Question
1
You
work at a professional services consulting firm. One of the major
business lines of that business is to provide advice to lobby groups.
One of the firm’s clients is concerned about something it calls
‘middle class welfare’, where the government allows a variety of
laws to operate which advantage the middle class and the rich. The
client is particularly interested in the impact of the dividend
imputation scheme on government revenues.
The
client suggests that dividend imputation cease, and all dividends are
treated as ordinary income in the hands of the recipient.
The
client asked your firm to estimate the impact on the Commonwealth
Government revenues if his suggestion is implemented. He thinks there
will be huge savings, and these can be used to reduce tax rates on
individuals.
The
client also wants to get a sense of who is benefitting from this
scheme. For example, if this was removed, what impact if any, would
there be on females v males? What are the characteristics of the
major classes of beneficiaries of this scheme? What are the major
characteristics of people who do not benefit from this scheme? For
some strange reason, the client really dislikes Canberra and is
convinced that this scheme unfairly benefits residents of that lovely
place. You better address this issue, as your manager does not want
the client to be embarrassed if he makes an erroneous statement in
public. Your manager wants to know which areas are most advantaged by
the current scheme.
Your
manager is delighted, as this job will generate considerable income
for the firm. She wants you to build a model based on relevant data
from some or all of the following tables, found at the Taxation
Statistics website
https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2016-17/?anchor=Individualsdetailedtables#Individualsdetailedtables.
Tables
3, 4, 5, 6, 7, 8. You trust your manager, but you are welcome to look
for and incorporate data from other tables, if you think this will
assist your response.
Your
manager advised that that you may find something called ‘Share of
franking credit from franked dividends’ in some of the tables. She
advised you to treat this as a normal franking credit. Briefly, the
share of franking credit arises from certain payments to and from
trusts. She suggested you don’t worry about the detailed tax law,
just treat these the same way as other franking credits. (At this
point, you did not know whether to thank her profusely or take your
mum’s advice and apply for that job as an undertaker, as they seem
such happy people.)
Your
manager has hinted strongly that she wants you to identify any major
assumptions and limitations in your analysis. She also asked you to
identify potential ‘political’ risks if the proposal is
implemented and briefly discuss ways these could be managed. (She
does not want the client to look like a fool if another lobby group
raises concern about a section of society being disadvantaged
‘unfairly’.)
Marking guidance
Marks
will be awarded for your ability to create a model or models which
address the client’s request. (50 marks)
You will need to follow the basic rules of
spreadsheet design, such as separating the data from the model etc.
Ensure there is no ‘hard-coding’ in the model.
Based
on the outputs of the spreadsheet, submit a separate word document
which addresses the questions raised by the client and your manager
(approximately 1,500 words). (50 marks)
Please note, half of these marks will be allocated
to your response relating to the assumptions and limitations of your
analysis.
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