Latest news with #LafferCurve
Politico
4 days ago
- Business
- Politico
Where are Trump tariffs on the Laffer Curve? Ask Arthur Laffer
Presented by Editor's note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day's biggest stories. Act on the news with POLITICO Pro. Quick Fix President Donald Trump has described Arthur Laffer's back-of-the-napkin theory that lower income taxes can boost revenue as the stuff of legend. But right now, the progenitor of the Laffer Curve and longtime Trump confidant doesn't see much evidence supporting the administration's claims that the aggressive tariff regime is poised to fill the government's coffers and reignite the economy. Tariff-related revenue has rocketed since customs began collecting on the new duties Trump has imposed on imports. The president has framed the taxes as a massive windfall that could unleash a 'BONANZA FOR AMERICA!!!' if paired with income tax cuts. Laffer told POLITICO that the net effects are probably 'rather minuscule either way.' 'By raising tariffs, of course, you do collect more money per unit of import — that's true,' said Laffer, who advised Trump during the campaign and continues to be a strong backer of the president's agenda. 'But it's also true that you cause weakness in the economy and you lose revenues elsewhere in the system. The net effect is probably not very large either way.' Laffer has long been skeptical of Trump's approach to tariffs. But his points about the negligible effects of the administration's ever-changing trade policies are notable given the president's public support for Laffer's most famous theory. What's more, many economists believe that the Laffer Curve — which describes the relationship between rates and revenue as a bell curve where higher taxes lead to diminishing collections — can be an important tool for assessing the effects of Trump's tariff agenda. James Pethokoukis, a senior fellow at the conservative-leaning American Enterprise Institute, put it this way in a recent blog post: '[The Laffer Curve] suggests unavoidable and unpleasant trade-offs for Trumponomics supporters: The Trump administration wants tariffs to both reduce the trade deficit and increase revenue—goals that fundamentally conflict.' Laffer said an across-the-board tariff could be a 'nice revenue raiser' so long as it wasn't opened up to exemptions, credits or other deductions. And even then, it would only yield an economic benefit if the revenue was used to reduce other forms of taxation that are 'more deleterious' to the overall economy, he said. Nevertheless, 'it's not as good as an income tax as far as collecting revenue goes,' Laffer said. Trump, along with Treasury Secretary Scott Bessent, has listed income tax relief among the many goals of the trade regime. Unsurprisingly, Laffer sees a lot of upside in the tax cuts included in Trump's 'big, beautiful bill' — particularly with regard to the elimination of taxes on tipped income, as well as a new deduction for auto loan payments — and said it would be 'very bad for the economy' if Congress fails to pass the measure. But 'there is no doubt in my mind that trade protectionism will hurt the economy a lot,' he added. 'The question is: What will Trump's actions do?' Laffer said. 'My guess is they'll make for freer trade, not for more protectionism. I think he really wants [other countries] to come to the table and reduce their tariffs on us, and that would be wonderful, and we should have those tariffs lowered.' 'Will he actually do that? I don't know.' IT'S TUESDAY — As always, send your tips, suggestions and personnel moves to Sam at ssutton@ Driving The Day Senate Finance votes on Bill Long's nomination to serve as IRS commissioner at 9:30 a.m. The committee holds a nominations hearing on picks including Brian Morrissey Jr. to be general counsel at Treasury at 10:30 a.m. … The U.S. Chamber of Commerce kicks off its Capital Markets Summit at 9:35 a.m., with speakers including Acting Comptroller of the Currency Rodney Hood, NASDAQ President Nelson Griggs, SEC Commissioner Mark Uyeda, acting FDIC Chair Travis Hill, Sen. Mike Rounds, Rep. Bill Foster, House Financial Services Chair French Hill and Deputy Treasury Secretary Michael Faulkender. The Brookings Institution holds a discussion on the earned income tax credit at 10 a.m. … The Council on Foreign Relations holds a discussion on the U.S. economic outlook and monetary policy at 1 p.m. … Hill speaks at a stablecoin event hosted by the Atlantic Council and WilmerHale at 1 p.m. … SEC Chair Paul Atkins testifies before Senate Appropriations at 2:30 p.m. … Sort of the opposite of 'go woke, go broke' — White-shoe law firms that cut deals with the Trump administration to avoid punishing executive orders are losing Wall Street clients to institutions that challenged the president's directives, the WSJ's Erin Mulvaney, Emily Glazer, C. Ryan Barber and Josh Dawsey report. Fantastic news for lazy 'Game of Thrones' headlines —JPMorgan Chase CEO Jamie Dimon said he's still 'several years away' from retirement, during an appearance on Fox Business on Monday. Trouble in Treasuries — With tariffs hanging over the economy, analysts say longer-dated Treasury securities may continue their slump ahead of Friday's jobs report, per Bloomberg's James Hirai and Michael Mackenzie. The Economy It's not the policy, it's the uncertainty — Federal Reserve Bank of Chicago