What is the purpose of Taxation?

I received a letter in my tax return with this note

"The Australian Government thanks you for your tax contribution for 2017-18. This statement details Australian Government debt levels
and where your personal tax was spent, based on 2018-19 Budget estimates"

It is misleading for the ATO to state that the Government spends the money we pay in tax.

Does the general Ozbargain population agree that the Government spends the money it collects in tax or do they understand that when tax is collected it no longer exists in the monetary system so it is impossible for the Government to spend it.

Comments

  • +22

    Odd question but yes our tax pays for a lot of things including national debt. There's certainly huge inefficiencies absolutely everywhere but the same in every country and govt expenditure.

    https://www.theguardian.com/australia-news/datablog/ng-inter…

    For $100,000 salary, $24,947 is paid in tax (in 2016) of which:

    Social security and welfare $8,782
    Other purposes $4,935
    Health $3,954
    Education $1,864
    Defence $1,504
    General public services $1,255
    Transport and communication $616
    Other economic affairs $544
    Fuel and energy $370
    Housing and community amenities $292
    Public order and safety $272
    Mining, manufacturing and construction $196
    Recreation and culture $188
    Agriculture, forestry and fishing $173

      • +47

        You make $100k when you earn $100k, you take home $75k because of tax… Tax that is levied by the government not the company.

        • +4

          I agree it was a stupid statement, but it's not actually completely illogical.

          Imagine shops only advertised the GST-exclusive price "because the GST is levied by the government and not the shop". In terms of practical application, GST and PAYG income tax are collected and passed on almost identically.

        • +6

          They do in the US.. State sales tax is often applied on top of the sticker price.

        • +14

          @airzone: which is stupid and highly annoying

        • @HighAndDry:

          Shops don't get a choice as by law they need to show the all in price (including GST).

          So, I mean…. If you don't like the laws of the land, feel free to go and live somewhere else?
          Or, stop crying about it on Ozbargain, become a politician and change the law.

        • +1

          @airzone:

          The US is an odd case.
          In Australia we only really have the GST which is the same rate across the entire country.

          In the US you have federal, state and local sales taxes which vary not only from state to state, but also county to county AND city to city.
          So when advertising in paper, TV, radio, internet or any medium that spans multiple municipalities it is difficult to show an including sales tax price.

          HOWEVER, what really grinds my gears is that a shop can easily put on the all in price on the tags as they already have it in the system for that particular location. The labels are usually printed in store, not in a central location for multiple stores. Even worse is that many shops have e-ink price tags so it is even easier to show the price including sales tax.

        • @HighAndDry: that's why I often quote my after tax income as my salary. Pointless quoting before tax in my opinion.

        • @airzone:

          which even the yanks says its stupid, due to different states different rules and %

        • @Baghern:
          I bet most of Americans can't calculate their effective tax, and therefore also just see the rock bottom prices they get and go with them without factoring tax at POS.

    • +7

      Other purpose including business class travel for family, exclusive sport match tickets, private functions,etc

    • +4

      What about the billions of dollars of subsidies we are providing billion dollar mining companies and other big business?

      The Liberals never mention corporate welfare.

      In fact, Malcolm wants to give billions more to the big banks.

      • +1

        I think that may be covered in the "Other purposes" section

    • I thought the list used to include a figure for foreign aid (or some similar shit)?

      I wouldn't be surprised if they just hide it in the "Other" category, now.

    • Thats the direct tax, what about all the indirect taxes that we pay like the GST, luxury car tax and fuel taxes? So its like half the money we make goes on tax.

  • +60

    Does the general Ozbargain population agree that the Government spends the money it collects in tax or do they understand that when tax is collected it no longer exists in the monetary system so it is impossible for the Government to spend it.

    What are you talking about?

    The money doesn't disappear when we pay it to the ATO, it goes into the Govt's balance sheet as "tax revenue/cash at bank", and then yes, the government spends it.

    • +14

      The money doesn't disappear when we pay it to the ATO, it goes into the Govt's balance sheet as "tax revenue/cash at bank", and then yes, the government spends it.

