Proposals Inviting Government to Take Money from You and Give it to Someone Else

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Reader, you know your editor is like a dog with a bone. Once we start on a subject it tends to consume us for several days, almost without break.

Our property mumblings are a perfect example. We take a massive bite and just can’t let go. Eventually one of us gets bored and so we move on to the next thing.

As for property, we’ll come back to it at some point. We’re just waiting for something big and juicy to turn up before we do.

Yesterday we spent most of the day researching for the next issue of Australian Small Cap Investigator. There are two stocks we’ve got on the radar, and unless something turns up which we don’t like then we plan tipping both of them.

According to our assistant publisher, Joanne Ha, this month’s edition should be completed and mailed out to subscribers by tomorrow…

But according to your editor, it will be completed and mailed out next week.

We’re not normally game enough to argue with our Taekwondo-kicking assistant publisher, but now that we occupy separate rooms in our office on Fitzroy Street there’s less chance of us receiving a kick to the head if we’re late! [Closes office door]

So, if you subscribe to Australian Small Cap Investigator, stay tuned, and you should get your September issue by early next week.

Anyway, our point is, yesterday while taking a break from poring over presentations, balance sheets and income statements we couldn’t help but pay a visit to the Tax Review website.

I know, I know… we’ve got a fab office in Fitzroy Street, just a two minute stroll from the beach, and I’m looking at submissions to the tax review.

Well, before we get stuck in to the September issue of Australian Small Cap Investigator again today we decided to have another look at the website. If you haven’t looked yet you can do so by clicking here.

As you can imagine, it’s not exactly a barrel of laughs, but it does – in our opinion – make for a number of interesting reads…

And a few worrying ones too.

In a moment we’ll take a look at one of the submissions. But based on all the ones we’ve looked at they have a striking similarity.

That is the belief they’ve discovered the ‘magic bullet’ for tax and pension reform.

Look, there’s nothing wrong with looking for the perfect solution to something, we try to do that all the time. There is one difference though. We favour getting rid of regulations, taxation and compulsion and letting free enterprise and dare we say it, the individual make their own choices.

Who am I to say I know how to do anything better than someone else? I reckon I’m pretty good at picking small cap stocks, but I don’t force you take out a subscription to Australian Small Cap Investigator.

If you want to, then great, welcome aboard. If you don’t, then no hard feelings.

Yet the coercive sector (government) forces you to pay a subscription to their services through taxation. Even if you don’t want to use it, or can get a better service elsewhere.

Take education for example. Whether you like it or not, a portion of your taxes go towards paying for government schools. Even if you don’t have kids. But even if you do have kids and you choose to send them to private school, then you’re still paying for the government schools.

How does that make sense? Imagine being forced to pay for Australian Small Cap Investigator even though you didn’t want it. Would that be fair?

It would be great for us of course, but it wouldn’t be good for you.

But, the submissions to Dr. Henry’s expert panel all seem to want to make decisions for everyone else.

Several times we’ve seen promising statements in the submissions which support abolishing a tax rate, only for our hopes to be dashed by the suggestion of an alternative tax rate which is just as bad – or worse.

Above I mentioned this was all very ‘worrying,’ well, it’s sad too. Because the idea that individuals should be controlled and manipulated by government and special interest groups has filtered down to the youngsters as well.

That’s right, it’s not just the nutters in Canberra that think they know best.

Take these excerpts from a submission by tertiary student Michelle But:

“As a tertiary student and a member of the public, I am honored [sic] to contribute my submission based on the topic of “Retirement Income System” to the Review Panel, which is led by Dr Ken Henry, Secretary to the Treasury. I welcome and look forward to future improvements on the Retirement Income System made by the Australian Government.”

“Honored” – your editor is speechless. Perhaps we should now all bow when Emperor Henry enters a room!

Michelle’s submission continues:

“Australia’s retirement income system plays a pivotal role on financial security and retirement welfare. Currently, not every retired Australian in receipt of Centrelink Age Pension can afford to have the lifestyle they want, not every working Australian qualifies for the 9% compulsory employer superannuation and not every Australian has sufficient voluntary savings at retirement. If, however, the Government acts NOW through the implementation of specific changes to the superannuation rules, then ‘YES, WE CAN’ alleviate these issues in the future.”

Those are Michelle’s bolds and caps, not ours.

Of course, Michelle has a solution, which is, “increasing compulsory employer SG contribution from 9% to 15% by 2012.”

The funds management industry couldn’t have put it better themselves.

But young Michelle goes one step further. She has an idea that not even the fund managers or the unions have dare come up with. But we’re sure they’ll jump all over it when they see it:

“Australians can voluntarily contribute their before-tax income into superannuation through the super salary sacrifice scheme (taxed at 15%). However, the Government needs to enforce gradual compulsory superannuation savings at 15%.”

Got that?! Based on this proposal – if we’ve got it right – 30% of your salary would go towards superannuation. Take off tax, levies, surcharges, etc… and you’ll be left with about $5 in your pay packet by the end of each week.

Look, we had to read that part of the submission again to make sure we read it correctly. We’re almost tempted to give her the benefit of the doubt. Can she really be arguing for a 30% superannuation contribution?

