Hedge Clippings | Friday, 04 December 2020

It's been what one might call a Topsy-Turvey year. We understand that is not a very technical or well-recognised financial term, but from where we sit (or stand) it seems to sum it up. Topsy-Turvy it might have been, but compared with where we were in April or May, or where Victoria was during their winter lockdown, Australia seems to have fared relatively well all things considered.

We are certainly fortunate to be an island nation, tucked away down at the bottom end of the globe. We are fortunate not to have had the chaos that has enveloped Europe and North America, and seems likely to continue to do so for a while yet in spite of the recent announcements regarding the release of COVID vaccines.

In reality of course it's been a shocker of a year, thanks to COVID and its aftermath. The domestic economy has been battered, but has amazingly bounced back from one of its worst quarters of financial growth to record one of its best. There is a significant cloud on the horizon for the agricultural and education sectors as they struggle to deal with their largest trading partner, but the reality is probably that they became complacent and over-dependent in the first place.

If nothing else, both Australia and the world are now seeing the Chinese government's true colours. Exporters might as well get used to it and find new markets, even though in the short to medium term that will be a painful exercise.

While on the subject of painful exercises, sooner or later Australia's own government (of whatever hue) needs to bite the bullet and address the issue of our highly inefficient tax system. Yesterday the OECD released "Revenue Statistics 1965-2019" which showed that at 60% we have the second highest dependence on taxes raised from income and profits among 37 advanced countries.

This isn't even close to the OECD average of 34.3%. Equally, the GST makes up just 11.7% of total tax revenue, compared with the OECD average of 20.4%. Part of that issue of course is that the GST is only levied on less than half of Australia's overall consumption.

In spite of this, Australia's overall tax level is 28.7% of the economy, which is below the OECD average of 33.9%. This tells us two things: firstly that the major source of taxation revenue that the government relies on, whether it be company tax or personal income tax, is inefficient and in many ways counter-productive.

Secondly, and the politicians in Canberra must know this, they lack the fortitude or ability to address the issue at the ballot box. Last week's Hedge Clippings had a whinge about Australia's superannuation system which, when all is said and done, is another arm of the taxation system.

So we are left with two highly inefficient and overly complex systems. One of our ongoing dreams is that the GST will be raised and expanded as a tax on consumption, such that the higher the consumer's level of spending, the more they contribute. That at least would lead to a simpler collection system.

Another is that there should be a strong incentive (or should that be a penalty) to encourage superannuation funds to invest long-term in infrastructure projects, thereby merging the opportunity with the need for investment into that sector.

Of course it's not easy for the government, when a logical and sensible plan to limit cash transactions to $10,000 (as is required in the banking and financial services sector) was this week dumped, or should we say torpedoed, by the cross benches. That luminary from Far North Queensland, Bob Katter, somehow described the proposed ban on cash transactions as representing a danger to Australian freedoms "greater than the danger to our lives through terrorism".

Meanwhile, One Nation Senator Malcolm Roberts claimed that the ban "criminalises the use of legal tender, cash, for everyday Australians".

What planet are these two on? If Katter and Roberts don't realise it, terrorism is financed through donations made in cash, simply because it's untraceable - or difficult to trace. And it is the criminals that use wads of cash greater than $10,000 to conduct their "business", not everyday Australians.

The mind boggles! But it's Friday. Where's that glass of pinot?

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