The Last Week of the Election Campaign

I don’t think Labor is the answer.

But I can’t abide the lies and mistruths spouted by #LNP and their media cronies. #LNP talks about minimising government, but what they don’t mention is that there are two parts to government – controlling people through rules and providing government services. The current #LNP don’t cut jobs, then introduce “efficiency dividends” which are related to salaries, generally of those departments providing government services. So, the government agencies cut salaried positions but then have to outsource to contractors and consultants. Serco, Paladin and other big companies then make profits providing services that should not profit generating. We, the tax payer are taken advantage of by these big firms and who owns those firms? Offshore companies with hidden owners, trusts, distributions and the like.

Meanwhile, they implement more and more controlling legislation aimed at building the wealth of capitalists that rub shoulders with other capitalists. The only way capitalists make money is by taking advantage of something or someone.

Getting mining or water rights that allows them to flog off those rights to an overseas company that then comes in, extracts minerals which get sold overseas, profits are shifted offshore and what does Australia get? We get to buy the minerals back when they have been “value added”. So more of our money goes offshore. – Having a large population of people that don’t earn enough money to rent a decent house or provide for their kids is perfect for them. They can buy up all the houses and rent them. With all the tax breaks they get they can build their wealth, while average people struggle trying to participate in a game they were never part of

I’ve had my share of investment properties, I’ve traded shares and options, but in the end it’s all been for nought. I have a bloody big mortgage, my business stresses me out constantly, I have no hope of achieving anything good with my life, unless I can figure out how to get in the ear of someone rich and get a leg up.

They talk about human rights, the right to shelter, food, healthcare, education, but we are only granted those rights by those that seek to profit from them.

Living a good life shouldn’t be about having to get a leg up.
Get a job, leave home, save some money, buy a house by age 25-30. This shouldn’t be out of the reach of most. If you don’t have a Uni education and get a minimum wage job paying $35,000 pa, by the time you spend $300 a week on rent, buy some food, take out a loan for a car to get to and from work and all the other life costs, you’d be lucky to save $2000 a year. You have to live in a city, because small towns have dried up – big farms don’t need labour anymore – they use big automated tractors and machinery so you have to save $50K for a deposit. That’s 25 years.

Meanwhile, those that have are profiting from your time, rent, etc.
How does a police officer earning about an average wage end up with wealth in the hundreds of millions? It’s not through hard work, although I’m sure he did enough of that. It’s through what he knew, who he knew and his willingness to take advantage of government contracts, subsidies, handouts and tax perks. Now he is the “Minister for Home Affairs”.

This guy is now in control of the AFP, ASIO, Customs, etc and hands out contracts worth hundreds of millions of $ to overseas companies with shady ownership structures, with no accountability.

Mark, you and I have both owned investment properties. Neither of us have made a fortune from them. Why not? Well, because we bought the wrong properties at the wrong time, in the wrong place. Governments make decisions all the time that screw over the little people. Those in government and their mates are the ones best placed to take advantage of the screwed over.

This is not a Labor/Liberal thing, it’s just a consequence of being a little guy.
I don’t know all the micro and macro economic factors of the 70s and 80s, but interest rates in the USA and UK in the late 70s/early 80s were in the high teens and Australia’s went up to peak in 1989.

Did Whitlam/Hawke/Keating cause it? I don’t know.

But it is 30-40 years later. World financial markets, the people in government, the structure of government, the structure of business and international relationships are completely different.

Most of the politicians from that time are dead, or close to it. Today’s political parties are different from those of yesteryear.

Is Bill trustworthy? I don’t know him from a bar of soap. I’ve seen video clips and he talks about Labor policies. I’ve seen video clips of Morrison and other #LNP pollies and whenever they are asked a question, their answer goes something like “Well, Bill will tax, tax, tax and labor, labor, labor, then they mumble something about the budget being in surplus next year”. Which they’ve been saying for the last 6 years.

Are there dole bludgers that will take advantage of an increase in the dole? Sure, but I’m sure it’s a small %. I’d rather our government gives our taxes to people struggling to eat who will spend that money in their local community than sending it offshore to the Caymans via their big donor mates.

Oh dear, I’ve done it again. I could go on all day, but what’s the point?
Catch you later guys! Hope you’re all well.

As you can see, I’m not….

Egging

Ok, so it’s been a long week and I’m struggling with it being my 50th birthday today. So, cut me some slack please. #EggBoyHero#auspol#votethemout

It has become apparent that there is some confusion about the legal status of an “egging” in Australia.  There are various opinions on what is and isn’t acceptable and it is apparent that we need to document some rules to apply in future events.

