Ross Greenwood Newsletter 28 April 2017
“Do bear in mind that one thing that Donald Trump has done in order to pay for those tax cuts is by doing away with all personal tax deductions – something that we’ve talked about and advocated for on this program.
Get rid of them!
That will bring your taxes down.”
And what a busy week it was.
Donald Trump rockets the stock markets this week with the anticipation of his big tax cuts that came yesterday evening.
And these tax cuts will have quite the impact on Australia.
This is a tectonic shift in the way Tax works – for America and worldwide.
Firstly, tax for workers.
Seven US tax brackets will be reduced to three
“A 10 per cent bracket, a 25 per cent bracket and a 35 per cent bracket,” says Gary Cohn, the White House Economic Advisor.
In Australia, once our income passes $18,000 per year we pay 19 per cent tax. It rises to 37 per cent when you earn over $87,000. It continues to 45 per cent once you earn over $180,000 and in Australia – it’s more complicated.
Now, to pay for his tax cuts, Us President Donald trump with ban personal tax deductions.
In Australia last year, the ATO paid out $28 billion in individual refunds – personal tax deductions.
Well, imagine if the Government use that $28 billion to cut taxes…
You would go to work, earn your income, pay less tax but at the end of the year you don’t get a tax return.
I don’t think it’s a bad idea at all.
But Trump’s biggest tax change is for companies.
‘We will lower the business rate to 15 per cent…we will make it a territorial system”, says U.S. Treasury Secretary Steven Mnuchin.
Australia’s big companies pay 30 per cent tax; small companies pay 28.5 per cent. But by cutting company tax, it will cost America trillions.
But the bet is the by cutting the company tax rate, it will make the economy and its tax receipts grow much faster. And also, like Apple, Amazon, Google and Microsoft will once again base their headquarters in the US and not in low-rate tax havens.
Of course leading up to this announcement, it sent the stock market is a spin – a very good spin.
Stock markets were at an all-time high.
The all country world index that measures stock markets from 23 developed and emerging nations around the world increased 154 per cent to new highs, since its depths during the Global Financial crisis.
But this was not the only remarkable results – the NASDAQ index which largely tracks U.S. technology shares such as Amazon, Apple and Facebook, hit an all-time high on Wednesday of 6032 compared to its low of 1300 during the GFC.
So since late 2008/early 2009, the NASDAQ has grown 363 per cent.
363 per cent in eight years is unheard of.
The Dow rose more than 200 points, a gain of about 1%.
With the anticipation of Donald Trump’s tax cuts, heavy equipment manufacturer Caterpillar gained more than 7 per cent and McDonald’s jumped about 5 per cent, after beating profit estimates.
But the anticipation of Donald Trump’s tax cuts was not the only thing causing this market reaction.
The beginning of the week saw the results from the first round of voting for the French election, and that all pointed in favour of En Marche! (Onwards!) leader and founder Emmanuel Macron.
Opinion polls indicate that the business-friendly Macron, who has never held elected office, will take at least 61 per cent of the vote against far-right leader Marine Le Pen after two defeated rivals pledged to back him to thwart her Eurosceptic, anti-immigrant platform.
And with the backing of outgoing French President Francois Hollande urging people to back Macron, it’s safe to say he is likely to become the French President from May 7.
This result also impacted the stock markets as it become more unlikely that France will leave the European Union and the entire European economy will implode on itself.
In other words, the markets were reacting to what seems like ‘the Dog Days are Over for Europe.’
But throughout my research this week I found a very interesting wager that has taken place over the French election – and it all started on Twitter.
The Economist, an online magazine that is run by the Economist Group published a statistical model which puts Marine Le Pen’s chance of winning the French election at 1 per cent.
After seeing this model, the President of the Eurasia Group Ian Bremmer immediately said differently, putting Le Pen’s chances at 40 per cent.
And this caused the wager.
I managed the track down Ian and invited him onto my radio show this week and he explained the wager to me and I have to say, it was gold!
The Economist data editor offered a friendly wager to Mr Bremmer on Le Pen’s electoral outcomes, betting on the current price of the PredictIt betting market of 30 per cent.
After a bit of back-and-forth, they agreed to the terms: US$60 on Mr Bremmer’s end if Le Pen loses and US$140 on the Economist data editor side if she wins.
Either way the money is donated to charity, but the victor also claims a fine bottle of Meursault French white wine.
But this was not all that happened this week…
Prime Minister Malcolm Turnbull has imposed export restrictions on gas that could force producers to boost supply for domestic users before they are allowed to send gas offshore.
This is both good and bad.
Good is the sense that since the vast majority of gas produced in Australia is shipped overseas, a situation which, alongside bans and restrictions on gas exploration has been blamed for increasing prices.
So this intervention is supposed to lower gas prices on Australian soil and ensure businesses are not burdened with increasing prices, potentially leading to job losses and closures which is very much a reality.
Bad because Australia relies on the export of gas for portion of our GDP.
And whilst most in Parliament welcomed this announcement, Opposition leader bill Shorten questioned whether it would actually lower prices.
“If Mr Turnbull’s promised Australians that gas prices will halve, I want to hear that promise from the gas companies,” says Opposition Leader Bill Shorten said.
“Without the gas companies confirming that, what Mr Turnbull is saying is just hot air, just words.”
However not all where happy with this announcement…
The Australian Petroleum Production and Exploration Association is obviously disappointed.
APPEA Chief Executive Malcolm Roberts says that restricting gas exports will not reduce power prices and there are a number of different reasons, not just gas prices.