Shorten’s class-war $59bn tax on wealthy shareholders, retirees, super funds

Peak super fund body warns Bill Shorten’s tax hit will affect more than one million Australians, cutting about $5000 off incomes.

The peak body representing self managed super funds has attacked Labor’s proposal to claw back nearly $60bn over the decade by abolishing cash refunds for excess dividend imputation credits.

The SMSF Association has today warned that the Labor policy will cut about $5000 of income from the median SMSF retiree earning about $50,000 a year in pension income.

It also warns the proposed shake-up would affect more than one million Australians by changing rules that have been in place for nearly two decades.

SMSF Association chief executive John Maroney said that investors had geared their portfolios around refundable franking credits, arguing the Labor policy would “undermine confidence in the system and send many retirees back to the drawing board to rethink their retirement income strategies.”

“It is our contention that this proposal will affect more than one million Australians saving for their retirement and other purposes. Our calculations show it will cut about $5000 of income from the median SMSF retiree earning about $50,000 a year in pension income. To be saying these people won’t be paying any more tax is just semantics.”

Mr Maroney said the hit on retirement incomes was clearly “not just affecting the very wealthy and can substantially damage the lifestyles of retirees who have prudently saved and are carefully drawing down on their retirement savings.”

“Viewing all SMSFs as belonging to the mega-rich is an over simplification,” he said.

Mr Maroney also said that Labor’s proposed changes to dividend imputation could also have unforeseen consequences.

“It’s likely to lead to a shift in superannuation fund investment strategies. Funds seeking yield to deliver retirement income, especially SMSFs which are paying income streams, would need to shift their asset allocation towards investments which can provide increased yield,” he said.

Labor tax policy Trump-inspired

Bill Shorten says his new plan to give tax deductions to businesses when they buy assets worth more than $20,000 was inspired by Donald Trump.

The Opposition Leader said he had “studied” the economic upturn in the United States and decided it was the President’s policies allowing businesses to write-off capital expenditure that had been a bigger driver of economic growth than business tax cuts.

“That’s the piece which Malcolm Turnbull loves. You can’t stop him talking about the Donald and corporate tax reduction. But what the government has missed is what I think experts in America say is driving job creation in America is actually depreciation,” Mr Shorten said.

“The great irony is we’ve studied what’s happened in America, but we’ve always believed that the best thing you can do is if you’re going to provide a taxpayer support to a business, it’s got to come with conditions, it’s got to come with strings attached.

“I think just giving away $65 billion out of the nation’s (budget) to big business, 60 per cent which will go overseas, it’s a mug’s strategy.”

Under Labor’s plan announced today, business will be able to receive a 20 per cent tax reduction on assets worth more than $20,000 in a policy worth $10 billion over a decade.

The policy has been branded the Australian Investment Guarantee, effectively expanding the instant write-off policy which allows small business to write off assets worth less than $20,000.

Mr Shorten has promised all businesses would be able to deduct 20 per cent of any eligible asset, such as machinery, trucks and utes.

He said it would help grow business investment which had “collapsed by 20 per cent”.

“Under Labor’s Australian Investment Guarantee, only companies that make the decision to invest in Australia will benefit from this tax relief — while up to 60 per cent of the conservatives’ company tax handout goes directly to foreign shareholders,” Mr Shorten said. “Unlike previous asset write-off schemes, Labor’s Australian Investment Guarantee is permanent — that means businesses can continue to take advantage of the immediate tax deductibility whenever they make a new investment in an eligible asset.”

Labor flags tax relief for lower paid

The Labor leader also flagged the potential for “tax relief” for low and middle income earners before the next election because of his $59 billion crackdown on dividend imputation.

The Opposition Leader said this morning his push to axe cash payments for franked dividends would give the opposition a better fiscal position than the government and leave the door open for income tax cuts.

“Labor has a much better fiscal position, full stop, than the government. Because, remember, this government is still persisting with their $65 billion corporate tax giveaway,” Mr Shorten said.

“Labor is making hard budget decisions which will allow us to do three things — improve the budget position, make sure that we can have a proper safety net of schools and hospitals and aged care and public transport, and, also, this serious and genuine reform, today’s action, will allow us the option of offering tax relief to low- and middle-income Australians before the next election.”

Mr Shorten said Labor was trying to reform a tax system which was skewed in favour of the rich. “I think all fair-minded observers of Australia’s tax system know that the current tax system has advantages in it which are weighted to the very wealthy and to large corporations,” he said.

“What we want to do is put the weight back in the economy and government to looking after middle- and working-class Australians.”

He hit back at Scott Morrison for saying the proposed dividend imputation changes would target pensioners, saying only 1 per cent of full pensioners would be impacted.

“The reality is that 50 per cent of all of the funds that come out of the budget in cash bonuses to people go to the top 10 per cent of SMSFs,” Mr Shorten said.