I would like to propose some Eggislation with the following guidelines:

  1. Firstly, physically interfering with someone’s person is generally considered assault and, as such the perpetrator of an egging should be aware that:
    1. They will likely be charged and found guilty of common assault, assuming no physical harm comes from the act, in which case, more serious charges may apply
    1. Targets may have personal protection measures in place and the officers in charge of that protection may implement physical measures to protect their principal
    1. Accordingly, egging perpetrators should be aware that they are likely to suffer physical interference whilst enacting said egging which may result in physical injury
    1. Egging perpetrators will have to pay $1000 in reparations to the target of the egging
  2. With that said, sometimes the democratic process fails and more visible, physical action is deemed necessary by one or more individuals
  3. Actual political assassination is still considered undesirable in Australia and so an egging is considered the ultimate rejection of a public figure and, where applied to a sitting member of parliament:
    1. Is synonymous with an actual political assassination
    1. As such, the target of an egging (Eggee) should consider themselves mortally wounded with their political life in immediate danger of annulment
    1. For the egging to be considered successful, a subsequent change.org petition to have the member of parliament removed needs to get 1 million signatories
    1. A second change.org petition will be created to obtain signatures by those that feel the Eggee should retain their role
    1. Should the second petition obtain more votes than the primary petition, the target will keep their role
    1. Should the first petition obtain 1 million signatures (and assuming the second petition does not gain more signatures), both petitions will be presented to the Governor General who will:
      1. Request the Eggee to “Show Cause” why they should not be expunged from parliament
      1. Review the facts of the matter and make a determination as to why the will of the people should not be acted upon
      1. Should no good reason be found to overrule the will of the people, the Eggee will have their governmental appointment annulled and lose any and all subsequent rights, pension entitlements, etc. arising from their parliamentary role

Dividend Franking Credits and Labor’s Policy to Remove Refunds

The thread below evolved on Twitter yesterday and it made me realise that:

  1. Not everyone understands Dividend Imputation
  2. There are some elements of Labors plan to cut Dividend Imputation Credit refunds that might be unfair to a small group of people

Current info (as at 31/1/19) from the Australian Taxation Office about franking is at https://www.ato.gov.au/individuals/investing/in-detail/investing-in-shares/refunding-franking-credits—individuals/

What it essentially means is that anyone earning an income and is on less than the corporate tax rate gets to offset some of their personal tax liability with the franking credits. At the moment, in the below examples, Persons A and C still get tax refunds of some of the franking credits.

DescriptionPerson APerson BPerson CPerson D
Salary/Wages$18,000$30,000$30,000$0
Tax Payable$0-$2,242-$2,242$0
Fully franked dividends$10,000$0$10,000$10,000
Value of Franking Credit$4,285$0$4,285$4,285
Net Income$32,285$27,758$42,043$14,285

My understanding is that, under Labor’s plan, person C will still get a refund of some of the tax credits, whilst Persons A and D would lose the refund of $4,285. Neither of those people could be considered wealthy based on the numbers above.

As soon as Person C stops working, they lose the ability to claim those excess franking credits.

One comment on the Twitter thread was that “anyone with $200,000 worth of shares is wealthy”.

As with everything, the bigger picture needs to be taken into account. For example:

  • If that person bought their shares in a float 20 or 30 years ago and took advantage of Dividend Reinvestment, then they may have only invested a relatively small amount of money
  • If they are now forced to sell their shares they have to pay capital gains tax on their shares when they sell them and they lose the benefit of the dividends
  • If that person did not seek sound financial advice (or if they sought unsound financial advice from a bank or other predator…) during their working career and is retiring (or made redundant) then they may not have invested in the most tax advantageous manner (i.e. Superannuation)

Meanwhile, the wealthy have poured (and can continue to pour) stacks of money into superannuation and can receive their income, tax free – https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/tax-and-super

My point is simply that a blanket rule change can unduly affect the less well off in society, whilst the rich still have big super accounts and other investment structures that mean they won’t pay much, if any tax anyway.

I think if Labor introduced a modest means test, especially for renters that don’t own any investment assets, then that would be a good thing and allay the fears of many.

With that said, cancelling the dividend refund will simply encourage the rich to put more funds into superannuation or other tax advantaged structures and investments.

Please note, I am not an investment advisor or qualified accountant. I don’t have a big share portfolio and have spent 20 years running a business that isn’t likely to be worth much if I can ever retire. I do have a discretionary family trust which was meant to be used to build family wealth in, but the first 15 years of business put us significantly behind. I should have just rorted the government as a contractor and I’d have earned 2-3 times as much money in the last 15 years. I’m just really frustrated by our current crop of political leaders that release policies that are unfair on some whilst the rich just keep getting richer due to their political influence. I really hope Labor remembers to represent everyone and doesn’t bow to the unions as has happened in the past.

The Problem with Expecting Government to Lead Progress

The problem with our approach is that there is an assumption that our political leaders are our progress leaders.

