Federal deficit

[JDNSW]

Listening to the news this morning, I see that the federal budget is expected to be in deficit by an extra ten billion a year for the next few years. This is solely the effect of lower iron ore prices.

Seems to somewhat contradict those who were saying that the iron ore miners were paying no tax?

John

[BMKal]

Not only the Federal budget John. The state budget over here has also been significantly hit due to the drop in royalties.

[Roverlord off road spares]

Speculation....... is something you can't rely on. Never assume anything for the future. It is not right to factor into a budget, maybes.
With income you can't assume you will receive the same in the future.
Just like a household budget, you rely on your wages every week and say you factor in overtime also, you take on a loan and then in a year down the track your overtime is cut and you don't have the same funds you thought you would have, or you loose your job What then? Your in the poo.

[boa]

It is a payment that the company knows they will pay to the people for the minerals and other things the general public are entitled to. Tax is very different issue. Tax should be paid on profit etc. Royalty is a different payment. Is the money going to government yes. But it is different. Because you pay royalties does not mean you should not pay tax.

[frantic]

," let's bring in wage restraint", brilliant idea! Say a few bricks

Whoops now we have almost no bracket creep which would have the potential to add around $5 billion a year. Or cover about 1/2 this year's ore loss and cover all the ore loss next year.
Instead here's another idea doing the rounds, let's fully tax super contributions and profits. Fixed this year's deficit in one hit, bugger the next gen and the one after who will need to provide far greater support to pensioners with reduced super.:twisted:

[nugge t]

Speculation....... is something you can't rely on. Never assume anything for the future. It is not right to factor into a budget, maybes.
With income you can't assume you will receive the same in the future.
Just like a household budget, you rely on your wages every week and say you factor in overtime also, you take on a loan and then in a year down the track your overtime is cut and you don't have the same funds you thought you would have, or you loose your job What then? Your in the poo.



Budgets are projections...they are the best guess as to what will happen in the future. The budget is a forward estimate. The problem is when the estimate is overly optimistic. Sometimes it is unforeseen and sometimes it can be a deliberate ploy to make the budget look better.


That is why when the expected revenue reduces, expenditure has to be adjusted accordingly. This is a concept many seem to have a problem with and expect expenditure to be spent regardless of the revenue being received.

[JDNSW]

It is a payment that the company knows they will pay to the people for the minerals and other things the general public are entitled to. Tax is very different issue. Tax should be paid on profit etc. Royalty is a different payment. Is the money going to government yes. But it is different. Because you pay royalties does not mean you should not pay tax.

The reduced royalties affect the state budget, but not the federal budget. The reduction in price for iron ore means that the royalties reduce in proportion to this reduction.

Since the minerals belong to the state, not the federation (some offshore is federal or shared, but this does not apply to iron ore), the loss to the federal government is almost entirely company tax, which is based on profit (I don't know whether the figures quoted today include loss of personal income tax or flow on from service companies going broke and not paying company tax). And the miners' costs will not have reduced substantially, despite the lower cash flow, so profit, and hence tax will be reduced much more drastically than ore price has reduced. In fact, some of the mining companies can be expected to fail, with projects shut down, resulting in substantial job losses and secondary budget stress for the federal government due to the loss of personal income tax and costs of unemployment relief.

This scenario explains why, from a purely government budgeting point of view, the mining tax was such a bad idea. Even assuming it worked as intended, it would exaggerate the effects of resource price swings on government budgets even more than is happening now, as it was on "excess profits".

John

[Distortion]

Have a read of the following you might find it interesting along with a lot of the other articles on that site

Budget deficits “as far as the eye can see” | | MacroBusiness (http://www.macrobusiness.com.au/2014/12/budget-deficits-as-far-as-the-eye-can-see/)

[AndyG]

One spin off will be a substantial adjustment to GST distribution with W.A keeping a larger share. I can hear Tasmania squealing already.

[boa]

The reduced royalties affect the state budget, but not the federal budget. The reduction in price for iron ore means that the royalties reduce in proportion to this reduction.

Since the minerals belong to the state, not the federation (some offshore is federal or shared, but this does not apply to iron ore), the loss to the federal government is almost entirely company tax, which is based on profit (I don't know whether the figures quoted today include loss of personal income tax or flow on from service companies going broke and not paying company tax). And the miners' costs will not have reduced substantially, despite the lower cash flow, so profit, and hence tax will be reduced much more drastically than ore price has reduced. In fact, some of the mining companies can be expected to fail, with projects shut down, resulting in substantial job losses and secondary budget stress for the federal government due to the loss of personal income tax and costs of unemployment relief.

