I saw some talking empty heads on the Sky business channel suggest that Bill Shorten’s selective confiscation of franking credits might be a good thing if it steered retirees away from investing too much in bank shares. I have read other idiotic paternalistic stuff of this variety in my usual newspaper The Australian. People earning inflated salaries with no idea how most self-funded retirees manage to live.
Amidst the dross, it is worth mentioning that Judith Sloan and Henry Ergas stand out as marvels of economic clarity and sanity on this issue. It might pay the newsaper’s economics correspondent, Adam Creighton, to learn from his colleagues’ good sense.
Why am I writing about this again, having done so quite recently (“Thieves at the Door, Dolts in Residence”)? True, I have a vested interest. But my real motivation is to give as much transparency as possible to the sheer unprincipled nature of the threatened regime.
Franking credits are returned to dividend recipients because the tax, at the company tax rate of 30%, has already been paid by the company concerned. There is a strong logic to it. Nevertheless, numbers of countries do not have it. That’s fine, taxation across all jurisdictions is a dog’s breakfast. You either have this provision or you don’t.
What I suggest is unique and untoward about Labor’s policy is that it inverts the usual order of confiscation. It keeps franking-credit rebates for those who are well off while denying them to those who aren’t. Consider what is intended by Shorten and his enforcer, Chris Bowen.
Take someone who earns a lot. If he (or she) has available franking credits of, say, $10,000, he will still be able to claim those credits to reduce his tax bill, dollar for dollar. Thus, the well off, of whom I guess Shorten and Bowen are numbered, are fine and dandy. By contrast, those struggling on a full pension with, say, a few Telstra and bank shares will be barred from claiming their franking credits. As, similarly, will be self-funded retirees with modest investment incomes. Those supporting a family on a basic income and who hold a few shares as a backstop will not be able to claim their franking credits. In sum, for those on Struggle Street, franking-credit rebates will be verboten!
Ask Shorten why the well-off person is to continue to get back franking credits. Let me answer for him. Each person pays income taxes on their total income (including dividends plus franking credits) in accordance with the taxation scales. Franking credits are returned (rebated) because they correspond with the amount of tax already paid by the company distributing the dividends. Sans rebate, the taxpayer would be paying more than set by the tax scales.
Now take someone, let’s call him Mr Struggle-Street, whose income is $25,000 plus $2000 fully franked credits. Under the regime applying to Mr Well-Off above, Mr Struggle-Street (on 2017/18 tax scales) would pay tax of $1,670 on $27,000 less $2000, giving him a cash rebate of $330. Sorry, the computer says no. No cash rebate for you!
A retiree having any amount up to $1.6 million (most have a lot, lot less) in a self-managed superannuation fund, for which the taxation scale is set at zero, loses all franking credits. Again, very rich retirees, with millions to play with, have scope to grab franking credits. Who says that Labor don’t like rich folk?
Apparently, the self-same money on which tax has been paid by the company belongs to Mr Well-Off but not to Mr Struggle-Street. Shorten is giving the tax office license to steal from vulnerable people. Why do thieves so often get away with it? The victims are too weak to resist. They are old. They are too slow to run away. They are out of options. They are easy targets. How can the Labor Party live with itself?
Shorten deflects. He is quoted as querying why “seven million Australians on less than $87,000 a year have to pay income tax on the money they pay, but don’t get a refund when they pay no income tax.” Mangled syntax aside, you get the drift. And it is pure sophistry.
People, whatever their income and wealth, don’t get franking credits back if they don’t own the shares on which companies have already paid tax. This has nothing to do with equity across taxpayers. If the Labor party wants to extract more revenue from the well-off then so be it. That would be business as usual. But on what twisted basis would Labor allow rebating of franking credits for the well-off and disallow them for the not so well-off?
I doubt Shorten would get away with his Sheriff of Nottingham impression at a time when most commentators still had their wits about them and a smidgen of balance. Now, for the most part, we have mostly dimwits and left-wing hacks holding politicians to account.
We live in inauspicious political times. Hide your money under the bed — or else invest more in overseas shares and hope for better capital gains. Or how about a more luxurious pad and a government pension? Result: less domestic capital for Australian companies and not nearly as much revenue as Bill expects.