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Economic equality could cost each australian 500 a year

IF YOUR latest wage rise was so small it left you convinced others must doing better, you probably are right.

Economic inequality is growing and its most serious consequence is not just to your pay packet. Its affecting the entire nations well being, according to a high-powered report today.

Inequality is reducing economic growth and this could cost every Australian $500 a year each unless it is checked, said the report Inequality the hidden headwind for economic growth, by the Inclusive Prosperity Commission of the Labor-aligned Chifley Research Centre.

It said the gap between rich and poor was restricting prosperity and the loss could be greater than the gains expected from the trade agreements with Japan, China and Korea combined.

The report, which includes former Labor Treasurer Wayne Swan among its authors, will influence how the Opposition deals with Prime Minister Malcolm Turnbulls bid to hack back spending and give business significant tax cuts.

The evidence is in: trickle-down economics fails not only the fairness test but the growth test, said Mr Swan referring to the proposed business tax cuts worth some $50 billion over 10 years.

We need inclusive prosperity where everyone benefits when the economy grows and where economic growth is stronger because everyone is involved in producing it.

The report said the fight against economic inequality had to include greater access to quality education, measures to encourage more women into the workforce, and affordable health care.

It also calls for reforms to negative gearing on property, capital gains, superannuation and international tax that create the space for a reduction in effective tax rates on middle and low -income workers increasing take-home pay and preserving incentives to work and invest in the real economy.

Inequality already was hurting the economy as middle-income households curbed their spending, said Chifley Centre executive director Michael Cooney.

Inequality has been rising in Australia: real wage growth is slow, houses are harder to afford, some kinds of health care are more expensive than ever, and education funding is inadequate and poorly targeted, Mr Cooney said.

The expansion of the gap was paused by the stimulus spending during the global financial crisis, but has returned and ordinary families have less to spend, which is hurting the economy.

Lower and middle-income earners have a much higher marginal propensity to consume. In other words, they spend more of their income, said Mr Cooney.

By giving them a lower share of income they have less money to consume in the economy.

Second, investment opportunities in poorer segments of the population are reduced. In particular, high income-inequality restricts the ability of lower-income people to improve their knowledge and skills by investing in their own education.

At a macro-economic level this restricts the productive capacity of the nation; it also further reduces their individual incomes over time.

That income decline is expected to reach $500 a head within three years.

Our order of magnitude estimate shows that rising inequality, left unchecked, poses a serious economic risk for Australia, said the report.

Rising inequality will reduce the pace at which the economy can grow, damaging long-term growth prospects and even worse, negating hard won gains of successful economic policy in the past.

This documentary focuses on the growing "wealth gap" in America.

Things every small business needs to know about tax time

IF YOU’RE a small-business owner then the lead-up to the end of the financial year is probably one of the only times when you wish you weren’t your own boss. It can be stressful, confusing and very time consuming.

The small business sector has also become the darling of the Federal Governments economic stimulus plan particularly now that the mining boom is running out of puff. In fact there were so many sweeteners in the recent budget that small business owners must be feeling like that kid at school who shoots to popularity for scoring the winning goal in the rugby final.

But there are some things you need to think about when making these sweet deals work for you and your business. KPMG tax expert Simon Le Maistre said that one of the main things to be aware of is that tax rates are coming down. Currently the tax rate is at 30 per cent and next year the government is set to cut it to 28 and a half per cent.

Mr Le Maistre said reaping the benefits of this is really a matter of timing and if you understand how to use it to your advantage then it can result in significant tax relief.

Firstly he said spend and spend now. The reason? To make sure you get the 30 per cent deduction this year. If youre looking to spend that money you ideally want to do it this year when you can get the full deduction for something under $20,000 and youll reduce your tax this year when youre paying 30 per cent.

He also said the much hyped $20,000 tax deduction is not really about that number, much more significant is its tax effect and for a company this is around a $6,000 immediate tax benefit.

If youre a restaurant and youre going to go out and buy 20 tables, if each of those tables is worth $5,000 that could be a $100,000 deduction which could give you a tax benefit of $30,000. So it could amount to a very significant deduction this year

Another thing Mr Le Maistre suggests is deferring income. He said because next year tax will drop to 28 and a half per cent, any dollar you push to next year you will be paying less tax on.

If youre looking to issue invoices in the next couple of weeks maybe issue them on the 1st of July or if someone wants to pay you in advance maybe get them to pay you on the 1st of July so you pay less tax and youll also give yourself a years grace before you need to pay the tax on it.

The other issues small businesses need to ask themselves as the end of the financial year approaches is what decisions should they be making and what actions should they be taking before year end. Mr Le Maistre means things like writing off your bad debts and making sure your superannuation payments are paid and received by the super fund.

Small business should also be thinking about and discussing prepayments of services like rent and training courses. You should be making sure you do that stock take before year end and think about what in your stock is obsolete and what you should be getting extra deductions on, he said.

Mr Le Maistre said, One of the ways that small businesses can get caught out is if youre a company and you have any loans from the company then you need to be careful to deal with it before year end or it could be treated as an unfranked dividend which is essentially a source of income that will be taxed.

If that happens your company could almost have a tax rate of 60 per cent or higher because you get taxed as a company and you get taxed as an unfranked dividend as an individual.

There are things we can do to play around the edges, but where we see things going wrong is where people miss these details and its not something as a business person that you think about but it what the tax office is looking at.