This scenario explains why, from a purely government budgeting point of view, the mining tax was such a bad idea. Even assuming it worked as intended, it would exaggerate the effects of resource price swings on government budgets even more than is happening now, as it was on "excess profits".

John

But that is the problem we all dismiss horoscope reading as stupidity but we pay other people lots of money to predict the future of our lives. Government forcast. Commodity prices the value of the dollar etc. And when they get it wrong we pay. But they are predictions, I think I will look at my stars today. Probably more reliable.

[AndyG]

Lies, damned lies and statistics,
or in this case Econometrics, my old specialty,

Now who would have thought oil prices going down would lead to a share slump, it's supposed to stimulate activity.

Once i gut a chicken at lunch, i will post the winning Lotto numbers :D

[isuzurover]

Speculation....... is something you can't rely on. Never assume anything for the future. It is not right to factor into a budget, maybes.
With income you can't assume you will receive the same in the future.
Just like a household budget, you rely on your wages every week and say you factor in overtime also, you take on a loan and then in a year down the track your overtime is cut and you don't have the same funds you thought you would have, or you loose your job What then? Your in the poo.

How would you suggest they do it? No income is certain at a federal level. If you take a highly conservative view you would continually be running austerity budgets.

[CraigE]

The big problem was governments overestimated the projected revenue and included in their budgets as fixed figures. This should never have occurred in the first place and the figures should have been under estimated if used at all not estimated at the higher end. This was basic economic failure at its best. Mining companies for the last year or 2 have been estimating that the price would drop and settle at around $80 per tonne while the govt was counting on around $130. It has in fact dropped below $80 a tonne and why so many redundancies (though BHP still making multi billion dollar profits). As said the state and federal govts knew about this and just ignored it as the projected revenue made their budgets look good and gave them an excuse for out of proportion pay rises to themselves several times in the last year.

[trog]

Lies, damned lies and statistics,
or in this case Econometrics, my old specialty,

Now who would have thought oil prices going down would lead to a share slump, it's supposed to stimulate activity.

Once i gut a chicken at lunch, i will post the winning Lotto numbers :D

Could I have the chicken for my dinner ? it might take a few days to get the dividend check.

[101RRS]

Now who would have thought oil prices going down would lead to a share slump.

Tell me about it - my super fund has taken a massive hit - the Aussie market has taken a massive drop where the US market is still around all time highs - and the drop in oil prices is aimed at the US not us yet it is our market that falls not the US market.

The Aussie share market no longer rises and falls on the economics of companies but on speculation if the market will rise and fall. Traders have learned that if there is some bad news somewhere all stocks fall even those outside the sector so traders get in early - self fulfilling prophecy comes to mind.

In the GFC the US stock market fell far more than ours yet recovered in a few years and is now at all time highs where ours is still languishing.

The US market recovered by Jan 2013 and is now 28% higher than the pre GFC level where our market is still is still 20% behind what it was at the the start of the GFC.

I wish I had a crystal ball.

Garry

[AndyG]

The only good thing is the oil prices will give Putin a world of pain.

[frantic]

The reduced royalties affect the state budget, but not the federal budget.

This scenario explains why, from a purely government budgeting point of view, the mining tax was such a bad idea. Even assuming it worked as intended, it would exaggerate the effects of resource price swings on government budgets even more than is happening now, as it was on "excess profits".

John
Isn't the opposite true? Use the mining tax as a "bonus" during boom times to reduce or eliminate Govt debt and stash it away for the lean period you know will come. I grew up in a sales commission income household so Feb- Nov where good and Dec, jan, sometimes feB where bad. This meant my parents stashed money in the bank to cover those 2-3 months. Do the same thing on a national level. Instead past Govts have spent a majority of the boom income, cut taxes to both personal and companies, and sold assets for a short term electoral gain at the same electorates future expense and pain.

[AndyG]

Spot on Frantic, and both major parties are equally guilty.

[Chucaro]

Meanwhile New Zealand is doing very well indeed............

[JDNSW]

Isn't the opposite true? .....

No, no opposites. The boom in tax income exists anyway from the boom in mining profits - adding an additional supertax on that would only make the effect more pronounced. It would have no effect whatever on the propensity of governments to commit to spending money they haven't got, except to make them feel even less the need for restraint.

The question of whether to use windfall profits for routine expenditure or debt reduction is a completely separate question. If the windfall mining profits had actually been used for that we perhaps would not be having this conversation. But they weren't - they were committed way into the future for current account spending! (By governments of all persuasions!)

John

[frantic]

No, no opposites. The boom in tax income exists anyway from the boom in mining profits - adding an additional supertax on that would only make the effect more pronounced. It would have no effect whatever on the propensity of governments to commit to spending money they haven't got, except to make them feel even less the need for restraint.