Look, this is an extreme proposal that Lenin would be proud of. We’re not sure that even Comrade Rudd would go that far. But maybe he would.

In fact, long term we’ll probably find Michelle’s proposal to be not far from the mark.

But it’s not just Michelle, look at any one of the submissions on Dr. Henry’s website. They all have similar proposals. And that is pleading with the government to rob you blind.

Every single submission we’ve read advocates taking money from your pocket and giving it to someone else.

Somewhere in the mind of these people they believe that you’re incapable of looking after yourself and your own money. As Michelle puts it, “to avoid squandering.”

What a cheek. Here’s some breaking news. If someone wants to squander their money let them do it. If they know there is no government bail out them odds are they won’t squander the money to begin with.

If they still go ahead and blow it all, well, tough luck. Arguing that your earnings should be taken by force just on the off chance you may make some bad decisions is ludicrous.

Besides, there’s no guarantee you’ll ever see that money again anyway. By the time the government has frittered it away, and fund managers have taken their slice, and inflation has munched at another portion, the New Age Pension won’t be worth waiting for.

In fact, the more government gets involved and the less control you have over your money, the greater the chance is that you never will get your hands on it.

The problem as we see it, is the entirely false belief that people’s behaviour can be controlled. It can’t. Many people can’t control themselves from doing irrational or compulsive things, let alone other people.

But that’s not a bad thing. It’s good, and it should be encouraged.

The problem is, centralists and government-lovers believe they can control every aspect of people’s lives and the economy as a whole. They can’t, it’s impossible.

People make all sorts of decisions on a daily basis. Some of them aren’t rational, and some of them aren’t logical. But that’s just the way it is.

The sad thing is when you have some individuals pleading with control freaks in government to steal more money away from other individuals. And it’s always done in the belief that a centralised government bureaucracy knows how to do things better than an individual.

But the evidence is firmly against this. Everywhere, without exception, where government is involved, things are a mess and the individual is disadvantaged:

Health care, education, roads, public transport, telecommunications, legal system, etc…

There’s not one thing the government does better than could be done by the private sector. Not one single thing.

The fact is – yes, fact – that no-one can manipulate anything without it having unforeseen consequences elsewhere. More money being stolen from individuals to go into superannuation and government coffers means less money remaining with the individual.

What’s the consequence of that?

You guessed it, a greater reliance by the individual on the government. Which means?

You guessed it, an increase in services to be provided by the government, which means higher taxes, and even less money remaining with the individual.

And most important of all. If the government controls the supply of money to the public then they have almost unlimited power over them.

As I mentioned above, I encourage you to take a look at the submissions to the Tax Review website. You may not like what you read but you should know what other people are planning to do with your money.

Kris Sayce
for The Daily Reckoning Australia

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.
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23 Comments on "Proposals Inviting Government to Take Money from You and Give it to Someone Else"

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Pete
Guest

I get the impression that Gen Y’s think socialism is the ultimate in ‘fairness’.

Unfortunately, life isn’t fair. And every little thing you give to one person, is taking away from someone else.

And as Kris mentions, regulations mean control. Control is power. Power corrupts.

IMBMB
Guest

Kris,
I think you have an error. The quote means they can salary sacrafice into super (taxed at 15%) not contribute 15% of salary.

Dan
Guest

One for the Master, one for the Dame, and one for the Little Boy who lives down the lane. Except the Master poisoned the Dame (who is now as good as dead) and now wants to take her cut. [insert expletive here]!

Stuart
Guest

Just to add to IMBMB’s comment, the other 15% you mention in the article is (for the majority of wage earners) paid by the employer on top of wages/salary. I think it incorrect to suggest that the individual will ultimately have 30% of their earnings go to super.

wasabu
Guest

The clever and the arrogant are individualists when it comes to controlling their resources. The dumb and the meek are communists (read community-oriented if you wish), having a propensity to share the loads through brotherly love and trust.

Pick your camp!

Ross
Guest

Wasabu, I don’t want anyone working for me to be impoverished by communism. I want them to be as healthy and as wealthy as their efforts will allow. Their access to individual opportunity keeps me safe and we share one destiny. we could get all religious with dust to dust & the reckoning here couldn’t we?

Justin
Guest

Awww, leave Ms Butt alone, she’s a uni student, what the f**k does she know?

Ned S
Guest
The old time socialists weren’t meek wasabu – They were more than happy to kill the enemy of the working class so they could redistribute their wealth. And I’ve never heard anyone accuse blokes like Marx and Lenin of being dumb. As to the more benevolent socialist states that have arisen through democratic process since, I guess we’ll just have to see if they implode under their own weight over time as well – Either that or get eaten alive by more competitive nations perhaps? And as to Oz socialism in particular, the three leaders I specifically remember who fit… Read more »
Dan
Guest

I take this opportunity to plug my favourite word: Distributionism. It has all the benefits of capitalism, except that it undermines the monopoly that tends to develop (ultimately rendering capitalism to be no different to communism with is centralized, bloated government).

