Shorten in scramble to fix flaws in tax plan

Bill Shorten is considering a supplement payment package as he comes under pressure over Labor’s tax credits plan.

Opposition Leader Bill Shorten

Bill Shorten is considering a supplement payment package for up to 250,000 pensioners to make up for annual cash refunds they stand to lose, as the Opposition Leader comes under mounting pressure over Labor’s plan to scrap $59 billion in refundable tax credits on share dividends.

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As Labor faces pushback from seniors and self-managed super fund lobby groups, The Australian understands that a financial sweetener will be considered for the 10 per cent of pensioners on the lowest annual incomes who may lose their modest imputation credit refunds.

This would likely come in the form of a payment supplement in addition to Labor’s promise to ­restore the energy supplement linked to the carbon tax, which the Turnbull government scrapped for new welfare and pension recipients.

“We will make sure that pensioners are OK, full stop,” Mr Shorten said yesterday after hinting that Labor’s budget strategy would ensure pensioners were not left out of pocket.

National Seniors Australia, the Self-Managed Super Fund ­Association and the Association of Independent Retirees yesterday urged their members to write to Labor MPs and warned of a ­national campaign against Mr Shorten’s tax grab.

The Opposition Leader yesterday acknowledged his policy would affect about 250,000 pensioners, amid new warnings the changes would force more people onto the Age Pension and possibly undermine the expected revenue gain of $59bn over a decade.

Mr Shorten’s claim that part pensions would rise to compensate low-income earners for the loss of their rebates was also ­attacked by National Seniors Australia. It declared the comment “incorrect” and argued it showed a fundamental misunderstanding of “how income is calculated for pensioners”.

National Seniors Australia chief executive Ian Henschke said he wanted Labor to “reconsider the full effect of this policy” and provided research showing that some part-pensioners would be more than $900 worse off once their rebates were removed.

Analysis provided exclusively to The Australian shows that a single person who qualifies for the part pension under the assets test may be substantially worse off under the Labor plan.

In one case study, an individual with $451,000 in assets — including $1000 cash from a refundable dividend tax credit — would receive a $3 increase in their fortnightly pension payment (from $302.65 to $305.65) once the refund was scrapped. While this would lift the part-pension payment by $78 a year, it would still leave the individual $922 worse off overall.

Centrelink makes an assumption about the income that investments will generate. In another case study, the analysis suggests that a single person who qualifies for a part pension under the income test is assumed to receive a return of 1.75 per cent on their first $50,200 of savings and 3.25 per cent on anything over that.

Changes in the person’s actual income are irrelevant to this calculation, so the abolition of cash imputation refunds would make no difference to the pension, ­although it would directly affect the pensioner’s total income.

National Seniors Australia’s senior officer Basil La Brooy said: “There doesn’t seem to be an understanding of how income is calculated for pensioners. And this is a policy that’s been in place for many years.”

Malcolm Turnbull yesterday accused Mr Shorten of launching a targeted attack on lower and middle-income earners in a “Labor cash grab” he said would hit more than 3.5 million superannuation accounts and affect more than one million people, including more than 200,000 pensioners.

“He’s seeking to take money from pensioners and self-funded retirees, money they’re entitled to,” Mr Turnbull said. “Think about that — 50 per cent of the individuals that will be hurt by this tax grab are on incomes of less than $18,000. These are pensioners and self-funded retirees.

“This is not a tax loophole or anything like this. This is a case where companies have paid tax, they’ve paid tax. They pay a dividend with a franking credit and if somebody doesn’t have other tax liabilities to offset that, they’re entitled to get the difference in cash. That is completely fair. It’s been the case for nearly 20 years.”

Writing to The Australian yesterday, former Treasury secretary John Stone backed Mr Turnbull’s criticism.

Mr Stone said Paul Keating had not gone far enough after introducing dividend imputation relief in 1987 to correct the “injustice” of double taxation whereby ­“dividend recipients had no or ­insufficient other taxable income against which to offset their ­credits”.

Mr Stone said this was “finally rectified” by Coalition treasurer Peter Costello in 2001, after the budget had been taken back into surplus. He warned that Mr Shorten’s policy on franking credits would “restore that injustice”.

The Association of Independent Retirees warned the Labor policy could “push more retirees onto the Aged Pension much earlier than would currently be the case” and “negate the short-term revenue gains anticipated”.

“You need to engage with your federal member of parliament and bring to their attention the concerns described above that AIR has with Labor’s announced policy on dividend imputation credits,” it said in a letter to its members.

The Self-Managed Super Fund Association produced figures showing that a single homeowner with $580,000 in superannuation (who had saved enough to forgo the Age Pension) could lose $5357 in franking credits — a reduction in yearly income from $28,357 to $23,000, or a cut of 18.8 per cent.

SMSF Association head of policy Jordan George said the drop to $23,000 in income was only $112 above the full Age Pension and Age Pension supplement of $22,888 which can be accessed by a homeowning single person with assets of less than $253,750.

“Self-funded retirees who have assets just above the Age Pension assets test thresholds may be worse off under the Labor proposal than those with less assets but receiving the Age Pension,” Mr George said. “This is a perverse outcome.”