Singin’ the Budget Blues

Published at Apr 21, 2016, in Features

In March 2016, the Government released the Financial Statements for the Federal Government up until February 2016. The deficit is running at approximately $36 Billion for the last 12 months writes Mike Cornips, Director at Options Educator, TradersCircle.

Malcom Turnbull and Scott Morrison have been floating a few tax options into the media, but none seem to have gained traction. Scott Morrison said the focus will probably be on spending cuts to try and balance the budget.

A closer look at the 12 month rolling revenue breakdown shows which sector is doing the heavy lifting in maintaining the current level of revenue.

In the 2 years to February 2016, total revenue has increased by about $21 Billion. Tax collections from individuals has increased by $24 Billion. Tax collections from companies has fallen by about $3 Billion over the same 2-year period. The graph below demonstrates how the economy has shifted in relying on individuals paying a greater portion of tax collected (assisted by bracket creep).

Interestingly, there isn’t any talk on tax cuts to individuals in the political conversation. Instead, talks are focused on the rhetoric that company tax rates should be reduced to make companies more competitive. That certainly would exacerbate the trend below.

Company Tax collected $64 Billion in January 2008 and collects the same amount today. Individual Tax collected $121 Billion in January 2008 and collects $189 Billion today. We definitely need more company tax cuts!

Similarly, Superannuation tax collected $10.9 Billion in January 2008 and collected $6.8 Billion today. This is despite total superannuation assets increasing from about $1,140 billion in 2008 to $2,045 Billion as of 31st December 2015 (source: APRA). Tax collected as a percentage of total assets represents about 0.33%.

There is talk about changing Superannuation away from a tax planning /Intergenerational wealth transfer vehicle into a system whose sole purpose would be to provide a retirement income rather than rely on a Government pension.

Tax reform is unlikely, with the usual crew of rent seekers and vested interests lobbying to maintain the status quo.

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