You pay too much tax

I hate the tax man! Strong language, coming from the mild-mannered lady across the desk. Fortunately I was not the object of her ire – it was just the spontaneous expression of disappointment when I had to inform her that her anticipated tax refund would not materialise. She is one of many who find themselves in the difficult position of working two jobs to make a living. Because of the poorly designed withholding system for income tax instalments, they almost invariably end up with an end of year tax liability, or at least a vastly reduced refund from what they might have expected, despite having ticked all the right boxes on their declaration to their employer.

What it highlights is the high level of marginal tax that ordinary wage earners pay. For those on the average wage, that rate is 31.5% (including the Medicare levy). That means 18.9 minutes out of every extra hour you work is forfeited to the state. Anyone who is claiming 18.9 minutes out of every extra hour you work had better have a very good reason for doing it. They had better use that time productively – more productively than you could use it – or we are all worse off.

So, how do they use it?

A Government report out this week tells us that they are messing up. That we are all worse off.

The biggest area of Government expenditure is what is described as “Social security and welfare”, at 32.8% of total expenditure (which as we noted last time is substantially more than the tax take – but that is another story). A report commissioned by the Government, the Australian National University and the University of Melbourne has concluded that welfare recipients are not faring well. In fact, welfare recipients are probably faring worse than if they had not been the beneficiaries of the 18.9 time bandits. This is what they concluded: “young people from long-term, welfare-dependent families did less well on every education and health measure, and were more prone to risky behaviour. As well, young people’s development of a work ethic and their attitude to welfare appeared to be shaped by their family’s experience.”

In the interests of being seen to be “doing something about it” the compulsory acquirers of your most precious resource, your time, are stealing the future of those they claim to be helping. Everyone is worse off. Some things just shouldn’t be tried. Some things are just so plainly and obviously not to be done that you have to wonder why they are attempted.

Maybe this is why they are attempted: the second biggest area of Government expenditure, at 23.8%, is quaintly described as “General government services”. That is shorthand for the commission they take to pay themselves to run the system that makes everyone else worse off. Now tell me, who else gets paid a 23.8% handling fee to make things worse for everyone? Not even the much maligned financial planning industry has had that much front.

The Canadian rock band Steppenwolf had it right: “there’s a monster on the loose, it’s got our heads into the noose, and it just sits there, watching…”

Have a good weekend!