Tax rorts

Richard Denniss had a list of tax rorts in the AFR this morning:

While super is the biggest tax rort, it’s not alone. The 50 per cent tax discount for income from capital gain, which cost the budget $5 billion this year, is as inefficient as it is inequitable. The 100 per cent tax discount on capital gains on family homes worth more than $5 million makes even less sense. And let’s not forget family trusts, fuel subsidies for the miners and that Google pays virtually no Australian tax.

Heaps of wishful thinking there. What really jumped out at me, however, was the notion that the family home be included in the capital gains tax net. What makes this proposal interesting is that if the capital gain were included in your tax, then the expenditure in generating that capital gain should be deductible. So is Richard Denniss really suggesting we extend negative gearing to the family home?

His inclusion of the idea of fuel subsidies for miners indicates that he learned nothing from our debate last week. The Google tax idea is not a go-er. I have a paper on this point (pdf) arguing that there is little actual evidence that corporate tax bases are being eroded.

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55 Responses to Tax rorts

  1. Bruce of Newcastle

    Anyone earning less than about $60,000 is paying more tax on their mandatory super contributions than on their other income. And they have to wait until they are over 60 to get at it. Meanwhile they risk arbitrary lefties like Dr Denniss stealing it all before they can access it. As happens in countries like Argentina.

    Yet it is supposed to be an investment by the government in order to reduce the cost to them of pensions, by requiring people to plan for their own future.

    For an economist Dr Denniss is amazing. Which uni did he go to? Pyongyang?

  2. Sometimes the tragedy of war is not how many were killed, but how many were not killed, and thus were able to breed things such as this feller.

  3. Alfonso

    Super: an evolving strategy for a compulsory self funded pension ( ie. annuities) and all the free tram tickets you can use.
    Because the Institutions need to capture your Super permanently for use by the statists.

  4. Andrew

    So I invest (by definition) from after-tax savings. Pay income tax on anything it generates, and then half tax in gains as well even if less than inflation.

    This thing considers that inequitable. And what’s more: Inefficient!

    Apparently the multiplication by 50% introduces a huge inefficiency! And encouragement of savings and investment in businesses, or the creation of housing for people who can’t or won’t house themselves – all inefficiencies! The economy would work much more efficiently in the absence of housing or savings.

    Where was this published? The Socialist Alliance paper?

  5. stevem

    No way should the family home be subject to capital gains tax. Stamp duty on homes should be abolished. Both these two taxes are huge disincentives to moving house. People should be actively encouraged to move home when they change jobs. Being closer to a new job places less stress on roads and public transport infrastructure.

    Stamp duty makes such changes unviable – adding a CGT means people would never move Empty nesters would be even less incluned to downsize.

  6. H B Bear

    Another series of gags and the usual errors from Richard Denniss of the independent Australia Institute (as the ALPBC always seems to introduce it).

    Actually getting rid of the CGT-free status of the family home and including it in social security tests makes a lot of sense. Mortgage interest would, of course, be fully deductible – so the couple of decades most people spend up to their eyeballs in debt to the banks would have a real benefit in tax foregone. It might actually encourage people to look for actual income generating investments that employ other people too.

    The more you look at Keating’s superannuation plan, particularly after Costello’s tax free give aways, the less sense it starts to make.

    Still, I suppose Denniss will get his 15 minutes of fame on the ALPBC, which you always suspect these exercises are intended to generate anyway.

  7. Wozzup

    Why do the Left regard it as a tax rort when the benefit goes to someone who works and strives and achieves, but legitimate social policy when the benefit goes to someone who sits on their arse and does nothing for 40 hours a week except constantly put their hand out to demand more and more government hand outs? It seems that any inducement to the middle classes to help them save and earn is regarded as illegitimate by the Left. Can someone please explain why measures to encourage people to save for their own retirement so as not to be a burden on society are regarded as a rort? The problem with those who are of the Left is that they regard the income you and I earn as rightfully belonging to the government – and if you listen carefully to them its clear that they believe that the few scraps that the government allows us to keep should be minimized by taxation policy and in any event regarded as ill gotten gains that we should be made to feel guilty about. That subtext is constantly there and rammed down our throats. But do not fall for this socialist bullshit which seeks only to turn this country into a communist state under the central control of a socialist government.

