The 16th of June 2010 sees KRudd training for a backflip. With the high board set at 40% we can see it being reset at around 20% to ensure a Gold Medal performance by KRudd in the 2010 Canberra Stakes.

Lets look at the subject of conviction. For weeks we have heard from the master himself that 40% is the number but today we hear a yodel that sees 20% as the new target. Amazingly the 40% number is not the contentious issue but rather several other points such as

• Super tax at only a 6% return on investment
• Non inclusion of finance cost and depreciation in the cost structure
• Exclusion of current projects.

Lets be real. Would you invest in a share that returned just 6% per year over the long term? I think not and the realistic figure would be closer to 12-15%. You would expect that all costs be removed from your dividends first, not here is a $1 dividend but we have to deduct other costs of 95cents in the dollar.

 How would you like it if you bought a house and suddenly the government said we will tax the capital gain regardless of your cost of improvements, financing and grant you no more than a 6% annual reduction. You would scream your head off and never buy another house again.

This is what this plan does to the mining industry and in turn your investments in these companies and in turn your returns to your super fund if this tax goes ahead.

KRudd still argues that the taxpayer can not suffer a loss. He is right the taxpayer can not but the individual (all individuals) will. With lowered returns on direct investment and much lower returns to super funds.

Lets look at his claims of benefits for taxpayers on superannuation and small business. For a small business a reasonable profit might be $150,000 per year. At a 2% reduction in company tax (from 30 to 28%) that is a saving of $3,000. That same business needs to find another 3% in super contribution say for 5 employees averaging $40,000 in wages each. That amounts to $6,000. That’s a loss of $3,000 for the business.

Now here is the nasty bit. Remember the nice $3,000 the government gave back to the business? Well the government gets 15% of the contribution. So the extra $6,000 the employer pays to your super the government gets $900. So really the government has handed out the $2,100, the employees get $1,200 each but the business loses $3,000 overall.

Ah but it gets better. Now the company wants to distribute 50% of the post tax money to the owners. Undoubtedly they have other earnings. That extra 2% of untaxed profit now has an affect on the income tax of the owners. If they are all on the second highest tax bracket (38%) this “reduction” means that the extra tax burden they have on the dividends is $171. If they are all on the highest bracket (45%) their added tax burden is $321.

Again while the government talks of all Australian getting a benefit the only real winner is the government itself. The maths do not add up. For small business it now has to think of the consequences of staying open and employing these 5 people or just investing in cash and saving the headache. For the 5 employees who have no spare cash they may just may be named YOU.