Only four per cent of Australians benefit from this cash refund system, but all of us pay for it. And 80 per cent of the benefit goes to the wealthiest 20 per cent of retirees.
This system costs Australia $5.9bn, more than the federal govt spends on public schools. Soon it will cost us $8bn.
A person who gets a cash refund for excess imputation credits of $10k has $460k in shares.
- $15k cash refund = $700k in shares
- $20k cash refund = $930k in shares
- $25k cash refund = $1.16m in shares
To put the tweet above in context, a full-aged pensioner with no income or assets gets just under $25k a year from the government in a pension. Those are the people who are really doing it tough, and the Abbott-Turnbull-Morrison Governments have made it tougher for them.
The ATM Government has cut the aged pension, voted 7 times to raise the age to 70, tried to remove the energy supplement, & cut Medicare. Why didn’t The Nationals speak up for pensioners then? Maybe it is because they can’t buy financial products from his family’s business?
Labor is cracking down on this loophole that gives tax refunds to people who have a lot of wealth but don’t pay any income tax. Pensioners are not affected, thanks to Labor’s Pensioner Guarantee.
Let’s be clear: under Labor’s plan, no one will pay a single cent more tax. No one will lose a single cent from their super contributions. No one will lose a single cent from their pension. No one will lose a single cent from their share dividends.
Everyone who gets share dividends can still use the imputation system to reduce their tax bill, which avoids double taxation. But they won’t be able to get a tax refund if they’ve paid no income tax.
There is nothing wrong with wealthy people buying lots of shares – but why should pensioners or working families struggling to pay the bills have to subsidise it?
Under the Liberals, the top end of town are not paying their fair share of tax. Labor will give all Australians a fair go. It’s a choice: better schools and hospitals, not bigger tax loopholes.
To ensure that the measure does not impact upon those receiving a government pension or allowance (including those receiving a full or part age pension, disability support pension, carer payment, parenting payment, Newstart or sickness allowance), Labor has announced a Pensioner Guarantee, meaning recipients will still receive any excess dividend imputation credits as a cash refund.
Fact Sheet: DOWNLOAD
Why franking credit refunds have to go
By Chris Bowen
Nov 4, 2018
“There is nothing more difficult to take in hand, more perilous to conduct, more uncertain in its success, than to take the lead in a new order of things” Niccolò Machiavelli wrote around five centuries ago. The beneficiaries of reform, he wrote, will be quiet, but those who benefit from existing arrangements will be very loud in their defence of the status quo.
Geoff Wilson, writing on these pages last Friday, is certainly intent on being noisy. As I have said, he is entitled to set up a partisan campaign with the Liberal Party if he wants to: that is clearly what he is doing. And the campaign is getting shriller and more ridiculous as the next election approaches. He started a petition against Labor’s imputation policy but now campaigns against our negative gearing reforms as well and is now clearly engaging in a political campaign, not a policy discussion. Mr Wilson can engage in politics all he likes. But he should not expect his factual inaccuracies to go unanswered.
Labor will return dividend imputation to its original design, as envisaged by Paul Keating. Australia is the only country in the world which provides a refund for corporate tax paid to shareholders if they don’t pay income tax. It’s a $5 billion a year anomaly that must be fixed in the interest of budget responsibility.
Based on existing policy
Claim: That Labor’s reforms won’t raise as much as we’ve indicated, including because the independent Parliamentary Budget Office didn’t take account of the government’s $1.6 million transfer balance cap in their costing.
Fact: As the PBO told Senate Estimates, the costing incorporates a raft of potential behavioural effects and is based on all existing government policy, including the $1.6 million transfer balance cap. The PBO went even further, confirming after questioning that the approach taken when costing this policy was “relatively conservative”. Even the Treasury modelling, leaked by the government, showed it would raise close to $10 billion over the forward estimates, very similar to what the PBO estimated.
Claim: That Labor’s policy will hit retired “battlers” and “low income earners”.
Fact: Those retired Australians with the lowest wealth and income receive either a full or part pension. Every one of these 2.5 million Australians is exempted from the change. Distributional analysis has shown that for people of retirement age more than 80 per cent of the benefit of imputation refundability goes to the wealthiest 20 per cent of households. Analysis from the PBO shows that for self-managed super funds, more than half of all cash refunds accrue to people with balances over $2.4 million. To use taxable income figures, as these people do, is just fundamentally dishonest: our highly concessional treatment of superannuation means people can be of significant wealth and still have no or little taxable income.
Claim: There is an economic case for dividend imputation refundability because it supports the Australian share market.
Fact: When I learnt tax theory at university I was taught the best tax system is the least distortionary one: people should make economic decisions because of economic fundamentals, not because of favourable tax treatment. The current system encourages people to be overweight Aussie shares, meaning they have not adequately spread their risk and may suffer significantly in a downturn because of this overweighting.
Claim: Mr Wilson claims that Labor will “crack” if they get 50,000 or 100,000 signatures.
Fact: This is, frankly, a pretty arrogant claim. Unlike the coalition in 2013 and 2014, Labor hasn’t hidden its budget plans until after the election. We’ve announced our plans early and proudly. In fact, we announced our imputation policy in the lead-up to the Batman byelection. We’ve proudly campaigned for our policies in the Longman, Braddon and Perth byelections, all of which Labor won. Anybody who makes a claim that Labor will “crack” has significantly underestimated Labor’s resolve to improve the sustainability of the budget and fairness of the tax system. Half the Labor front bench has been signed up to Mr Wilson’s petition without our knowledge, which makes the claim a little more laughable.
Labor has shown a willingness to tackle issues that have been in the too-hard basket for too long and to argue the case for ambitious reform. This sometimes involves taking on vested interests and batting away misinformation. That’s part of the reform story. We’ll continue to seek a mandate for dividend imputation reform and we’ll implement that mandate if the Australian people agree at the election.
Chris Bowen is shadow federal treasurer.
Source: Australian Financial Review