  8. Craig Mc

    So is Richard Denniss really suggesting we extend negative gearing to the family home?

    No. As usual, dumbasses like Denniss never think to look at the flip-side of the coin.

    And SteveM: Agreed 100%. Stamp Duty and payroll taxes are two of the stupidest government imposts going.

  9. Ant

    People like Denisssssss always get things arse-about.

    They start with the premise that the money you make belongs to someone else – usually people like himself, especially when the left are in power, so that they can shuffle it around in whatever way their brilliant mastermind brains can fancy.

    So if you make $100k/pa, every cent belongs to the government, which then deems how much of it you are worthy of.

    They think this way because they reckon you’re too stupid to spend it wisely yourself. They’re here to help you, don’t you know.

    Besides, how else would these geniuses be able to enjoy their perked-up tenured existence if they had to actually work to convince you of their worth.

  10. Snoopy

    His inclusion of the idea of fuel subsidies for miners indicates that he learned nothing from our debate last week.

    Please don’t tell me you expected different.

  11. H B Bear

    His inclusion of the idea of fuel subsidies for miners indicates that he learned nothing from our debate last week.

    Pleeeeease. This Leftist meme is now an accepted fact.

  12. Notafan

    What a nightmare taxing the family home would be, possibly thirty or more years of records for every repair and improvement, the mortgage records, the disincentive to move and then if you did make a profit less money to buy a replacement property (unless one is planning not to live somewhere anyone)
    We do need more affordable housing but not via the CGT.

  13. Notafan

    Is this the same thinking as the 80% tax guy who doesn’t think the workers would, quite rightly, think it was time to join the moochers.

  14. Johno

    His inclusion of the idea of fuel subsidies for miners indicates that he learned nothing from our debate last week.

    He had absolutely no intention of leaning anything. It’s not like he has an open mind on these matters.

  15. Aussieute

    Denniss view is that ALL money belongs to the government … period

  16. manalive

    The mortgage-interest on principle family homes is deductible in the US and apparently is the major federal tax break for the middle class.

  17. Tel

    Can someone please explain why measures to encourage people to save for their own retirement so as not to be a burden on society are regarded as a rort?

    Because the rightful place for every individual is perpetually begging at the hand of the State, servile and grovelling to the political classes. Surely you aren’t one of those subversives who believes you have some small entitlement to shape your own destiny?

  18. Notafan

    I think the US charge a capital gains tax on homes above a certain threshold, don’t know what they do with losses.

  19. Mitch

    I feel like real issue is that the family home isn’t included in calculating entitlement for the aged pension?

  20. Aynsley Kellow

    Notafan – and mortgage interest is tax deductible!

  21. tomix

    The hunt for the missing revenue is on. Who are the economic wreckers denying the feds their rightful share?

  22. So is Richard Denniss really suggesting we extend negative gearing to the family home?

    Well it should be extended to the home or it should be scrapped. Probably better for it to be scrapped. Calling interest expenditure is daft in the first place.

  23. eb

    Calling interest expenditure is daft in the first place

    Don’t talk rubbish, Driftee

  24. JC

    Sinc

    Ignore Denniss or just mock him. In some ways he’s worse than Clive Hamilton.

    (Does anyone know why Hamilton left that flea hole in such a hurry. My personal impression was that it wasn’t an amicable parting of ways.)

  25. ar

    Sinc read it so others don’t have to… thanks for your service :)

  26. Tim

    Yeah, if you put CGT on the family home, the interest wouldn’t be deductible in your yearly income tax return, just added to the cost base of the house when you came to sell it. You can only claim the interest as a deduction if you earn income from it.

