Ross Greenwood speaks to Shadow Assistant Treasurer Dr Andrew Leigh after Labor says it’s listened, and will now exempt pensioners in its plan to end cash handouts to investors.
Introduction: Labor heard our message: Pensioners to be exempt from new tax policy
Ross Greenwood: Well, we had the Shadow Assistant Treasurer, Andrew Leigh, Dr. Andrew Leigh, on the program just a couple of weeks ago when Bill Shorten had announced the dividend tax policy.
Now, at that time, I had said to Andrew Leigh, “I don’t really mind how you tax those people who have got tens of millions, hundreds of millions of dollars in their Superfund’s. In fact, those people, I think, should pay tax, because at the moment they absolutely are getting away with paying no tax in some situations.”
My concern at that time was those people on low incomes, especially pensioners, who might have some shares, and as a result, would be foregoing what they currently receive in the form of a dividend refund check.
Well, today, thankfully, the Labor Party said that if elected, they would actually turn around this policy to protect around 300,000 investors, pensioners especially, who would be affected by this. I’m pleased to say that Dr. Andrew Leigh, is on the line right now. Many thanks for your time, Andrew.
Interview with: Dr Andrew Leigh, Shadow Assistant Treasurer
Dr. Andrew Leigh: My pleasure, Ross, always great to be speaking with you.
Ross Greenwood: All right, now, I said before that you’ve got to protect your own people, the low income earners, the pensioners, these types of people. What caused the change of heart because at the time there appeared to be no changing of that policy from your leadership team?
Dr. Andrew Leigh: Ross, I think good policy making is about listening as much as is about talking. We’ve, very much, heard the message from people about the concerns and the impact on pensioners. What we’ve said is that every pensioner will be able to benefit from cash refunds, as well as allowee’s, people receiving parenting payment, new start, and sickness allowance.
It is a mark of the extent to which this particular tax concession goes to the wealthiest, that this change takes about a quarter of the people who are originally affected out but still maintains 95% of the revenue.
Ross Greenwood: Does it mean that you have to be a little careful, also, to watch the equity or the fairness of this? Let’s say for example, a person has worked all their life to become a self-funded retiree. They are not receiving a pension, so they’re just outside the threshold, the cutoff around about $800,000 now for a couple, of assets outside their family home.
That couple, if you look at dividend policy right now, would probably give them an income on or around or even less than maybe the age pension for a couple. Do you have to be a little careful to try and balance up the fairness of this system?
Dr. Andrew Leigh: Ross, the advice that I’ve got on this is that if you look at who’s benefiting from the current system of cash refunds, 95% of the imputation credits going to people over 65 are going to the wealthiest fifth of the population. This is a tax concession which is unique to Australia. No other country has it. It’s very heavily skewed to the most affluent.
Ross Greenwood: I get that, but the only problem is, as I see it, that the very affluent in our society, they might have been fortunate enough or they might have worked hard, whatever it might be, those people could have technically spent their money and they could have come out and ended up below the thresholds of $800,000.
Ended up with some part pension and also now the ability to keep any tax rebates back. What I’m trying to get out of here is fairness and equity because it may very well be that you’ve got, I don’t know, a million, $1,200,000 in your Superfund but you’ve worked very hard to achieve that.
You may be amongst the wealthiest one-fifth in the nation but you may be also income poor and you might also find yourself paying a whole bunch more tax than somebody who’s earning more than you and living on the age pension. That’s what I’m worried about, in terms of fairness and equity in the system.
Dr. Andrew Leigh: Ross, you’re certainly speaking directly to my heart when you’re speaking about issues of fairness and equity. There’s two points to be made about the analysis you’ve given there. The first is that, as I’ve said before, this is tax concessions skewed towards the top.
By closing it off we don’t change the considerable tax advantages that are still available in superannuation. Lower taxes on returns, no taxes on the money you’re taking out of superannuation. No-one pays more tax under that change, no one ends up having less in their Super.
The other thing is that superannuation is aimed to be spent down. It’s not a way of passing on tax preferred money to your kids. It is intended to be spent in order to provide for you in retirement. The notion that retirees should draw in their capital as well as just live off their returns. I think it’s a pretty reasonable one. It’s what most Australians would expect.
Ross Greenwood: In other words, that’s a reasonable point you make, because of course a person who might have, let’s say this theoretical $1,200,000 in their Superfund living off the income, which would give them equivalent, maybe a little bit more than the age pension right now.
If they actually start to dip into that Super, $30,000 a year, $40,000 a year, eventually that capital pool will come down. Once they get their assets below in today’s terms, $800,000, they start to pick up the age pension. In other words, they start to pick up some of the benefits from the taxpayers.
Dr. Andrew Leigh: Well, it’s intended that you will spend down your superannuation. That was always the design of the system, that’s why we provide the concessions in that system. I know, I’ve had this conversation with my own parents, Ross, where they look at the extraordinarily regressive changes put in place by John Howard and Peter Costello.
