22 January 2019
Today I feel the need to write an open letter to opposition leader Bill Shorten:
Dear Bill, your treasurer-in-waiting Chris Bowen has allowed himself to be advised by a group of people who did not understand how franking credits work in 2019, relying instead on old, outdated tax data.
They led him to devise what is arguably the worst taxation measure proposed in Australia since Harold Holt announced plans to drop tax deductibility for interest payments in November 1960.
Most ALP people now know that Chris has made a mistake.
I suspect he also knows, but can’t bring himself to admit the error. So he’s now descending into emotion — a sure sign of a person in trouble.
If the Coalition is stupid enough to call a May House of Representative election, you will be prime minister with a huge majority. Most people agree that the Coalition’s three prime minister stint is a national disgrace and accordingly a vast number of Australians want to punish them. It would not matter what your policies were (or theirs), those angry Australians will put you in the lodge.
I don’t think the Coalition is smart enough to manoeuvre the parliament so that the House of Representatives election in held in November. But on the off chance that they’ll hold out for a November poll, Australians will, of course, vent their fury by decimating the Coalition Senate membership. But then the November election will then be about issues.
Except in situations of extreme voter anger, I don’t think any party in the developed world could be elected after a campaign based on the ALP’s retirement and pensioner tax (RPT). And as I will explain below, Bowen’s negative gearing plan is not in the same category as RPT.
I want good government for Australia and it’s important for the nation that both parties are able to govern. Part of the job of being prime minister is recognising when a minister has made an honest mistake and then helping that minister in the rectification process. Accordingly, Bill, that makes Chris’ mistake a test for you and not just your treasurer-in-waiting.
Paul Keating introduced dividend franking to avoid double taxation on company profits. It was brilliant policy. The idea was that wherever you earned a business profit, as a sole trader or as a large public company, there would be a similar rate of taxation.
When he introduced the policy, it’s true that franking credits had to be offset against earned or other investment income.
But over time we introduced a retirement system where low income/ asset people would still receive the pension. And, up to a limit, pensions from superannuation funds would be tax free. The cash franking credits became an integral part of that system and abolishing them requires major changes to the retirement system.
Not only did Chris not propose the required retired retirement system changes, but he’s dividing retirees with exactly the same assets and income into two baskets — those who receive cash franking credits and those that do not. The retirees who are to receive cash franking credits have their assets invested with industry funds and some big retail funds. The rest miss out.
Taxing people on the basis of who manages their money is without precedent in the developed world. I don’t think there is an Australian, including yourself, who would agree with such a policy. The fact that the big superannuation funds have non-retired members whom the retirees can sponge on to get their cash franking credits will cut no ice with anyone.
I don’t think leaders in the industry fund movement, including the likes of the likes of Greg Combet, Steve Bracks and Ian Silk, will want their funds carrying the long term tarnish of money obtained so unfairly. It always comes back to bite you and they are already winning fair and square.
And on the same theme, pensioners who were pensioners on a certain date will obtain cash franking credits but those that come after miss out and are therefore subject to RPT. It’s just wrong.
If the ALP is unhappy about franking credits and needs to raise money, then there are two clear courses: stop the racket that enables international shareholders to illegally obtain franking credits (I can’t imagine why the Coalition has not done this) or simply reduce the franking credits benefit to everyone (Australians might receive, say 95 per cent of their franking credit entitlement).
While I’d probably oppose such a measure, I’d have to recognise that it was introduced fairly and that everyone was treated equally.
Now the flow-on of the ALP’s RPT plans are emerging. As Eli Greenblat revealed yesterday, our largest investment company, Australian Foundation Investment Co, as a non-favoured manager is reducing its holdings in BHP and Rio Tinto in anticipation of an ALP government and Chris Bowen is emotionally telling Australians to invest overseas. It’s a sure sign of a shadow minister who has become rattled by his own mistake. And he keeps saying he is attacking the rich. But only rich people who are stupid will be affected.
At the moment Bowen is also under pressure for his negative gearing policy. Had the ALP won the last election and Chris introduced that policy we would not be in the current mess. The problem now is that, partly in reaction to the negative gearing policy not being introduced, we have slashed lending. The severity of the bank lending clamps is a disaster. Putting the old Bowen plan on top of it now would be catastrophic. You must first normalise the banks and property finance, then you can look at the Bowen negative gearing plan. It is in a totally different category to RPT.
Footnote: The $235 million Amcil listed investment fund has joined Australian Foundation in being forced to in dump shares in BHP and pay an unscheduled divided in fear of the actions of a Shorten government.