Legislation and regulation cannot promote progress – all laws are aimed at controlling, limiting and restricting.  Where a law appears to provide a benefit and progress (e.g. education for all) it comes at a price that is imposed and enforced through legislation (i.e. taxes, which, if you don’t pay, result in you ultimately being forcibly brought in front of a court).

Even those laws that are “fair” come at a price to those that previously had advantage or privilege.   

Our political leaders are thus faced with an impossible task – to promote progress by imposing rules.

The underlying principles of a democracy are the separation of state (the rules that establish the country and how it is governed), the legislature (the parliament consisting of the politicians that make the rules), and the judiciary (the courts and legal processes that enforce the rules).

Significant progress comes from those that not necessarily break the rules, but those that figure out how to ignore the current rules and achieve progress regardless (or in spite??) of those rules.  The political leaders that are able to do that have various imperatives (ignoring the same ones as the rest of us – family, housing, etc):

  • Primary – to abide by constitutional and parliamentary rules that permit them to keep their jobs
  • Secondary – to continue to be endorsed by their political party
  • Tertiary – to get re-elected at the next election
  • Quaternary – to make the country a better place for their electorate through appropriate legislation

It’s no wonder they can’t make decent policy – they have to avoid pissing off the greatest number of people, rather than doing what is right!

For example, implementing laws that are aimed at saving the Orangutan by limiting deforestation, requiring certified sustainable palm oil plantations and production are only really effective if everyone covered by those rules abides by them.  There are always desperate people that can’t feed their families that are going to feel that Orangutan meat is a viable food source.  The only way to save the Orangutans is to:

  1. Make sure all the people in the areas where Orangutans live have all their basic needs met:
  2. Adequate housing
  3. Proper education
  4. Effective health care
  5. Meaningful (to them) employment
  6. An environment that holds a significant promise of a better life by doing something other than killing Orangutans
  7. A safe environment free of oppression and exploitation
  8. Implement laws that prevent corporations from exploiting natural resources
  9. Almost no more deforestation (where deforestation is necessary, e.g. building a train line, then massive reparations need to be made – e.g. knock down a tree, plant 10 more (not that that alone deals with the habitat loss)
  10. No more widespread and wholesale destruction of land in the pursuit of the minerals beneath
  11. The cost of remediating any damage needs to be factored into large scale projects and put into trust at the beginning of the project

Unfortunately, without the opportunity to profit from some sort of exploitation, many companies will go out of business and 1st world economies will crash.  Profitable business is based on finding a resource that is cheaply available, adding value and then selling for a profit.  It’s always easier to just chop down a tree for timber than it is to plant the tree, wait 20 years and then harvest it.  It’s also much more difficult (probably impossible) to mass produce clothing in a country with employment laws such as ours and sell them at a price that is competitive with the clothing imported from a country where wages and working conditions are much lower.  This goes for just about everything.

With so few Orangutans left in the wild and in limited locations, the challenge is large, but manageable (tongue in cheek) – probably only a few 10s of millions of people in Indonesia need to be accommodated.

Even in countries such as Australia where, few of us need to individually exploit the environment to take care of most of our basic needs, we:

  • Have higher expectations of what “basic needs” are (how many iPads, phones and computers do we really need in one house???)
  • As a well-regarded society with high living standards, more people want to come to our major cities, which pushes prices up making housing more unaffordable for the majority
  • With health care advances, the cost of healthcare rises, requiring more regulation and taxes
  • The general approach to investing and economics requires us to raise capital and provide a return on that capital.  The government is especially fond of saying that we need to attract foreign capital to allow us to build infrastructure and other costly projects.  They overlook one simple fact – the reason foreign capital wants to come here is that the owners of that capital expect to take much more money back out over the longer term
  • Ultimately, all “progress” has a cost and someone or something is taken advantage of.  The best we can hope for is that the cost/disadvantage is one that someone else is happy to pay (if scientists invented a drug that prevented cancer, dementia and heart disease, but that drug cost $1million per year, per person, then only the rich would have access to that)

With climate change, the challenge is much more difficult as the ultimate solution is to lift the living standards of all people throughout the world.

The elephant in the room is that, if you provide all people around the world a good, basic standard of living, then they will all want to improve that standard of living, adopting the issues of more advanced countries such as Australia.

Where climate change is concerned, in a democracy, the politicians simply cannot afford to take a long term view and implement appropriate laws.  If they:

  • Put in place a carbon tax that increases the cost of living for all,
  • Simply ban the use of plastics without the company that generates those plastics having to guarantee that 100% of the plastics will be recycled at the end of the products lifespan then pretty much all imports will stop and the economy will grind to a halt and we’ll all starve,
  • Ban the use of fossil fuels, more people will die from heatstroke (god forbid we have to give up our airconditioning), starve (how the hell would we distribute food throughout the country without fossil fuels?), and not be able to get to work,

Then there will be a backlash at the next election (or earlier if they lose the support of their party as happened last week) and the laws will get changed and adjusted.

