NetNews Usenet Archive 1992 #27/NN_1992_27.iso/spool/aus/politics/1866

Text File | 1992-11-22 | 2.7 KB | 58 lines

Newsgroups: aus.politics
Path: sparky!uunet!munnari.oz.au!titan!root
From: [e-mail] (Chris O'Neill)
Subject: Re: Negative Gearing
Message-ID: <[e-mail]>
Sender: [e-mail] (System PRIVILEGED Account)
Organization: Telecom Australia Research Laboratories
References: <[e-mail]> <[e-mail]> <[e-mail]> <[e-mail]> <[e-mail]> <[e-mail]. <[e-mail]>
Date: Mon, 23 Nov 1992 01:38:02 GMT
Lines: 46

In article <[e-mail]> [e-mail] (Chris Maltby)
writes:
>In <[e-mail]> [e-mail] (Chris O'Neill)
writes:
>>
>>Suppose you borrow $100,000 and invest it all under the conditions of the
above
>>example (18% interest, 8% inflation, 6% rate of return on investment, 48.25%
>>tax rate).  Suppose you sell if after 1 year for $108,000, i.e. you get a
>>capital gain equal to inflation.  Now the rental return was $6,000, the
>>interest was $18,000, so the tax deductable loss was $12,000.  The reduction
in
>>tax reduces this loss to $12,000 (1-0.4825) = $6210.  The net gain is the
>>capital gain minus the loss resulting from rent, interest, and tax reduction,
>>i.e. $8000 - $6210 = $1790.
>>
>>So, you make $1790 and the tax office loses $5790.
>
>But the bank who lent you the money has earned $18,000 interest on which it
>pays tax at 39%. It may have had to offer 12% interest to borrow the money
>which it lent you, and that will be taxed at someone's marginal rate - for
>simplicity also 39%. That's $7020 in tax collected. The tax man has also
>made a net gain of $1230.

I wonder what the average tax rate paid on received interest is?  In the case
of a superannuation fund, isn't it 15%?  In that case the above situation would
mean the bank pays tax of $6000 x 0.39 = $2340 and the super fund pays tax of
$12000 x 0.15 = $1800, a total of $4140.  The tax man makes a net loss of
$1650.  The super fund proceeds may pay further tax way into the future, but
present value discounting of this would make its present value pretty small.

>That is principally at the expense of the nitwits
>who save their money in banks which pay negative real-after-tax rates of
>interest.
>
>Negative gearing is a transfer of wealth from savers to speculators.
>When the merry-go-round stops it's the savers who are worse off.
>And society as a whole loses.
>--
>Chris Maltby - Softway Pty Ltd          Internet: [e-mail]
>
>PHONE:  [phone]  "I'm waiting for X-Windows to become just that;
>FAX:    [phone]   Ex-Windows" - A McGrath.

Chris O'Neill
Telecom Research