Watering the Leaves

If you had a limited amount of water and could use it on a tree’s roots or leaves, which would you choose?

Even Forrest Gump could probably tell you that his mamma always said that we put sprinklers on the ground for good reason. Yet, despite this, our Federal opposition is determined to commandeer precious resources away from the roots of our economy and sprinkle them over the leaves.

How else could one describe Bill Shorten’s latest proposal to:

  • double tax share dividends (more on this coming);
  • put the ill-gotten gains through the government’s administrative ringer (creating more needless and unproductive government jobs); and
  • send scraps back to people in the form of personal income tax cuts, the amounts of which have not yet been disclosed?

Concerningly, large swaths of the free-market and economically conservative media have gone missing in hounding this absurdity into the communistic and totalitarian wasteland it belongs. Some are even incredibly suggesting that it could be a ‘political winner’ for Labor.

I can only assume that vigorously debating the inconsequential merits of Barnaby Joyce’s loins for weeks on end must have been conceptually easier and far more thrilling for our chattering classes.

What a joke.

Double-taxing 

This is the most egregious and sinful aspect of Labor’s policy and completely ignores the reality of how companies function – a reality that precious few of the political, media, journalistic and Canberra press gallery classes appear to have any understanding of.

Here’s a crash course guys – come and sit closer and listen carefully to uncle TMR. I’ll try to speak in some of your language while I’m at it…

Companies are separate legal entities, just like real people. However, unlike real people, companies have this ‘game changing’ feature life-hack called separation of ownership and control. For your information, this revolutionary ‘paradigm-shift’ happened about 200 years ago. What it generally means is that:

  • directors control and make decisions regarding a company’s operations; and
  • the company’s owners receive the company’s profits, or ‘booty’ if you will, via this radical thing called ‘shares’. These ‘shares’ are ‘social contracts’ and are needed for ‘equality’ so that we can know how much of the company is owned by each particular owner. We wouldn’t want someone taking something that they are not entitled to now, would we?

What these awesome game-changers mean is that company profits belong to the owners of the company. Yes, that’s right: the shareholders (Well done!).

Now here’s where things get a little a little bit tricky – because you’ll need to be able to count to two (2). You may need to take an ADHD pill…

(It’s ok, I’ll wait…)

(Please, take your time…)

Generally speaking, a company’s profits will either be retained for the company’s continued operations, distributed to the company’s shareholders… or used for controlling the words that the company’s workers are allowed to use (you know, just like China!). However, before any of this happens, the federal government taxes those profits. Afterwards, some of the leftovers can then go to the company’s owners (yes, that’s the shareholders – give yourself a gold star) in the form of this out-of-the-box disrupter called ‘dividends’.

Under the current system, the law recognises the Gump-obvious fact that:

  • the company’s owners have already been taxed on their profits; and
  • it would be unfair to tax those owners yet again on the EXACT SAME MONEY without anything having been done to or with that money before it goes to the owners.

We call this ‘fairness’ – and we do it because we’re not South Sudan.

Labor, on the other hand, thinks that it’s high time we taxed people twice on the same money:

  • once at the time of declaring the profit; and
  • again if people have the audacity to want to transfer some of that declared profit their bank accounts.

This is more than just a ‘new’ tax. It’s a tax on tax and it shouldn’t be legal.

Protection racket

In typical socialistic fashion, Labor doesn’t simply want to appropriate money it should have no right to: it then wants to double down in terms of what it does with it.

This is where things get particularly frightening and it follows the well-worn socialistic pattern of:

  • Create a problem or a tax that will make the country suffer.
  • Watch people suffer.
  • Tell the people that you are the answer to the problem.
  • Give the people some of their money back as ‘compensation’ (after a chunk of it has disappeared through your administration).
  • Say that the rich need to be taxed even more so that we can continue to solve this horrible inequality.
  • Rinse, lather, repeat.

As for Shorten, he’s already shown a pretty solid aptitude for this method:

He (Bill Shorten) thinks that it’s solely the Liberal government’s fault that asylum seekers are spending longer times in detention, even though his team needlessly put ridiculous numbers of them there in the first place when it was in government.

Best of all, Bill feels sorry for Essendon’s banned football players who he claims have been ‘let down by others’, even though:

* they were all grown men who were in charge of what went into their own bodies; and

* it was Bill’s team of political stunt makers who egregiously started this whole train wreck when they were in government, with their ‘blackest day in sport’ farce headed by then Ministers Jason Clare and Kate Lundy. In a complete lack of due process and fairness, they hastily convened a press conference to publicly announce to the alleged perpetrators: ‘Don’t underestimate how much we know, and if you are involved in this come forward before you get a knock at the door’ (yes, this was really said). Needless to say, Clare and Lundy didn’t give a rat’s gluteus maximus about the players or the issue: they were simply following orders to divert the public’s attention away from the ongoing leadership dramas in Gillard’s last days in February 2013 – and a fat load of good it did in the end, other than to create a public circus around a group of professionals, their reputations, incomes and livelihoods. Just imagine if you were subjected to this form of ‘justice’ before ever being charged.

