ALP’s $17.2bn plan to crack down on trusts

Bill Shorten has drawn battlelines for the next election, pledging to crack down on an ‘explo­sion’ in discretionary trust.

Labor leader Bill Shorten at Sydney Town Hall. Picture: Britta Campion

Bill Shorten has drawn battlelines for the next election, pledging to crack down on an “explo­sion” in discretionary trust funds and raise $17 billion in extra ­revenue, but he insists the policy is not intended as an assault on deceased estates, farms, charities, the disabled or small business.

Labor’s federal leader confirmed yesterday a new ALP policy to impose a 30 per cent tax on trusts to help close a loophole he said allowed the wealthy to split incomes among individual family members and pay lower tax.

Addressing the NSW ALP’s annual conference in Sydney, the Opposition Leader pitched the policy as an attempt at restoring fairness to the tax system, portraying the Turnbull government as pandering to the well-off. He said a 30 per cent tax on discretionary trusts would ensure people in a position to split their incomes could not opt out of paying income tax at rates similar to most PAYE wage and salary earners. “That’s it, it’s straightforward,” he said.

The proposed crackdown on trusts is a further attempt by Labor to rebalance the nation’s tax system, after unveiling policies to limit negative gearing and capital gain concessions. Labor also opposes the government’s proposed corporate tax cuts.

Mr Shorten said an explosion in discretionary trusts in recent years to 600,000 was not illegal “but that doesn’t make it right, it doesn’t make it fair”.

He said the tax change, if implemented, would not affect 98 per cent of wage earners who paid their fare share of tax because they were not in a position to split their incomes.

It left a “dry taste in the mouth” for a worker earning $50,000 a year, he said, that someone earning 20 times more could pay less tax.

“This is about trusts serving their true purpose, so that distributions are taxed fairly,’’ Mr Shorten said. “It’s about delivering a level playing field so high income earners can’t opt out of paying income tax.”

Mr Shorten said he wanted to be clear that Labor would not abolish trusts or apply any punitive taxes on deceased estates or special disability trusts.

Nor would the proposed new 30 per cent tax apply to farms or charity trusts, and small businesses would be free to enjoy asset retention.

The change, Mr Shorten said, would provide $4.1 billion in short-term additional revenue, increasing to $17.2bn over the next 10 years.

The revenue would boost the budget’s bottom line, helping to pay for education, health and other services.

Labor’s leader said Australia had a “two-class tax system” in which the vast majority paid tax as they earned. They might claim a couple of “vanilla deductions” for uniforms or other work-related expenses, and some were fortunate enough to salary-sacrifice for a car “but then there’s the business-class tax system. Behind the curtain, on the other side of the rope. It’s a different menu, another set of rules for those who can afford to upgrade to the pointy end of the tax system.

“Australians with lavish property portfolios, using complex deductions and … stashing their money in offshore tax havens, using every tax loophole money can buy and leaving working and middle class Australians to pick up the tab.”

In his speech to the ALP’s largest state branch and historically a key support base for federal party leaders, Mr Shorten expanded on his theme that a future Labor government would tackle inequality as its priority.

He received a standing ovation yesterday when he said a Labor government he led would abolish Sunday penalty rate cuts for workers in retail and hospitality businesses that follow a recent decision by the Fair Work Commission. He blamed the Turnbull government for the penalty rate cuts, and for policies he said favoured the wealthy few.

“I do not believe that the only aspiration of Australians is to get a good tax adviser and hide your money,” Mr Shorten said. “I believe, and we believe in this hall, that aspiration means much more than that.

“It is the aspiration of parents for their young kids to get a good education and for their adult children to get their first home.”

He said aspiration was also about seeking financial security in retirement, getting ahead by working hard, tackling climate change and “the aspiration to marry who you love”.