      Nah, that's just fake news according to OP. ;)

      • +103

        Ah. My original suspicion was right. You're mixing up the government and the RBA. Like most other developed countries (and unlike less developed, less responsible ones), the central bank and the government in Australia are separate and independent entities.

        Yes, a central bank can print unlimited amounts of money. But go ask Zimbabwe what that does to an economy.

        The other potential point is that governments no longer need to break even, and that is also true. However the money they borrow also needs to come from somewhere (it's not printed and doesn't (usually) come from the RBA, again because that leads to bad things happening) - and costs the government money to service. Governments can and do effectively "churn" through their debt, issuing new treasuries to repay older maturing ones, but the market as a whole does keep an eye on a country's ability to continue to service that debt, even if via 'churning'. And if the market thinks it's no longer sustainable, then they'll stop buying treasuries/bonds from that country, which stops any churning in its tracks.

        • +26

          End of thread.

      • +12

        “The government does not need the actual money from our tax dollars to spend but it does need us to need their money so we can pay the tax. ”

        Jackiechanwhat.gif

      • +1

        you don't seem to understand that there is separation between the RBA and the Australian government. The government does not have an open printing press and actually has real debts loaned to them by real investors to cover the deficits and pays real interest on those debts.

  • +8

    where did you think the government gets all the money it uses to pay for things like roads, welfare and health care

    • +7

      https://www.ozbargain.com.au/node/383778#comment-6038691

      Sounds like might be a tax sceptic.

      • +8

        Sounds like tin foil hat man.

    • +11

      And the fancy dinners, new cars, houses, 5 star travel and accommodation and so on…

    • +2

      where did you think the government gets all the money it uses to pay for things like roads, welfare and health care

      You mean the government doesn't just print more, when they run out?

      • +3

        we aren't the US

        • I think you're thinking of Zimbabwe

        • @ThithLord:

          they may not have done it in the past but that doesn't mean they cant, or have considered it in the past.

          with that crazy man at the helm, who knows.

          but you are right Zimbabwe is an excellent example.

        • we have RBA that prints money too

        • i suppose… let the money flow, or grow.

        • +3

          @Archi: The US did do this, or rather the Federal Reserve did in the wake of the GFC. Go wiki (or google) "Federal Reserve Quantitative Easing".

    • From the money tree of course.

  • +4

    Probably doesn't tell you how much we spend on politicians, past & present

    • Lifetime gold pass, good grief

  • +7

    42

    • +11

      42 + 10% GST

  • +14

    I can't even…

  • +1

    to buy politicians mansions

    • that's probably more like what bribes and corruption do!!

  • +5

    "What is the purpose of Taxation?"

    Control of the masses by dishonest rulers.

    • 100%

    • I think you answered a different question..

  • +17

    I know right! Why doesn't the Government get a bloody job and stop taking benefits from Centrelink!!

    • +13

      You kid, but a responsible, efficient and competent government should effectively be doing that. They'd just be a service provider, like an ISP providing internet for money, except the government would provide:

      1. A common defense;
      2. Infrastructure;
      3. Civil institutions;
      4. A justice system;
      5. Social welfare insurance policies (effectively that's what welfare is);
      6. Medical infrastructure and services;
      7. (Other) Emergency services;
      8. (Some) Utilities;
      9. Internal security; and
      10. A system of governance;

      And in return, the people are paying by way of taxes. Of course, this model breaks down when the "payment" is forcibly taken in advance for vague promises, and there's a strict no-refund policy. If you view the government through this lens - a huge corporation that has no concept of false advertising, very little competition, provides necessities, and whose payment system is solely "Prepaid Only-No Refunds"…. then its incompetence seems almost reasonable.

      • +2

        Yep, which they have done in the past.. and then sold those entities and kept the policies that protect themselves in place (such as Telstra).

      • Privatise Now!

      • It's a valid point about them not having competition. If you don't think you are getting good value for money and refuse to pay their extortionate demands, our malignant government will confiscate your property and/or throw you in jail. There is no freedom in democracy; you cannot "opt out" of the system. The government imposes it's will upon you and crushes the individual. The government always wins; what can the indiidual do to defend themselves against such a behemoth?