The last two examples represent typical modern Laborthink: pick a mainstream or popular victim and then blame someone else for their ‘plight’ to make it seem like you care, regardless of who is actually right or wrong. Creating the victim’s problem yourself in the first place – so that you can be there to put your hand on their shoulder later on – is also a frequently exercised option in this strategy.

If the mafia did something like this, it would be called a protection racket and people would rightly be put in jail for it.

How some of the most intelligent people in our society can’t see that this is precisely what Labor regularly does ON AN OUTRAGEOUSLY LARGER SCALE simply astounds me.

Drying the roots and watering the leaves

Business and enterprise are the roots of an economy. Without them, there are no jobs and there is no economy – just ask the people of Venezuela.

Unsurprisingly, if a government double-taxes the profits of the overwhelming bulk of our economy’s businesses (i.e. companies) overnight:

  • less people will invest in those businesses going forward;
  • those businesses will make less money, scale back their operations and necessarily let go of staff to remain viable (anyone who has been made redundant knows how this works); and
  • the economy will grind to a halt.

As for giving scraps of that double-taxed money to ‘workers’ in the form of personal income tax cuts, this represents little more than watering the leaves.

If people don’t have jobs, then they have already achieved the best personal tax cut possible. What good is to offer personal income tax cuts to people after you’ve caused them to lose their jobs and join the government’s ever-growing clan of people paying no net tax?

But wait, we know you want more!

Sealing the whole sorry affair is the fact that, under a Shorten Labor government, there will be no alternatives left for people to invest their time and money in:

  • Property? Not a chance – as Shorten and Labor have made it clear that they will scrap routine tax deductions on property investments and halve the capital gains tax discount on assets held for over a year.

Even sticking it under the bed is on borrowed time.

So where to?

Then again, when you’re trying to get the best out of something, I suppose it makes sense to back it into a corner, give it no options whatsoever, grab some popcorn and enjoy the inevitable efficiency. Right?

Lastly, if you’re one of those people think that we need to be taxing those ‘greedy companies’ so that they pay even more than the $68 billion in direct taxes that they already pay (see page 16), then please consider the following charts – and ask yourself: should we really be feeding this beast even more?

Budget 2017 Government Receipts and Spending Graph

(Figures sourced from the Australian Government’s official budget papers – see pages 11-6 and 11-7).

PS: don’t be fooled by those green receipt (taxation) troughs under Labor. They occurred as a result of the recession ‘we had to have’ and the global financial crisis – and most certainly not because Labor wanted to be low-taxing. The only thing of substance to note here is how Labor utterly wrecked the federal budget on both occasions by spending what we didn’t have.

PS(2): if you want to know why people cannot stand the Turnbull government, then look no further than those last four or five bars in the second chart – and wallow in the fact that we have a federal Liberal government that walks, talks, taxes and spends like a Rudd/Gillard Labor government.

PS(3): If you want to know why Gough Whitlam was such an economic vandal and one of the worst Prime Ministers we have ever had, then look at the revenue and spending bars for 1973-74, 1974-75 and 1975-76. In just three years, Whitlam managed to increase spending by 32% (with tax receipts increasing by around 15% over the same time). As you can see, the Federal Budget has never been the same since.

This entry was posted in Budget, Federal Politics and tagged , , , , , . Bookmark the permalink.

25 Responses to Watering the Leaves

  1. OneWorldGovernment

    Stop it Marcus.

    No one wants to know.

    We are all so beautiful.

  2. OneWorldGovernment

    I just want to start with getting rid of EXCISE DUTY on Fuel, alcohol and tobacco.

  3. OneWorldGovernment

    But give me a chance and I could smash the spending.

  4. OneWorldGovernment

    I had to stop after reading a third of it.

  5. stackja

    And Gough is still lionised. Voters elected RGR. TA started the long march then came MT. Australians accepting stupidity?

  6. duncanm

    Bill voter:

    TL;DR; – where’s my plasma TV money?

  7. Bruce of Newcastle

    Marcus – You forgot that Shorten intends to exempt not-for-profit institutions, by which he appears to include union controlled industry superfunds, since untaxed unions are not-for-profits (ho ho).

