6 December 2019
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Shorten's MAD MAD world

I don't want anyone to see this bagging of Bill Shorten, and his “naked tax grab” from retirees’ tax refunds that come from their share dividends, as personal. I like Bill as a bloke, but he worries me as a politician!

When he first became leader I bumped into him at the airport with his wife, kids and entourage. I was then writing on the back business page of The Australian and he popped over to say hello.

I’d met him when he was a pretty sensible Minister for Super under Julia Gillard.

As he came over he told me his wife asked: “What’s he like?” I guess she was wondering whether I was biased against Labor. Bill said he told her: “I think he is his own man.”

I have always remembered that as an “honourable assessment” of what I’ve tried to do in the media after 33 years.

Thank you, Bill but I can’t turn a blind eye if you come up with MAD policies — Mildly Absurd Decisions!

I say mildly because the intention to stop say, very wealthy retired Australians, getting $50,000 plus tax refunds off their share-dividends is understandable for a would-be Labor Government. But it’s absurd to do so with crumby advice.

Unfortunately, Bill’s playing a typical pollie game, trying to win friends and influence voters by segmenting Australians. His pitch consistently is  “we’ll crack down on the rich” to make sure middle Australia and “working Australians”  (no, it was Kevin Rudd who used that silly descriptive) do well into the future.

This pollie game is clouding his judgment and “mildly absurd” decisions have resulted.

The first MAD was Shorten’s first shot at knocking out all retirees. The second one was exempting anyone on a pension.

Before you call me anti-pensioner, read me out.

In case you don’t understand the whole controversy, let me explain how retirees who don’t pay tax end up with a tax refund.

By investing into stocks, say inside a self-managed super fund where the tax rate for retirees is zero, when those retirees receive dividends out of company profits, this money has been taxed at the 30% corporate rate.

As their income is supposed to be tax free, the taxed amount linked to these company profits that became dividends is refunded.

For an employee on the top tax rate of 47%, they’d only pay an extra 17% tax on their dividends because the 30% has been paid by the company. When Paul Keating introduced this measure of dividend imputation and franking credits, it was to get rid of double taxation. In the old days, someone would have company-taxed dividends and then they would be hit by their tax rate on those dividends!

Now let’s get to the absurd bit about Bill’s policy. This was explained brilliantly by my old mate, Noel Whittaker, who nowadays is the executive in residence and adjunct professor at the QUT Business School. He’s the author of that legendary book Making Money Made Simple.

Noel reckons all political parties that aspire to government should try to make us income self-sufficient, with Australia’s interest bill on the public debt over $1 billion a month and the cost of welfare growing at 8% a year.

However, Noel showed in his Sun-Herald column that Bills MAD policy will actually increase the number of retirees lining up for a pension! As Homer Simpson would lament: “Doh!”

Working through three examples of different retiree couples, Noel showed the injustice of Bill’s plan for tax refunds and how it will make those retirees who are close to the limit on the assets test do a bit of spending to get the pension and the right to accept tax refunds on their stocks!

Noel said figures have been rounded for simplicity, and share portfolios are assumed to earn 4.5% fully franked. Earnings on the bank deposits are assumed to be 2%, or $1,500 a year.

In his first case — the Wilsons — they are under the asset test limit and pocket the full pension of $35,573 a year, or $684 a fortnight each. They have shares, which return $9,000 a year plus franking credits of  $3,800 a year. So their total annual income, including bank interest is $49,873, is all tax-free.

Meanwhile the Browns own their home and also have $75,000 in bank deposits. However, they have a share portfolio worth $710,000, returning dividends of $32,000 plus franking credits of $13,700. Their pension would be $19 a fortnight combined, so total income, including franking credits and interest, would be $47,700 a year.

Now look at the Smiths and the Browns.
“Their only difference is that the Smith’s share portfolio is $800,000, returning dividends of $36,000 plus franking credits of $15,400,” Noel says. “This makes them ineligible for any aged pension, so total income including franking credits is $51,400 a year.

“Under Labor’s proposals, they would lose $15,400 a year in franking credit refunds, reducing their net income to $36,000 plus interest of $1,500.”

If the Smiths did their homework under a PM Bill Shorten, or they went to a financial planner, they would use some of their tax refund-killing assets by going overseas on a long holiday or by renovating their home to bury some of their dough, so they get a small pension and their beloved tax refunds.

Noel summed it up nicely with the following:
“All parties should be focused on encouraging retirees to become self sufficient and get off welfare. Labor’s proposals would do the opposite.”

I reckon it’s time our politicians on both sides changed the nincompoops who have been advising them on important matters, such as super and retirement, so they don’t make dumb decisions that spook retirees and leave them with egg on their face.

Is it any wonder why we’re voting for the rag tag mob of independents when the major parties look like plonkers from amateur hour?

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