I can’t believe people still espouse materialistic, centralist crap like socialism and naked capitalism which benefits nobody but big business.

Ned S
Guest

Dan – Does distributism allow one to hand on acquired wealth to their chosen heirs? If so, then I’d like to read a bit more if you can post a link please. Cheers!

Greg Atkinson
Guest

You all know where we are going don’t you? All the fuss about evil bankers will blow over in time as it always does. Then the public will be outraged by excessive government spending and the conservatives will come in. In order to pay down government debt they will encourage economic growth and hence the cycle starts all over again. So hang on for the ride..here we go again!

Ned S
Guest

Hubble, bubble, toil and trouble!

M
Guest

Kris, I think it’s disappointing that you (a financial broker, accredited adviser in Shares, Options and Warrants, and Foreign Exchange and a member of the team in CFD provider) fail to understand the intention in Michelle But’s submission, which is to boost individual’s superannuation so that they can have a comfortable retirement.

What’s more, read carefully before you jump into conclusions about “30% of your salary would go towards superannuation” because Michelle But mentions that employer superannuation contribution is 9% but there needs to be a gradual increase to 15% by 2012.

Dan
Guest
Ned, it certainly does: http://en.wikipedia.org/wiki/Distributism#Private_property – Distributism espouses private property (and persistence of ownership). It differs though on the concept of ownership of businesses. For example, employment in a company would entitle the employee to some fair share of the company’s assets and profits. That is shares, in the non-speculative sense. So you couldn’t just walk up to a profitable company and bulldoze your way in with dollars and take it all over. Speculation on companies on a stock exchange doesn’t really have a place. Influence over a company would depend on how much you’ve done for the company –… Read more »
Dan
Guest

I hope you’re right, Greg.

Greg Atkinson
Guest

Dan I am not often right, I just figure that people lose interest in reform very quickly. The sad reality is that most households spend more on pets than they give to charity. In Australia the public says one thing, but will act in self interest 90% of the time. Sure we have seen a credit crunch, but just watch people rack up debt again when they think the worst is over.

I am not saying this is good by the way. It just seems to be the way modern capitalism works. But is there a real proven alternative?

Biker Pete, Montreal, Que., Canada
Guest
Biker Pete, Montreal, Que., Canada
It’s clear that very few Aussies, including Kris Sayce, understand superannuation, Many years ago, being part of that flock, we framed scores of questions we needed answers for… and sought them from every source we could find. Super itself isn’t all that complex, but its interrelationship to other asset classes and their tax structures is a minefield… and one in which even two FAs we consulted seemed lost. Once we were able to locate our personal situation(s) within the map, we then consolidated; and allocated 75% of our annual income to super, through salary packaging. Then every subsequent year, we… Read more »
Dan
Guest
“There’s no ‘quick money’ in this, I’m afraid…. just _very_ steadily growing assets across three asset classes” – seconded! Your approach is a good one, BP, and the emphasis that your solution is for _your_ personal situation is well made (in the new year we’ll be looking at super much more closely – when I expect the market will have declared itself once again). We found superannuation (for us) to be best avoided at this early stage of our careers, and we manage what little we were forced to contribute on a month-by-month basis. For us the GFC has changed… Read more »
Hodger
Guest
I think Kris is a complete MORON! So lets remove taxes and if I follow Kris’s arguments we install some user paid system. So when you want to leave your house and drive on a street you pay a toll, what about a foot path, a beach, a park? I send my kids to a private school, which by the way gets public funding like most private schools. But on the other hand would I pay a little money in tax that went to the welfare of others such as education, health and retirement or would I rather grow up… Read more »
wasabu
Guest

Socialist Gov preys on paternal need most sheeple tend toward. That sense of security we are born with in the arms of mum & dad. That’s why we like to outsource our charity work, ‘social security’ etc. Will Australia ever grow up? It would take a tragedy for people to start being responsible for themselves. Whats all this violence on Melbourne streets? Alcohol or confused fearful babies of the get-rich-quick generation?

Uncle Kev will take care of you… but you must cede your freedom.

Joe
Guest
This debate your commentators seem to be having about the ills of socialism compared with the advantages of capitalism is quite frankly amazing and dumbfounding. Neither capitalism nor socialism are the perfect paradyms. It needs a bit of both. Without social cohesion capitalism runs amok. Environmental considerations are ignored. Welfare considerations are ignored. Social responsibility is overlooked and corporate and individual greed prospers. To all you capitalists out there just consider two things. 1.) Most of the infrastructure we rely on today to make our lives productive and comfortable would not be around today if socialists hadn’t forced the hand… Read more »
Joe
Guest

Health care, education, roads, public transport, telecommunications, legal system, etc…

There’s not one thing the government does better than could be done by the private sector. Not one single thing.

Appart from pick up the cost of those that capitalism deems to earn insufficient to be able to afford these ‘privately operated’ services.

Kris, one day you will grow up and re-read what you have written on this post and you will cringe with shame at how certain your argument is without being correct.

bargeass
Guest

By the time the Australian Socialist Workers Party have finished taking money off those that vote against them and giving it to those that vote for them the country will be in it’s usual economic mess. Just look at the NSW government.

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