Fresh from looking after his rich publishing mates, John Howard hasn’t forgotten the remainder of the traditional wealthy heartland of the Liberal Party by providing a potential goldmine of tax losses through the T3 sale for investors. There is a big tax lurk in the Telstra sale and it could burn a big hole in future government budgets. It works like this:

If you bought 10,000 shares in T2 then it would have cost you $72,000. Presently you can sell these shares on the ASX at $3.65, thus netting $36,500 and in the process creating a tax loss of $35,500.

You can then allocate $20,000 to buying T3 shares and have $16,500 to invest where you want until May 2008.

For the 1.1 billion shares allocated over the weekend in the retail brokers allocation, this translates into a 1.75 billion tax deficit if all these broker allocated shares replace T2 shares and the buyers have a marginal tax rate of 45c cents in the dollar.

This scenario has the potential to drive a stake through the heart of the Prime Minister’s aspirational voters as all they can see are their shares taking water since T2. They are going to get shirty after the popular press were pushing the line that T3 was not worth it while the wealthy have come out and embraced it over the weekend. How are these voters going to react when it appears that the wealthy have taken big tax losses while they are left standing holding the same number of Telstra shares throughout the whole deal?

How will the government respond to this potential shortfall in revenue?

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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