      • Not 'reasonable' but certainly predictable / expected

      • +1

        There's actually a lot of competition. There's 200+ countries in the world. You may move to the one that you think governs best (if they'll have you).

        • +1

          Call it a local monopoly then. Barriers to consumers taking advantage of competitors which are high enough basically eliminate said competition. It's like living in Melbourne and saying that Melbourne Water is a monopoly… and you say: No, there's a lot of competition, if you moved out of Melbourne.

          Honestly, off the top of my head - better governed countries would include Switzerland (citizenship requirements are crazy), Norway (same), Singapore (again, same). All three have other drawbacks - Switzerland and Norway are very mono-culture and conformist, while Singapore's work culture is fairly crazy. But those don't have anything to do with governance.

          Interesting tid-bit - consistently across all well-governed countries is generally high barriers to entry for immigrants and refugees. Maybe Australia could emulate that in among the other best governing practices of those countries too.

  • +2

    Can you imagine how inflationary it would be if people suddenly kept all the money they earned and governments merely 'printed' any money they wished to spend?

    • +2

      Maybe the OP is from Zimbabwe?

    • +6

      To give an example, a lot of money was printed in 1920's Germany to combat their debt to other countries. The government did this as they were nearing the deadline to repay all their debt to the countries outlined in the Versailles treaty. Little did they know, it lead to hyperinflation.

      One of the saddest stories was of Maximilian Bern who was a middle class German writer. He had 100,000 marks in the bank which would've lea to a comfortable retirement but when hyperinflation hit, his money became worthless. Before 1920, marks to US dollars weren't too different. In 1921, it was 150 marks to 1 US dollar. By 1923, it was 1 US dollar to 25 billion marks. He used up his life savings to buy a train ticket, went home and shut himself in and later died of starvation.

      Those who don't learn from history are doomed to repeat it. This is a good read

      • THats why I spend my money on gold.

        It only seems to go up!

    • You mean quantitative easing?

      • You'd hope the US Federal Reserve did that while keeping an eye on inflation and with regard to its potential consequences.

        • You should include GDP otherwise it's potentially misleading…

    • -3

      There is a difference between endlessly printing bills and reducing taxes a smidge with a supplement of printing some extra dollars.

      Private banks create money out of nothing every day which increases the monetary supply, and not all of that money gets repaid (destroyed) with the net effect being inflation.

      Printing for public purpose (infrastructure spending) whilst reducing the amount created by private institutions for no good purpose (housing speculation) need not be any more inflationary for the economy than the base case and result in much better productivity if done right.

      • Private banks create money out of nothing every day

        No, that's a wholly different concept. You sound like you took half a first-year econ class. Please stop.

        • I presume this is reference to how much banks have to hold in reserve versus how much they lend out… i.e. that it effectively creates money circulating in the economy because Person A who deposited $100K has had $85K of it lent out to Person B by the bank, then Person B spends it at Person C's business who deposits the $85K back into the bank, and $72K if that is lent back out to Person D etc etc… yeah different concept that balances risk of everyone withdrawing deposits simultaneously etc… it can collapse though (flashback to great depression!)

        • +1

          This shit happens all the time. Some dude gets half way through their first year of their degree, reads 2 books and 3 papers, and now thinks they are an expert. Get this all the time in my field(Evolutionary biology/genetics) It's infuriating.

        • +1

          @ONEMariachi: Oh… OOOHHH. "Evolutionary psychology" stuff I'm guessing is probably a pet hate? I hear so much about it on social media, which is crazy. I mean, some of it makes sense at a surface level, but for someone in the field by god you probably want to burn down Twitter…

        • @MrFrugalSmith: Yeah - which is a valid point… in a completely different context. And in any case, unless the reserve limits change, the multiplier stays the same - it doesn't increase (and so affect inflation) in the way that a central bank printing money (as OP is envisioning) would.

        • +1

          @HighAndDry: Hmm, I'm not sure? I don't personally hang around social media outside of ozbargain to be honest, so it is possible you are getting second and third hand versions of Evo Psych from bad science journalists and pseudo intellectuals?

