16 May 2018
Simon Benson – National Affairs Editor | Sydney | @simonbenson
Bill Shorten’s tax hit on self-funded retirees will underwrite a spending spree that includes cash handouts for low-income earners, with the scrapping of franking credit refunds forming the biggest revenue raiser in Labor’s $30 billion short-term tax measures.
As Labor Treasury spokesman Chris Bowen prepared to outline today Labor’s plan to match the government’s early return to surplus and tackle the nation’s debt bomb, Scott Morrison accused the opposition of using older Australians to fund a spending splurge.
Treasury and parliamentary budget office estimates suggest that Labor’s tax hit from scrapping imputation credit refunds — a policy that will largely target self-managed super funds — will amount to a third of Labor’s new tax grab over the current forward estimates, to 2021-22.
The Treasury and PBO numbers, which have been disputed by the opposition, show the retiree tax raising $10.7bn over four-year budget forward estimates, working on a baseline year of 2018-19.
A policy to reverse the legislated company tax cuts for businesses with between $2 million and $50m in turnover, and not proceed with the remaining cuts proposed by the government, would raise $6.2bn in the four years to 2021-22, although Labor has not revealed yet what its election policy will be.
The re-imposition of the 2 per cent debt-and-deficit levy for high-income earners — taking the effective tax rate from 47 per cent to 49 per cent — would raise $5.25bn. And the winding back of negative gearing tax breaks for property investors would raise $1.35bn over the first four years. A total of $5.6bn would also be raised from superannuation contribution taxes and changes to family trusts.
Mr Morrison claimed that this meant retirees would be contributing more to Labor’s spending plan over the first three years of an ALP government than the reversal of company tax cuts, the winding back of negative gearing or tax rises for high-income earners.
Mr Bowen, in a National Press Club address today in response to last week’s federal budget, will pledge to return the budget to balance in the same year as the Coalition — 2019-20, a year earlier than originally forecast — while returning larger surpluses than the Coalition over the following years.
Labor’s costings would be overseen by an independent expert panel.
Mr Bowen will admit to preparing for a “backlash” over Labor’s tax policies, but say it is the right thing to do. “Australians probably didn’t know that you can get an income tax refund, even if you didn’t pay any income tax, and can get the tax paid by a company you own shares in repaid to you so that no net tax is paid. Removing a concession worth $6bn was, we knew, bound to cause a backlash,” he will say. “But we didn’t do these things for fun.”
Mr Bowen will add that Labor will go to the election achieving budget balance in the same year as the government while delivering bigger cumulative budget surpluses over the forward estimates, as well as “substantially” bigger surpluses over 10 years.
“The majority of savings raised from our revenue measures over the medium term will go towards budget repair and paying down debt,” Mr Bowen will say in his speech. What the eventual savings will be is yet unknown as Mr Bowen has not committed to whether Labor would repeal any or all of the legislated company tax cuts for small to medium-sized businesses. Over the medium term of 10 years, the government claims that Labor’s extra tax revenue would amount to $219bn. But Mr Morrison said extra taxes raised over the first three years by a Labor government would be $30bn.
“The biggest slug will be on retirees and pensioners, with more than $10bn coming from their plan to rip away their tax refunds they receive from their investments,” Mr Morrison said. “If elected Labor’s biggest tax in their first term will not be on multinationals and big banks, as they pretend, but on retirees and pensioners.”
Mr Bowen said Labor’s budget priorities would be to “deal with debt and deficit” and “fund policies we regard as important for economic growth”.
In his fifth post-budget reply address, Mr Bowen will say the majority of savings raised from Labor’s revenue measures over the medium term will go towards budget repair and paying down debt.
“But we are announcing today that the net result of those policies will be a better budget bottom line in the short term and bigger surpluses in the long term,” he will tell the National Press Club.
In an attack on the Turnbull government, Mr Bowen will declare that a surplus not reaching at least 1 per cent of GDP until 2026-27 would fail to “adequately protect Australia against the potential roiling seas of international uncertainty”.
“The greatest failure of the government’s official ‘fiscal strategy’ has been the persistent watering down of its 2013 commitment to get to a surplus of at least 1 per cent of GDP by 2023-24,” Mr Bowen will say. “The government’s fiscal strategy was originally to reach a surplus of 1 per cent of GDP by 2023-24. This was then downgraded to a surplus of at least 1 per cent of GDP ‘as soon as possible’. Now, on the government’s current numbers, they still don’t get there for eight years, in 2026-27.”
Labor will also announce today that it will engage a “panel of expert and eminent Australians to review our costings and assure their efficacy”. The panel will include Bob Officer (a finance and accounting academic), Mike Keating (a former Department of Finance and Department of Prime Minister and Cabinet secretary) and James Mackenzie (businessman and fellow of the Institute of Chartered Accountants and Institute of Company Directors). They were engaged by Labor ahead of the 2016 election.
“The costings panel provide a final assessment and verification of our budget bottom line, over the forward estimates and the medium term,” Mr Bowen will say. “The panel will also assess the robustness of our costings and the assumptions that underpin them.”
Additional reporting: Joe Kelly