Welcome to Finance and Fury
A plan for structural reforms to help increase Australians’ ability for upward mobility.
The coalition will likely have enough seats to squeeze through a lot of reforms.
- Income axes going up aren’t much of a concern
- What about the taxes you don’t see directly?
- The effect of these taxes on the economy growth or decline
- How to reduce your taxable incomes?
Taxes – Government revenue source
- Number of taxes – do you know how may taxes you pay each year?
- The average Australians pay at least 125 different taxes each year, 99 to Federal, 25 to State and 1 to Local
- Total tax collected is approximately $528.5 Bn
- Most tax comes from incomes of individuals and businesses – 59% or $312 Bn
- Consumption tax like GST makes up 26.8% was supposed to replace state’s stamp duty
- Business payroll tax makes up 4.7% or $24.7 Bn charged to companies if they have above a threshold employees/wages
- Excises on specific goods – normally ones on top of GST at Government discretion
- Sin taxes – consumption tax on goods which are harmful to society
- Alcohol – the social cost from loss of labour, healthcare, accidents and crime costs
- Tobacco – the effects of smoking are estimated to cost $320 million but the revenue raised is $12 Bn
- Does the additional money go back in to addiction treatment programs to help? Or the general spending budget?
Consumption vs Income Taxes
- Both can’t be kept high
- If consumption tax increases the cost of living, income tax should be lower
- Consuming becomes more costly with consumption tax, putting a strain on upwards wealth mobility
Statistics on Taxpayers
- Individuals and income tax reduction plan for 2022 and 2024
- Helping reduce the burden GST placed onto families from 2001 onwards
- Original plan to protect works from bracket creeps
- With wage growth and inflation going up, if the marginal tax brackets don’t increase too you get bracket creeps
- Abolishing the entire tax bracket 90k – 180k incentivises hard work
- Despite these changes you will still see the top 5% of workers paying a 3rd of all income tax collected
- Someone earning $200,000 pays 10 times more tax than someone earning $45,000 per year
How to reduce certain types of tax?
- GST? Stop spending so much. Further excises on your spending only reduce with less spending
- Income tax? Deductions or salary sacrifice
- Salary sacrifice puts money into super up to $25,000 cap taxed at 15% rather than marginal tax rate
- Deductions give back the costs of investments or work related expenses and donations to reduce your assessable income
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- when you spend more on investments than you earn
- Borrow to invest – home equity
- Get your marginal tax rate back and for a lot of people the amount back will decline from 2024
- Lower marginal tax rates for those earning between $40k-$200k
Franking credits – Shares
- Tax offsets on dividend income
- Buy fully franked dividend yielding shares, but gets added to gross income
- Own 1,000 CBA shares. They pay $4.30 per share in dividend so you get $4,300 of income.
- Plus the franking credit, of $1,843 so total income is $6,143
- Earning a salary of 100k, assessed at 39% the tax would be $2,396 minus the franking credit of $1,843 so net tax is now $523.
- Therefore, the marginal tax rate is now 13% instead of 39%
- But, you will simply pay no tax on dividends if your assessable income is all the way up to 200k, as franking credits offset tax on franked income with a 30% tax rate
Family trusts – No changes to distribution rules
- Still allows flexibility and asset protection
- Own assets and distribute income to the lower marginal tax rate individual
- Gains still get the discount for assets owned longer than 12 months
- Losses, claim against future gains
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Individuals taxation statistics – https://data.gov.au/data/dataset/taxation-statistics-2016-17/resource/4161d1b8-f9e3-4f36-b21d-d5d06b43ed2e