Slow and steady is the approach of the parliament.  Don’t rock the boat too much. 

Australians seem to treat their parliamentarians and the parliamentary system as just another sporting arena – my party beat your party! 

I’m not suggesting we abandon the political system we have, but there needs to be a separate entity focussed on national and international progress.

All Australians (or all humans?) should belong to it and reap the benefits of it. 

What our Politicians Don’t Seem to Know about Small Business Tax Cuts

This was written in early 2016 when the government was trying to buy votes for the election with random, ill thought out announcements. I never finished it to a point that I was really happy, but the underlying thoughts are still valid.


Once again, I feel compelled to write my thoughts regarding something our politicians are promoting.

This hyping of tax cuts for small business is extremely annoying as, at best, it is increasingly apparent that our politicians really don’t understand the real world and, at worst, the politicians are engaging in “Econobabble” (reference Richard Denniss’ book) and actively trying to mislead (or dare I say deceive) the voters.

Here are some key comments:

  • Firstly, they are not tax cuts for small business – they are tax cuts for small companies with annual turnover of less than $2 million (https://www.ato.gov.au/General/New-legislation/In-detail/Direct-taxes/Income-tax-for-businesses/Small-Business—tax-cuts-for-small-business/) (Note that even the ATO website attempts to mislead by using “Small Business” in the page title)
  • Partnerships, sole traders and trusts are not included
  • Tax is calculated on net profit.  Wages, salaries, superannuation, rent, equipment leases, office expenses, staff training, telephone, internet, etc are paid for BEFORE tax is calculated (see examples later).  As such, reducing the tax rate has absolutely no effect on wages – it doesn’t give the business the opportunity to pay a higher wage to staff
  • Basic financial planning says that you don’t build your wealth in your trading entity.  What that means is that most small business owners want to move profit from the small business to a trust or personal investment structure
  • A small company that has made a profit and paid tax, then has a tax credit in it’s “franking account” with the tax office.  Those “franking credits” can then be paid as part of a dividend when the profit is paid out of the business.  This means that tax paid by a company is only partially kept by the government – it often has to be paid back to the dividend recipient in later years!!
  • As with everything, there is no one answer
    • My conclusions within this document will not apply to 100% of businesses 100% of the time
    • Some business owners like to build cash and franking credits within the business as they increase the value of the business when it is sold.  However, business owners that do this would normally have their personal finances well under control
    • Most small business owners that I know need to take the profit in order to cover their personal expenses

Note that in the following examples, it is assumed the owner is taking a “normal” salary and not taking profit in the form of a higher salary or any other means for extracting profit from the business without it showing as profit.

Some notes about the calculations in the following examples:

Turnover$1,000,000$1,000,000$1,000,000
Expenses (salaries, rent, office, leases,etc)$500,000$900,000$1,000,000
Net Profit$500,000$100,000$0

Tax @ 30%$150,000$30,000$0
Tax @ 28.5%$142,500$28,500$0
$7,500Net Benefit to Business$7,500$1,500$0

In none of these cases, is the amount left in the business sufficient to buy equipment that is not normally deductible (i.e. goods over $20,000 can’t be deducted as expenses at present, so purchase of a car or other equipment requires significant capital, or a loan).  However, in many cases, businesses lease these items so they are fully deductible as expenses anyway.

Even when the ability to immediately write off purchases of up to $20,000 returns to normal ($1,000) at the end of the 2016/2017 financial year, the $7,500 saved by the business that made $500,000 in profit is laughable.  If the business is making $500,000 in profit, then the $7,500 is meaningless from a business growth perspective.

Lets follow a few options for the highly profitable business to pay out it’s profit.

Scenario 1 – 30% Company Tax, profit paid as a dividend

Scenario 2 – 28.5% Company Tax rate

Highly profitable business comparison

  • Structuring is much more important than tax rate
  • Reducing the company tax rate:
    • actually increases the tax payable by the owner who doesn’t make use of structuring
    • marginally ($1293) reduces the tax refund payable by the tax office
  • For a business like this, reducing the company tax rate actually raises more tax!

Lets try it again for the somewhat profitable business

Scenario 1 – 30% Company Tax, profit paid as a dividend

Scenario 2 – 28.5% Company Tax rate

Somewhat profitable business comparison

  • Reducing the company tax rate:
    • actually increases the tax payable by the owner who doesn’t make use of structuring
    • marginally ($208) reduces the tax refund payable by the tax office
  • For a business like this, reducing the company tax rate actually raises more tax!

Conclusions

  • Structuring is much more important than tax rate
  • Treating small business on a year by year basis is not particularly fair, because, by the time a small business starts to make a profit, there are often a number of years where the owners of the small business have made no profit and, in many cases, have under earned during the startup years.