Ross Greenwood goes head to head with Shadow Assistant Treasurer Dr Andrew Leigh about Labor leader Bill Shorten’s new tax plan which will wind back dividend tax imputations. Ross says there is a “fundamental problem” with the plan.
Introduction: Is Labor tax policy all its cracked up to be?
Ross Greenwood: Great to have your company here on Money News, on Tuesday, March 13, 2018, but with some of the things that are happening today you would imagine it should have been Friday the 13th because certainly it was a fright night in regards to Government.
What the labor party is planning to introduce, if it is given the Government after the next federal election. We’ll go through that because this was intended by Bill Shorten to be an attack on the big end of town.
What we have discovered here on Money News, during the course of this day, by talking to some of these country’s leading fund managers, actuaries, stock brokers and accountants, and tax experts, is it is not just an attack on the big end of town but also on teachers, on nurses, but also on pensioners, who will be adversely affected by the plans of Bill Shorten.
Now, the issue is quite clearly that what he wants to do is wind back the dividend imputation rules. In other words, the tax rules that accompany dividends on company shares. At the moment when you are paid dividend, if the company has paid it’s full rate of tax, you are also given a tax credit.
If at the end of the day you are a low tax payer, maybe a superannuation fund, maybe a self-managed super fund, maybe a pensioner. What happens is, ultimately, you may be able to get a tax refund, if you got excess credits from those dividends. Well that’s what Bill Shorten wants to stop.
I notice also that the architect of dividend imputation, Paul Keating, has indicated that he agrees with Bill Shorten. I suggest he probably was actually consulted before this was rolled out.
It would seem to me that there is a fundamental problem with this when we have seen that a pensioner with a few shares, commonwealth bank shares, reasonable amount of shares, actually, but if that person has only got those commonwealth bank shares, I’ve worked out today that the person’s income could fall from around about $37,000 or $36,500 a year on my calculations. It could fall down to $31,824.
In other words, $4,765 gone from a pensioner’s income. How are they going to live on that? Bill Shorten’s given them no compensation. No suggestion of any breakthrough. Not only that, on top of it, when a pension fund, a superannuation fund goes into pension phase, then again it will be attacked.
We found one superannuation fund today which has got around $17,000,000,000 of money in it, which has more than 60,000 members, whose returns will be cut. Will be affected as a result of these changes because they too, pick up a refund Legitimately. Thoroughly legally from the tax office each year. Simply because they actually have surplus tax credits from those dividends.
We’ll come back to that very shortly. We’ll have the Shadow Assistant Treasurer, Dr. Andrew Leigh. He’s always great with his time on this program, and also Treasurer Scott Morrison a little bit later.
Let’s get back to the other big story of the day, and that is in regards to Bill Shorten. What is no doubt a massive change in tax policy. Let’s just pick up just little of what Bill Shorten said today about reforming tax.
Bill Shorten: What we’re doing is reforming the tax system. 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.
What we want to do is to put the weight back in the economy and Government to looking after middle and working class Australians.
Ross Greenwood: I can tell you one person who’s not happy and that is the former Victorian Premier and Political Commentator, Jeff Kennett. What he said is, first the Turnbull Government attacks superannuation last year, and now the Shorten ALP proposes another attack if they win the next election.
Why do the Governments keep changing the rules around super? How can people for non-working years. A pox on both their houses. Let’s introduce now the Shadow Assistant Treasurer, Dr. Andrew Leigh. He’s on the line. Andrew, should we have a pox on your house and the Governments as well?
Interview with: Dr Andrew Leigh, Shadow Assistant Treasurer
David Leigh: Well, it’s reform, Ross. As you’ve written today it’s straight out of the Paul Keating playbook. It reflects an adherence to the original notion of dividend imputation, which is that company dividend shouldn’t be taxed twice and it takes away a tax break, which was put in place in 2000, at the time we had structural budget surplus by on John Howard and Peter Costello.
No other go country has a tax break of this kind. It’s extremely unusual and it’s very difficult to justify. At a time which gross debt has just crashed through the house. $500,000,000,000 barrier.
The Government is saying that it’s only option is to raise income taxes on low and middle income Australians. I think there’s a better way.
Ross Greenwood: Let’s go to another aspect of this. This is an attack on wealthy people, would you say?
David Leigh: This isn’t an attack on anyone. This is a measure, Ross, which closes off a loophole which is unique to Australia.
Ross Greenwood: A loophole? Hang on. That’s seems as though somebody is doing something dodgy. They’re not doing something dodgy. This is the law. In fact the law that was introduced on 2000 by the Howard-Costello Government, which had been labor policy previously. It was actually labor that supported this when it was originally introduced.
