Sensible Ideas on Cutting Fed Govt Expensiture from Scott Phillips from Motley Fool

OK, any cuts or increases in taxes will have critics as they will always affect someone but the below I feel are actually valid ways on cutting government expenditure:

1. Close multinational corporate tax loopholes.

2. Get rid of family trusts. Family trusts do have some valid structural purposes, but are used mostly to reroute income, and hence reduce tax.

3. End salary packaging.

4. Remove deductions for work-related expenses. One of the larger categories of deductions each year, work-related expenses, are part and parcel of doing your job and being paid for it. Ditto self-education expenses. If you need it, your employer should either reimburse you for it, or your pay should reflect it. It's not the taxpayer's job to underwrite those expenses for you.

5. Wind back superannuation deductions. This is the elephant in the room. Super is not designed to to act as a tax-advantaged wealth-building tool for multi-millionaires. Nor serve tax efficient inter-generational estate planning. Concessional tax rates should apply up to the point your super allows you to no longer be a burden to the pension system -- after that, you should pay full tax.

6. Stop franking refunds. I'm talking about those in pension phase of super who not only pay zero tax, but in addition receive a refund from the ATO of tax previously paid by companies on their dividends.

 

Why didn't he just say steal from the rich?

 

Why is the Federal Government trying to cut income taxes? It makes no sense to me.

In terms of cutting government expenditure, pollies directly cost more than $100 million every year, so that might be a good place to start. For example, when an MP travels for work, is it absolutely essential that they fly their entire family around first class at the taxpayer's expense?

In terms of the above list, number 5 is a big one. Bottom line is the government set up a system of forced savings that is not an equitable system. I would describe it as overly generous. It needs a good overhaul IMO.

 

I agree with all of the list except 4. Many employees have lots work related expenses which are part of doing business. Why should SMEs be able to claim these but not PAYE tax payers.

 

1 will have the most significant impact on the tax collected, almost making the rest of the list irrelevant. It's common (and legal) practice - shift profit to a jurisdiction where tax incidence is lower. I'm all for taxing where income is earnt - not only does that keep dollars in Australia but it creates a level playing field for Aistralian businesses.

2. I'm not so sure of. The primary reason for a trust should be asset protection - as with the examples above + for anybody with liability as a director. But I also don't see anything wrong with using a trust to manage tax, why wouldn't we want a tax system that allows this kind of flexibility for a non working spouse for example that is raising a family? The family court after all recognizes the contribution non working spouses make.

3. Personally, I don't have an issue with salary packaging. It's small change for most - but makes it attractive for those who work for a charitable or not for profit organization - these organizations make a big difference in our society that that far outweighs the foregone tax on salary packaging.

4. No issue. But expect to pay more as a consumer.

5. Super concessions are probably overly generous. But they need to be, to change a deeply held feeling of entitlement (I paid taxes = I deserve a pension). I think one generation worth of pain, I say let the system start to bring through a meaningful number of self funded retirees before starting to wind this back. It's not a saving ... It's just delaying the expense to the country, by reducing the attractiveness of super.

6. Horsecrap. If a dividend comes with 30% tax paid, it should not be ignored. Being unable to claim back is effectively double taxation.

The reason there is such a wide range of possible initiatives is because our tax system is overly complex. It should and could be simpler. But on balance, I say leave it alone and stop fiddling with it, complexity is one thing but constant change undermines the whole system.

 

Why no. 6? Why single out one demographic to miss out? Whether you receive the money as a tax credit or as cash makes no difference.

Franking and dividend imputation were brought in to stimulate the economy. Before, the company paid around 35% tax on its profits then the dividend recipient paid up to the top marginal rate (then over 50%) in tax. Govt was raking in most of the dividend, making investment in industry unattractive.
Marg

 

Sensible lol. How does any of the above cut expenditure?

Govt can do as it likes, there will always be a work around. Capital is far more mobile now than ever before, so Govt won't go near most of those ideas.

 

Two sides to this story. I'm sure a lot of people agree with you. Yes those NFPs and religious groups are mostly pretty good, and yes the work they do does make a difference in our society.
The thing is that you have to realise whole segments of some of these organisations are firmly implanted in the business arena, and many are absolutely massive. Some would make many ASX-listed corporations blush. Their tax-free status gives them an incredibly unfair advantage over privately-owned enterprises competing in the same space. Any fair dinkum tax review needs to get some of the dirty little secrets out in the open and seriously address this imbalance. Where these NFPs are out there in the true business arena (and I'm not talking op shops or meals or wheels here) why couldn't they pay tax on an equal footing as mum and dad businesses ? That's my contribution to the fairness debate. Just sayin.

 

There's nothing sensible that has ever been written on that website, ever.

Not really sure why you think any of those points are sensible?

As has been suggested, all those points are is advocating for increasing taxes. Where are the 'sensible points for reducing Govt expenditure'?

 

I thought the same thing - just another case of someone suggesting 'cutting expenditure' by not cutting anything and just increasing taxes. Genuines.

