Why Tax Proposals Could End Up Costing You More

There is a phrase advising you to beware of strangers that bear gifts.

We should extend that to beware Treasury officials bearing a promise to ease individual’s tax paperwork.

Secretary to the Treasury, Dr. Ken Henry has been given the task of coming up with ideas to reform Australia’s tax system. One of the reforms that Dr. Henry appears to be in favour of is the abolition of the annual tax return.

“Hooray” many people will shout. I am certain that very few people enjoy the prospect of either filling out the tax paperwork themselves or the inconvenience of taking all the paperwork to an accountant once a year.

Yet, before you are too keen to give up the tax return you should think about what it means to you and to the government. To you, it potentially means losing any small control you may have had on how much of your income you give to the government.

For the government it will undoubtedly mean an increase in tax receipts. Why would they propose that if it wasn’t the case? Of course any such proposal would be sugar-coated with the claim that government is ‘helping’ individuals by taking an annoying task away from them.

But the reality is, once the government has gained the upper hand by restricting the right of individuals to pay less tax than the government thinks you should pay, it will be an unusually helpful government that reverses the decision at a later time.

That is very unlikely indeed.

Cheers.

Kris.

PS. We have our first drop in the Money Morning Uncertainty Index since we started recording the market volatility a couple of months ago. Could this mean a period of less volatile sideways range trading? It looks like it. We will have to wait and see.

Money Morning Uncertainty Index

This weeks’ most important story: Whether you like it or not, the US dollar is still officially the world’s ‘reserve currency.’ It means that every other currency is priced in relation to the US dollar. The basis of an exchange rate between the UK Pound Sterling and the Australian dollar for instance is also based on the exchange rate between those currencies and the US Dollar. But is all that about to change? The US government is in so much debt and is printing so much money, how much longer will it be before investors dump the US dollar? Click here for more…

Highlights from last week:

Monday: Their solution is to set interest rates as low as possible. They are backing that up by issuing as many bonds as possible to soak up excess capital. This is excess capital that the banks don’t want to lend to anyone apart from the government. Governments are then going out and, erm, lending the cash to the sort of companies – other banks, auto manufacturers, etc. – that the banks wouldn’t dream of lending money to. Click here for more…

Tuesday: The weekly chart shows that there is a current bearish cycle which has started at the beginning of the current century, which corresponds to the massive rise of gold prices on the commodities markets. Click here for more…

Wednesday: There is a valid argument that the ‘bull’ market from 2003 until 2007 was in fact a bear market rally. So it would make sense that if the S&P/ASX200 can rally from below 3000 points to just under 7000 points in four years, why can’t it rally from 3604 to 5000 by the end of next year? Click here for more…

Thursday: If there ever was a signal that we have a bubble in bond markets, then a 0% interest rate is that signal. But back to the question. How can you take advantage of it? Click here for more…

Friday: Deep underground, one small firm – ‘unofficially’ sanctioned by the Australian government – has discovered a way to turn Australia’s abundant, dirty coal reserves into 100% usable diesel fuel! Click here for more…

Tagged as: tax paperwork, tax return