Monday Message Board

Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please. If you would like to receive my (hopefully) regular email news, please sign up using the following link You can also follow me on Twitter @JohnQuiggin, at my Facebook public page   and at my Economics in Two Lessons page

80 thoughts on “Monday Message Board

  1. I hope the links below shed light on: “But the more fundamental problem is that none of the competing forces has an obviously compelling solution to the problems we face.”

    This hidden tribes site and report are another string to the solution bow and seem apt to jq above – good data analysed differently,  interactive graphs and insights – plain and simple and readable imho. And I’d definitely be in the “exhausted majority”!

    “While the story of the Wings may be one of division and conflict, a very different story is found in the rest of America. In fact, the largest group that we uncovered in our research has so far been largely overlooked. It is a group of Americans we call the Exhausted Majority―our collective term for the four tribes, representing a two-thirds majority of Americans, who aren’t part of the Wings.”…
    …”Core Belief 3: Parenting Style and Authoritarianism. Recent research has found that people’s tendency towards authoritarianism ― that is, their support for strong leaders and strict social hierarchy―is linked to their views on parenting style. “”. (Uniforms too?)

    “More in common” funded “hidden tribes” above. Seems complicated to have all these sites but may be a good media strategy.  “More In Common, a grassroots community-building movement”  has a short publication list which looks interesting and uses ” public mobilization and storytelling to help the leading organizations, activists, businesses, and philanthropies engaged in this fight,”.

    Two layers deep to find beneficial owners from hidden tribes to… which is funded by:

    … and Purpose partly initiated by – an Australian I’d never heard of, yet he has written a couple of economics text books (jq-any good? – board of studies promotes them)  – Tim Dixon. He seems to have cashed out to do the above.

    “Tim Dixon is the co-founder and managing director of Purpose Europe, based in London. Since 2015 he and Brendan Cox have been building an ambitious new initiative focused on changing hearts and minds in Europe and globally around the refugee crisis through opinion research, message development, popular movement-building and campaigning to reach mainstream audiences to counter the rising tide of xenophobia and nativism. The first initiative they have co-founded is More In Common, a grassroots community-building movement in the UK. 
    Purpose is a home for building movements that harness technology to engage large numbers of people and help make progress on major global problems.”

    I will get newsletters and track. Somehow this machine will generate cash too but seems good.

  2. Hi Prof JQ

    I would be very keen to hear your thoughts on the Final Report on the Royal Commission. It’s clear that even if all recommendations are accepted and acted on, the banks have gotten off very easily. We’ll be back here in 10 years time with more misconduct and nothing will be done about it.

  3. Suppose I am a retiree with a part-time job at KFC that yields me my total gross income for the year of $18,000. KFC acting as an agent for the ATO collects $6000 in PAYE tax for me each year but, at the end of each financial year, I claim this entire deduction back because my gross income is below the no-tax threshold of $18,200. My refund-inclusive income is the gross figure of $18,000 made up of post-tax income of $12,000 and the refunded PAYE deductions of $6000.

    Suppose instead that, as a retiree I don’t work but hold shares in the Commonwealth Bank that yield me a total annual income of $12,000. On this dividend the firm has withheld $6000 as an imputation credit it has forwarded to the ATO. At present what I would do each year, as with the KFC case, is to seek a rebate of the withheld tax of $6000 that was deducted from my income by the CBA as a withholding tax and sent to the ATO. Currently I will receive back, as in the PAYE case, an extra $6000, my imputation credit, returning my total income to $18,000.

    The Labor policy would limit the last rebate leaving me with only an income of $12,000. This seems unjustified on the grounds of horizontal equity – the principle that people in the same tax situation and with the same economic circumstances – at least in terms of income – should be treated the same.

    If one argues that economic circumstances are not the same because the asset holder possesses an asset that can be disposed of to support their income then that suggests a case for taxing the asset and redistributing it. If the asset was accumulated out of income that had already been taxed even that might not be a good idea. But not directing the tax effort at the asset creates a possible injustice since a citizen holding the same quantity of assets as the retiree but earning considerable outside income – a much wealthier person than the retiree – will gain the full imputation credit on his shareholding as well as a large amount of extra outside after-tax income. The much more prosperous person gets the full imputation credit.

