 3% above the Reserve Bank rate, and pay out to investors a rate 2% above the Reserve cash rate.

So the loans would be currently at 7.25% p.a. and the Super funds would collect 6.25% p.a. for their investment. With a Government Guarantee and a regular income stream. Not sexy, not high risk, but stable and liquid, and hence providing a good base for many retirees pension investment requirements

Now this of course would undercut the banks significantly. And they know it! The scope for them to then tie down business clients with overpriced Business Banking accounts, merchant facilities, overdraft fees etc would actually be reduced, as it would be a lot easier for many businesses to shift their day to day trading accounts if they were not tied up with a loan facility.

So - either they loosen up their lending criteria, and provide a better deal to the significant small business sector, or they lose business and market share, and hence profits in the process.

I believe that such a fund would assist a lot of small businesses to survive, then thrive and grow over time. Who knows, they might even grow enough to hire large numbers of people between them, make large profits and pay back in tax far more than they ever got in the initial finance!

Now if only one of the major parties would look at this and put it into place!

Cheers

Stuart

http://www.smartcompany.com.au/entrepreneur-watch/20100727-parties-must-act-on-access-to-finance.html

Parties must act on access to finance

We are now well into week two of the official election campaign and we are yet to see anything really substantive from either party on small business.

Yes, we've seen the Opposition promise the creation of a small business ombudsman, but we are still waiting on substantive policy on the really big issues of this election – tax reform, government support for business and, perhaps most importantly of all, small business access to finance.

While Small Business Minister Craig Emerson has supported the Australian Bankers' Association in arguing that the problem is largely one of perception, this argument has been completely blown out of the water by Joseph Healey of the National Australia Bank, who says lending to SMEs has fallen dramatically.

"Banks on average can do three to four times more lending per dollar of capital into household and to mortgages versus businesses so household lending became much more attractive for the banks and we therefore saw a significant shift in the allocation of capital towards the household sector," he told the ABC's Inside Business earlier this week.

"We mustn't lose sight of the fact that small businesses are the engine room of the economy, they employ close to seven out of ten working Australians and I believe our future prosperity really depends on having a strong, vibrant small business sector."

We couldn't have said it better, Joseph.

Now we need to see Emerson and Opposition small business spokesman Bruce Billson come out with some real, practical measures to address this huge problem.

Here at SmartCompany we've discussed plenty of ideas for this over the last six months, including the development bank model working so well in Canada and specific government guarantees for SME loans, which have worked in a number of OECD counties.

If you want another idea, look to the US, where the Small Business Administration administers $US358 billion of programs to help the small business community.

As the head of the SBA, Karen Mills said in an interview with Entrepreneur.com, the agency looks to support high-growth small businesses that typically become big employers, rather than what she calls "mainstreet" operations (such as small retailers) that can be very successful but tend to remain small.

The SBA provides a wide range of counselling services, helps to ensure government contracts go to SMEs (they've helped lift the rate of contracts going to small firms from 23% to 29%) and also provides a variety of programs to support R&D commercialisation.

Even more importantly, the SBA provides actual money to help these fast growing companies.

Since February 2009, the US Government, via the SBA, has spent just over $US1 billion to provide guarantees on small business loans and reduce borrower fees. These initiatives have see more than $US27.5 billion in loans provided to more than 60,000 small businesses across America.

A stunning 5000 banks offer the SBA loans, ensuring lenders stay closely connected to this sector.

The SBA is not without its problems though. Quite simply, it has run out of cash, and is currently lobbying to get support for two new bills that would lift the SBA's loan limit from $US2 million to $US5 million and allow the agency to provide loans for fixed assets.

Clearly the US economy is in a very different state to Australia's economy our programs do not need to be as big as those in recession-hit America.

But as the election campaign heats up, our politicians should be looking at programs like those run by the SBA for examples of how Governments can actively and cleverly support high-growth businesses and help them access the funds they need.

The 'Big Australia' Debate

2010-07-26T07:02:00.000-07:00

More spin by our prospective leaders...

This debate has been spinning around for quite a while, especially since Good Old KRudd declared his desire to see Australia with a population of 36 million by 2050.

40 Years away. 40 years to plan for such an increase in population.

And ooh its all so scary - where will they all live, how could Australia possibly accommodate THAT big an increase in population?

So, lets get down to the facts. You know, the stuff that most politicians (and virtually ALL of the press) run away from.

The Australian Bureau of Statistics has a population clock. You can find it at http://www.abs.gov.au/ausstats/abs%40.nsf/94713ad445ff1425ca25682000192af2/1647509ef7e25faaca2568a900154b63?OpenDocument

And hey! Guess what, we have clocked over to 22.4 million as of today! (26/7/10)
On the basis of JUST a natural increase over the next 40 years - i.e. with not ONE net additional migrant over that period, a simple spreadsheet table will show you that the population will increase to over 29 million people by 2050. And that in itself is a number LARGER than many people say that they are 'comfortable with' in terms of Australia.