President Austan Goolsbee said the economy's solid fundamentals would allow the central bank to proceed with rate cuts, per Bloomberg's Catarina Saraiva. But that will depend on greater certainty around trade policy. Deeper — The manufacturing sector continued to contract in May as tariffs and other policy risks dented new orders and hiring, according to the Institute for Supply Management's closely watched monthly index. The expiration of the boom — South Florida's real estate market exploded during the pandemic. But a slowdown in migration to the region, coupled with higher interest rates and mortgage costs, has led to a dropoff in home sales, Bloomberg's Anna Kaiser reports. New poll — A new Pinpoint Policy Institute poll conducted by Trump's campaign pollsters Fabrizio Ward found that the president's approval rating was slightly underwater at 46 percent to 49 percent. While Trump still maintains a 45 percent-39 percent edge over congressional Democrats on economic policy, a whopping 78 percent of those surveyed said they are worried about the cost of everyday goods. Furthermore, 69 percent said they are worried about their tax burden and 63 percent sait they are worried about retirement savings or investments. The survey of 800 registered voters was conducted from May 15-19. At the regulators Watch this space — Katy O'Donnell reports that the Trump administration has placed two officials at the Federal Housing Finance Agency on leave. The shakeup sidelined Anne Marie Pippin, senior associate director and former deputy director of the Division of Conservatorship Oversight and Readiness, as well as Maria Fernandez, senior associate director of the Office of Housing and Regulatory Policy. Shake up at the statistical agencies — As Trump floats moving the Bureau of Labor Statistics under Commerce, Nancy Potok, the former chief statistician at the Office of Management and Budget, along with former BLS chief Erica Groshen have an op-ed in Science on how 'the administration's appetite for disruption [might] be harnessed to modernize federal statistics.' Jobs report Former Assistant Secretary of the Treasury for Economic Policy Eric Van Nostrand has joined Lazard Asset Management as its global head of markets and chief economist. Van Nostrand, a top adviser to former Treasury Secretary Janet Yellen, was previously a portfolio manager and managing director at BlackRock. Natalia Díez Riggin, a former top staffer to Senate Banking Chair Tim Scott and Sen. John Kennedy, has been named the SEC's director of legislative and intergovernmental affairs. She's been serving in the role in an acting capacity since January. — Declan Harty
Yahoo
5 days ago
- Business
- Yahoo
Britain should ditch ‘distorting' stamp duty, says Reagan's economic tsar
Britain should ditch 'distorting' stamp duty charges that 'lock people in their homes', Arthur Laffer has urged. The economist behind the Laffer curve said property transaction taxes are such a big problem in the national tax system that the UK would be better off with an American-style annual property wealth tax. Mr Laffer, who has served as adviser to both former president Ronald Reagan and president Donald Trump, told The Telegraph that the UK would be better off if homeowners paid annual property taxes as they do in the US instead of stamp duty. He said: 'The [annual] property taxes in Britain are low, but the transaction tax is very high. The US is the reverse. We have property taxes everywhere, which is a wealth tax, and we don't have transaction taxes on houses. 'All property taxes do in Britain is lock people into their homes that they can't get out. It just distorts the whole tax system in Britain, it's just awful. 'It is one of the very biggest problems in Britain's tax system.' Mr Laffer is most famous for conceiving the Laffer Curve, an illustration of the concept that increasing tax rates can eventually lead to lower revenue because the higher taxes trigger so much behavioural change. Stamp duty is widely hated by economists and consumers alike because it makes it increasingly difficult to move home and makes the housing market inefficient – which in turn takes a toll on productivity. In America, by contrast, homeowners do not pay large taxes when they purchase their homes but instead pay an annual tax based on a percentage of their property's value. Mr Laffer said: 'Income tax is a problem in Britain, but these transaction taxes are big stuff too.' Stamp duty is taxed in bands that are not adjusted to account for house price growth, meaning homeowners get dragged into higher tax brackets as house prices rise. Since the tax bands were last adjusted in 2014, the average London house price has climbed by 30pc. Over the same time period, the stamp duty bill on the average home in the capital has surged by 54pc. The Office for Budget Responsibility (OBR) forecast in March that the Treasury's tax take from property transactions will nearly double from £15bn in 2024-25 to £26.5bn in 2029-30. Mr Laffer was an adviser to Donald Trump's 2016 campaign and says he has met with the US president several times since he took office earlier this year. He said he has told the Mr Trump that he should scrap US corporation tax on profits and replace it with a value added tax on sales. Although Mr Laffer is in favour of Mr Trump's tax bill, he said the president should go further with measures to boost the economy. The biggest measure in the bill will be an extension to the tax cuts that Mr Trump introduced in 2017 and are due to expire this year. Mr Laffer said: 'I know they talk about it as being a tax cut. It's not. It's just making Trump's tax cuts permanent. 