Our yarn this morning about the banks lobbying hard in Canberra for tax exemption of interest income has sparked something of a furor. Instead of wading back in for another comment we'll just cut and paste a few emails. The range of opinion is diverse.

There are good arguments on either side though we tend to the view that there would be an economic distortion and the money would be better deployed in a productive capacity in corporations rather than banks.

Initials have been replaced names for privacy reasons. Small modifications have been made to cut out remarks like "there you go bashing the banks again'' and "love yer work''.


Hi Michael

The bigger issue is the tax system in Australia - that's really at the root of the skewed investment landscape you're describing in your article.

In Hong Kong there's no tax on interest from bank deposits (a 100% deposit guarantee was introduced around the same time that Mr Rudd introduced it in Oz - but for some reason there was no non-bank backlash here), no tax on dividends from shares, not capital gains tax and no GST.

Could anyone seriously argue that Hong Kong doesn't have an extremely efficient, world-class IPO and investor-friendly stock exchange? 

Rather than criticizing the Aussie tax system, you seem to be attacking the banks for wanting less tax.  While I'm no fan of the banks, wouldn't it be better for consumers to pay less tax?

Reminds me of wanting a chip on both shoulders to balance things out, rather than getting rid of the first chip.

Cheers

P
 

Hi Michael,

This distortion of asset classes is a complete disaster for the investment community who in this semi-free market economy actually drive non-government investment in real assets which produce real jobs. It is a scandal what the bank lobby get away with. Ultimately the Labor government is going to be cornered into threatening the banks with severe regulation to force them to pass on interest rate movements to borrowers. This kind of government intervention will ruin the banking sector from an international perspective, while having the double whammy of a flight-to-guaranteed accounts and a hopeless lack of investment in the real economy. Inflation will eat away at the funny money in the banking sector so that no actual real growth occurs. When people realise this, where will they go when the government talks down the economy and the only "safe" investment is in banks which do not add value to the economy when banks are hoarding cash and interest margins?

Regards,

H

 

Hi Michael,

Thank you or your article today about tax deductibility for investment income - while I agree with your opinion on the likely consequences of full implementation of this proposal; we need to ensure "we do not throw the baby out with the bathwater."

I am a currently unemployed single person and do not qualify for any benefit payments because I earn "sufficient income" {$20K p.a.] from a modest inheritance which I self-manage. I will not receive any benefits from the recently announced"recovery package". I currently hold the majority of my investment in cash having foreseen the current crisis two years ago as a result of having the experience of observing the economic cycle from the 1961 "credit squeeze" to the present.

There is an inherent flaw in our taxation system regarding interest income compared to other forms of income derived from capital in that assets other than cash receive the benefit of depreciation allowances to reflect their decline in value as well as GST credits if sold at less than their cost base which can be offset against future CGT liabilities.

In the case of investment income, there are no deductions available to reflect the decline in value of the cash invested due to inflation let alone a CGT benefit if the cash is rolled-over into another form of investment. At the present time, the net interest rate on interest income is probably less than zero as the current RBA cash rate is close to or exceeds the true rate of domestic inflation rather than the contrived index used by the government [refer the recent article on this topic in the Fairfax media].

I agree there is no valid argument for giving blanket tax deductibility for investment income due to the market distortions that would be created however I believe there is a strong case for "levelling the playing field" for interest income from cash deposits by allowing deductions equivalent to the effective depreciation of the cash amount due to inflation to match deductions applicable to other forms of investment.

I believe there are a lot of self-funded retirees as well who would support this proposal.


Kind Regards
D Continued…