There has been discussion around that there are 'far too many migrants' coming in to the country... Umm when was this the case? The numbers that Abbott has been quoting recently relate to 2008-9. Yes, there were almost 300,000 migrants in that year - and most of them related to the skilled migration policies that have been lead by successive governments over the last 15 years. After all, if we have not been training enough people in trades and professions, and the demand is growing, where do we get these people from? Cant just pluck them from the nearest tree...

Most of this was created and in fact demanded by the mining boom. And - yes - it has REDUCED since then. (The GFC had a bit to do with that) But have we been told that? Hell no. Lets instead refer to a 'promise' to 'reduce' the level of future migration intake... to a number that will be MORE than the current years intake!

Clever politics that - only promise to do something that is ALREADY being done anyway, but that has just been buried in the paperwork as just not being 'sexy enough' to get up for an actual news report. On the other side, make no commitment in terms of a number. Look at things on a year by year basis, as the need fits. But what is the need? and what will it be for this year, next year, and the decade after that?

If we capped the immigration levels - for skilled, family, student and refugee / asylum purposes, to 170,000 - the number that is now being quoted by Abbott as the amount that immigration will be 'reduced' to - if the natural increase stays as it is currently, then we are looking at a population of over 37.6 million by 2050. Not much different to what Rudd was quoting is it?

Drop it to 145,000 p.a. - which is actually the current years estimated level, and the number 'only' increases... to 36.5 million. Not exactly a big difference to the Big Australia number is it?

Bring the immigration number down to 50,000 p.a. and by 2050 we are still looking at over 32 million people in this country - almost 50% above what we have now. And frankly, you would have to go back a LONG time to see immigration numbers that low. Probably back tot he White Australia policy days...

And, in reality, this sort of 'reduction' in immigration numbers cannot occur. Given that Australia has agreements with countries such as New Zealand which allows for people to migrate to Australia WITHOUT having to seek an immigration visa, it would take a change to the Agreements that Australia has before such a reduction could take place. In other words, a Government can promise all it likes that immigration will be 'cut' - and the policy undermined by a good influx of Kiwis onto the east coast and shot into flames.

Again... don't promise something that is impossible to deliver.

And of course, that still leaves the question open - so how does Australia manage this natural growth. And this is where we are lacking the vision, and the leadership that is required right now.

For me, the issue is not 'how many people should live in Australia'. Face it, this country has one of the lowest populations per square kilometre anywhere on this planet. and don't give me this 'unsustainable', or 'arid country' viewpoint either. Taking just arable land into account, Australia still has one of the lowest populations per sq KM on Earth. We can take far more people - yes even double the current population. We just need to have the process planned properly in order to best utilise all that this country has to offer.

The bulk of the growth over the last 200 hundred years has been on the bottom right hand corner of the continent - from Brisbane, down to Melbourne. And yet the resources that this country is living on are all 'up north'. Why are the populations of Broome, Darwin, Cairns and Townsville so low in comparative terms?

And that is where I would start - look at these cities, and plan for each of them to grow to over 1 million population each over the next 10 - 15 years. Provide SERIOUS incentives for business - not 'just' for Mining or Agriculture (when you have a single cattle station in Northern Australia that in itself is bigger then England, you know we have some serious land available here...) Encourage financial, manufacturing and New Technology businesses to move north. Give them a 10 year tax incentive - yes let these arms of the these business be tax free for ten years. Encourage property and infrastructure development to grow these cities. And yes, direct new migrants, and everyone wanting a 'new start' to move to these cities, and create a new, diversified country with more than just 3 or 4 key population areas.

Oh, and how about building 2, 200 square kilometre solar panel arrays while we are at it? One outside of Broome - and helping power the new "Western seaboard" all the way down to Perth -and up to Darwin, with the other inland from Cairns - or maybe closer to Mt Isa - to power industry in the 'New North' and all the way down the Eastern Seaboard. Run Adelaide and the centre via Thermal technology from the Cooper basin while we are at it. Again, no need for 'direct' government funding - give industry tax breaks for ten or fifteen years - with the proviso that they ACTUALLY deliver a certain amount of power supply - AND - that the 'feed in price' or electricity price is regulated and controlled over that time frame. That will keep the 'cost to consumers and industry' down, and allow industry to adapt and develop over the next 20 years. Might even do a thing or two about emission reduction targets as well.

And watch the coal dependant power companies drop and move rapidly with this proposal. They know that, once this was implemented, if they take the long term view, they could be providing ALL of Australia's power needs for the next century. And what company would not want that type of income stream?

Lateline (ABC TV) tonight - 26/7/10 is discussing how companies from overseas are buying up Australia's agricultural assets. Packers selling to overseas companies. Cubby Station about to be bought by a company based in Bahrain. The death of many MIS companies - through poor management, banking changes, botched legislative and political manipulations (thanks to the Worlds Greatest Treasurer!) has meant that many farms are unable to be maintained in Australian hands, and the profits - and the production - will likely go overseas.

Again, Australia needs forward planning to ensure that Australian Agriculture is viable, producing food and profit that 'feeds' Australia and its growing population, at a fair price. Again, if growth is inevitable (and short of compulsory sterilisation it clearly is) then long terms planning must be undertaken. Take out the politics and the old "we have always done it that way" approach, and take positive action to increase food production

Again, we need our leaders to be looking well beyond 'the next term'. Please look at what we need for the next 10, 20 and 40 years, not just what we need to 'hear' in the next 4 weeks for you to win an election, with promises and commitments that only go for the next 2 - 3 years.

