The Week that was – 4 April 2017

Ross Greenwood Newsletter – 4 April 2017

 

“You’ve got an economy thats not got the economic growth that we would prefer; we would like it to be faster.

And yet we have spending that is structurally built into the budget that continues and this comes from the good times of the mining boom.

It’s written into legislation and its very hard to get out of it and certainly, not without some political hurt.”

 

Only five weeks to go till the Federal budget and what an interesting week it was.

Let’s start with the controversial company tax rate decision which came through late Friday afternoon after the Turnbull Government made a deal with Senator’s Pauline Hanson and Nick Xenophon.

A part of that deal is that only companies with turnover under $50 million a year will qualify for the tax cut that will eventually get as low as 25% by 2026 – 2027. However, the government wanted the tax cuts to be for companies with turnover under $100 million a year.

This week on Money News, I spoke to both the Prime Minister Malcolm Turnbull and Treasurer Scott Morrison, and for both, the company tax cuts dominated conversation.

Mr Turnbull declared that growth is the reason why they have pushed so hard for these cuts. He says that growth is key and fundamental to his government’s policies in every element.

But how will this growth benefit the Australian economy?

He says that the business tax cuts are a key solution, where 883,000 small and medium businesses are going to reap the benefits.

He says, “All of this means more money for those businesses to invest. More money to invest, to grow and to employ. It is a key economic stimulus and it’s keeping Australia competitive.”

Now I find the whole thing a bit odd because companies are taxed on profits, not turnover or sales.

In other words, a highly efficient company with sales of $49 million and profit of $30 million gets the tax cut

But a company with a turnover of $100,000 million but profit of $10 million doesn’t get the cut.

Does that make sense?

I was also intrigued by some figures I found.

This year, the Government is expecting to spend $158 billion on social services and welfare. And this is only expected to rise by $33 billion in the next three years.

So in three years’ time, the bill will be $190 billion – which is ludicrous!

That increase – $33 billion – is the exact same figure as the current education bill.

Or if you like, its $6 billion more than the defence budget.

 

Now, looking on the other side of the bill – income. How much income will the government make?

This year, the Government will collect $181 billion in taxes from workers.

In three years’ time, that will grow to $218 billion.

So give or take, most of the money you pay in tax goes to someone else’s welfare payments, and depending on your circumstances, it might even go back to you.

Now here’s the dilemma, politicians can’t and won’t cut the welfare payments  – it’s too hard, it’s tough if you want people to vote for you.

So, they need other ways to get money and one of these ways it to make the economy grow faster.

That creates more tax payments from companies and workers, and makes up for the extra spending.

But the problem is, apart from the housing industry on the east coast, there is precious little growth in most industries, and government regulators are trying to slow down the housing markets for fear of collapse.

Now if there is no answer, the nation is dead and the current debt of $317 billion keeps rising and the interest bill, which is already at $12.3 billion, increases by $33.9 million a day.

And if nothing is done, the problem gets worse, and sadly the recession gets closer.

 

Now this, we hope doesn’t happen

Treasurer Scott Morrison says the some $25 billion in budget improving measurement that the coalition has managed to get through the Senate since the last budget has been a key factor in getting the federal expenditure under control and this is why they can afford for the social service and welfare system payments to rise by $33 billion.

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