'If it were not passed, there would be a huge increase in taxes across the board, which would be very detrimental. The bill going through the Senate right now does not create something wonderful but it saves us from a disaster.' Mr Laffer said that America should establish a free trade agreement with the UK, and that Ireland should leave the EU to become part of the trading bloc too. He said: 'One thing I really hope Trump does with Britain is really bring into a free trade relationship with the US. 'You're gonna hate me for this, but I think it should be with Ireland too. I think they should get out of the EU and should become part of the sort of the US/ UK/Ireland group. I think that would be a terrific free trade group.' Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
The Advertiser
6 days ago
- Business
- The Advertiser
Unrealised capital gains tax could wreak financial havoc
Labor's proposed tax on unrealised capital gains in super is finally getting the attention it deserves, as more Australians grasp just how draconian the policy really is. It's a textbook example of unintended consequences - a slick-sounding policy with the potential to wreak financial havoc. It must have been an irresistible proposition: let's put a special tax on the rich; there's not many of them, and they don't vote for us anyway. Welcome to Australia's Animal Farm, where all super funds are equal, but some are more equal than others. Judges and public servants retiring on massive defined benefit pensions, often worth well over $3 million, have been handed a special exemption. Why? Because taxing them was deemed "too hard" - while everyone else above the cap is expected to pay up. The hypocrisy is breathtaking. The proposed tax is also a form of double taxation. Under this plan you'll pay an extra 15 per cent tax each year on the nominal increase in value of your super assets - even if you haven't sold anything. When you do sell those assets and realise a profit, you'll pay capital gains tax. And no, there's no credit for tax already paid on the unrealised gains. Labor have never made any secret about their hatred of self-managed super funds. Every dollar in an SMSF is one less dollar paying fees to the Labor-dominated industry super funds. But SMSFs let people hold assets not open to the big funds - business premises, farms, and commercial property - none of which can be sold at the click of a button. If taxes on paper profits force enough people to liquidate at once, prices will collapse; it's simple supply and demand. And make no mistake - Australians will respond. Many I've spoken to are already planning to restructure by gifting to children: helping them buy property, pay down loans, or invest. That shift - combined with likely interest rate cuts later this year - could fuel another property boom. It's the opposite of what the government claims it's trying to achieve. If this tax becomes law, it will also impede innovation. Many tech founders launch start-ups through their super funds, and these businesses are often illiquid for years. Their perceived value can fluctuate wildly. Imagine a $1 million start-up growing to $6 million on paper - triggering a tax on a $5 million gain that may never be realised. If the valuation crashes to $3 million the next year, the fund is still taxed on money that never existed. Madness. And let's not forget the Laffer Curve: the well-established principle that raising tax rates beyond a certain point actually reduces total tax revenue. Push people hard enough, and they'll restructure, withdraw, or move their wealth offshore. So a tax designed to raise more money might end up collecting less. But the biggest danger is this: it's a foot in the door for taxing wealth that doesn't exist. Once you accept that principle, no asset is safe. If it's OK to tax unrealised gains for someone with $3 million in super - or $2 million if the Greens get their way - what stops a future government from applying the same logic to investment properties? Or a share portfolio? Or a business? And then there's the family home. Right now, your principal residence is tax-free, even if it's worth $100 million. But it stands out like a beacon for any government desperate for cash and bold enough to grab it. Once that line is crossed, there's no telling where it ends. You may think this policy doesn't affect you, but to quote John Donne: "Never send to know for whom the bell tolls; it tolls for thee." Question: In your response to a recent question published you stated that aged pension recipients must notify Centrelink of any material change in their assets or income. Does this reporting requirement also apply to superannuation drawdowns when the funds are used for gifting within the allowable limits (i.e. up to $10,000 per year, with a maximum of $30,000 over a five-year period) to assist adult children with a home purchase? I understand "material" in the Australian Accounting Standards sense, but Centrelink may define it differently. Could you clarify? Answer: Regan Wellburn from My Pension Manager advises that a superannuation drawdown is considered a notifiable event for