    That smells like corruption to me.

    It’s cute to call union funds non-profit and not call SMSFs non-profit.

    It hasn’t been made clear that union funds are exempt, but that is consistent with the wording of all the reports I’ve seen. Maybe Turnbull should ask Shorten that on the floor of the House.

  8. The BigBlueCat

    The obvious problem with smashing government spending is the problem of exchanging government wages with welfare. What RGR amounted to was structural spending commitments that are hard to unwind without appearing cruel. Plus we have a protectionist Senate. But there will come a time when a responsible government will have full control of the parliament, but we might have to endure another Labor term to get there. But even then the LNP may have drifted way too left to be the right answer ..

  9. Rohan

    What, the Essendrug players had to take responsibility for their own actions? Outrageous!

    Doomlord won’t be pleased.

  10. Robber Baron

    SO Marcus, now that you have laid out the future for us, can you please let us know what country will welcome us? Please do. I’m serious. I really don’t want to be here for too much longer. The Turnbull reich is already intolerable; the Shorten reign of terror will see us all destitute.

  11. Up The Workers!

    Corruptocracy in action!

    Big news in Russia is that Vlad (the Poisoner) Putin looks likely to (surprise! surprise) win his latest election after banning his only serious opponent.

    At least this time he didn’t poison his opponent – just the democratic process.

    Meanwhile, in beautiful downtown Mogadishu-by-the-Yarra, following the booting out of notorious knuckle-dragging Union goon David Feeney, the notorious knuckle-dragging Union goon Ged Clampett (sorry, got mixed up with the Beverley Hillbillys) – Ged Kearney – will now be “robbin” the electors of Batman, having won the “election” against the accomplished professional 6-time loser from the looney Left’s devoutly Apocalyptic-Catastropharian ‘Brown Movement’ religion.

    What a pity the Prime Quisling’s Turncoat Party didn’t run a candidate – if they had done so, then the voters would have had a Putin-like choice of candidates to select from, as follows:

    1). Labor’s Official A.C.T.U. Faction; or
    2). Labor’s rabid Watermelon Faction; or
    3). Labor’s treacherous Laboral/Turncoat Faction.

    Once again – no candidates or other dumb animals were deliberately poisoned during the staging of this performance – only the democratic process was.

  12. Senile Old Guy

    Shorten will do what he has said he will do.

    The problem here is that the LNP is useless. The last week has been eventful and Turnbull is MIA, again.

  13. W Hogg

    All Mal can talk about is how booting out Captain Windmill in DPRSA is an endorsement of his renewables strategy.

  14. W Hogg

    The chart is fake – it treats Howard666’s tax rebates as “spending” measures and Labor’s repeal as “saving.” It will be obvious to non economists why that’s fraudulent accounting.

  15. Many companies will find ways around the double taxation. They always do and so they should.
    For example, micro and small companies can always call the shareholders “Advisors” and pay them the equivalent of profit share. All it takes is a ‘survey’ given to shareholder to fill out and voila’, an advisor.

    The bigger companies can do various things with options and share buy-backs etc. No company, micro, small, medium or large need report one cent in after tax profits.
    The bigger the tax theft by government, the craftier people have to become in tax minimisation and tax avoidance. BHP for example, may finally up stumps and head quarter in GB.

  16. FelixKruell

    Shorten has proposed taxing people/income who shouldn’t be taxed – but not double taxation.

    Currently, the company gets taxed on its profits, distributes the rest as franked dividends.
    Investors get to claim the franking credit, and either reduce their personal tax payable, or get a refund if they don’t have personal tax payable.
    End result – the investor pays tax once on company profits, at their personal marginal tax rate.

    Under Shorten’s proposal, the only thing that changes is that no refund is given if there is no personal tax payable.
    End result – the investor pays tax ONCE on company profits, at their personal marginal tax rate OR the company’s rate (depending on circumstances). No double taxation.

    Doesn’t mean it’s good policy, but let’s be clear about what it does and doesn’t do.

  17. Roger.

    What RGR amounted to was structural spending commitments that are hard to unwind without appearing cruel.

    Indeed, but Abbott should have used his majority to do just that.

    If you are not going to use power effectively, what is the use of having it?

    Oh, yes…ministerial leather.

