Tax cuts! This most endearing speculation is never far from the realm of wishful thinking and fervent hope, but unfortunately, in the current climate, is a receding prospect.

Ross Gittins writing in the Sydney Morning Herald about tax cuts, is dead cert that there will be no more tax cuts after the one coming into effect tomorrow. Ongoing stimulus packages and the uncertainty looming over the resources super tax is a hard luck story.

Tiny tax cut a blessing for battlers

Europe is pulling back on spending and the nagging debt crisis is going nowhere. Although Australia has hung tough and weathered the GFC, tax cuts in the future is a far cry.

Asking or even suggesting a tax cut can elicit the most cutting response and it was the Vice President of the United States who was dishing it out this time:

Oops! Joe Biden’s smart mouth gives GOP more ammo with botched Wisconsin trip

Certainly the VP was not after a five finger discount in the custard shop or is he hot and bothered about the high rollers in washed up DC and their loose purse strings?

In the lingering aftermath of events of the last few days the mining sector has come out strongly claiming credit for the recent political changes.

Tycoons claim credit for a burial

Besides the blinding political manoeuvrings and commercial machinations, isn’t it clear as daylight that tax revenue is failing to meet the increasing demand for social services and that unless governments formulate speedy and efficient schemes to enhance their coffers the prospect is gloomy and almost threatening.

Being thrifty is one way. Europe has decided to hold back on stimulus spending as countries are falling into spiralling debt.

A balance has to be struck between free enterprise with minimal or ideally no state intervention (tax is one such intervention) and the expanding need for government funds to help finance the needs of the community.

The Henry review referred to several areas where increased funding is required in the future due mainly to the demographic changes in Australia.

Health expenditure is projected to increase significantly over the next 40 years, due in part to the ageing of the population, but also because of increased demand for health services in the broader community.

One is reminded of the children’s song, “There’s a hole in the bucket”. The song sounds almost true in economic reality.

Do tax increases impede economic growth  and therefore future tax revenue and vice versa?

Are the tax laws in Australia very restrictive when it comes to stock options? You think?

Unless the options are issued under an employee share scheme no deduction will be available to the company.

Employee share schemes in Australia are subject to strict conditions.

The scheme must be open to at least to 75 percent of the permanent employees and must not be subject to any forfeiture.

Therefore most stock options would fall outside employee share schemes.

Even if within the scheme, deduction is limited to a mere $1,000.

In the case of Willis v Commissioner of Taxation [2010] AATA 420 (8 June 2010), the Administrative Appeals Tribunal held that the date of acquisition of stock options was the date on which the options were vested in the taxpayer by the ASX and not on the date of award or allotment.

Since the options were not provided under an eligible employee share scheme the taxpayer became liable for tax on the value of the options at the time of vesting.

Since the share market was on the rise between allotment and vesting (options generally rise with underlying stock) substantial tax liability resulted.

Tax Office wins options dispute

An interesting contrast in the United States has recently been in the news.

Study reveals $52 billion stock option tax break

An amendment is being considered in the United States that will limit corporate tax deduction for stock options to be no greater than the stock option book expense shown in the financial statement.

That would still be better than what is available currently in Australia.

A huge thank you to everyone who supported my CEO Sleepout for Vinnies last week, both for your dollars and your well wishes. 

The event itself was highly moving and highly successful. 

Moving, in that we heard from a number of current and former Vinnies “clients”, the homeless, about their stories of hard luck and in some cases, redemption, and successful in that we broke all fundraising records and targets. 

Nationally the tally so far is up over $2.6M, with over $950K coming from Sydney CEOs for Vinnies in NSW. 

And personally, thanks to all of your support (and a very generous last minute contribution from the CCH Australia Community Investment Program), I raised over $19K (so far), putting me in the top 10 on the leaderboard. 

So thank you all again so much for your support of Vinnies and of me personally. 

And, FYI, while it wasn’t terribly cold, I only managed about 3 hours of sleep on the concrete slab!

Best,
- Dave

David A Lampert
Chief Executive Officer
Wolters Kluwer Asia Pacific

Remember sovereign risk? In the wake of the resources super profit tax disgruntled miners were predicting sovereign risk in Australia.

Now we have sovereign debt and the warnings are coming from all over, the most recent from none other than George Soros, a strident critic of the market equilibrium theory.

According to Soros financial markets are beginning to lose confidence in the credibility of sovereign debt.

‘Act two’ of crisis begins: Soros

Greece, Spain, the Euro and sovereign debt are currently occupying centre stage in Europe. The uncertainty is feeding into other markets.

Greek bonds are junk

Sovereign debt fears creep up on US

U.S debt clock

Australian debt clock

With debt-to-GDP ratio for most countries climbing to unsustainable levels will there be anyone willing to lend?

This scenario resembles the situation when there was a credit squeeze a couple of years ago forcing governments to intervene.

What if the governments themselves are unable to borrow because of their debt levels?