Jim Collins in "Good to Great" relates case studies of businesses that went from 'muddling around' for decades, to sustaining significant growth and prosperity over a sustained period - 15 years or more - through vision, leadership, looking long term, and sticking to core beliefs, and maintaining this philosophy through generations of leaders. One charismatic leader will not cut it. In fact, that would more likely lead to failure than success.

We have a good country. It could be a great one. We need leadership that will look beyond 'the current term' and give the country direction for the next 3 decades, not just the next 3 years.

Is that too much to ask?

Stuart

Lies, Damned lies, and Election promises

2010-07-21T05:26:00.000-07:00

Well here we are, five days into the 2010 election campaign, and I think I have already lost count of the amount of misinformation that has been presented by both parties as 'election promises'.

So, rather than just tearing my hair out (what is left of it) or shouting at the Television and Radio (yes totally pointless!) I think it would be better to just get my point out this way. and who knows, someone might even read it and decide to agree - or debate the point (even better!)

Well, let's just take some of the points and tear them apart. They need to be...

The Great Education Tax Rebate Sham.

Why is it a Sham? Well the rebate itself is not, but all the promises - from both sides - about how much they are adding to the rebate - and how much it will cost to implement - fall away when you look at how the rebate is set up in the first place.

The costs are certainly there. And let's for the time being ignore the issue of Public, Catholic or Private school systems, and school fees. Take the tuition fees away and most parents are still looking at substantial costs each year. So yes it would be great to include school uniforms, music or sports lessons, computers (already in the plan Tony!) etc.

But in order to qualify, you don't just need to identify these costs, you need to qualify for the Family Tax Benefit Part A. This requires that the combined family income is under (currently) under about $110,000 for a family with two children.

With average salaries around the $65 - $70K mark, it does not take much - say one parent working full time and one part time - for many families to miss out purely on this income test.

Now let's say you decide as a family that you aspire to giving your children the best possible chance in life, and that you are going to make sacrifices and send your kids to a private school - say for the secondary years. Over the last 20 years I have seen many so called 'working class' families do just that, so their kids are rubbing shoulders with and have the same opportunities as the Tooak or Brighton toffs that might just get them out of the suburban grind that the parents had to grow up in...

So, having got your children through primary school and got them into a good mid priced Private School - not an Ivy League like the Melbourne, Caufield or Geelong Grammars, say somewhere like Westbourne Grammar, you find that will cost you around $6,000 p.a. in school fees, and around $3 - $4K in lessons, books and uniforms each year. All up $10,000 for one child, for one year.

IF you manage to keep your adjusted taxable family income below the Family Tax Benefit threshold ($104K if one child, $110K for 2 children and so on) the rebate gives yo a 50% benefit (fantastic woo hoo!!!!)... on up to $2,000 of expenditure. Yep, that is right, $1,000 in this situation.

So all the talk of getting half the costs back from Private school fees is delusional. I don't know of ANY Private School with annual fees that are $2,000 or less p.a.

So Tony Abbott's talk of including music lessons, uniforms school fees etc is a smoke screen. Laid on just a bit thicker than Labours in this case, Which is merely a morning mist in comparison.

There was a report in The Age just a few weeks ago that stated that the government had OVERBUDGETED for the Education tax rebate in 2008/9. i.e. they only paid out half of what they expected to in the 2008/9 budget. Well frankly it did not surprise me at all. The current setup is very limiting in terms of what expenses are included, and with the upper limit based on the Family A Benefit Thresholds, it excludes most people that would actually be wanting to claim it.

And as the Government has, in the 2009 tax system and beyond, included a whole new structure for calculating income thresholds for various rebates and government benefits, which do things like add back any losses for investments (shares and properties) claimed in tax returns, including superannuation payments in excess of the 'compulsory' 9%, Fringe benefits tax, and the like, more and more people will find that suddenly they are 'out of the game' when it comes to these entitlements. and in most cases, the thresholds are ridiculously low for the circumstances. I will go into these changes in a future blog entry.

Someone within the halls of Government - either in Treasury or in the Tax Office, truly believes that an income of $70,000 p.a. - and worse a family income of $120,000 p.a. - is what they see is 'in the wealthy zone'. I would love to know how they came up with this threshold between rich and average. Especially as the 'middle' tax rate of 31.5% cuts out at $80,000, and the top tax rate kicks in at $150,000 currently. But they are the thresholds we need to deal with...

Now, I AM creative when it comes to salary packaging, and with the use of corporate structures, super funds and the like to manage these aspects, provided of course that your employer, your business and your family circumstances can cope with the set up. Structured correctly you can legitimately include almost anything within a salary package AND pay no Fringe benefit tax AND clear these thresholds - but it needs to be set up properly and reviewed every year to make sure it continues to work. If you want to talk about these aspects, call, email or respond and I will get in touch.

Ok, so lets see what the Labour and Liberal parties bring us tomorrow...

Ciao

Stuart