The new budget in simple terms

Every day, ten men go out for beer and the bill comes to $100. They pay their bill the way progressive taxes work. The poorest four pay nothing. The fifth pays $1. The sixth $3. The seventh $7. The eighth $12. The ninth $18. The tenth man (the richest) pays $59.

The ten men are content, until the bar owner says he wants to reward their custom by reducing their bill by $20.

How will they divide the $20 windfall so everyone gets a fair share?

The owner suggests reducing each man’s bill by a higher percentage the poorer he is, to follow the principle of the tax system.

So the fifth man, like the first four, now pays nothing (100% saving). The sixth pays $2 (33% saving). The seventh $5 (28% saving). The eighth $9 (25% saving). The ninth $14 (22% saving). And the tenth now pays $49 (16% saving).

Each of the six is better off and the first four still get free beer. But outside the bar they compare their savings.

“I only got a dollar,” says the sixth man. He points at the tenth man, “but he got $10!”

The others agree. “Why should he get $10 back, when I got only $2?” yells the seventh man.

“We didn’t get anything at all,” yell the first four. “This new tax system exploits the poor!”

So they beat up the tenth man.

The next night he doesn’t show up at the bar so the other nine drink without him. But when it comes time to pay the bill, they discover they don’t have enough money between them to pay even half.

One problem in that analogy is that by far the majority of the Federal govt tax (income and GST) income does not come from the wealthy but from middle income earners.
Wealthy folks only represent a few % of the population which means that overall they don't contribute as much as we and they think.
Another aspect conveniently ignored is that very wealthy people have engineered the system so that they have "ways of managing money" which means they don't end up paying anywhere near as much as we/they think they do. Every time I see a really exotic car the first thing I think of is, I wonder who really owns it?
The small percentage tax hike on the high income earners in the recent budget is nothing more that a mask behind which pensioners, students and the unemployed can be conveniently beaten about the head and shoulders.

The middle class of today would have been considered wealthy 30 years ago and the poor of today with all their benefits would have been considered well off by my parents in the 1940's.

So, what does that mean?

We are all self centred and need a dose of reality and if we don't get our affairs in order, we may see a new reality in our lifetime.

I had someone tell me in all seriousness that Sydney house prices would continue to double every 10 pr 7 years in perpetuity, because they have done so in the past decades.

I tried to explain that this is a mathematical impossibility with general inflation at around 3%. But obviously, I know nothing.

Greg

The financial wizard Robert Kiyosaki recommends that you own nothing but control everything. That is if you need a new car, it becomes your companies property not yours. The same goes for all sorts of expenses. The company pays in pre tax dollars whereas you pay after income tax and inclusive of GST. Simple really. What.... you dont have a company to do all this dealing through? :o how do you manage? :o Seriously though, that is precisely what happens. Dont expect it to be dismantled anytime soon, both the "L's" need the donations from these kinds of voters. Anyone paying 49% tax needs a better accountant.

I was talking yesterday with a German bloke posted here to run a branch of a multinational. He has to move again because the house he is in needs to be empty for sale. It is being primed for the Spring selling season. A three bedder in Five Dock for $900,000. Out of his range and desire, he reckons Aust east coast is the most over priced region in the world. Negative gearing is the reason. But as long as there is a buyer the wheels keep turning and the values go up. I agree Greg, it's nuts and has to collapse sooner or later.

There is a "Rule of 72", by which the number of years that something takes to double in price (and the purchasing power of your money to halve) times by the inflation rate equals 72.

3% inflation would mean it should take 24 years for housing prices to double. If they go up faster than that, there would be a tendency for the market to 'correct' itself, ie: prices can suddenly drop over a short period of time and it looks like a collapse in the housing market, but it's just that the prices were over-inflated.

Jeez, talk about sh** trivia filling up the brain. I should be remembering more important things. :D