The question of whether to use windfall profits for routine expenditure or debt reduction is a completely separate question. If the windfall mining profits had actually been used for that we perhaps would not be having this conversation. But they weren't - they were committed way into the future for current account spending! (By governments of all persuasions!)

John

No its not.
A name is a perfect label. Change it from, mining tax to mining debt reduction and development fund tax. And it would be an easy sell to the vast majority.
A tax on companies that only kicks in when there making big profits and pays of debt and helps our future would be a far easier proposition than say increased tax on superannuation.

[JDNSW]

No its not.
A name is a perfect label. Change it from, mining tax to mining debt reduction and development fund tax. And it would be an easy sell to the vast majority.
A tax on companies that only kicks in when there making big profits and pays of debt and helps our future would be a far easier proposition than say increased tax on superannuation.

Why not a super tax on bank profits for example? That at least has the advantage of not discouraging investment in risky activities - and is justified by the government role in more or less guaranteeing low risk for them, and at least banks do not produce anything tangible. Perhaps this might discourage some of the banks' tendency to fleece their customers, since their excess profits would be taxed. Also less subject to legal challenge on the basis of states rights.

Of course there is the minor problem with any of these super tax ideas - the ultimate payee is most commonly your superannuation fund.

John

[AndyG]

If you are going to have a tax on super profits, (definition please) it would/ should be equally applied to any Business. And why should individuals be exempt, be the be a Bank CEO or that specialist tradie doing FIFO to an Oil Rig.
Playing devils advocate here.

Meantime i have to do some paperwork to transfer my Company to Luxembourg, thats what happens when you squeeze too hard.

[incisor]

in my tiny mind, that is why a tax on any product purchased, exported or imported without exception and a tax on all funds, notes, liens etc etc leaving australia is by far the best way to proceed to my way of thinking.

the same for any and all products.

no income tax, no superannuation breaks or taxes.

no favors for the poor or rich, one rule for all.

in my mind where it would fall down is coming up with a formula to distribute it thru the states so the nation as a whole, functions and supports people and business....

[Mick_Marsh]

Sorry, inc., you'll have to broaden your mind a little.
What has been happening, and will continue to happen, is overseas interests are buying farmland in Australia, farming product with nationals paid by the overseas company in their homeland and shipping the product to their home company for sale in their home country. Who then determines the value of their exports for taxation purposes? They have not been sold whilst in Australia?

Lots of detail to be worked out. You make it simple then a lot of smart people get around the system via loopholes that then require plugging, and so it goes on.

Oh, I loved Pauline Hanson's GST. 2% on every transaction. Non refundable. No paperwork in claiming inputs. Just works on all sales from manufacturer to wholesaler, 2%. From wholesaler to retailer, 2%. From retailer to customer, 2%.

[AndyG]

Pauline had something there, but the tax accountants hated it, put them out of a job. I thought it was 0.2 % and included all financial transactions.

[incisor]

it was .2% and i wasn't game to mention it :p

[boa]

The average punter is more involved in his own little world than the big picture. When it comes to money. The author of rich dad poor dad says a collapse in 2016 bring it on. How can you print money and it has no effect. If I did that I would go to jail.

[nugge t]

I think this is a particularly relevant article given the way the "fairness" test is applied to everything.




Opinion: ?Fair? is thefour-letter word that's thwarting our politicians and holding us back




by: Rowan Dean
From: The Courier-Mail
December 01, 2014 12:00AM


Before Gough Whitlam, ?fairness? related toopportunity; afterwards, it referred to outcome. Source: NewsLimited


IT?Sa four-letter word beginning with F and it's one of the most obscene words inthe Aussie vernacular. It's a selfish word used to demean the efforts ofothers, a word that covers up a lack of intellectual rigour, and a word used toobscure jealousy, envy and lies. It's the most politically correct word wehave. It's even in the title of our national anthem.


Theword is ?fair?; a word that's largely responsible for the self-imposedpolitical and economic mess in which we now find ourselves, where a governmentelected with a massive majority to bring our finances under control appears tobe too terrified to do so.


Why? Because the moment any attemptto remove or trim down our ludicrous freebies and entitlements is made, someonestarts yelling that it isn't ?fair?.


But what does ?fair? actuallymean?


In that far-away land that was Australia in the late-Menzies era, whenunemployment was considered out of control if it hit 1 per cent, thedescription of Australiaas a ?fair? country was pretty accurate. It meant fairness of opportunity.


If you couldn't afford to go touni but got top grades, the Commonwealth paid. (In 1966, nearly half the studentsat Australian unis were on merit-based scholarships.) If you were willing towork hard, have a go, get back up on your feet if you took a tumble and put inan honest day's work for an honest wage, Australia was the place for you toget on in life. And for a generation, a wave of determined European migrantseagerly grabbed that opportunity with both hands and didn't let go. Hell,before long they owned their own Holdens, homes and Hills Hoists. Some couldeven afford colour telly.


