Labor’s planned assault on those ‘cursed’ self-funded retirees and anyone with a self-managed super fund continues, and it puts enormous pressure on the Turnbull Government to lift its game, or else those who get tax refunds from investing in shares will lose a lot of money!
Labor’s number crunchers think its proposed rule change will deliver Treasury $5.6 billion in the first year rising to $8 billion over time. And it’s calculated that more than a million shareholders will be affected.
The AFR’s Phil Coorey has been briefed on a speech Mr Shorten will make to a KPMG get together in Sydney where he “will stress that those affected – about 200,000 of the 600,000 who use self-managed superannuation funds along with another 1.2 million taxpayers – will not pay any more tax. But they will not be entitled to a cash refund if their imputation credit on their dividend is more than their total tax bill.”
That’s like a charity telling a down and out person that they won’t take any food from you but they won’t give you any either.
To make the story look like another crackdown on the wealthy, we’ve been told that 50% of the refunds go to the wealthiest 10% of SMSFs and the top 1% of these pocket annual average cash refunds of $83,000.
But this is a better statistic to think about — 90% of the money accrues to SMSF trustees/ retirees, which represent less than 10% of all superannuants. However, that would be most of those retirees who have an SMSF!
For those who don’t understand how someone gets a tax refund from the dividend imputation system, here’s a simple explanation.
If you have shares and your tax rate plus Medicare levy is 47% and you receive a dividend from your shares, then this income has already been hit by the company tax rate of 30%, so all you would pay is 17% on your dividend income.
Dividend imputation was meant to kill the double taxation of dividend income. However if you are a low income Australian with a tax rate under the company tax rate of 30%, you get a tax refund.
If you are a retiree in the tax-free zone, then you could get all of your tax on a dividend repaid to you.
This is good for retirees who aren’t on the pension and helps the stock market, as shares become attractive to retirees. So Labor’s plan could hurt the stock market and even the super funds they love — the Industry Super Fund sector!
The changes would start from 1 July 2019 and will hit earnings and franked dividends in the 2020-21 financial year.
Charities and not-for-profit outfits such as universities will be exempt.
Labor leader Bill Shorten is going back to the Paul Keating-designed dividend imputation system, which was changed in 2000 under John Howard and Peter Costello.
In those days, it cost the Budget $550 million but it’s now closer to $5 billion but over that time there has been a growth of self-funded retirees who were encouraged to look after themselves after finishing work.
Those Australians won’t be taxed any more under these changes but money they live on will no longer be coming down the pipe from Canberra.
These people will buy less stocks and the stock market will be affected and the economic implications — these people will be poorer consumers! — could surprise the architects of this policy.
Sure, Labor will spend the money on other areas that could help the economy but these Australians will be poorer for the experience.
One final point. You have to be careful about looking at economic numbers in isolation.
Sure, the tax benefit to retirees of $5 billion is big but these people don’t draw a pension so there’s a saving there. They spend their money so they pay the GST and they often help their families with their excess funds, which can be a plus for society as well as the economy.
But what I think is worse is the shock factor delivered to retirees. This morning around 1 million Australians will be wondering what’s going to happen to the money they live on.
Remember, Labor has revealed that 50% of the refunds go to the wealthiest of SMSF trustees but it means the other 50% is doled out in small amounts to the 90% of SMSF trustees.
These small amounts will be a significant loss to these lower income trustees.
Sometimes I wish governments and would-be governments could actually come up with productivity-generating ideas to increase the nation’s income rather than creating policies that set Australians against Australians.
When the so-called wealthy get targeted in these tax-grab policies, there are a hell of a lot of middle class Aussies who have worked hard, played by the rules, have not taken Government handouts for most of their life and now become targets because they have become self-funded, under current rules, with a tax refund.
The irony is that many of these less wealthy SMSF trustees could go on to part-pensions because they lose their refunds and that means Labor’s calculations of gains might prove less than what’s expected!
So it could be a lose-lose policy change. I hope Labor works out a way not to punish the 90% of SMSF trustees that divvy up 50% of the total tax refunds from dividends.