“I think most Australians would be surprised and appalled to discover that they go to work and pay their taxes, and that some self-managed super funds are able to get $2.5 million of cash bonus from the government. That’s not what people pay their taxes for. So, Mr Morrison can run all the scare campaigns he likes. We’ve got an unsustainable tax concession. What we’re doing is we’re clearing the decks to make sure that we have a stronger budget position, to make sure that we can fund our schools and hospitals, and to make sure that we can offer tax relief for low and middle income Australians.”

Shorten’s $59bn tax hit on rich

Mr Shorten’s policy announcements were made in a speech to the Chifley Institute at the KPMG offices in Sydney where he opened a new front in his class-war tax grab on the wealthy.

Unwinding a superannuation measure introduced by the Howard government, Mr Shorten said a Labor government will abolish the rebate component of the ­imputation credits system that benefits primarily high-wealth shareholders and self-managed super funds by allowing them to cash in unused imputation credits.

Mr Shorten claims that the chief target of the policy is about 200,000 of the 600,000 self-­managed super funds in the ­country, the largest of which have been claiming up to $2.5 million in cash rebates under the imputation credit system. Labor says the policy will not apply to 92 per cent of the 12.8 million Australians who lodge annual tax returns.

While 90 per cent of the tax hit is directed at self-managed super funds, a small number of “low-income, high-wealth” retirees could also be caught in the net if, for example, they had other assets held in tax-free superannuation funds.

A small number of large retail and industry super funds, which have millions of average Australians as members, could also be ­affected, with the policy claiming 10 per cent of refunds were accrued by APRA-regulated funds.

Presently, shareholders are able to use imputation credits to reduce their tax or claim it as a cash refund if the value of the credits exceeds their tax liabilities. Under Labor’s policy, the credits can be used only to reduce tax liabilities and cash refunds will not be paid. The Turnbull government is likely to seize on the measure as a class-war tax raid on the retirement savings of average Australians.

Mr Shorten claims that average Australians and wage earners will not be hit by the changes to a system that he says has become an unsustainable taxpayer-funded loophole being exploited by only the very wealthy.

The move will open a war chest estimated to be worth $11bn in the final two years of the four-year budget forward estimates that the opposition is likely to put towards income tax cuts to match or ­exceed any commitment made by the Turnbull government.

Over the 10-year medium term the budget savings, however, would equate to $59bn, which is almost of equal value to the cost of the Turnbull government’s $65bn corporate tax cuts.

Labor believes the savings would also give it “wriggle room” potentially to shift its position on corporate tax cuts, with the possibility it may move to support them for businesses under $2m a year in turnover and potentially keeping the currently legislated cuts for those with up to $50m a year.

“Every dollar that slips through these loopholes is a dollar that cannot be invested in the Australian people and their potential,” a copy of Mr Shorten’s speech says.

“Every dollar allocated to tidy little arrangements for people who already have millions of ­dollars, is a dollar that can’t be used to repair the budget and bring Australia back to surplus.

“Firstly, this change only affects a very small number of shareholders who currently have no tax liability and use their imputation credits to receive a cash refund. These people will no longer ­receive a cash refund, but they will not be paying any additional tax. Let me repeat that: a small number of people will no longer receive a cash refund — but they will not be paying any additional tax.”

Mr Shorten claims that the new tax policy would return the imputation system, originally designed to stop double taxation, back to its original design under the Hawke-Keating government in 1987.

The scheme created imputation (tax) credits for dividends paid to shareholders equal to the tax paid by a company on its profits. The credits can be used to offset a person or entity’s tax liabilities.

The scheme was expanded by the Howard government in 2000 to allow cash refunds to be paid to those who had amassed imputation credits that exceeded their tax liability or for those with a zero tax liability.

This was considered a sweetener for controversial changes being considered to the tax treatment of trusts, which were ultimately abandoned.

The major and direct beneficiaries were those with self-­managed super funds which in pension phase became tax-free.

Labor claims that further changes in 2006 to the tax treatment of superannuation funds compounded an issue that was then already costing about $550m to the budget bottom line.

“The Howard-Costello subsidy entirely distorts the original design of the dividend imputation system,” Mr Shorten will say.

“In fact, it makes Australia the only OECD country with a fully refundable dividend imputation credit system. And every dollar our opponents spend on preserving exemptions for the top end of town is a dollar they have to cut from schools and hospitals, extracted from middle Australia in tax increases or forcing taxpayers to pay more interest on the ­nation’s debt.”

The opposition’s policy claims that of “the excess imputation credits refunded to SMSFs, 50 per cent of the total benefits go to the wealthiest 10 per cent SMSF balances (which have balances in excess of $2.4m)”.

It further claims that Parliamentary Budget Office figures from 2015 show that the top 1 per cent of SMSFs received a cash refund of $83,000 on average — with some claiming up to $2.5m.

“Recipients of cash refunds are typically wealthier retirees who aren’t PAYG taxpayers,” the policy document says. “These are people who typically own their own home and also have other tax-free superannuation assets.”