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EYE-BALL Guru on – TAXES … what is fair and why are Corporations and the Wealthy allowed to minimise their TAX obligations?

October 26, 2011
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Title:
TAXES … what is fair and why are Corporations and the wealthy allowed to minimise their TAX obligations?
The current debate in America over taxing higher income earners to help solve the US Budget deficit problem bears some examination.

The following link is provided free of charge and allows anyone to examine the different tax rates for Personal, Corporate and Consumption taxes. It’s a great site and I urge you all to visit just to see what tax rates are charged in different Country’s.

Link to the International Summary of Nation Tax Rates:– More on these rates a little bit later in this post.

The Tax Base Revenue analysis:

  • Payee Tax:  The question of taxes is as old as human conflict. In a modern society most workers are generally accepting about the tax they pay – largely because their employer deduct the tax before they receive their pay. This is commonly called ‘payee tax’ and according to the RBA statistics – ‘payee tax’ represents a 48.3% average of all Government Tax and Non Tax revenues since 1996. [The peak level of payee tax collections happened in the 1998-99 year at 52.4% and the low was in the 2007-08 year at 41.5%.]
  • Corporate Tax:  On the same scale – Corporate tax collections represent an average of 18.1% with a peak in 2006-7 year of 23%. [The low was in the 1999-2000 year at 14.1%.]
  • Superannuation Taxes:  Average tax collections for the same period are 2.7% – [with a high of 3.9% in 2007-08 tax year and a low of 1.3% in the 1995-96 year.]
  • Other Direct Taxes: These have averaged 2.9% since 1996 – [with a peak I the 1001-0-01 year of 4.1% and a low of 1.6% in the 1009-10 year.]
  • Other Indirect Taxes:  These have averaged 20.1% – [with a high during the 2005-06 year of 27.7% and a low during the 2005-06 year of 13.5%.]
  • The Government also collect in-direct taxes in other forms i.e. GST, Interest and Dividends and Other non described taxes.
  • GST: Since 2000 the average yearly collection as a percentage of the total Government revenue has been 2.1% – [with a peak of 2.6 in 2009-10 and a low in the first year the GST started in 2000-01 of 1.7%.]  This is what one can expect – as GDP type consumption increases year on year – so will the GST collections.
  • Interest and Dividends: Again this has only be recorded separately since 2000 and the average since then is 3.8% – [the high was in 2001-02 at 4.8% and the low in 2007-08 at 2.8%.]

[The data presented above can be verified at the RBA website – linked here – and click on the Government Finances link.]

Summary:  

  • The GST tax collection in 2000 was $2.8 billion – in 2010 it was $7.6 billion – a growth of 169% in 10 years.
  • The total Tax Revenue base collect in 2000 was $169.9 billion – in 2010 it was $292.8 billion – a growth of 72%.
  • The total of all Non Tax collected revenues grew by 42% in the same time frame with a massive aberration in 2006-07 when Other Revenue was almost $20 billion against a yearly average of just on $6 billion. Somehow in that year Mr Costello pulled a rabbit out of his hat and made an extra $14 billion in un-defined tax revenues from somewhere.
  • Payee collections have grown just over 100% since 1996 – and Corporate taxes have grown 191%.

This is all measured up against a current tax rate schedule that looks like this:

Australia Income Tax Rates for 2010 – 2011 Tax Rates for Residents

  • AUD$ 1 – 6,000 Nil
  • AUD$ 6,001 – 37,000 15c for each A$ 1 over 6,000
  • AUD$ 37,001 – 80,000 A$ 4,650 plus 30c for each A$ 1 over A$ 37,000
  • AUD$ 80,001 – 180,000 A$ 17,550 plus 37c for each A$ 1 over A$ 80,000
  • AUD$ 180,001 and over A$ 54,550 plus 45c for each A$ 1 over A$ 180,000

Corporate Tax Rates: 30%

GST Tax rate: 10%

Synopsis:

These tax rates are Australian and each Nation taxes its population according to its needs.  As the globe becomes closer aligned – trade, currency rates and diplomatic efforts to promote more trade links etc – the abnormalities of differential tax aberrations will close.

The real crime in tax rates is the level of tax avoidence by legal tax minimisation schemes that wealthy and Corporations engage in for the obvious longer term benefits for shareholders and individual self employed and business owners.  This is a brinkmanship game played by large Corporations and wealthy individuals who employ savvy Accountants and Tax specialists whose job it is to out think the Tax office laws to minimise their clients tax liabilities.