Centrelink. If in doubt, it's always safer to report any financial changes. This ensures you won't be underpaid or, worse, end up owing Centrelink money. Any change of $2,000 or more in financial assets - such as bank accounts, super, or shares - must be reported within 14 days. For non-financial assets like cars or home contents, the threshold is $1,000. Gifting is also a notifiable event, even if it falls within the $10,000 annual limit. The simplest way to update Centrelink is through your MyGov account. This provides a record of your update and allows you to review and adjust your income and asset details as needed Question: I'm saving for a home loan and currently have no credit history. I know lenders often consider credit scores when assessing loan applications. Would it be beneficial to take out a small loan, such as a credit card, to build my credit history and improve my chances of approval in the future? Answer: Having a strong credit history can help when applying for a home loan, as lenders assess your ability to manage debt responsibly. If used wisely, a credit card or small loan can demonstrate reliability. The key is to make small purchases and repay them on time to build a positive record. However, avoid unnecessary debt-lenders also consider your debt-to-income ratio. If you prefer a safer option, some banks offer credit products like secured credit cards or small overdrafts that help establish credit without encouraging overspending. That said, credit history is just one factor. A solid savings record, stable employment, and a sufficient deposit also play a big role. If in doubt, speaking to a mortgage broker can help tailor a strategy to your goals. Question: A relative is about to enter aged care and will use some of her super to pay the entire accommodation bond, leaving her with around $350,000. A financial adviser suggested she withdraw the remaining super and place it in a safer option, like a term deposit, given her likely short investment time frame. He believes she should avoid any risk. Do you agree with this approach, or would you recommend a different strategy for managing her remaining funds? She is receiving a substantial part age pension now. Answer: The biggest risk here is the death tax that may apply to her super if it's left to a non-dependent such as adult children. Since she's entering aged care, her time frame may be limited. Cashing it out and putting it in the bank could provide peace of mind while also avoiding the tax. Options to slightly increase her pension include pre-paying for her funeral and considering gifting money to her intended beneficiaries so she can enjoy seeing the impact it has on them. Making gifts of $10,000 before 30 June and another $10,000 on 1 July could reduce her assessable assets by $20,000. Labor's proposed tax on unrealised capital gains in super is finally getting the attention it deserves, as more Australians grasp just how draconian the policy really is. It's a textbook example of unintended consequences - a slick-sounding policy with the potential to wreak financial havoc. It must have been an irresistible proposition: let's put a special tax on the rich; there's not many of them, and they don't vote for us anyway. Welcome to Australia's Animal Farm, where all super funds are equal, but some are more equal than others. Judges and public servants retiring on massive defined benefit pensions, often worth well over $3 million, have been handed a special exemption. Why? Because taxing them was deemed "too hard" - while everyone else above the cap is expected to pay up. The hypocrisy is breathtaking. The proposed tax is also a form of double taxation. Under this plan you'll pay an extra 15 per cent tax each year on the nominal increase in value of your super assets - even if you haven't sold anything. When you do sell those assets and realise a profit, you'll pay capital gains tax. And no, there's no credit for tax already paid on the unrealised gains. Labor have never made any secret about their hatred of self-managed super funds. Every dollar in an SMSF is one less dollar paying fees to the Labor-dominated industry super funds. But SMSFs let people hold assets not open to the big funds - business premises, farms, and commercial property - none of which can be sold at the click of a button. If taxes on paper profits force enough people to liquidate at once, prices will collapse; it's simple supply and demand. And make no mistake - Australians will respond. Many I've spoken to are already planning to restructure by gifting to children: helping them buy property, pay down loans, or invest. That shift - combined with likely interest rate cuts later this year - could fuel another property boom. It's the opposite of what the government claims it's trying to achieve. If this tax becomes law, it will also impede innovation. Many tech founders launch start-ups through their super funds, and these businesses are often illiquid for years. Their perceived value can fluctuate wildly. Imagine a $1 million start-up growing to $6 million on paper - triggering a tax on a $5 million gain that may never be realised. If the valuation crashes to $3 million the next year, the fund is still taxed on money that never existed. Madness. And let's not forget the Laffer Curve: the well-established principle that raising tax rates beyond a certain point actually reduces total tax