          I haven't read a whole lot on the field, but the couple things I have have been fine as far as I can tell. I tend to stick more towards neuroscience, and hard facts myself though, I'm not overly fond of conjecture and jumping to conclusions that the psych field is known for.

          The idea of understanding behaviour from a evolutionary perspective is something I can get behind though. Evolution is something that underpins all of biology, and something I wish was understood by people better as a whole. Otherwise you get your root out the weak, strongest people rule, natural selection nonsense that meat heads and fools sprout out.

  • +46

    These posts are getting dumber by the day

    • +21

      You could say it is taxing to read

      • +4

        Which leads to loss of interest.

  • -1

    Taxes are used on the roulette table and everyone splits the sum at the end of the financial year.
    The government just prints more money when they need it.

  • +1

    FAKE NEWS!

  • I mean they give you a letter saying what they spend it on and Stoozer's response is that it is misleading. What is this suspicion based on?
    Obviously the government spends a lot of money on our society, and taxes help to pay for some of it. Whether it's directly or indirectly doesn't matter to me personally.

  • +9

    Just pay your tax with iTune cards.

  • +1

    Does the general Ozbargain population agree that the Government spends the money it collects in tax or do they understand that when tax is collected it no longer exists in the monetary system so it is impossible for the Government to spend it.

    I don't get paid in cash and purchase many items with a Credit card. Doesn't mean I don't use money.

    • +1

      You mean you don't hand over hard currency for all of your transactions and basically materialize money out of thin air? You Witch!

  • where's the poll?

  • +2

    What did you smoke today?

    • +1

      Whatever it is, it's stronger than the stuff yesterday (reference to his old comments linked above).

    • +1

      The poll is at the voting booth, whoever you mark an X for screws you and blames the last lot.

  • +8

    im more concerned that there is no cashrewards for paying our taxes to the ATO

    • +3

      Tightarse needs to get onto this, I demand 33% cashback for every dollar I pay in tax.

    • OptusSmartPay has worked out a deal for everyone that pays tax with a card

  • +5

    Byeeee you can go to somewhere they don't pay tax 👍

    • +1

      Saudis pay no income tax and they get so many monthly basic income for doing nothing!

      I can’t think of any other example

      • One of the benefits of living on top of basically the most valuable commodity known to man. Australia benefited from this as well during the mining boom - just ask WA how much tax revenue their state basically paid to the rest of the country, they'll be happy to let you know.

        Problem is - and this is extreme in Saudi Arabia and much milder in WA - it leads to zero development because there's no need or incentive for it. Why learn how to make stuff, when basic digging ability gets you money?

        • +6

          Australia exports as much in resource value as Saudi Arabia, just that it is spread across more commodities (e.g. Iron Ore, Gold, Diamonds, Oil & Gas). The difference is that 90% of the profits of the mining here goes off-shore and the miners contribute relatively less as a proportion of their profits and revenues than they do in Saudi Arabia.

          This makes Saudi Arabia rich and the people in charge of Australia stupid sell-outs.
          It is what you get when you do not vote for parties that have the national interest as their interest but their own (as proven by their support for mass immigration).

        • +1

          @lghulm: Got some numbers to back that up? Last time I looked, we're a net importer of gas and petroleum. Not sure about minerals (coal?) but no country really makes bank off of coal because it's such a low-value-density commodity, and precious metals and stones make up a tiny fraction of not just GDP but even mineral resources in general (unless you're the Congo I guess).

          Plus - it's probably for the best. Having such oil wealth has made Saudi Arabia basically lazy and inefficient. The only country with vast oil wealth that has used it well and hasn't been reduced to basically an oil-welfare state, is Norway. And looking around, I somehow don't see Australians as a whole having the kind of self-control necessary to save that money and put it into a sovereign wealth fund, as opposed to blowing it every year on V8s and beer.

        • +2

          @HighAndDry:

          Total Australian Exports (2017) $231B
          Saudi Arabia (2017) $218B

          https://countryeconomy.com/countries/compare/australia/saudi…

          Majority for both is mineral resource exports, Australia a bit of services thrown in and some agri-products but starting with a $13B advantage here (take off these other income sources and you will find us very close to <5% below Saudia Arabia).