David Leigh: Ross, the architect of dividend imputation, Paul Keating, didn’t put in place refundability. The fact that people are taking advantage of this particular tax rule, isn’t a criticism of them. It’s the criticism of the decision to put it in place.
Ross Greenwood: That would be a criticism of your own party because it fundamentally had agreed and put up this proposal before John Howard and Peter Costello picked it up. That’s right, isn’t it?
David Leigh: Two decades ago, Labor supported this change, at a time when the Government and budget was in a structural surplus, but right now this isn’t affordable. You just need to go to comments from independent commentators.
We’ve had the Industry Super Australia CEO, David Whiteley, saying that this a sensible and reasonable policy that will have very little impact on the vast majority of working Australians saving for their retirement.
Ross Greenwood: One point, two million Australians. That would be fair to say?
David Leigh: That seems on the high side to me, but —
Ross Greenwood: Well, your own numbers say 92% of working Australian won’t be affected. That means 8% of those who put in the tax form will be. That is 1.2 million Australians.
David Leigh: We certainly don’t think that most Australians are going to be affected by this reform. When you look at who’s owning shares that’s heavily skewed towards the top of the distribution. Three quarters of shares owned by the most affluent, 10% of households.
Ross Greenwood: I understand that, but what about those people who are less well off? In other words pensioners, I’ve gone and looked at single pensioners who may own their own home. Who may have some commonwealth bank shares.
Today I’ve worked out in an extreme case. No superannuation but $200,000 worth of commonwealth bank shares, which you could accumulate during your lifetime, but that person might have the income clipped as a result this by $4,675 a year. Their income would actually drop from $36,500 a year to $31,800. What do to say to that single pensioner?
David Leigh: If we’re going to do in extreme cases, Ross, let’s look at the – [cross talk]
Ross Greenwood: That’s not such an extreme case to think that a pensioner might have a few commonwealth bank shares as well as their family home.
David Leigh: You said it yourself, it was an extreme case. Let’s look at the self managed superannuation- [cross talk]
Ross Greenwood: Well, a person with $100,000 worth of commonwealth bank shares, would probably lose $2,500. Are you going to take a pay cut? That’s true, Andrew.
David Leigh: Ross, there’s a single superannuation. It’s a self-managed superannuation fund that receives $2,500,000 each year in refundability. [cross talk]
Ross Greenwood: Sure. I get that point. I’m with you on that, Andrew. I’m thoroughly with you. I’m talking about the other end, where pensioners, who have got a few shares, are going to take a pay cut as a result this, because they’re in low taxes. They’re paying very low taxes.
As a result, they currently receive a refund check back from the tax office at the end of the year. They need that to pay for the kids Christmas present or do other things. It’s to that pensioner. Not the high end. You can do what you like to the high end and certainly they all have their own word to say, but at the low end, the battler, the person you’re representing, they’re also affected by this.
David Leigh: Ross, we need to slow down. Take a deep breath on this.
Ross Greenwood: But they are affected, Andrew.
David Leigh: This is a tax loophole. The benefits of which go, overwhelmingly, to the most affluent Australians. We have a choice now in Australia as to whether we want to raise income taxes as the Government proposes by $350 for everyone earning $70,000 a year.
They want to take away the energy supplement from pensioners. They want to cut heavily into the social safety net, or else do we close down a unique tax loophole? Which only exists in Australia, nowhere else in the advance world, which was not part of the original design of dividend imputation – [cross talk]
Ross Greenwood: Will you put protections in place for those low paid people? Those low paid pensioners who on $35,000 a year. Will you put in protections to make certainly not adversely affected by these measures?
David Leigh: Ross, what we’re doing is closing down a tax loophole based on – [cross talk]
Ross Greenwood: I’ve got that. You need to protect the low income earners though, Andrew, because that’s a loophole that you are now creating. That means that they’re going to have less income. You’ve got to protect them.
David Leigh: Ross, Labor is the party of low and middle income Australia. Closing down this tax loophole will significantly reduce inequality in Australia. Most importantly, it will also provide us with the resources to invest in growth. I don’t think anyone, sensibly argues that this tax concession is adding tangibly to growth.
What we’ve done today is – [cross talk]
Ross Greenwood: I’ve got that as well but there’s low income earners still. Can I start another one?
