By displaying the cartoon above and republishing the following SwitzerDaily article below, I am probably breaking copyright laws but, like Labor, I am going for broke, so here we go:
Don’t buy Treasury’s Budget spin
"Treasury says 90% of Australians will be better off under the Budget’s tax changes. I’m not buying it — and here’s why that 10% figure matters more than the government wants you to think.
One of the universal shortcomings of too many politicians is that their utterances are as reliable as the promises of snake oil merchants. And they can be seen at their worst when they roll out statistics from a mob like Treasury to tell you that their policies won’t hurt you.
It’s this history that has made one liners, such as this one from former US President Ronald Reagan both funny and worrying: “The nine most worrying words in the English language are — I’m from the Government and I’m here to help.”
The memory of Reagan’s takes on what governments take came back to me, when I read a SMH story headlined as: “Nine in ten young Australians will be better off under tax changes: Treasury data”.
That means one in 10 or 10% are expected to be worse off. But what if this is an important 10% for the economy? So, could the use of statistics such as ‘nine in ten better off’ be based on flawed assumptions about how a population gets “better off” and even a flawed view on what constitutes an average Australian?
Who would’ve thought public servant economists in Treasury could have missed some important aspects about the role of the small minority of aspirational Aussies, who are change agents, who create big life improvements on many levels?
Think how John Symond at Aussie Home Loans took on the CBA and other big banks by cutting home loans by 2% in 1992, giving birth to the age of mortgage broking and an era of lower home loan rates, financial competition and millions of better off Australians.
Below I look at the Treasury’s views on how the Budget will impact us. Here goes:
- The top 1% of income earners would lose about $400,000 worth of tax concessions over their lifetime.
- The Organisation for Economic Co-operation and Development (OECD) says there’s no clear evidence that taxing capital gains lightly promotes investment.
- The new capital gains tax discount will better allocate capital or Aussies’ investing more efficiently.
- 90 per cent of people under the age of 30 would benefit from a one-off amount of up to $1,000 from the combined tax changes, including the Budget’s $250 income tax offset. This is fairly insignificant!
- Some young people who made high returns on investments would pay more tax.
- Treasury secretary Jenny Wilkinson summed up what her team found and wanted to change with the following: “Our assessment is that these reforms will contribute to arresting the decline in home ownership rates, improve the efficiency of the taxation of capital, and support a modest reduction in the tax burden on labour income.”
So, what do I think about these Treasury observations? First, I always operate from the lesson taught to us by either US writer Mark Twain or UK Prime Minister Benjamin Disraeli, who both said: “Lies, damned lies and statistics!”
To tell us that only 10% of Australians will be worse off is to believe Treasury’s ‘guess’ about who constitutes an average Aussie. That worries me.
Even if they’re right (and I’m sure they’re not), the 10% figure could be more important than Treasury thinks because they could be those important Aussies who don’t need tax slugs to curtail their aspirational goals.
An Australian stock exchange study in 2023 found 51% of the population had investments — mainly stocks I guess — aside from their super and their home. However, 9%, which is close to 10%, were young “next gen” investors in the age bracket of 18-24.
Many of these have come out of a generation who know building wealth from property is hard for them because governments haven’t helped the supply of housing and now take 12% of their income for superannuation.
Another important 10% group are business owners with ABS data saying that about 10% of Australians (or 2.72 million taxpayers) own a business that would also be an employer or potential employer. Because business owners are job creators, income payers, worker trainers, tax collectors and taxpayers, it’s a really important group that a smart government wouldn’t want to make business life harder for. Changes to the capital gains tax discount will hit the successful business builders really hard.
Last week, I heard the Federal Small Business Minister Ann Aly tell the ABC that only 10% of businesses will be negatively affected by these changes. She said that “all businesses have to do” is get a valuation of their business before July 2027 and they probably won’t be affected!
Aly clearly didn’t know that accountants can’t do a valuation that the ATO will simply accept. Accountants recommend to their clients that the business value be determined by a valuer. As accountants are telling me, that could cost between $3,000 and $10,000! And the bigger problem is that there aren’t enough valuers to do the job!
It looks like the Government will have to get Anthropic’s AI model — Claude — to do the valuations! And I wonder if Treasury’s model has those costs and supply of valuers problem factored in?
Finally, my research has found 20% of Australians (or 2.24 million people) are property investors, who could find selling their investment properties harder, as new investor buyers won’t be able to use negative gearing, and their capital gains discount will be less generous.
This partly explains why SQM research is tipping that house prices in capital cities, such as Sydney and Melbourne, will fall by 9% or 10% this year, some of which would be due to these proposed Budget changes and rising interest rates.
While I bet this Treasury modelling is good for making the Government’s Budget look good for the so-called ‘average Aussie’, I think it has at least a 10% chance of being a very misleading snapshot of how we’ll be affected by these so-called reforms.
You see, no economic modelling can reliably estimate the negative effects on aspirational Australians of this Budget. The multiplier effect of a government inspiring the best 10% to create businesses, employ people and dream for economic greatness will never be understood by the penny-pinching political pygmies that we call our leaders.
The history of great leaders is that they inspire the top 10% to make life better for the other 90%. And then governments don’t have to ride to the rescue of the population with nickel and dime tax cuts.
One good piece of news I can share with you about these Budget changes comes from the SMH: “The government appeared surprised on Thursday when its laws were automatically referred to a Senate committee after passing the House of Representatives. This was because the Senate passed a motion earlier this month to require that substantive new laws commencing on July 1 be probed by an inquiry by June 22.”
This is where some of my more critical takes on the Government’s ‘takes’ will get spotlighted and hopefully changed. Let’s hope the Senate identifies Treasury’s BS and de-stinks some of these changes."
Peter Switzer is the founder of Switzer Group - a content, publishing and financial services firm. Peter is an award-winning broadcaster, talking each morning to 2GB's Ben Fordham about the latest in finance and money. You can read his views daily on Switzer.com.au, and subscribe to Switzer Report for his latest insights and recommendations.
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