revenue. Push people hard enough, and they'll restructure, withdraw, or move their wealth offshore. So a tax designed to raise more money might end up collecting less. But the biggest danger is this: it's a foot in the door for taxing wealth that doesn't exist. Once you accept that principle, no asset is safe. If it's OK to tax unrealised gains for someone with $3 million in super - or $2 million if the Greens get their way - what stops a future government from applying the same logic to investment properties? Or a share portfolio? Or a business? And then there's the family home. Right now, your principal residence is tax-free, even if it's worth $100 million. But it stands out like a beacon for any government desperate for cash and bold enough to grab it. Once that line is crossed, there's no telling where it ends. You may think this policy doesn't affect you, but to quote John Donne: "Never send to know for whom the bell tolls; it tolls for thee." Question: In your response to a recent question published you stated that aged pension recipients must notify Centrelink of any material change in their assets or income. Does this reporting requirement also apply to superannuation drawdowns when the funds are used for gifting within the allowable limits (i.e. up to $10,000 per year, with a maximum of $30,000 over a five-year period) to assist adult children with a home purchase? I understand "material" in the Australian Accounting Standards sense, but Centrelink may define it differently. Could you clarify? Answer: Regan Wellburn from My Pension Manager advises that a superannuation drawdown is considered a notifiable event for Centrelink. If in doubt, it's always safer to report any financial changes. This ensures you won't be underpaid or, worse, end up owing Centrelink money. Any change of $2,000 or more in financial assets - such as bank accounts, super, or shares - must be reported within 14 days. For non-financial assets like cars or home contents, the threshold is $1,000. Gifting is also a notifiable event, even if it falls within the $10,000 annual limit. The simplest way to update Centrelink is through your MyGov account. This provides a record of your update and allows you to review and adjust your income and asset details as needed Question: I'm saving for a home loan and currently have no credit history. I know lenders often consider credit scores when assessing loan applications. Would it be beneficial to take out a small loan, such as a credit card, to build my credit history and improve my chances of approval in the future? Answer: Having a strong credit history can help when applying for a home loan, as lenders assess your ability to manage debt responsibly. If used wisely, a credit card or small loan can demonstrate reliability. The key is to make small purchases and repay them on time to build a positive record. However, avoid unnecessary debt-lenders also consider your debt-to-income ratio. If you prefer a safer option, some banks offer credit products like secured credit cards or small overdrafts that help establish credit without encouraging overspending. That said, credit history is just one factor. A solid savings record, stable employment, and a sufficient deposit also play a big role. If in doubt, speaking to a mortgage broker can help tailor a strategy to your goals. Question: A relative is about to enter aged care and will use some of her super to pay the entire accommodation bond, leaving her with around $350,000. A financial adviser suggested she withdraw the remaining super and place it in a safer option, like a term deposit, given her likely short investment time frame. He believes she should avoid any risk. Do you agree with this approach, or would you recommend a different strategy for managing her remaining funds? She is receiving a substantial part age pension now. Answer: The biggest risk here is the death tax that may apply to her super if it's left to a non-dependent such as adult children. Since she's entering aged care, her time frame may be limited. Cashing it out and putting it in the bank could provide peace of mind while also avoiding the tax. Options to slightly increase her pension include pre-paying for her funeral and considering gifting money to her intended beneficiaries so she can enjoy seeing the impact it has on them. Making gifts of $10,000 before 30 June and another $10,000 on 1 July could reduce her assessable assets by $20,000. Labor's proposed tax on unrealised capital gains in super is finally getting the attention it deserves, as more Australians grasp just how draconian the policy really is. It's a textbook example of unintended consequences - a slick-sounding policy with the potential to wreak financial havoc. It must have been an irresistible proposition: let's put a special tax on the rich; there's not many of them, and they don't vote for us anyway. Welcome to Australia's Animal Farm, where all super funds are equal, but some are more equal than others. Judges and public servants retiring on massive defined benefit pensions, often worth well over $3 million, have been handed a special exemption. Why? Because taxing them was deemed "too hard" - while everyone else above the cap is expected to pay up. The hypocrisy is breathtaking. The proposed tax is also a form of double taxation. Under this plan you'll pay an extra 15 per cent tax each year on the nominal increase in