  27. .

    The idea of rorts is laughable.

    Government ought to be re-examined from the ground up. What doesn’t have a positive ROI should go. Any social legislation or redistributive programmes should be cut to the bone save for actual dollars in the hands of the indigent, for equity and efficiency.

    From there, we ought to aim to have a few simple, economically efficient, flat taxes to raise enough revenue to balance the budget.

    The idea that a mess of governance and decades of plans tacked on to each other lacks funds and anything short of high, pervasive taxation for all needs to exist to fund such a mess, is very wrongheaded.

  28. 3d1k

    I agree with JC above. Deprive Denniss the oxygen of publicity. The fact that AFR stoops to publishing him indicates underlying ideology…

  29. Notafan

    Aynsley, indeed, as mentioned further up the thread by manalive. I believe.

  30. MACK1

    It’s your simple-minded socialist mentality – tax as you earn it (income tax), tax as you spend it (GST) and tax on whatever is left (rates, land tax, wealth tax, inheritance tax, capital gains tax, fuel tax, road tolls etc etc). If you dare to study hard, work hard, save carefully and invest sensibly, we’ll just take it from you. Then we’ll all be equal – at the lowest common denominator. Hardly a formula for prosperity.

  31. Rob MW

    Why fuck around with Denniss at all ?

    He doesn’t even have the economic nous of Stalin’s left nut and; the right one he allowed the ‘State’ to put in a jar of alcohol for sustainability of the commie gene-pool.

  32. Wozzup

    “It’s your simple-minded socialist mentality – tax as you earn it (income tax), tax as you spend it (GST) and tax on whatever is left (rates, land tax, wealth tax, inheritance tax, capital gains tax, fuel tax, road tolls etc etc). If you dare to study hard, work hard, save carefully and invest sensibly, we’ll just take it from you. Then we’ll all be equal – at the lowest common denominator. Hardly a formula for prosperity.”

    Well expressed. That is precisely what I was railing against. Australia is slowly but surely slip sliding into socialism. No – correction, quickly slipping into socialism. Unless we make a stand against it and support a Liberal government that will fight it at every turn.

    The fundamental issue is even more scary. The socialist mantra is “FROM each according to his ability TO each according to his need” In other words, work hard, learn, earn and we will take it from you to give to the lazy inept and incompetent in society. This is not just about providing a safety net for those in need (which is what they will say in order to justify it) – its about fundamentally changing society.

    Here is the socialist creed in full:

    I. Nothing in society will belong to anyone, either as a personal possession or as capital goods, except the things for which the person has immediate use, for either his needs, his pleasures, or his daily work.

    II. Every citizen will be a public man, sustained by, supported by, and occupied at the public expense.

    III. Every citizen will make his particular contribution to the activities of the community according to his capacity, his talent and his age; it is on this basis that his duties will be determined, in conformity with the distributive laws.

    I don’t know about you, but the thought that this thought is still alive and apparently flourishing in Australia in 2014 scares the living be-jesus out of me. The thought of Australia crushed under the dead weight of a socialist government makes me want to vomit with apprehension and fear.

  33. duncanm

    I have a recurring discussion with a co-worker – he reckons negative gearing is a rort and should be abolished. I point out that the investment rules for RE are consistent with other assets: You deduct expenses (interest on borrowings, repairs, outgoings), and pay tax on profits (rent, capital gain).

  34. JohnA

    The 100 per cent tax discount on capital gains on family homes worth more than $5 million makes even less sense.

    Of course it doesn’t. Because he has that wrong.

    There is a 100% deduction of capital gains on the ‘main residence’ with up to 2 hectares of surrounding land, subject to some limitations. I have yet to find any such lower limit as $5million expressed in the ATO website data.

    There is also an equivalent 100% removal of any capital losses relating to the same ‘main residence.’

    Maybe he should start with the facts – difficult as that may be for his frail mind.

