Two Perspectives On Tax – Daylight Robbery Vs. Club Fees
‘Daylight robbery’ or ‘clubhouse fees’ provide two opposing perspectives on government mandated tax. While both sides provide a compelling argument, from a financial advisory perspective, let’s consider this. There is a price to pay for living in a safe democracy. A simple glance to a country where tax is optional and governments don’t invest back into society is to end up in a situation where there is massive individual wealth but a reduction in social services, the risk of increasing crime rates and a potential slide into neglected social services for the needy.
As Ghandi memorably said:
“The true measure of any society can be found in how it treats its most vulnerable members.”
Daylight Robbery
“Daylight robbery” regarding tax refers to people who feel like the government is robbing everyone in broad daylight. It comes from those who feel they are overburdened, unfairly taxed, or view the government as taking too much of their hard-earned money without providing sufficient value in return. This viewpoint often focuses on the negatives of taxation, such as high tax rates, perceived wasteful government spending, or frustration with how tax dollars are allocated.
Club Fees
On the other hand, the “club fees” perspective positions tax as dues paid for membership in a society that provides essential services and infrastructure to its people. Proponents of this view emphasise the benefits of taxation, such as funding public schools, healthcare, police and fire services, and the maintenance of infrastructure and communal spaces like parks. People on this side of the fence argue that taxes are fundamental to maintaining a functioning society and ensure a certain level of well-being for all citizens.
While both perspectives have valid points, from a financial standpoint, the proposition that some kind of trickle down affect will occur is questionable. If the mega wealthy receive tax concessions, the hope is that the unique club of $100+ millionaires will employ the rest of us as their gardeners. This would be part of the great job creating scheme that they will generously embark on by using the savings on tax.
July, 2024 Tax Cuts
Tax cuts, announced by the Australian Government and set to take effect from July 1, signify a decrease in the portion of taxpayers’ annual salary allocated to government revenue. This results in an increase in individuals’ disposable income.
While tax cuts generally provide individuals with more money to spend or save, the impact of this new legislation varies depending on factors such as income thresholds and tax-deductible expenses. Let’s delve into the details:
Key Changes From July 1, 2024:
• The 19.00% tax rate will decrease to 16.00%, reducing the tax burden for individuals in this bracket.
• The 32.5% tax rate will decrease to 30.00%, providing relief to taxpayers in this income range.
• The threshold above which the 37.00% tax rate applies will rise from $120,000 to $135,000, benefiting higher-income earners.
• The threshold for the 45.00% tax rate will increase from $180,000 to $190,000, offering tax relief for individuals in the highest income bracket.
Implications For Individuals:
• Increased Disposable Income: Tax cuts mean more money in your pocket, allowing you to spend, save, or invest as you see fit.
• Differential Impact: The extent of tax relief you receive depends on your income level and tax obligations. Higher-income earners may see more significant savings compared to those in lower income brackets.
• Budgeting and Financial Planning: With a change in tax rates, individuals may need to reassess their budgeting and financial plans to leverage the additional disposable income effectively.
• Economic Stimulus: Tax cuts can stimulate economic activity as individuals have more money to spend, potentially leading to increased consumer spending and investment.
Conclusion
While tax cuts generally provide a boost to individuals’ finances, it’s essential to understand how these changes specifically affect your financial situation. Consulting with a financial advisor can help you make informed decisions and optimise the benefits of these tax cuts.
From a financial advisory standpoint, it’s crucial to balance the ‘daylight robbery’ and ‘club fees’ perspectives on taxation. While addressing clients’ concerns about high tax rates and perceived value, it’s also important to highlight taxation’s role in funding essential services and infrastructure. As advisors, we aim to optimise tax strategies while promoting transparency and fairness in the system, empowering clients to navigate their obligations effectively.
