Labor’s intent is not only ageist, it is sexist to boot. I understand that Tax-Office figures show the group gaining most from refunded franking credits are women aged 75 and older. They received an average amount of $6561 in 2015-16. This must be confiscated, comrades Bill and Chris exclaim in unison. Can’t have those old dears living high on the hog when we have, oh, so many things on which to spend their money.
I wrote a letter (via snail mail) to Bill Shorten on November 31 last year, reproduced on this site, but of course haven’t had a reply. Why should I, a mere voter, expect one? In any event, Dear Bill is keeping his head down while Chris Bowen is running the disinformation campaign on franking credits.
Writing in The Australian last weekend (25 January), Bowen reminds us that “92 per cent of individual taxpayers are unaffected by Labor’s reforms to refundability and dividend imputation.” What to make of that? Think about it. It’s straight from the despots’ playbook. Provided only a narrow minority of people are affected it matters not. Forcefully euthanise people over ninety and an even smaller minority than 8% will be affected. And consider the benefits for survivors — the budget savings.
We, the people, have to be on our guard when government excuses oppressive and discriminatory action on the basis that only a small minority will be injured. Who will form the next small minority? Who will be picked off next?
Robert Gottliebsen has revealed the inequity of Labor’s policy in its differential impact on retirees in exactly the same financial position. In particular Gottliebsen draws attention to the advantage industry funds have in rewarding their pension-phase members with franking credits. Slippery Chris avoids the issue by noting that industry funds, along with other large collective funds, pay tax. Yes, they do, as a collective, but the pension-phase members don’t. I don’t want to go over this opaque ground. It’s best to read Gottliebsen. Instead I will explain again, for the benefit of “experts” like Professor Kevin Davis of Melbourne University, whom Bowen quotes, the logic of refunding franking credits.
In Australia investors are taxed on the dividends they receive at their applicable income tax rates. Davis is quoted as saying the imputation system “wasn’t meant to lead to zero taxation of corporate income which occurs when dividends are paid to investors on zero marginal tax rates.” This is a terribly misconceived statement. Companies pay tax on their profits, whether undistributed or distributed as dividends. Nothing in the imputation system alters that. Tax is paid by companies on their corporate income; on every dollar the taxman can find.
The corporate tax having been paid, the dividend reaches the investor. If the investor’s applicable marginal income tax rate is, say, at the highest rate of 49 per cent then he or she will pay forty-nine cents in each dollar against which he or she will be able to deduct any tax the company has already paid on this dollar. Now, if the investor’s marginal income tax rate is zero, he or she will be able to claim any tax the company has paid on the dollar, in exactly the same fashion as investors whose income tax rate is above zero.
For the benefit of those who have difficulty with logic. Take Davis at his word. He says that the imputation system leads to zero taxation of corporate income when marginal income tax rates are zero. Presumably he would then have to agree that it leads to 49 per cent taxation of corporate income when investors’ marginal tax rate is at its highest level. All of a sudden, the corporate tax rate has leapt from 30 per cent to 49 per cent. Of course, this is nonsense. The corporate tax rate always remains at 30 per cent and is always paid by companies at that rate on every dollar of profit.
Conflating what companies pay through the corporate tax system with what individual shareholders pay through the income tax system is a product of muddled thinking. Or, alternatively, politically partisan thinking. Take your pick. It certainly isn’t a product of clear and objective thinking.
Some argue that other parts of the world do not have an imputation system exactly like ours. In fact, there is a myriad of different concessionary approaches throughout the world to the taxation of dividends. It is impossible to identify best practice. Our system, as it stands, has a strong logical basis to it. This does not mean that changes should be ruled out. What should be ruled out are instant changes which result in internal inconsistencies (some can benefit from taxes paid by the companies they partly own while others can’t) and which, consequently, unfairly penalise one group as against others.
In this case, the penalised group are self-funded retirees, mostly of modest means, many running their own self-managed super funds, who have ordered their affairs to take account of dividend imputation. It is not a costless or simple matter (and I speak from experience) to reorder one’s affairs to take account of Labor’s policy. Complicating matters further is the uncertainty about whether Labor, when elected, which seems highly likely, will be able to get its policy through the Senate unamended.
And, by the way, however clever retirees are at reordering their affairs they will end up materially poorer. That part of their income snatched way can’t magically be replaced. Let’s see, here are some things that Shorten and Bowen might care to suggest to retirees in order for them to make ends meet: cut down on power bills by switching off air-conditioning and heating, forego holidays and eating out, sell the family car, abstain from alcholic drinks, make do and mend and, most effectively, die earlier. After all, oldies, particularly in this case older-aged women, have to make sacrifices to allow Shorten pay for his spending and, apparently, Bowen tells us, to keep revenue aside for a rainy day.
In the case of objection, disdain from on high is visited on the aging. As the Honorable Member for McMahon puts it, if you don’t like it “vote against us.” In other words, “suck it up wrinklies.”
Grandfathering the current regime would solve the problem but that is not in the offing. When does Labor want the money? It wants it now! The fact that Bowen is so insufferably smug about it all – he, of course, is personally unaffected – does not help the medicine go down. Another politician. Yet another sour and bitter taste.
Don your yellow vest, figuratively speaking if you don’t have one. Vive la résistance!