Labor plan is frankly disastrous

Chris Bowen and Bill Shorten, whose plan to end cash rebates for excess imputation credits for individuals and superannuation funds kicked up a political hornets’ nest

 

Bill Shorten wants pensioners & retirees to pay tax twice on their hard earned savings.

Noel Whittaker  Sunday Times 18 March 2018

Labor has ramped up its attack on “the rich”, flagging its intention to prevent Australians claiming a refund of excess imputation credits from July 2019.

Well, in this case its ideology is flawed as one of the greatest victims of the attack will be poorer people.

Think about Dick and Daisy, who are partly self-funded retirees and whose entire investment portfolio is $200,000 in bank shares.

They probably get about $9000 a year in franked dividends, which will carry imputation credits of about $4000.

Under the present system they can receive a full refund of those credits, which gives them a boost of $4000 towards their living expenses.

Under the Labor proposals they would no longer be able to claim a refund of those franking credits, and so would be $4000 a year worse off.

That sum might be the difference between having private health insurance and going without.

According to Labor, it’s just not right that people like Dick and Daisy should get benefits not available to working people, but that logic is seriously flawed.

Consider Monica, who at age 45 is earning $65,000 year, and has accumulated $200,000 in bank shares.

She receives the same dividend of $9000, and would still be able to use the franking credits to offset the tax on that dividend, which will reduce her overall tax bill.

Working investors will still be able to get the credits – it’s the retirees who will miss out.

Of course, Labor loves to highlight those people with big, self-managed super fund balances who are “taking unfair advantage of the system”.

It claims these people will be the hardest hit, and that removing the tax exemptions from that sector will boost revenue by $59 billion over 10 years.

That may be true in the short term, but there are fewer than 5000 people with self-managed fund balances over $10 million, and the majority of them are over 65.

Within 25 years almost all of them will be dead, and under the Government’s amendments introduced last year the most they can leave to their family as superannuation is $1.6 million.

The rest must be cashed out and invested outside the super system.

So in 30 years, all the really big super balances won’t exist.

To make matters worse, the Turnbull reforms have made it practically impossible for the younger generation to build big super balances.

If they make a concessional contribution of $25,000, and earn more than $250,000 in that year, the government will take 30 percent of their contribution.

If they choose to make an after-tax contribution of $100,000, the maximum, they will be paying tax at up to 47 percent on the income from which the after-tax contribution is derived.

So the suggestion the proposed measures will add $59 billion to budget revenue is nonsense.

Many investors will turn to high-growth, low-income products, such as international funds, or income funds like property syndicates that don’t distribute franked income.

And to cap it off, bigger companies may reduce dividend payouts to boost growth.

It’s easy for politicians to attack the hundreds of thousands of hard-working Australians who have devoted their lives to building a retirement portfolio.

They are secure in their defined-benefit pension funds, which will provide them with a guaranteed indexed income in retirement irrespective of market conditions.

Unfortunately, this luxury is not given to most of us.

But worst of all, this non-stop tinkering with superannuation rules destroys trust in the system, and makes the public more cynical.

The proposed measure is a badly thought-out disaster.

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