Shorten olive branch to 300,000 pensioners hurt by tax plan

Bill Shorten will protect 300,000 pensioners and welfare recipients from his botched tax credit plan for retirees.

Mr Shorten has labelled the exemption his “pensioner guarantee”. Picture Kym Smith

Bill Shorten has offered to ring-fence 300,000 pensioners and welfare recipients from his ­botched plans to axe tax-credit refunds for retirees in a major strategic retreat that will shave $3 billion off Labor’s initial $59bn retiree tax grab.

With more than one million retirees facing a cut to annual cash refunds, the Labor leader has exempted low-income retirees after admitting his policy would have ripped money away from pensioners.

Mr Shorten has labelled the exemption his “pensioner guarantee”. It will ensure the 300,000 people with individual shareholdings receiving the age pension, disability support pension, carer payment, parenting payment, Newstart and sickness allowance will not be hit.

But the changes will not apply in the same way to the roughly 13,000 pensioners with self-managed super funds. Those who currently fall into this category will be exempt, but all those with self-managed super funds who become pensioners from tomorrow will still be captured by the shake-up.

Forced to back down on the most politically toxic component of the plan, the Labor announcement also contains a concession that its tax grab would have captured three times the number of full pensioners than the 14,000 initially estimated. Labor says the pensioner guarantee will exempt 45,000 full-time pensioners and 232,000 part-pension recipients from its tax crackdown.

But in the days after unveiling Labor’s overhaul to dividend imputation rules, opposition Treasury spokesman Chris Bowen said the shake-up would capture about 200,000 part pensioners and 14,000 full pensioners.

The initial 14,000 figure was based on 2014-15 Australian Taxation Office data but The Australian understands Labor went back to the Parliamentary Budget Office last week to receive more current figures. The revised projections show the numbers of full-pension recipients captured by the shake-up was far greater than the 14,000 initially cited and ended up much closer to 45,000 by the year 2019-20.

By limiting the exemption to pensioners, the revised Labor policy means 863,000 members of mainly self-managed super funds will still be caught and stand to lose thousands a year in what Malcolm Turnbull labels a “retiree tax”.

A further 29,000 recipients of Newstart or parenting payments would also be allowed to continue receiving cash refunds for tax credits earned on fully franked dividends from investments.

The cave-in to protect pensioners, which The Australian revealed was being contemplated by Mr Shorten two weeks ago, follows a Newspoll conducted for The Australian revealing little support for the policy.

Labor argues the existing policy of cash refunds is unsustainable and will soon cost the budget $8bn a year. It says that 80 per cent of the benefit of the cash refunds accrue to the wealthiest 20 per cent of retirees.