  18. Tezza

    Just to support Felix C’s comment with a post I made on Marcus’s site:
    The point of Shorten’s ‘justification’ that Marcus does not address is that the dividend recipients targeted in this shakedown are not themselves liable for any tax, and therefore receive the ‘withholding tax’ that the companies paid on their behalf as a refund (in effect). This is hardly the ‘double taxation’ that Marcus mentions, but it is, apparently, an insult to any social justice warrior.
    The reason these targeted dividend recipients don’t pay tax, of course, is because they have a ‘taxable income’ – a measure of their capacity to pay tax, defined in law by Parliament – that is below the ‘tax free threshold’. That threshold is a further concept built in to the personal income tax rate scale and defined in law by Parliament, to embody community judgements about redistributive fairness.
    So what Shorten is really saying is that he wants to upend the legislated personal income tax scale (selectively, for a few receiving dividends) and upend the concept of taxable income (again, selectively, for just one category of income).
    You can see this is an application of the Emma Alberici school of economics: tax should be what Emma imagines it should be, as computed by applying a nominal tax rate to a wholly imaginary and arbitrary tax base Emma pulls out of the air.
    As Marcus observes, the incompetence of journalists in not cutting to the core of this nonsense, and instead buying the Shorten spin that it has everything to do with rich retirees, is truely depressing.

  19. Tezza/Felix – Thank you both for your comments. While I certainly appreciate that the ‘official’ line on the policy and it’s purported limits, the fact is that the policy is still very much in the thought bubble phase and I don’t believe for one second that Shorten will only apply it to the lowest income earners. It’s simply fanciful to think this would be the actual legislated outcome. And the moment it hits anyone earning a sufficient enough personal income it will be a double taxing affair.

  20. Felix Kruell

    Marcus: if they go after all dividend imputation, they’re going to have war on their hands.

    That said, I am surprised they think they can raise $5bn a year by only targeting those who are in a refund position. Seems very high to me.

  21. Robber Baron

    notorious knuckle-dragging Union goon David Feeney

    I saw this fat phuc today on St Georges Rd Northcote…attempting to ride a bike.

    Like all elites rules do not belong to pigs like him…he rode along the footpath and did not wear a helmet. I would have taken a photo but l would have broken the law because you are not allowed to touch your phone whilst driving your car.

    By the way, Feeny is one ugly fat zunt.

  22. Felix – I reckon they’d be unpleasantly surprised at how much the final tax raised would be! People aren’t mugs. When the overall economy-wide tax rate starts to hit the 25% mark, people find ways.

    I also still think what Shorten is proposing is still a form of double taxing (albeit not as full blown as if his policy were to apply to all dividend imputation). See this leftist economist admitting it for example:

    http://www.afr.com/news/policy/tax/labors-dividend-tax-change-good-policy-shame-about-the-politics-20180315-h0xj3c

    For somebody with a 15 per cent rate, half of the credit should go to extinguishing that tax liability and the rest be converted to a cash refund. If a shareholder has a zero tax rate, the full credit should be converted into a refund. Why should those with a nil tax rate be penalised, purists would ask.

    Because, economist Saul Eslake argues, it costs the country a lot of money. “It is true that the cash refund makes Australia’s imputation system absolutely pure and completely eliminates the double taxation of dividends,” he says.

    “Without cash refunds it does mean that someone whose taxable income was less than the company tax rate would still experience some double taxation of their dividends. The thing is how pure do you need to be, bearing in mind that we are already closer to purity than most of the world. Some of the proponents of cutting the company tax rate have as their principle argument that we need to be more like other countries. It comes down to whether this is something we can and should afford to do.”

    The first table here also shows people in every tax bracket as being effected to some degree:

    http://www.afr.com/news/policy/tax/taxable-income-means-nothing-in-this-tax-war-experts-20180315-h0xiea

    It boggles the mind as to how the left see not taxing someone (what they shouldn’t be taxing them) as a ‘cost’ and how Shorten’s policy will ‘save’ the budget some money. Morons the lot of them.

  23. Felix Kruell

    Marcus: I think Eslake got it wrong. No double taxation. Just single taxation, at a higher rate than otherwise would be the case.

    Happy to be proved wrong, but no one has shown me why it’s double taxation yet (and Eslake clearly doesn’t).

  24. The BigBlueCat

    Eslake said the Shorten policy was “good economics” but didn’t say it was good policy. It certainly represents taxing individuals somewhere between the company tax rate and the rate an individual (or SMSF) would pay (even to the extremes of that range). Put simply it is over-taxation, and fails to recognises that as a shareholder, tax has already been paid on behalf of the shareholder by the company. The rabid leftists supporting the change are ignorant and hateful of anyone being aspirationally financially independent from government welfare.

    I think that once we’re in election mode we’ll hear much more strident objections to the Shorten franked dividend non-refund plan … and it won’t be pretty. It may well cost him an election. I fully hope it will be his “Fightback” moment and he does a Hewson (but unlike Hewson we never hear from Shorten again).

Comments are closed.