    Is the case of the small shareholder empirically interesting? I don’t know, but the CBA has over 500,000 shareholders with less than 1000 shares. There are many small shareholders.

  4. @JF
    I agree, it would to get your opinion. Speaking to someone in the business today. Very bitter that lesser fish, small mortgage brokers etc will feel the heat while the upper level banksters will cruise on.

  5. John, I’d also be interested in your views on the mortgage brokers. They were the first group to be attacked in Hayne snd the only group for which the LNP said it would not adhere to Haynes’ views. Why cannot borrowers go directly to the banks and other credit institutions to get a mortgage? If the MBers do have a specific informational role couldn’t/shouldn’t that be carried out internally within banks? If his recommendation that customers pay these brokers directly was implemented wouldn’t customers just go the banks?

  6. The problem for hc is that receiving franking credit refunds is like receiving a deduction for charitable donations; or a tax offset or rebate of any of many kinds; or any other tax reduction that doesn’t come as a credit for tax already taken from your own income. None of those is refundable, that is, none is valuable any further than your tax liability on your income. And once your tax is covered you have no further benefit from any of them.
    Your income is your dividend. Nothing has been withheld from that dividend, whether there is a franking credit or not. Your dividend is paid (generally) from the company’s profits, whether they have been subject to income tax or not, and is not an allocation of particular taxed profits, nor is franking credit traced to the particular company income that led to tax liability.
    A franking credit doesn’t reduce your income. If there’s a franking credit, it is added to your income; you then have a tax liability worked out taking account of all your income; and the franking credit is credited against your tax liability. If your income exemptions, and options for deferring gains, combine to make your tax liability on your income lower than your tax benefits…you’ve no different, and no better, claim to refund of the excess than those with any other similar tax offset or rebate.
    The Howard giveaway to low-tax shareholders was inconsistent with the general structure of tax offsets, rebates and benefits. And it was part of the system under which superannuation tax benefits each year are already exceeding the pension cost to government…which has not declined. Superannuation tax benefits, and refunding franking credits, have not reduced pension liability at all: they have just increased outlays skewed to the most wealthy.

  7. Chrishod, Much confusion here:

    “Your income is your dividend. Nothing has been withheld from that dividend, whether there is a franking credit or not. Your dividend is paid (generally) from the company’s profits, whether they have been subject to income tax or not, and is not an allocation of particular taxed profits, nor is franking credit traced to the particular company income that led to tax liability”.

    This is just wrong. The firm acts as a withholding tax agent for the ATO. The shareholder declares the total dividend as income then claims as a franking credit the tax already paid for him by the firm. Thus he pays tax at his MRT less the corporate tax rate. This avoids the double taxation of corporate income by only levying taxes on the individual at their individual MRT. The other bit of profits – retained earnings – are taxed in the firm at the corporate tax rate.

    I tried but I could not understand the rest of your remarks or their relevance to what i wrote.

  8. Hc. I think I understand your argument and find it intriguing but isn’t the counter argument/proposal to the possible injustice of full franking for low income earners/small shareholders treating all income the same and use a progressive income taxation scale. So why a flat tax rate for companies and dividends but not working income? Isn’t that an injustice also?

  9. Harry, as I understand it the $6000 franking credit in your second example is not a part of the retiree’s income. It is, as you point out, a credit that is intended to avoid double taxation by enabling the retiree to offset his or her tax liability. Since, in your example, the retiree’s income from his dividend is only $12,000, he has no income tax liability, so is not entitled to a rebate of the franking credit (although under current rules he would receive it anyway – in effect, a cash handout).

    So I don’t think your examples are really comparable, and the unfairness is illusory, since in the first example the retiree’s gross income is $18,000 and in the second it is only $12,000.

