Chris Bowen is a rotten Robin Hood. His claim this week, labelling cash rebates for franking credits as “taxpayer-funded cash handouts”, is an outright fraud. Bowen’s tax grab has nothing to do with tax fairness. The man can’t even aim straight.
Bowen pretends to be hitting the rich. But he plans to take money from ordinary Australians who have worked hard to fund their retirement. He has exempted some pensioners but not others. The opposition Treasury spokesman is either tricky or not very smart.
Worse, Bowen wants to confuse you, or at least make sure you don’t care about these changes. But you should care about Labor’s plan to take money from retiree shareholders if they don’t have a taxable income. And here’s why: Labor’s claim that this is the government’s money, not your money to keep, is a whopper.
Contrary to Bowen’s misleading claims, cash rebates paid to shareholders for franking credits are not welfare payments from a generous government. They are not taxpayer-funded cash handouts. They are a return of tax paid by companies on behalf of resident shareholders.
When a company pays tax on its profits, it effectively pays withholding tax at the company tax rate of 30 per cent upfront to the Australian Taxation Office on behalf of its resident owners, Australian shareholders. If a shareholder has a marginal tax rate below 30 per cent, they are entitled to a refund from the tax office.
Forget the technical lingo in this area. When the tax office makes a cash payment to a shareholder in these circumstances, it is a refund for tax already paid upfront. Nothing more, nothing less.
The logic of Bowen’s tax grab means Labor is equally opposed to people getting a cash refund in other situations where tax is withheld.
Take this example: you have a bank account that earned $100 in the past financial year. If you didn’t notify your bank of your tax file number, the bank, when it paid interest to you, was required by law to withhold an amount equal to what you would have paid the tax office if you were on the highest marginal rate. Today, that rate is 47 per cent for Australian residents. That means the bank paid $47 to the ATO as withholding tax on your behalf.
Tax time comes around. You declare your interest income of $100. You also tell the tax office that the bank withheld $47, representing tax the bank paid on your behalf to the ATO at the highest marginal rate. If your actual marginal tax rate is less than the highest, you are refunded that difference.
If your marginal tax rate is zero because you earn less than the tax-free threshold of $18,200, you will receive the whole $47 as a cash refund. Put simply, this is a return of your money by the tax office.
Bowen either doesn’t understand or refuses to tell you that a franking credit is the same. It is not a handout. It is not welfare. It is a return of your money.
His Robin Hood schtick, taking money from shareholders for tax already paid, makes as much sense as Bowen saying that if a bank pays withholding tax on your behalf, the government will keep that too. His wonky logic that these franking credit changes will return $55 billion of government money exposes Labor’s fundamentally flawed starting point: Labor thinks our money is its own, and we must go cap in hand begging for concessions.
The Bowen principle of tax reform goes like this: call something a “taxpayer-funded handout” even if it’s not, announce that a Labor government will claw back this “unfair and unsustainable” concession to spend more money on schools and hospitals, pretend that objections are from rich people squealing about losing their taxpayer-funded handouts, and voila, tax fairness for all.
There is no fairness here. Taking cash refunds away from retiree shareholders is tantamount to theft. Those who will suffer the most are people with modest savings in self-managed superannuation funds in the pension phase.
Bowen has thrown them to the wolves because he thinks they are Coalition voters. Maybe Labor is doubly punishing them for not having their super in an industry fund. Whatever the motive, either Bowen does not understand basic tax principles, or he is trying to trick us.
If this roving Robin Hood becomes treasurer, what is his next target? Cash refunds for withholding tax must be in line, because they mirror cash refunds for franking credits. And when Labor falls into a budget hole, the new Labor treasurer might apply the Bowen principle to strike down capital gains tax concessions on the family home. After all, these are worth $66.5bn and account for the largest single-item tax concession in the budget. Imagine promising to spend the proceeds of this regressive concession on schools and hospitals.
Bowen justified grabbing franking credit cash refunds from retirees on the basis that they are “reversed means-tested” — “the more shares you own, the bigger refund you get”. D’oh! Follow that logic and the capital gains tax rules offer a real concession that is also reversed means-tested: the more expensive your home, the bigger concession you get. The Robin Hood treasurer will surely target this as unfair and unsustainable.
Remember this in light of the two rules of fiscal and political certainty under a Labor government: they blow the budget — the last budget surplus under Labor was in 1989; and they change their mind about who and what to tax next.
Bill Shorten once said discretionary trusts are “a legitimate feature of how Australians conduct their financial affairs” and not “any form of tax avoidance”. Now Labor is promising to slug beneficiaries of discretionary trusts by taxing all distributions to them at a minimum of 30 per cent, in a bid to raise $17bn.
Let’s take an example. Using a discretionary trust, a plumber distributes $18,200 tax-free to his wife, who does the accounts. Under a Labor government, his wife will pay an additional $5460 in tax because she is no longer entitled to a tax-free threshold and her minimum marginal tax rate has been set by Labor at the corporate rate of 30 per cent. If the wife is paid $37,000 through the trust, she will pay $7433 more in tax under Labor’s slugfest compared with today’s tax rules.
Given that trusts are used by 300,000 tradespeople and small businesses across the country — that includes 113,487 small businesses in Labor-held seats — the Morrison government should go harder. The government’s savvy and relentless attack on the “retiree tax” packs a punch, so why not get savvy and land similar blows on Labor’s “tradies’ tax”?
Tested as shadow Treasurer, Labor’s golden boy has lost his shine. Bowen hasn’t made a name for himself by hitting up the rich. He is slugging retirees who saved for their retirement, hardworking people running small businesses and aspirational Australians who want to get ahead. No wonder Paul Keating says he can’t recognise his own party.
Miners change tune on climate change
Peak mining industry body The Minerals Council of Australia has joined the fight on climate.
Easy to point the finger
Demanding we abandon coal for climate is akin to asking NZ to give up love affair with sheep.