The Financial System Wasn’t Built for You, but to Protect the Rich

Good news if you’ve been waiting on the return of our in-house podcast, the Financial Anarchistsit’s back. Only this time, I’m in charge.

Or at least I thought I was. A couple of weeks ago I waded into dark territory with host Kris Sayce. I asked Kris his thoughts on the US reducing the corporate tax rate and, well, things took a turn, to say the least.

Of course, as anyone familiar with Kris’ work knows, he thinks all tax is theft. But like it or lump it, this is the system we have.

And the Aussie tax system is a doozy.

Australia has the third most complex tax system in the world, according to PricewaterhouseCoopers. And with our tax law running at 5,700 pages long, rumour has it we also have the longest tax law in the world.

Of course, there are many problems with our tax system. The first one that springs to mind is the tiered income tax. While many politicians will pretend the tiered system is fair on lower income earners, that’s not the case. Driving the idea of the tiered income tax is that, as wages rise, more and more Australians will fall into a higher tax bracket.

Pollies then hope that you’ll be OK with paying more taxes because your income is growing.

And let’s not get started on the idea of investing in property as a way to reduce the tax you pay. Such as the absurdity of complicated vehicle leasing arrangements, or buying art through your superannuation to offset some tax elsewhere…

The point is, there are a myriad ways the Australian government can convince you to pay less tax. However, the pointless ‘tax offset’ exercise they’ve created does nothing more than drive consumption; it gets you spending more than you would have otherwise, and yet you still end up paying the same amount anyway.

At least, that’s the racket we ordinary folk have to put up with.

If you’ve got bucket loads of money, you don’t just go to any old accountant to show you a trick or two.

No, you take your piles of cash — or hordes of digital ones and zeroes — and head straight for the tax havens of the world. 

‘Paradise Papers’ leaked

Over the weekend, the world was gifted with the largest ever leak of documents. The world got their hands on what’s being called the ‘Paradise Papers’. Over 13.4 million files show the world where — and how — the rich dump their money. The Paradise Papers date all the way back to 1950.

In other words, we got 66 years of data showing how the powerful and rich hide their money from governments.

Australia’s own James Packer and the now deceased rock start Michael Hutchence are involved. Along with Queen Elizabeth.

Perhaps more interestingly is the data on 120 politicians worldwide taking their money — all earnt from taxpayers — and stashing it in places with low taxes.

It turns out the very people who claim to serve you, and decide what taxes you should pay, have a very different idea of how they should pay taxes.

What these Paradise Papers show is that, for the better part of six decades, extremely wealthy people have looked for ways to move their wealth to other parts of the world in order to protect it from governments.

Basically, we have a two-tiered system. One for you — the erratic and ever-changing tax system you are forced to participate in. And the ‘other’ one, where wealthy people and large global corporations benefit from operating in economies with secure laws, but have the power and connections to ensure that they don’t have to contribute to the system that benefits them like the rest of us.

In discussing this with Ryan Dinse, editor of Exponential Stock Investor, we both agreed that this is why the financial system is due for a shake-up.

Ordinary people have continued to be locked out of financially-freeing endeavours that elites benefit from. After all, we don’t have the contacts. And I’m not sure any bank in the Cayman Islands is in a hurry for normal folks to open up an everyday saver account.

Ryan also pointed out how this two-tiered financial system does nothing more than prevent normal people from growing their wealth. It’s skewed towards protecting the big earners, while ensuring the taxpaying masses continue to plod along and pay their ‘fair share’.

The way Ryan sees it, there’s something happening in the markets that will rattle the existing financial system to its core. The more and more we see document leaks or proof that the rich are moving their money to a system that benefits them, the more fed up we will become.

But there are ways to protect your wealth, and even grow it, in times of uncertainty. Details here.

Kind regards,

Shae Russell,
Contributor, Money Morning

Since starting out in the financial markets over a decade ago, Shae has extensive experience across various aspects of the industry. Shae cut her teeth in the derivatives industry, teaching clients basic trading techniques with technical analysis.

Joining Fat Tail Investment Research eight years ago, Shae has worked across a number of publications, such as Australian Small-Cap Investigator, Gold Stock Trader and Microcap Trader. She’s spent the past two years however, honing her macro analysis skills alongside Jim Rickards, showing Australians how to invest and profit form global macro trends.

Drawing on her extensive experience, Shae is a contributor to Money Morning, and lead editor of sister-publication Markets & Money, where she looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

Money Morning Australia