 

I'm surprised they aren't looking into culling the APS further. The amount of dead weights around the place......is astonishing. Even if people do pull their own weight, are they appropriately remunerated i.e. aligned to the private sector in a similar job function. What's the go with 15.4% super? Why not just give them what private is offered? What about abolish EL1's and above having the option to get a Qantas Pub subscription (if they fly >10 times a year) funded by the taxpayer?

What about JSA? Do they really need to outsource it at billions of dollars a year to make the lives of welfare recipients hell? The usual suspects are more than capable of dishing that out

At least these things won't cost too many votes.

 

I have a long held belief that limits on Concessional Contributions should be removed entirely and that all contributions to super should be tax free, with no tax payable on earnings, either. Then the pension is taxed at marginal rates. Super is there to provide a replacement to the Age Pension, so the Government should be doing everything in its power to encourage people to put in as much as possible.

The Far Right wing of the Laberal Party just instituted a tax free pension - a really, really bad move, btw - in order to garnish votes.

 

Remove one layer of government, state governments are totally unnecessary. Presently we have a situation where there is a duplication of services, local councils and the Federal government could fill this role.
Savings would be massive and it would end the current situation where no one is actually accountable for anything.

 

How about HECS debts? I find it funny that some people think their HECS debt is their god given right and that the government taking the amount that they owe is a bad thing. Don't get me wrong, I feel that if someone wants to study, they should be provided an opportunity to do so, regardless of their social status/ income level.

 

It certainly would create an efficiency - but also completely removes competitive federalism. Having a single bloated government which isn't measured against or compete against any other government can cause long term issues.

The other option is to wind back the role of the federal government to the essentials - as it was originally designed in Australia, United States etc. Imagine if each state could determine their local income tax rate - it would give places such as Tasmania, South Australia etc the opportunity to provide a strong point of difference as a place to live and conduct business.

 

1. Is entirely impractical in the modern world, to attempt it just flat out ignores how modern business operates.

This is the area where the tax rate should be dropped significantly, we should want those businesses based in Australia, we want them paying tax in Australia, stop trying to gouge absurd rates out of them and compete on the one area that would actually have them paying tax here.

2. Why would you remove a legal structure? It's stupid to remove the protection and flexibility that it offers. Sure they can distribute to wives (who you could just pay a wage or dividend to anyway) or to minors (wow $416 a year, big difference that one makes). Removing the benefits that the structure offers would far outweigh any gains on the tax front.

3. Lets remove on of the few incentives for businesses to reward employees...

4. Again, lets target individuals and make them worse off. There is nothing wrong with deductions for work related expenses or further education, most will actually get employers to pay for it if they can (because they're better off from that arrangement) but to punish those who work for employers who wont just seems absurd, again, you'd basically be punishing the people who already have *******s for bosses.

5. Don't disagree at all with this, super as it stands is entirely broken. It does nothing to replace pensions because it provides no benefits to low income earners who will be dependent on it, right now it's a massive system for older and wealthier generations to protect their wealth and not contribute their fair share.

6. Yeah because double taxation is awesome. Lets start paying GST on stamp duty and income tax while we're at it... this is just a stupid idea.

100m is nothing in the grand scheme of things, though I don't disagree at all with the wastefulness of their spending or that it could and should be cut extensively.

On the first point though, the idea behind cutting income taxes is because they're terribly inefficient taxes that do as much harm as good. They provide a genuine disincentive to earn higher amounts, especially the marginal system we have. Governments are slowly realising that higher rates of inefficient taxes is not the solution, the idea, and it always get muddied by politicking, is to replace taxes like income tax, stamp duty and payroll tax with higher rates of "better" taxes like land tax and sales taxes (GST).

There is zero point having a super system if there is no benefit provided. Why would anyone contribute money to a super fund or even want their money in a super fund if they're getting absolutely zero benefit from it? May as well scrap the entire thing and go back to pensions instead. Removing concessional contributions removes any benefit for contributing and taxing at marginal rates removes any incentive to have money in there. It would be absolutely 100% pointless and actually make having money in super be harmful because it would just be money you can't access freely or control.

Super itself is a great idea, it just needs a total overhaul so it rewards low income earners for using it instead of punishing and so that the massive tax avoidance and loopholes for the wealthy are slammed shut. It shouldn't be a system designed to incentivise and benefit the wealthy, who won't need super anyway, and punish and hinder the poor (who will be dependent on it later in life).

 

You may want to go back and re-read what I wrote.

 

I misread it originally but what you actually suggest is actually scarier... you want to basically make Super a vehicle that the wealthy could park all their money and wealth in and pay no tax, it's an absurd idea that would be even more broken than the current system.

Under your system someone like James Packer could make a 4.5 billion concessional contribution this year, offset that against his income and future income until fully deducted meaning basically no tax in the immediate future, that money and any income it earns would be entirely tax free so all his wealth would be parked in a tax free vehicle. In 20 years when he starts drawing a pension is the only time it would ever be taxed. It would then all pass tax free onto his heirs who could then could actually just repeat that process.

 

The Jobs Game - Four Corners

There's $1.3 billion worth of savings a year in employment services. Not all $1.3 billion would be saved as there would have to be an alternative system, but it couldn't be any worse than the current system, which is nothing but parasitic.