31 January 2019
Robert Gottliebsen, Business Columnist
Suddenly cracks are appearing in the veneer that supports the ALP’s proposed retirement and pensioner tax. Under pressure on talkback radio, shadow treasurer Chris Bowen took an incredible risk. He conveyed a half-truth, gambling that his interviewer, Melbourne 3AW drive host Tom Elliott had not done his research and would not catch him out. Bowen’s judgment was right, and Elliott did not pick up the half-truth.
But the tense drama took on a surprise twist. Assistant treasurer, Stuart Robert was listening to Bowen in a car and, after the interview, rang Elliott to tell his listeners how Bowen had misled them.
Bowen had told Elliott’s audience that pensioners would receive their cash franking credit entitlement. It’s true that Australian pensioners with individual shareholdings will received their cash franking credit entitlement, but those on a part pension who have their shares in a self-managed fund will only receive the cash franking credit entitlement if they registered for the pension before March 28, 2018. If they registered after March 28, they lose their cash franking credits and so suffer the RPT.
Now that Elliott knows the truth Bowen and Bill Shorten are going to have to come up with a new set of lines that justify what to ordinary Australians is indefensible: levying a tax not on the basis of whether a person (albeit one with a self-managed fund) is entitled to be a pensioner, but rather when they registered for the pension.
And remember we are talking about cutting income from people who are on the government pension and who are not rich. Moreover, a big proportion are widows.
I am glad I am not an ALP candidate in the upcoming election trying to defend that action
But Bowen and his leader Bill Shorten face a further risk.
What if Tom Elliott, or any other talk show host, spend the time to really look at how the retirement and pensioners tax actually works? Elliott will discover that for the first time in Australia’s peacetime history the ALP plans to discriminate between people with the same assets and income.
Chris Bowen has declared a policy that all Australians — apart from those in SMSF who register for the pension before March 28 — should not receive cash franking credits. If he had implemented that policy and fixed the pension anomaly then, while I and many others would oppose the removal of cash franking credits, Bowen would be treating everyone the same. That’s a pillar of the Australian taxation system.
But Bowen and Shorten are attempting to smash that pillar, creating the most dangerous taxation precedent imaginable: blatant discrimination. .
Incredible as it might seem, the ALP has declared that if Australians have no taxable income but saved their money through an industry superannuation fund, or certain retail funds, then they are entitled to receive their cash franking credit refund entitlement “in full”.
That’s a total reversal of the base ALP policy.
The ALP clampdown only applies to those who have saved via self-managed funds. Those people will not receive a cent of their franking cash refund entitlement.
Remember we are dealing with people in exactly the same financial situation as those who receive their franking credits in full.
As I have written before, this blatant discrimination is the most outrageous tax proposal by a major party since Harold Holt in November 1960, when he proposed withdrawing tax deductibility for interest.
Shorten and Bowen defend their discrimination by saying that because the industry and big retail funds happened to have members who were salary earners and paid tax, those salary earners’ tax payments can be credited to the retirees so they can receive their corporate tax cash refunds.
That’s an insult to the intelligence of ordinary Australians. To mix up the taxes paid by one Australian with the tax status of an entirely separate person breaks all the rules.
It’s a complete nonsense.
So, if the retirement and pensioner tax is to be fair it must apply to everyone in the same tax income/asset bracket and cannot exclude those in retail and industry funds. All must have their cash franking credit refunds blocked.
The people affected by this are not the rich but ordinary salt of the earth Australians struggling to self-fund their retirement or lessen their reliance on the pension. To be fair to Tom Elliott, he really cornered the shadow treasurer on this issue. Elliott emphasised the fact that people have had their retirement plans in place for 20 years on the basis of cash franking credits. Elliott put so much social unfairness pressure on Bowen that he used a deliberate half-truth to help his position.
When Bill Shorten backed the cash franking credit ban, he thought the ALP was attacking the rich. Chris Bowen still maintains this is what will happen. I don’t agree.
There is no doubt that those with large amounts in superannuation used cash franking credits in past years, but Scott Morrison blocked that with a change in the superannuation tax system tax. That leaves the million plus Australians who are not rich, led by many of Australia’s widows, as the targets. The best way for Bowen to get out his mess is to look at the total franking system. A short fix is to impose a limit of if say $15,000 on access to cash franking credits. The problem is that would mean that nothing like $55 billion would be raised.
Correction | In an earlier version of the above commentary I did not distinguish between those pensioners who hold their shares in individual names and those pensioners who hold their shares via a self managed fund. This created the wrong conclusion that those pensioners who hold shares in individual names could miss out in their franking credit entitlement. That is incorrect.