value of your super assets - even if you haven't sold anything. When you do sell those assets and realise a profit, you'll pay capital gains tax. And no, there's no credit for tax already paid on the unrealised gains. Labor have never made any secret about their hatred of self-managed super funds. Every dollar in an SMSF is one less dollar paying fees to the Labor-dominated industry super funds. But SMSFs let people hold assets not open to the big funds - business premises, farms, and commercial property - none of which can be sold at the click of a button. If taxes on paper profits force enough people to liquidate at once, prices will collapse; it's simple supply and demand. And make no mistake - Australians will respond. Many I've spoken to are already planning to restructure by gifting to children: helping them buy property, pay down loans, or invest. That shift - combined with likely interest rate cuts later this year - could fuel another property boom. It's the opposite of what the government claims it's trying to achieve. If this tax becomes law, it will also impede innovation. Many tech founders launch start-ups through their super funds, and these businesses are often illiquid for years. Their perceived value can fluctuate wildly. Imagine a $1 million start-up growing to $6 million on paper - triggering a tax on a $5 million gain that may never be realised. If the valuation crashes to $3 million the next year, the fund is still taxed on money that never existed. Madness. And let's not forget the Laffer Curve: the well-established principle that raising tax rates beyond a certain point actually reduces total tax revenue. Push people hard enough, and they'll restructure, withdraw, or move their wealth offshore. So a tax designed to raise more money might end up collecting less. But the biggest danger is this: it's a foot in the door for taxing wealth that doesn't exist. Once you accept that principle, no asset is safe. If it's OK to tax unrealised gains for someone with $3 million in super - or $2 million if the Greens get their way - what stops a future government from applying the same logic to investment properties? Or a share portfolio? Or a business? And then there's the family home. Right now, your principal residence is tax-free, even if it's worth $100 million. But it stands out like a beacon for any government desperate for cash and bold enough to grab it. Once that line is crossed, there's no telling where it ends. You may think this policy doesn't affect you, but to quote John Donne: "Never send to know for whom the bell tolls; it tolls for thee." Question: In your response to a recent question published you stated that aged pension recipients must notify Centrelink of any material change in their assets or income. Does this reporting requirement also apply to superannuation drawdowns when the funds are used for gifting within the allowable limits (i.e. up to $10,000 per year, with a maximum of $30,000 over a five-year period) to assist adult children with a home purchase? I understand "material" in the Australian Accounting Standards sense, but Centrelink may define it differently. Could you clarify? Answer: Regan Wellburn from My Pension Manager advises that a superannuation drawdown is considered a notifiable event for Centrelink. If in doubt, it's always safer to report any financial changes. This ensures you won't be underpaid or, worse, end up owing Centrelink money. Any change of $2,000 or more in financial assets - such as bank accounts, super, or shares - must be reported within 14 days. For non-financial assets like cars or home contents, the threshold is $1,000. Gifting is also a notifiable event, even if it falls within the $10,000 annual limit. The simplest way to update Centrelink is through your MyGov account. This provides a record of your update and allows you to review and adjust your income and asset details as needed Question: I'm saving for a home loan and currently have no credit history. I know lenders often consider credit scores when assessing loan applications. Would it be beneficial to take out a small loan, such as a credit card, to build my credit history and improve my chances of approval in the future? Answer: Having a strong credit history can help when applying for a home loan, as lenders assess your ability to manage debt responsibly. If used wisely, a credit card or small loan can demonstrate reliability. The key is to make small purchases and repay them on time to build a positive record. However, avoid unnecessary debt-lenders also consider your debt-to-income ratio. If you prefer a safer option, some banks offer credit products like secured credit cards or small overdrafts that help establish credit without encouraging overspending. That said, credit history is just one factor. A solid savings record, stable employment, and a sufficient deposit also play a big role. If in doubt, speaking to a mortgage broker can help tailor a strategy to your goals. Question: A relative is about to enter aged care and will use some of her super to pay the entire accommodation bond, leaving her with around $350,000. A financial adviser suggested she withdraw the remaining super and place it in a safer option, like a term deposit, given her likely short investment time frame. He believes she should avoid any risk. Do you agree with this approach, or would you recommend a different strategy