David Leigh: – funded out of this, does add to growth. [cross talk]
Ross Greenwood: Andrew, another one for you. What would you say to the teachers and nurses in the state plus super fund, which is in the pension phase of that particular superannuation fund? They have more than 60,000 members, they have 17, 000,000,000,000 in it, they also pick up a refund check from the tax office every year.
If your measure goes through those teachers, those nurses, those 60,000 state public servants, will actually have significantly lower returns. What would you say to them?
David Leigh: Ross, you just have to look at the overall picture here. What I’m asking you to do is, rather than going to a few specific cases to say, what is the impact of this policy on aggregate, and on aggregate if you look across the community, this is a policy which is skewed very heavily to the most affluent – [ cross talk]
Ross Greenwood: I’m hearing that, I’m hearing that but the – [cross talk]
David Leigh: – very little for growth and we [unintelligible 00:10:43] of Australian tax policy.
Ross Greenwood: I’m hearing that Andrew. [cross talk]
David Leigh: We could justify why we introduced it back in 2000 with a structural budget surplus, but it’s just not economically defensible- [cross talk]
Ross Greenwood: Andrew, the problem is, I’m getting you at the higher end, I’ve got no dramas about that, but what I’m hearing also, is I’m hearing about pensioners, I’m hearing about teachers, I’m hearing about nurses, who are also going to be adversely affected as a result of this policy.
Unless you put safeguards in place these people are going to be affected but that clearly would take some of the money out of these measures from what you’re introducing or seeking to introduce.
David Leigh: Ross, what you’re arguing for isn’t tax reform. When you do tax reform, you start with good economics first principles. You design a system that is justifiable for everyone in the community, that’s what Bill Shorten, Chris Bowen, the labor economic team has done with this. We are going back to – [cross talk]
Ross Greenwood: Even if you were affecting pensioners, even if you’re affecting teachers and nurses, Andrew, that’s not the labor way. You know that, I know that, because the fact is you’ve got to actually help those people out so that they are not adversely affected, even if they are currently advantaged by what you’ve called a tax loophole.
David Leigh: Ross, you need a tax system which is built on the principles of equity, efficiency and simplicity. You build that tax system and you use it to invest in schools and hospitals. If you want the resources to be able to invest in schools and hospitals we’ve got to make that tax system fairer.
Now, I’m still waiting for you to tell me how you can defend Australia being the only advanced country in the world that has refundability of the imputation credits. It didn’t exist when we introduced imputation in 1987. It was put in place at the time when the rivers of gold of mining boom mark one was flowing but we’ve got to be able to defend these things intellectually, not simply to say we’ve got to keep it on because we’ve always had it. That’s not an argument for serious economic – [cross talk]
Ross Greenwood: No, I’m with you on that, there’s no drama. All I’m saying is that the inconsequential impact of what you have done is that you are going to affect teaches’ incomes, you’re going to affect nurses’ incomes and you certainly going to affect many aged pensioners’ incomes as well.
They’re not going to be happy about this when they actually sit down and work it out and they suddenly realize that they’re going to be if they are earning 35 grand a year four grand they are worse off, they can’t be happy about that.
David Leigh: Ross, if you’re a teacher or nurse, labor is standing against increasing your income tax rates. Malcolm Turnbull, Scott Morrison want to increase the income tax rates and everyone earning from 20,000 to 70,000. That’s what they had in their last budget.
Bill Shorten and Chris Bowen, the Labor team has said, we don’t want to raise income tax at the bottom. We’ve said we want to put more money into schools. We want to make sure we’ve got the resources to make sure we have first rate hospitals.
We don’t support company tax cuts for the big end of town, we don’t support loopholes, overwhelmingly, used by millionaires and multinationals.
Ross Greenwood: Andrew, we could go on for hours like this and I understand where you’re coming from about the tax reform, it’s true. It’s also reasonable to say that wealthy people at the other of town will simply change their investment strategies to find other ways and other loopholes that might exist but in the meantime at least you having crack at it.
Shadow assistant treasurer Doctor Andrew Leigh, I don’t think we agreed on anything there, Andrew, but at least we got through it.
David Leigh: [laughs] I don’t think we did, Ross, but there’s always a next conversation.
Ross Greenwood: Good on you, no problems at all. Thanks for your time.
David Leigh: Thank you.
Interviewed Kelly O’Dwyer, Minister, Revenue and Financial Services titled ” Will Corporate penalties triple?
Interviewed Piers Akerman, Columnist and Commentator, The Daily Telegraph titled ” Shorten is Australian
Interviewed Mitch FiField, Minister, Communications and the Arts titled ” CBS buys Channel Ten