    A better example would be if the second retiree received a dividend income of $18,000 (the same as the first retiree) with a withheld franking credit of, say, $8,000. (which, if paid out as a cash rebate, would take his income up to $26,000). Again, as his income is below the tax-free threshold, he does not (under the Labor proposal) get the benefit of the franking credit, so his income remains a tax-free $18,000, same as the first guy. Am I wrong?

  10. Another consideration, hc, is treatments of earned and unearned income. The KFC income is earned, in this case by working as an employee, but the CBA dividend income is investment income. The first requires actual engagement in work, the second does not. The second, although a co-owner in the company entitled to a share of profit distribution, is a passive investor not engaged working in any way with the day to day running of the company. There is a somewaht similar distinction as this made about payment of the government super co-contribution available annually during the super accumulation phase. To qualify for the co-contribution the super account holder must during the year have earned income from engagement in some ordinarily acceptable sort of actual work above a threshold number of hours. Transferring funds from other savings/investments into super without working doesn’t wash.

    On the other hand, those in receipt of a government pension, and with any assessable assets valued above certain thresholds, are subject to rather high deemed rates of return on those assets that in turn reduces their pension payment by a corresponding fractional amount. It follows that many are consequently encouraged/forced by government to invest their savings in directly held Australian fully franked shares. The ALP proposed changes to franking tax credits as originally announced were to apply to pensioners until the ALP saw the light and exempted this group of Australian company share investors from the proposed changes.

    Seems fair enough.

  11. Hi All. They will come for you one day.

    I have personally, had a doctor’s certificate refused by ‘our’ govt . Just like the refugees. Shocked is not the word.

    If Labor today, capitulate to the bullys who have so effectively demonised the boat people I will, for the foreseeable future ignore them. Full stop.

    This is the ‘economics’ bit when you think about it… The adf personnel who are patrolling are probably only dimly aware they are getting vicarious and secondary trauma, spreading it icncidiously to their family having a detrimental effect leading to ptsd. I’d ask for compensation if I were adf.

    Further, Labor and the cross benches lose a 2nd in the parliment s history chance, of defeating a standing govt. Is this correct?

    And I hope, one day all of these locked up traumatised for life barganing chip refugees get substantial compensation – straight from the pockets of those who perpetrate this crime against humanity. But is us who will pay.

    Just for a couple of seats – any psephologists reading? – Labor is courting division, the xenaphobes, and furthering the legacy of hate.

    It will split vote further allowing divide and conquer the upper hand.

    And I’ll say it again – they will come for you one day – I have had a medical certificate refused. Think about it.

  12. HC. I’m not sure your example is quite right. The tax free threshold is 18,000. There is no obligation to pay tx at less than this amount. The only reason for the ATO collecting those amounts is a failure to tick the right box on the tax declaration to claim it.
    The policy objective of imputation was always the prepayment of personal income tax through the company tax payments. This would necessarily require the person to be a tax paying entity.

  13. Aardvark, Maybe they have changed it recently but the tax free threshhold was $18,200.

    Maybe the KFC didn’t know my gross income and made a precautionary deduction. Even if they did not it does not change my story one iota. The gross=net salary of the employee will be $18,000.

    I was, of course, trying to show the analogy between PAYE deductions and the imputation idea whereby firms act act as withholding tax agents for the ATO by prepaying that amount of dividend income that is covered by the corporate income tax.

    Imputation prepays some of the tax due on dividends. There is no logical reason for a non-taxed individual to not receive this dividend imputation benefit because they earn little income. If applies to the case of PAYE deductions. If you want to disallow this benefit on the grounds that agents should pay some tax to get it back then, for consistency, you should abolish the idea of a minimum tax threshold which allows the refund of PAYE to a low income earner. Everyone should pay income tax because, if you believe your story, a return of PAYE deductions should require that you pay tax.

    The thing that throws people in my example if that the asset holder has these assets which they can sell and unconsciously that is regarded as potential income. But selling assets held in Australia is subject to capital gains tax only. There is currently no tax on owning an asset – only on selling it or getting income from it. But if you don’t like the fact that retirees hold wealth then tax that. Don’t deny them reasonable imputation credits when their outside income is low.

