Australian Money Forum

[catenaccio]

I am an Australian portfolio manager working in Hong Kong for over 7 years. I am blessed here with paying 15% tax. With my annual compensation my average tax rate would be over 45% in Australia. As you can see, there is zero financial incentive for me to move back unless someone is prepared to pay me 55% more than what I am currently on, which is unrealistic.

What I don't understand is this: Australia has been blessed with record surpluses every year. Sure, they have made some progress - I remember 10 years the top marginal rate of tax of 48% applied to people earning over A$50K, then they increased it to A$70k and soon it will be A$150k. But it is still way too high. Costello was saying that our tax system is globally competitive!? Bulloks. In the USA, the top federal tax rate doesn't come into affect until you earn over US$350k.

I remember, a piece of research written by Macquarie which suggested that cutting the top marginal tax rate from 46% to 36% would cost the government A$8bln. If that was to be the case, the government's budget would still be in surplus. When you think about it, these numbers make sense. There are 11 million Australians in the workforce. It is estimated that only 2% of the tax paying population earn over A$150k - or approximately 200,000 people. If we assume that the average salary in that group of people is A$200,000 - this pool of people have a collated income of A$40bln. If you cut the top tax rate by 10% (from 45% to say 35%), it would cost A$4bln. Of course, you then have to adjust down the lower brackets as well - so A$8bln sounds reasonable.

But here is the thing, If the up-front cost is A$8bln - I guarantee you all that the government would get a lot of that back. For a start, there are 550,000 Australians working off-shore. Most of them are working off-shore for a good reason - higher salaries and/or lower taxes. We currently have a skill shortage in Australia - DIR! If we can attract just 100,000 of those people to come back and work in Australia, I reckon the Aussie government would get back at least another A$3bln in revenue assuming that those people can earn ~A$100k on average.

And also, a lot of people have come up with complicated company or trust structures in order to minimize tax. This is hard to estimate but I think it is safe to say, that in the long run, cutting the top marginal tax rate closer to the company tax rate would result in minimal impact to the fiscal budget. In fact, I would argue that in the long term, it provides more incentive for people to work harder and better themselves to achieve more.

I am sure that the government has done their maths - its not rocket science. So why don't they do it?! Because they think Australians would complain how all the money is going to the rich and that the average AUSSIE BATTLER doesn't see it. I am sick of the AUSSIE BATTLER - Who the hell is battling?! By global standards we have no battlers. Sometimes I think Australian culture is the most socialistic democracy - everyone should earn the same - no-one should be too well off. That sux. The tall poppy syndrome still dominates Aussie culture - "they must have done something bad for them to be rich or well off."

If the tax rate fell to 35%, I would be prepared to forgoe a little money to enjoy the Aussie lifestyle again. But at 45% its just cost me too much.

Australia is losing more of its talented people to other countries because they are offered a better deal elswhere. This will continue until the government does something about it. And if the current government doesn't do it, then it will hardly ever happen. The Liberal government has dominated Australian politics for a long time - they have the ammunition to do it. The labour party is all about the battler and despite having poor leadership - there is a growing departure in Australian culture from this ideal. I hope it continues.

I would welcome any comments on this. In my view, it is the biggest issue Australia has.

[wulfgar]

Presently the tax surplus is being used to buy a portfolio of bank bills via the RBA. This is a very unique system, direct funding of bank deposits via the central bank. It started in 2004.
Government monetarization of debt has been around for a long time. Normally the government would sell T-bonds to the central bank, to inject capital into the market.
The Costello system started in the late 90's. Initially the RBA purchased bonds of Supranationals who turn injected the money into bankbill portfolios.
But direct funding of the banks by the RBA, was traditionally regarded as an emergency measure.
In short, interest rates are being kept lower, by the government cash injection.
This is such a political hot potatoe, that your requests that government stop over taxing. Will fall on death ears.
The Funny bit, is Australian's are overtaxed and the funds then used to make equity like housing even more expensive. Whch is turn nets more tax, which in turn is again injected into the equity bubble. Which again nets tax.
It is rather circular, but nets so much money for the government. That they are unlikely to give it up!
The full implications of this are beyond me?