Recently the US Berkshire Hathaway owner Warren Buffett – made a public concession that his taxable rate of 19% was substantially lower than the lowest paid employer he had on his payroll.  This was an open admission that exposed the inadequacies of US tax laws and the way it went about collecting and spreading the tax burden fairly.  It is an example of how the Tax collectors around the Western world tend to focus most on the ‘payee’ collections as opposed to the Corporate and self employed tax sector.

That is understandable – the Employer pays the tax of the payee tax earner – give them a break and tp not put to fine a point on it – without employers – tax receipts go down.

I’ll give you an example:

In 2001 an Employer was found to be paying its employees under an old pay scale and had not passed on the latest wage increase.  It had done so for some four months before it became an issue.  Its workforce were largely casual employees and had very little Union representation.  The Issue was raised with the relevant regulators and they confronted the Employer.  The back pay owed was in excess of $500k.  The Employer argued that it could not afford the back pay issue – it argued that the increase was not included in pricing and therefore the mistake was deemed to be honest.  They were allowed off with no penalty and no requirement to make restitution to the employees.   No evidence was asked for to verify whether the Company increased its prices in line with the wage increases.  It left a very bad taste in many employees mouths.

He is another:

I know a retired taxi owner – he has well over $2 million in assets and manages his own super – the taxi licenses he owns are worth over $400k each and his income from their leases earn him $30k a year per taxi.  He plays the sharemarket in a very savvy way – grants options against his substantial holdings to gross up his dividend yields. Well he has not paid any tax for a decade or so and last year – the Tax man gave him a tax refund of $30k. Somewhere in that scenario – the tax laws have been kind and he has done nothing illegal.  He pulls no aged or other pension from the Government.  Yet the man earning the Dole had a tax liability until the threshold was raised – the person earning $25k p/a had a larger tax liability.

Summary:

It is simply a case that if you have wealth – you can use it to invest in tax minimisation schemes to avoid paying what should be seen as a fair and just tax liability.

And so it is with Superannuation.  Dumping salary into super as salary sacrifice so as to only pay the 15% tax liability has benefits for all those who can afford it.  Once again it is only the high income earners or the independently wealthy who can afford to do this.

The recent TaxFest where the PM ruled out any changes unless they were revenue neutral was as useful as teats on a bull – this Government will not risk to try to make the tax burden fair to all concerned.

With an un-employment rate near 5% – this Nation is almost at full employment.  There is a cost to this – children are being put in day care centers at three months because both or single parents have to work to survive – i.e. to afford a $400k mortgage an income in excess of $100k is needed and with a median income around the $65k level – it takes two household incomes to survive.

The first priority in any tax collection changes and concessions should be the plugging of the superannuation rort for wealthy individuals – i.e. once a fund rises above what is deemed an adequate level of retirement savings – any additional contributions should be taxed at the marginal tax rates applicable.

The concessional offset should be the allowing of income splitting for households – i.e. Say someone earning $60k and the partner earning $25k should be allowed to income share with all family members – if only a single income is earned – then that income is split with all above age employable people living in the house provided they are family.  i.e. Grandparents or parents living with offspring children and receiving a pension income and contributing to the household expenses are included if they are not receiving any ‘rent’ assistance support.

Two things will happen in this scenario – families will choose to raise their own children as opposed to putting them in day-care.  About a million workers – perhaps 1.5 million with withdraw from the workforce to take care of their children and will need to be replaced.

The tax burden will sift to the wealthy where it should have been focused a long time ago.  The Government is a business and like all business’s it likes its subscriber customers to pay their bills by direct debit with a minimal amount of fuss and follow-up – i.e. payee tax payers.  The tax collected from payee earners represents well above 40% of all tax collected – [see above data].

As for the Individual self-employed and Companies – [less than 20%] – well that takes manpower and qualified personnel to chase down the tax revenue that people find ways to avoid paying.  In all human instinct behaviour – the easier task is always the path chosen.

Low income earners are falling furtehr behind and even the middle-class are finding it difficult.  For the PM to shut down the TaxFest from the outset with her small-minded declaration – what can a population do to change her mind?

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The EYE-BALL Guru …

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