  14. hc, the tax due on profits that may or may not be distributed as dividends is COMPANY tax paid on those profits derived from the company trading. PAYE tax is a calculated payday incremental pre-collection of employees’ personal INCOME tax. Franked dividend imputed tax credits are meant to avoid company profits distributed as dividend payments being taxed twice, first as company tax then second as personal income tax of the shareholder.

    “Imputation prepays some of the tax due on dividends.” – No, cart before horse, imputation allows that a tax paid credit, derived from and equal to the company tax paid per share dividend, can be offset against the shareholder’s personal income tax due on their total income from all sources. as originally implemented that company tax credit imputed to a shareholder may offset a shareholder’s income tax liability by the full amount, a partial amount, or not at all if the person has nil income tax to pay. The company tax paid prior to a dividend distribution is COMPANY TAX. It is not personal INCOME/profit withheld from the shareholder.

  15. @hc Since different taxes are applied to different things, if this is unfavirable you could always sell your shares and get a job at KFC. It was likely the ‘Market competion’ that allowed you to get those shares in the first place.

  16. Dividends are paid after all other costs and overheads are deducted (gross profit) and tax is paid (nett profit). Dividend imputation means that the shareholder is refunded the full amount of company tax, apportioned to that share, paid to the ATO. It is the taxpayer that refunds the shareholder.

    Imputation is a counterproductive distortion and should be dumped.

  17. @rog

    I mostly agree, although the shareholder isn’t “refunded” the full amount of company tax, since they didn’t pay it in the first place. If they receive it, it’s a handout.

  18. Wow! Any constitutional experts out there?

    3.56pm 15:56
    Speaker tables solicitor general advice on medevac bill

    4.04pm 16:04
    Government legal advice says medevac ‘unconstitutional’

    The gist of the advice the Speaker was talking about is the bill is a “money bill” which can not have been introduced in the Senate without offending section 53.

  19. @KT2

    I wouldn’t describe myself as a “constitutional expert”, although I have some knowledge of the subject.

    The Guardian has published some extracts of the Solicitor General’s advice in question.

    As far as I can make out, based on that very partial information, the issue is as follows:

    The Senate amendment which establishes the six-member medical panel intended to review requests for medical evacuation to Australia would, when operational, activate a provision of the Commonwealth Remuneration Tribunal Act 1973 which obliges the Remuneration Tribunal, whenever a new government office is created, to promptly make a determination as to the appropriate remuneration of the members of the new office. Once that determination is made, it has the effect of appropriating the funds necessary to pay the remuneration from Consolidated Revenue. This is then said to be contrary to the provision in section 53 of the Constitution which states that the Senate may not amend any proposed law so as to increase any proposed charge or burden on the people.

    The advice also states that the constitutionality (or otherwise) of a law with respect to section 53 is generally non-justiciable, i.e. it cannot be determined by the High Court. This is because laws covered by section 53 are concerned with the appropriation of revenue, and are essentially matters between the Senate and the House. Normally this would mean death for a Senate-originated bill, but since the Government doesn’t have a dependable majority in the House, the situation is more fluid than that.

  20. Thanks Tim.

    What if we the people or the six member panel donated the money or time?

    Not happy it is “a law with respect to section 53 is generally non-justiciable,”. And let’s hope fluidity means the Hippocratic oath is not trashed by this non-ependable government.

  21. How cares about this idiotic, lame duck government? Their days are numbered. The current game is not so much about legislation at this point. It’s about painting the government into a corner to ensure its defeat at the next election. I just hope the people have the courage to install a Labor majority in the Lower House, and a Labor-minor left parties majority in the Upper House, so that some real change can occur. I am often very critical of Labor (they are still essentially a pro-Capitalist party) but they might do a few worthwhile things under Shorten. He seems like a sensible man who actually cares a bit. Ah, hope springs eternal, even in my cynical mind.

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