They say, “Look, Andrew, this is going to benefit you and your brother, because we’re not going to spend all of this down. We live fairly modest lives and so this will be passed on to you. You don’t need it, frankly.”
We need to make sure we’ve got a system that provides for people in their retirement that ensures that retirees are not living in poverty, but which also doesn’t unfairly just benefit a class of people who are getting tax-free inheritances.
Ross Greenwood: Just another one on this very subject. At the very upper-end, I wonder, I spoke with Michael Rice, one of Australia’s leading independent actuaries, last night. He said a different way that you might have set this policy was to have said, righto, you’re allowed to have 1,600,000 currently in your pension phase, where there is no tax on the income from that.
Then maybe, he said, rather than being allowed to have as much as you like or as much as you’ve got into your Superfund above the income of which would be taxed at 15%. He said what you could do, is you could have actually said, you can have another $1,600,000 where you’re taxed at 15%.
Once you’re beyond $3,200,000, and let’s be honest that is a reasonable wedge of money to have in there, you can’t actually leave that money in Super anymore. That money’s got to go outside of Super and be taxed as though you’re an ordinary taxpayer on PAYE wages.
Why would that not be another way to actually make certain those people with mega balances in their Super pay their fair share of tax?
Dr. Andrew Leigh: Michael’s a smart guy and he’s certainly right that there’s more than one way to skin a cat. I think the way in which we’ve done things is more equitable. We look after pensioners and by focusing the change on pensioners, Ross, you’re using the heavy targeting that’s in place in the pension.
Our pension is in fact one of the most targeted in the world with both an income and assets test. That’s not true of most advanced countries. When we say that every pensioner will still be able to benefit from cash refunds.
That’s a much more targeted measure than some of the other ways that I’ve heard it suggested, that we might have modified the policy, including the one that did Michael’s raised there.
Ross Greenwood: I’ll tell you what, really interesting stuff. I want to take you to something else as well. That is that the Labor Party, Bill Shorten and Chris Boehner have today said, that they will fight the government’s company tax cuts, which of course are right now held up in the Senate by two votes.
It is likely, potential at least, anyway they may get them through even before the Easter break. I want to take you through as to why Labor would repeal tax cuts worth $35,000,000,000 over a decade, but that would ultimately, potentially, provide more jobs.
Again, I go back to this point, your people are the workers, the battlers. Even in this case, you’re talking about shareholders, they’re the owners of the companies, why would you not give them the boost that they desperately need right now, as compared with other countries around the world?
Dr. Andrew Leigh: Well, Ross, that’s certainly been the claim that companies that pay less tax will create more jobs. I actually did some research on this, looking at a thousand profitable Australian firms and asking the question, do those that pay a lower effective rate of company tax create more jobs?
In fact, found the opposite that Australian firms paying an effective rate of company tax below 25% were on net destroying jobs. Those paying a higher effective rate of tax were on net creating jobs.
That’s in line with another published study in the United States and suggests to me that this argument that cutting company tax the best way to create jobs, is actually misguided.
Ross Greenwood: Isn’t there another aspect of that? That is that if you do have an uncompetitive tax rate, that you’ve got companies which do have operations overseas and the next time that they seek to actually make a capital investment, they may choose to go to the United States, they may choose to go to Europe, in preference to coming to Australia.
Because of, amongst other things, high energy prices, but also high corporate tax rates and even high labor rates. These are all issues that will be deterrents from Australian companies investing in this country and creating jobs.
Dr. Andrew Leigh: You should always be aware of international competitiveness. I’m a strong supporter of foreign investment. That’s not always a popular position on either side of the Parliament but I think we’re very heavy relier on foreign investment. We need to make sure we’re doing things to attract it.
It’s not obvious, to me, that the best way of doing that is cutting the headline company tax rate. According to analysis from the United States Congressional Budget Office, our statutory company tax rate placed us 10th in the G20. After the Trump tax cuts, that goes to the ninth highest, roughly sitting in the middle of the pack.
The average and effective rates Australian companies pay are lower than that again.
There’s other reasons that companies invest in Australia. You’ve talked about energy prices, that’s a very important one. We’ve also got the accelerated depreciation measure that labor’s brought in, in order to encourage investments in Australia.
Superfast broadband, great infrastructure, these are things that attract firms to Australia, but which if we have $65,000,000,000 less of federal funds, we can build $65,000,000,000 less of investments in our schools, in our roads, in those productivity boosting measures, which are also part of attracting investment to Australia.
Ross Greenwood: I tell what, always was good to have you in the program Dr. Andrew Leigh, is the shadow assistant treasurer, is always great with his time and I appreciate your time this evening, Andrew.
Dr. Andrew Leigh: Absolute pleasure, thank you.
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