The short answers are that:
Total budgeted spending in 2014 is $415.3 billion.
Total budgeted revenue in 2014 is $363.5 billion.
It doesn't take anything more than third grade maths to work out that $415.3bn - $363.5bn = $51.8bn. That $51.8bn represents the shortfall of revenues collected as opposed to spent.
I've had a number of discussions on Twitter and of various forums for a while now and there are generally two types of people:
1. Those who think we need to cut government spending - but who aren't specific enough to decide where.
2. Those who think we need to raise taxation - but who aren't specific enough to decide how.
Let me begin this by suggesting that I also don't have many of the answers but I do have many more questions.
The universal fact about everyone in any economic system is that everyone is looking for how they can get what's best for them. The father of Ecomics Adam Smith, even begun his 1759 book The Theory of Moral Sentiments with the line "However selfish man may be supposed" and it was from this point where he builds his later works such as The Wealth of Nations (1776), Essays on Philosophical Subjects (1795), and Lectures on Justice, Police, Revenue, and Arms (1763).
The selfishness of mankind is a good standpoint to begin from since I very much doubt that it's possible to find holes in. Equally noteworthy is former Liverpool FC's manager Bill Shankly who said that:
"If a player is not interfering with play or seeking to gain an advantage, then he should be."
If both transfer payments and taxation law are subject to everyone gaming the system as much as they possibly can, then its worth asking questions about what the outcomes are if you try to act on any given course of action that you intend to take.
If you choose to cut spending, then really what you are asking is "who do you choose that gets to suffer as a result of your actions?" If you choose to raise taxation, then really what you are asking is that same question, "who do you choose that gets to suffer as a result of your actions?" The problem with any policy to do with transfer payments and taxation law is that you're guaranteed to give the irrits to someone.
Suppose you choose to look at the biggest chunk of government spending which is Social Security and Welfare at $140.57 billion - then what?
If you look at the emotive issue of "dole bludgers" living on unemployment benefits, such as the Daily Telegraph did yesterday then if you assume that all disability and unemployment benefits which are currently being paid out, are paid on fraudulent claims¹, then that's still less than 9% of the budget.
Of that $140.57 billion, $98.1 billion or 69% of all transfer payments are made to old people, veterans and families with children. If you do happen to be an old person whose only source of income happens to be from a government pension, then you are living in fairly dire circumstances. A couple on a full pension gets $30,446 per year; if they were living in the house that I rent, then you're left with only $205.55 per week to play with and from that, you have to find all of your electric, gas, water, grocery and transport bills.
On the other hand the Federal Government only collects $6.5bn in taxes from Superannuation Funds. The Department of Treasury esitmates³ that the amount of taxation foregone as a result of superannuation concessions amounts to more than $30billion a year; when you also take into account things like capital gains tax concessions and the like, you can add another $30odd billion to the amount of tax foregone.
Personally, as someone who deals with taxation in an accounting firm, I see many claims for tax deductions which I think are fraudulent.
If you look at the emotive issue of "dole bludgers" living on unemployment benefits, such as the Daily Telegraph did yesterday then if you assume that all disability and unemployment benefits which are currently being paid out, are paid on fraudulent claims¹, then that's still less than 9% of the budget.
Of that $140.57 billion, $98.1 billion or 69% of all transfer payments are made to old people, veterans and families with children. If you do happen to be an old person whose only source of income happens to be from a government pension, then you are living in fairly dire circumstances. A couple on a full pension gets $30,446 per year; if they were living in the house that I rent, then you're left with only $205.55 per week to play with and from that, you have to find all of your electric, gas, water, grocery and transport bills.
On the other hand the Federal Government only collects $6.5bn in taxes from Superannuation Funds. The Department of Treasury esitmates³ that the amount of taxation foregone as a result of superannuation concessions amounts to more than $30billion a year; when you also take into account things like capital gains tax concessions and the like, you can add another $30odd billion to the amount of tax foregone.
Personally, as someone who deals with taxation in an accounting firm, I see many claims for tax deductions which I think are fraudulent.
I would like to see a comparison for instance of the vehicle registrations from state agencies like NSW's Roads and Maritime Services or Queensland's Department of Transport and Main Roads, to have a look at what sort of cars are being claimed as business registrations. I bet that once you go a little past the ATO's Luxury Car Tax threshold² of $61,884 that virtually no cars will be registered in private hands. Because they aren't registered in private hands, they'll also appear on the books of companies and be eligible for depreciation and things like salary sacrifice.
Are you as a taxpayer really happy that people who are usually the best well off, are claiming expenses like running costs such as petrol and oil, car washes, depreciation, registration, motor insurance etc. through taxation? You are subsidising them. I'd even go so far as to say that apart from tradies' utes and vans, the actual real world percent of actual business use is less than 1%.
And that's just motor expenses.
How many other expenses are being run up through companies? Things like airline travel and other accommodation and travel expenses, entertainment and meals, people's personal use computers. The list goes on and on.
I find it astonishing that Individual Income Tax and other Withholding taxes amount to $163.8bn whilst Company Tax is only $68bn. Does that really mean that total wages in Australia actually exceed net corporate profits by more than twofold?
Finding what share of Australia's GDP is owned by companies is notoriously difficult to find but again according to Treasury estimates in 2005-06, the share of Australian company profits compared to GDP4 was 23.2%; however Company Tax as compared with total taxation revenue was only 18.7%. I think that we're being taken for a ride, but someone else has already written off the cost of the diesel to get there.
Finding what share of Australia's GDP is owned by companies is notoriously difficult to find but again according to Treasury estimates in 2005-06, the share of Australian company profits compared to GDP4 was 23.2%; however Company Tax as compared with total taxation revenue was only 18.7%. I think that we're being taken for a ride, but someone else has already written off the cost of the diesel to get there.
We might like to talk about leaners and lifters in the economy but remember, people whose incomes are at the top of the spectrum, whose incomes are more likely to be supplemented by non-work income, are also more likely to be engaged in tax mitigation schemes and yet they're never really asked to bear the burden of taxation. The actual burden of taxation is mainly borne by those people who earn too much to gain government assistance but not enough where their capital accumulation is fast enough to replicate itself.
Personally I think that the best way to solve the problem is to freeze taxation rates and let bracket creep take over and then adjust the brackets later. The other thing which I'd do would be to invest in education; so that the workforce of 20-30 years time is more productive and hopefully, they'll be able to generate more incomes from higher productivity. The problem is that at the same time that real wages are falling and investment in education is also falling, there is also a race to the bottom for wages around the world; so collectable taxation from income tax as a result of wages is also falling; yet tax concessions are being given to non-work income.
The problem is that if you ask anyone from the bottom 1% to the top 1% and every 1% in between, everyone thinks that they pay too much in tax; nobody wants to pay.
So, my challenge is... you fix the budget.
Write a reply and leave a comment below... I love to see your workings ^_^
¹Or 80% as the Daily Telegraph might suggest http://www.dailytelegraph.com.au/business/work/investigation-exposes-fraud-within-taxpayer-funded-jobs-services-australia/story-fnkjjdfa-1227237512956
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