    Vroomfondel shouted, “We don’t demand solid facts! What we demand is a total absence of solid facts. [Hitchhikers Guide to The Galaxy]

  35. MemoryVault

    Wozzup

    Unless we make a stand against it and support a Liberal government that will fight it at every turn.

    If you’re referring to our current “Liberal” government, this is a joke, right?
    Otherwise, you forgot the /sarc tag.

  36. Motelier

    I have found all of the discussion about the tax benefits of owning your family home interesting to say the least. I have purposely refrained from commenting for a number of reasons

    I was told a long time ago by a great uncle that wealth was generated by the accumulation of assets. My great uncle was demonstrating to me that the wealth of the individual is enhanced by purchasing assets and then holding those assets for as long as possible. This includes intergenerational wealth.

    The family home (and any other assets acquired over a lifetime) should be viewed as an investment in reducing the drain on the taxpayer. This drain on the taxpayer is intergenerational and can be reduced by the “willing”of assets through generations.

    CGT and Death Duties (Death Duties will always be the wolf at the door, yes I know we do not have them but Death Duties will always be the next step) are loved by the “your money belong to me crowd” because they have to fund lifestyles that can not be sustained by their own hard work.

    The comment way up thread about then building in the provision of claiming repairs and such, and those tax invoices being held until the sale of the property is proof that those that are promoting CGT have not thought it through. In effect another case of unintended consequence. For example, the assets of the deceased can not be distributed until a public servants makes a decision on the value of claims and the value of the property.

    These brain dead thoughts about the family home will cost far more that will be gained because of the numbers of public service staff to administer it.

    If I build up a bank of assets that I can fund until my demise without assistance from the state then I need no assistance from the state. These assets are my families and should be passed on. If they make a stuff up and go bankrupt then that is beyond my control I can not control from the grave

    However, I do work hard to provide my descendants the best start in life.

  37. wreckage

    Why don’t we just abolish capital gains tax altogether? Then we don’t have that awful inefficiency…

  38. gabrianga

    Will someone please just wipe away the evidence of another bout of verbal diarrhoea from Dennison’s lips.

    Near 25 years ago Chris Harris was spewing the same garbage (and more)) on behalf of the “neutral” Australia Institute but seems he has gone or maybe just a backroom hack now the “Professors” have taken over.

  39. Squirrel

    Unsurprising as those suggestions are, at least Mr D has put forward specific areas for debate – much more, so far, than we’ve had from the Leader of the Opposition.

  40. Blogstrop

    Rort? WTF?
    I hereby redefine Denniss’s misused word rort as being any money paid to him beyond what’s required for three bowls of thin gruel per day.

  41. Shelley

    Yep, had this conversation yesterday with someone, whereby the thought that negative gearing is a rort. He is a socialist through and through. Talked about the top 1% owning all the world’s wealth blah blah, even managed to get a dig in at Gina and co. It is very worrysome because no longer can we just dismiss their socialist/communist goals as fantasy, it is here now (as others have alluded to in better expressed posts).

  42. Gab

    even managed to get a dig in at Gina and co

    Did that person also have a go at Clive Palmer, the “billionaire” politician and miner?

  43. Foggyfig

    Gab,
    The billionaire and miner part of Palmer is in the forgettery.

    Therefore he never needs to be mentioned in the same breath as Gina :D

  44. Indigo

    The family home is an asset, therefore mortgage interest and maintenance should be tax deductible. I think this is the case in the U.S., at least for interest.
    Also, the Singapore government allows superannuation to be used as collateral on home loans – which is why they have the highest level of home ownership in the world.
    Super is an impost on young working families trying to save for a mortgage or paying off a loan. Leveraging super, which you won’t get access until you are 67? 70? or dead?, would make it more palatable and popular.

  45. Dr Faustus

    Did that person also have a go at Clive Palmer, the “billionaire” politician and miner?

    It should also be “miner” in inverted commas. As far as I am aware, Palmer has never built, owned or operated an actual mine. (Although he talks a world-class ‘gunner’ mining story for investment purposes.)