for managing her remaining funds? She is receiving a substantial part age pension now. Answer: The biggest risk here is the death tax that may apply to her super if it's left to a non-dependent such as adult children. Since she's entering aged care, her time frame may be limited. Cashing it out and putting it in the bank could provide peace of mind while also avoiding the tax. Options to slightly increase her pension include pre-paying for her funeral and considering gifting money to her intended beneficiaries so she can enjoy seeing the impact it has on them. Making gifts of $10,000 before 30 June and another $10,000 on 1 July could reduce her assessable assets by $20,000. Labor's proposed tax on unrealised capital gains in super is finally getting the attention it deserves, as more Australians grasp just how draconian the policy really is. It's a textbook example of unintended consequences - a slick-sounding policy with the potential to wreak financial havoc. It must have been an irresistible proposition: let's put a special tax on the rich; there's not many of them, and they don't vote for us anyway. Welcome to Australia's Animal Farm, where all super funds are equal, but some are more equal than others. Judges and public servants retiring on massive defined benefit pensions, often worth well over $3 million, have been handed a special exemption. Why? Because taxing them was deemed "too hard" - while everyone else above the cap is expected to pay up. The hypocrisy is breathtaking. The proposed tax is also a form of double taxation. Under this plan you'll pay an extra 15 per cent tax each year on the nominal increase in value of your super assets - even if you haven't sold anything. When you do sell those assets and realise a profit, you'll pay capital gains tax. And no, there's no credit for tax already paid on the unrealised gains. Labor have never made any secret about their hatred of self-managed super funds. Every dollar in an SMSF is one less dollar paying fees to the Labor-dominated industry super funds. But SMSFs let people hold assets not open to the big funds - business premises, farms, and commercial property - none of which can be sold at the click of a button. If taxes on paper profits force enough people to liquidate at once, prices will collapse; it's simple supply and demand. And make no mistake - Australians will respond. Many I've spoken to are already planning to restructure by gifting to children: helping them buy property, pay down loans, or invest. That shift - combined with likely interest rate cuts later this year - could fuel another property boom. It's the opposite of what the government claims it's trying to achieve. If this tax becomes law, it will also impede innovation. Many tech founders launch start-ups through their super funds, and these businesses are often illiquid for years. Their perceived value can fluctuate wildly. Imagine a $1 million start-up growing to $6 million on paper - triggering a tax on a $5 million gain that may never be realised. If the valuation crashes to $3 million the next year, the fund is still taxed on money that never existed. Madness. And let's not forget the Laffer Curve: the well-established principle that raising tax rates beyond a certain point actually reduces total tax revenue. Push people hard enough, and they'll restructure, withdraw, or move their wealth offshore. So a tax designed to raise more money might end up collecting less. But the biggest danger is this: it's a foot in the door for taxing wealth that doesn't exist. Once you accept that principle, no asset is safe. If it's OK to tax unrealised gains for someone with $3 million in super - or $2 million if the Greens get their way - what stops a future government from applying the same logic to investment properties? Or a share portfolio? Or a business? And then there's the family home. Right now, your principal residence is tax-free, even if it's worth $100 million. But it stands out like a beacon for any government desperate for cash and bold enough to grab it. Once that line is crossed, there's no telling where it ends. You may think this policy doesn't affect you, but to quote John Donne: "Never send to know for whom the bell tolls; it tolls for thee." Question: In your response to a recent question published you stated that aged pension recipients must notify Centrelink of any material change in their assets or income. Does this reporting requirement also apply to superannuation drawdowns when the funds are used for gifting within the allowable limits (i.e. up to $10,000 per year, with a maximum of $30,000 over a five-year period) to assist adult children with a home purchase? I understand "material" in the Australian Accounting Standards sense, but Centrelink may define it differently. Could you clarify? Answer: Regan Wellburn from My Pension Manager advises that a superannuation drawdown is considered a notifiable event for Centrelink. If in doubt, it's always safer to report any financial changes. This ensures you won't be underpaid or, worse, end up owing Centrelink money. Any change of $2,000 or more in financial assets - such as bank accounts, super, or shares - must be reported within 14 days. For non-financial assets like cars or home contents, the threshold is $1,000. Gifting is also a notifiable event, even if it falls within the $10,000 annual limit. The simplest way to update Centrelink