From the outset, the Conservative Party has vehemently opposed Labor's proposed retiree's tax - an anti-Robin Hood tax that denies cash refunds for franking credits, and hurts those with the lowest incomes the most.
The Australian's columnist Robert Gottliebsen sets out eight reasons why this Labor tax grab simply isn't fair:
1. A lot of people who are not well off will be crippled by Labor's tax-grab. This is a tax that aims at the battlers while people who are well-off will continue to get their franking credits in full. A large number of older people, including those who are approaching retirement, who will be devastated by this tax.
2. Discrimination in favour of the rich is not fair.
The ALP franking credits plan has been structured so that the richer you are, the less you are affected. If we theoretically compare people, whose assets consist entirely of shares paying fully franked dividends, the tax rate falls as the dividend income rises. This is a tax structure that creates a precedent that if it was applied widely would cause great division in the community. If you are unhappy about franking credits, then you should argue that everyone should be taxed, not just the battlers.
3. It’s not fair to tax people on the basis of who manages their money. Since federation we have taxed people on the basis of their income, assets, business structures and so on. But all people in the same asset or income class are taxed the same way. But the ALP plans is that if you save via an industry superannuation fund or a large retail fund, then you can receive your cash franking credits in full. Save in your own name, via a self-managed fund or some retail funds and you are taxed. We have never before taxed people on the basis of who manages their money.
4. It’s not fair when politicians use weasel words to obscure mistakes. To quote Chris Bowen: “All of the 2.5 million retired pensioners, full and part, are exempted from Labor’s policy.” Various other Labor politicians have made similar statements. When the policy was announced it was very clear that those who were pensioners after March 28, 2018, and who had their money in a self-managed fund, would not be exempted from the tax and their cash franking credit entitlements would be scrapped. Many ALP politicians have actually declared that all pensioners will be OK. We need a clear written statement reversing the original policy and so that all pensioners, retired, working or in self-managed funds receive their cash franking credits entitlement.
[In essence, members of self-managed super funds that had not quite yet become a pensioner before Labor's cut-off date (28 March 2018) will never get cash refunds for the franking credits earned by their SMSF, many of which are heavily invested in Aussie blue-chip companies that fully frank.]
5. It’s not fair when politicians don’t tell the full truth. Chris Bowen says: “This is not a tax.” Wrong, wrong. Currently, a vast number of Australians receive a dividend and franking cash payment representing the tax companies have paid on their behalf. Those who happen to in a legal income tax-free status are now being levied the amount of that cash payment. When you abolish a tax refund, which is what the franking credit is, this means the individual effectively pays the abolished amount in tax. In every sense of the word this is a tax which increases government revenue.
6. It’s not fair to retrospectively tax small business. Small businesses might not have been the target of Labor’s tax, but hundreds of thousands of them have structured their finances so that their company has stored franking credits. When they sell or close the business, they have no other income and they take advantage of the tax they paid in past years to boost their income via cash franking credits. They will be decimated. This is retrospective legislation which hurts retiring small businesses and reduces the value of all small businesses.
[In essence, owners of small incorporated businesses, whose taxed profits have been retained in their business for payment as dividends in future, lower income times (eg partial or full retirement) will be decimated, especially if the business is modest and few or no other sources of income in retirement were planned.]
7. It’s not fair to retrospectively tax all retirees. I can hear a million battling retirees shouting: What about us? We carefully planned our retirement on the basis of cash franking credits. We are also being retrospectively taxed. Absolutely right.
8. Reversing policies agreed by both parties after independent reviews is not fair. It’s important to understand how Australia came to have its franking credits policy. A lot of false statements are being made about a “Keating policy”. Franking credits was a policy agreed by both parties and the history is important. In 1979, the Fraser government commissioned an independent review in to the financial system. The Campbell Review reported its findings in a comprehensive report to government in 1981. In Chapter 14, it considered the then double-taxation of company profits: firstly, in the hands of the company and secondly in the hands of the shareholder. The committee set a critical benchmark when it said, in paragraph 13.8, that with some exceptions that are not presently relevant, “the taxation system should meet the tests of neutrality equity and simplicity”.
The Campbell Review set out in beautiful simplicity the company tax system we have now enjoyed for some 30 years.
In dealing with the system of imputation it recommended as part of a full imputation system that there would be a refund of excess credits to lower income earners.
To their great credit it was the Hawke-Keating government that in 1987, gave effect to the “interim’ recommendation of the Campbell review.
The interim arrangements ended and, as was recommended, following the Ralph Review in 1999. The legislation giving effect to refunds of excess franking credits was introduced under the Howard government and was passed, not surprisingly, with bipartisan support.
Our present system was designed by an independent body and was implemented with bipartisan support.
[Clearly, cash refunds for franking credits was the "unfinished business" of the Hawke-Keating Government from the early-1980s Campbell Review that the Howard Government, with bi-partisan support from the then Beazley Labor opposition, finally completed at the turn of the century. This eliminated the incidence of double (and undue) taxation of dividends in the hands of Aussie shareholders and retirees - a policy that has no good reason to dismantle.]
To stop Bill Shorten's tax-grab insanity, vote "1" Australian Conservatives in the Senate this federal election.
Conservative Party leader Cory Bernardi says Labor's policy has "flies all over it" and the Conservatives' Victorian Senate candidate Kevin Bailey says he's very worried about the Labor proposal..
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