  46. Wozzup

    ” Unless we make a stand against it and support a Liberal government that will fight it at every turn.

    If you’re referring to our current “Liberal” government, this is a joke, right?
    Otherwise, you forgot the /sarc tag.”

    Too true I am afraid. But my point rather is that what other hope do we have. if the present Liberal government will not make a stand I agree, we are stuffed. But I do agree that unfortunately these days most governments of every stripe are full of “lifers” who seem to see their aim as being not to do whats right for the country but rather to occupy the government benches for all their career. Hence they are only too willing to compromise their principles to placate the hoard. If Abbot truly wishes to be viewed as a latter day Howard he better toughen up and start acting like he is committed and has high principles that he is willing to stand or fall by.

  47. Shelley
    Did that person also have a go at Clive Palmer, the “billionaire” politician and miner?

    Oh no, Clive is ‘so in touch with the ordinary person, he gets pensioners and veterans’. Actually that person didn’t say it but I am sure they would have said something similar (as I have heard echoed around the place by other numpties).

  48. Pedro

    Putting CGT on the home would not make expenses deductible, but some cap-ex would go into the cost base.

    There is no good reason to make home mortgage interest deductible that I can think of. If you did that then logically you’d have to deem the owner to be receiving the market rent. What a shmozzle that would be.

  49. .

    I can’t say I like the idea of making mortgage deductible – I prefer removing all of the other bullshit taxes and perhaps income tax altogether, or making CGT, income & company tax all the same with a much lower rate.

    Singapore has it right – if you are forced to save, this should not be sequestered from your housing budget.

    This is a very high opportunity cost to accumulate primarily liquid assets which bear a small interest yield or possibly dividends.

  50. Jannie

    I have been talking tax with a Singaporean accountant in the Himalayas. My wife and I have decided in principle to move most of our mobile capital out of Australia before the next election, to a safer haven, Lib or ALP, who cares. I am slow off the mark, so I reckon a lot of Aussies will be doing something similar. For a start I bet the $S will outperform the $A, and no tax on foreign investments. We have been doomed ever since they started describing tax increases as “Savings”.

  51. .

    I reckon the carry trade backs that up. Comparing GDP forecasts and changes in monetary policy seems to say that is going to happen.

    Also, talking about hitting up superannuation? I can’t believe lefties have the gall to argue there is no sovereign risk in Abbott’s dumb claim on super, or Shorten’s idea of forcing us to buy infrastructure bonds with super.

  52. Jannie

    Dot, I still have to wait 2 years before i turn 60 and I can get my Super accounts in my own hands and take the money and run. Meantime it’s in the safe hands of the Libs and Super Boards run by the likes of Paul Howes and various semi retired Union hacks. Safe as Howes is.

  53. .

    Lulz

    I thought you got it but you faced punitive tax rates? I suppose this mightn’t be worth it.

  54. RobH

    I had a look at Richard Denniss’s article in AI. He makes some unusual claims

    Tax concessions for superannuation are projected by Treasury to grow at an average of 12 per cent over the next five years. If, like the commission of audit, we simply assume things grow at their trend rates indefinitely then, by 2050, tax concessions for superannuation will cost $2 trillion per year, which will be almost 100 per cent of Commonwealth revenue.

    He seems to be saying that if super is taxed at only 15%, then the Commonwealth won’t have any revenue in 2050. It is hard to take this guy seriously.

  55. DanF

    The 50 percent reduction in profit for CGT purposes is firstly to ensure assets are held for at least a year before being flipped for a profit and to compensate for the fact that inflation erodes the profit.

    If they get rid of the deduction they will have to allow for inflation over the holding period so that a real profit to be taxed can be acertained. Otherwise investors could be stung with paying a tax on profits that never actually occurred.

    The 50% rule is a quick and dirty substitute for an annual countback approach which does favour assets held for shorter periods but at least is simple to understand and calculate.

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