          From Wikipedia total value of mineral exports from Australian in 2014-15 was $212B https://en.wikipedia.org/wiki/Economy_of_Australia#Mining

          All well and good to say that by losing 90% of the profits from our resources it makes us focus harder on other income sources, but you should also be aware that these mineral resources that we only get 10% of the benefit from massively pump up the Aussie dollar and make it much harder for us to earn income from other sources as it massively inflates the value of the dollar.

          Net, we'd be better off earning more from our resources and leaving some of them in the ground for a rainy day and having a lower dollar to allow our other industries (like manufacturing) be more competitive. This has additional national security benefits, better balances the economy and takes us further from boom bust cycles that fuel mass debt and mal-investment.

          As it is we earn the same kind of money for our nation from our resources as a third world banana republic, we shouldn't be okay with that.

          Part of the way people get fooled is they think, hey! We earned X billions from gold sales, we are $x richer (aren't we smart).
          Of course they forget that those gold reserves were effectively banked for our future in the ground, so by selling $10x gold for $1x in your pocket (after costs, offshore profit/revenue taking) are you really in front? Only if you value the gold in the ground at $0 or close to it!

          Imagine you have $1 million of gold in a safe in your house but you need someone to help you sell it so you do a deal with a foreign guy to take it from you and sell it and return you $100k of the sale price. Are you $100k in front or $900k down? If you could have instead let a local guy sell it and return you $300k wouldn't you be better off?

          This is effectively how we run our economy even if it is an over simplification.
          The excuse is we don't have the $ in the economy to finance these mines ourselves… considering we bid up our property markets by $trillions this should be considered a massive lie.

        • +2

          @lghulm: the problem comparing gold, iron and coal exports to oil exports is the former have much higher costs of production.

          Australian gold $715 cost per $1233 ounce
          Australian iron ore $39 cost per $68.73 wet metric tonne

          Saudi oil $8.98 cost per $68.76 barrel

        • @lghulm:

          Majority for both is mineral resource exports

          I think you're wrong.

          Austrade says that:

          Exports of iron ore were worth almost A$63 billion in 2016-17 and accounted for nearly 17 per cent of total exports of goods and services. They were followed in the ranking of our top exports by exports of coal, which were worth more than A$54 billion and accounted for 14.5 per cent of total export sales.

          And if you scroll down to the table and the pie-chart, "Minerals and Fuels" account for 45.5% of all Australian exports in 2017.

          Compare that to Saudi Arabia, for which MIT says:

          The most recent exports are led by Crude Petroleum which represent 59% of the total exports of Saudi Arabia, followed by Refined Petroleum, which account for 7.98%.

          If you look at the graph and add on other hydrocarbon products (i.e. various polymers, ethers, alcohols and other industrial chemicals), the total is a whopping >85% of Saudi Arabia's exports are from hydrocarbons.

          And then you have the differing sizes of the countries (and population) which gives you drastically different per-capita numbers.

    • +1

      "Somewhere they don't pay tax" .1/2 of Australia. Less than 1/2 of Australians are net contributors.

      • +1

        Whats the number after taking out, kids, elderly, handicapped and those that are primary care givers?

  • +3

    more surprised at the fact you bothered to type all this instead of researching or at least look up google

  • +2

    Surely a troll post.

    • +1

      I think this is 'stephanie' that woman whining about our cost of doctors and health care (and whinging about everything else Australian) .
      Stephanie probably got banned, so changed it to 'stooger' 😞

  • +8

    This guy has me beat on dumbest posts of all time.. I now to you kind dumb sir.

  • +1

    Here are some good bargains on tin foil OP.

    • Already got that. I'm looking for big.
      I have wondered why use alfoil, as it's not hooking the magnetic/inductive component of the EM they are trying to block.
      I realise alfoil actually works for faraday purposes. But 44G drums or an old steel shed should sheild or distort perp signals much more effectively.

  • OP are you a "sovereign citizen"?

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