Then along came Whitlam'squasi-socialist revolution, and ?fair? took on a whole new meaning. Rather than?fairness of opportunity?, Whitlam subtly altered the meaning of ?fair? to?fairness of outcome?. Why, they even changed our national anthem just toemphasise the point: under Labor, Australia couldnow advance ? not through hard work, thrift and enterprise, but simply throughbeing ?fair?.


Everybody could have aworld-class university education (you didn't even need good grades any more);everybody could have a free world-class health system ? even if you couldafford to pay you didn't have to; and everybody could have a great lifestyle,even if they didn't really feel like getting up in the morning and going towork (pop into the dole office on the way to the surf).


It was all OK because 'mining?would pick up the tab. I remember one day at school during the Whitlam yearsbeing informed by an excited teacher that because of natural gas discoveries,every one of us would be a millionaire within 10 years. Pens down, kids, feet up!


The problem with ?fair? is it's asubjective adjective with no measurable definition. And that is why it appealsto politicians. Citing ?fairness? sounds great until you actually try to pindown the criteria. One person's fair is often another's undoing. If you remove?fair? from most politicians? arguments, you find there is little substancebehind what's left.


?Fair? is one of those words,like ?nice?, that should be banned from serious discourse. The biggest mistakeTony Abbott and Joe Hockey made in trying to sell their ill-fated Budget wasclaiming it would be ?fair?.


Fairness is a cynical word thatseeks to instill guilt in those who have been successful, productive members ofsociety (the very people responsible for the quality of public services thatthe less fortunate depend on), while instilling a sense of entitlement,injustice and grievance in those who ? like all human beings ? sometimesstruggle to achieve their goals.


Take the $7 medicare co-payment.While the left screech how ?unfair? it is, is it really ?fair? to lumber ourkids with a deteriorating quality of healthcare (as in Britain, whereyou can now only mention one symptom per visit to your GP)?


In Australia today, more than 50 percent of the population take more from the government than they give to it.Sounds fair? Of course not. It's an obscenity that is robbing the nextgeneration of any hope of living the lifestyles we've all enjoyed.


Australia's prosperity was built on enterprise, notentitlements. In politics, ?fair? is rarely fair dinkum.

[incisor]

Sorry, inc., you'll have to broaden your mind a little.
What has been happening, and will continue to happen, is overseas interests are buying farmland in Australia, farming product with nationals paid by the overseas company in their homeland and shipping the product to their home company for sale in their home country. Who then determines the value of their exports for taxation purposes? They have not been sold whilst in Australia?

deem it the same way they do to the poor old pensioners, maybe

[Mick_Marsh]

deem it the same way they do to the poor old pensioners, maybe
How much is a pensioner worth when exporting? I didn't realise there was an overseas market for them. I may have one to sell.

[incisor]

How much is a pensioner worth when exporting? I didn't realise there was an overseas market for them. I may have one to sell.
i have a shed load i would like to export...

[AndyG]

Sorry, inc., you'll have to broaden your mind a little.
What has been happening, and will continue to happen, is overseas interests are buying farmland in Australia, farming product with nationals paid by the overseas company in their homeland and shipping the product to their home company for sale in their home country. Who then determines the value of their exports for taxation purposes? They have not been sold whilst in Australia?

Lots of detail to be worked out. You make it simple then a lot of smart people get around the system via loopholes that then require plugging, and so it goes on.

Oh, I loved Pauline Hanson's GST. 2% on every transaction. Non refundable. No paperwork in claiming inputs. Just works on all sales from manufacturer to wholesaler, 2%. From wholesaler to retailer, 2%. From retailer to customer, 2%.

Don't blame the buyer, blame the seller , Australia, we are like a family where the previous generation worked their butt off, and the next generation prefers to sell the family silver.

[frantic]

Let's go back to the "glory days" of pig iron bob.
Where less than half a percent, that's 0.5% of our population went to uni. Compared to 5% today. Or within 7 years of him losing there where 3 times more uni students.
This education revolution resulted in around 250,000 employed in that sector and a large chunk of income from overseas student wanting a top level education.
Tertiary education in Australia - Wikipedia, the free encyclopedia (http://en.m.wikipedia.org/wiki/Tertiary_education_in_Australia)
Let's go back to sending warfies out on 11 week long strikes in opposing the Govt who try to force cargo to be loaded to support Isis or in his case, Japan, December 1938- 1939.
If we go there we also virtually eliminate imports, create jobs but increase the cost of living more as prices increase.