is through your MyGov account. This provides a record of your update and allows you to review and adjust your income and asset details as needed Question: I'm saving for a home loan and currently have no credit history. I know lenders often consider credit scores when assessing loan applications. Would it be beneficial to take out a small loan, such as a credit card, to build my credit history and improve my chances of approval in the future? Answer: Having a strong credit history can help when applying for a home loan, as lenders assess your ability to manage debt responsibly. If used wisely, a credit card or small loan can demonstrate reliability. The key is to make small purchases and repay them on time to build a positive record. However, avoid unnecessary debt-lenders also consider your debt-to-income ratio. If you prefer a safer option, some banks offer credit products like secured credit cards or small overdrafts that help establish credit without encouraging overspending. That said, credit history is just one factor. A solid savings record, stable employment, and a sufficient deposit also play a big role. If in doubt, speaking to a mortgage broker can help tailor a strategy to your goals. Question: A relative is about to enter aged care and will use some of her super to pay the entire accommodation bond, leaving her with around $350,000. A financial adviser suggested she withdraw the remaining super and place it in a safer option, like a term deposit, given her likely short investment time frame. He believes she should avoid any risk. Do you agree with this approach, or would you recommend a different strategy for managing her remaining funds? She is receiving a substantial part age pension now. Answer: The biggest risk here is the death tax that may apply to her super if it's left to a non-dependent such as adult children. Since she's entering aged care, her time frame may be limited. Cashing it out and putting it in the bank could provide peace of mind while also avoiding the tax. Options to slightly increase her pension include pre-paying for her funeral and considering gifting money to her intended beneficiaries so she can enjoy seeing the impact it has on them. Making gifts of $10,000 before 30 June and another $10,000 on 1 July could reduce her assessable assets by $20,000.
Express Tribune
17-05-2025
- Business
- Express Tribune
Crushing tax target
Listen to article The IMF's latest tax policy suggestions for Islamabad in relation to the upcoming annual budget may cause further consternation, as salaried individuals can expect an even greater share of the tax burden to be placed on their shoulders. At the core of the recent discussions between the government and the IMF has been the anticipated Rs14.307 trillion tax target, where the Washington-based lender is emphasising additional revenue measures and a rebalancing of fiscal resources. The Fund has also pushed back against the government's desire to reduce the tax burden on the salaried class, effectively accusing the government of fudging the numbers to push through a reduction after statistics showed an astounding increase of over 50% in income tax recovered from salaried individuals this year. Despite this, the IMF is averse to even raising the exempted income level, let alone revising tax slabs. At the same time, the government could do better than rely on the much-criticised Laffer Curve model to justify its tax policy. On that note, the competence of tax policymakers, up to and including members of the federal cabinet, can be gauged by the price of packaged milk. Most countries exempt milk entirely or charge a lowered rate, usually without any variance based on packaged or raw milk. In our malnutrition-riddled country, packaged milk has an 18% tax rate, while raw milk is tax-free. Many FBR officials reportedly see nothing wrong with this situation. Meanwhile, poor urban dwellers must find a local cow if they want to get milk at an affordable price. More common ground could be found, however, on privatisation-related issues. While sales of state assets are only one-time income, ridding the exchequer of bleeding assets brings long-term savings that help balance the budget. The government could use these savings as justification for reducing some of the income tax burden or increasing some public spending, especially since there is likely to be a bump in the defence budget due to the simmering threat of conflict with India.
Wall Street Journal
16-05-2025
- Business
- Wall Street Journal
America Needs a Supply-Side Comeback
Soon after Gerald Ford became president in 1974, Dick Cheney and Donald Rumsfeld—both serving in the White House—met economist Art Laffer and Wall Street Journal editorial writer Jude Wanniski for dinner at a Washington restaurant to discuss their disagreement with the president's support for raising taxes. Mr. Laffer sketched a bow on a napkin depicting the relationship between tax rates and government revenue—the eponymous Laffer Curve. It depicts the proposition that tax revenue rises with marginal tax rates only up to a point—beyond which revenue starts to decline as people work and invest less. Mr. Laffer scribbled on the napkin: 'If you tax a product less results. If you subsidize a product more results. We've been taxing work, output and income and subsidizing non-work, leisure and un-employment. The consequences are obvious!'
