The Australian
Robert Gottliebsen, Business Columnist
29 November 2018
I am very grateful to Chris Bowen, the shadow treasurer, and very likely the next
Australian treasurer, for opening up the debate on his dividend imputation proposals.
His comments are on The Australian ’s web site and were published in the print
edition of November 29. I urge my readers to look closely at the Bowen letter.
As I respond I want to ignore the emotive comments but separate the issues into clear
compartments.
First, I want to emphasise that I am an admirer of Chris Bowen, because he has had
the honesty to say what he plans to do well in advance of the election, so debates like
this one can be held outside the pressure cooker of an election campaign.
Second, I think a debate about dividend imputation is both healthy and well overdue.
The objection I raised in my commentary earlier this week was not about changing
imputation but rather the way it was being done.
Thirdly, I agree with Chris Bowen that on the basis of current figures available there is
a pile of money to be raised from rich people using his proposal.
My argument is that since those figures were compiled there have been changes to
taxation and rich people are flexible so they will escape the blows. My knowledge of
this comes because I mix with people and advisers who are just laughing at Bowen’s
proposals. This is a tax on battlers.
We can argue over who will be affected for ever and it is not until the legislation is in
operation that the winner of the debates will be known. There are bigger issues in this
tax so I pulled back and left it that we should agree to disagree to enable the debate to
be concentrated on the fundamental issues.
And these issues are so important that I want readers for the moment to theoretically
agree with Chris Bowen that the receipt of cash franking credits should be blocked.
It’s only when you look only at how the “ban” on cash imputation payments is being
executed that you see clearly that Chris Bowen has adopted unfair methodology.
So, ignoring our views on imputation, let’s sit down and look at what we should do to
block the receipt of cash franking credit refunds.
The first pillar that former Labor prime ministers would require is that the ban on cash
franking credits should apply to everyone, unless there is a clearly stated exemption
for, say, government pensioners.
And again the exemption should apply to all government pensioners, not just a
selected group. My objection to the Bowen plan is that it fails these basic fairness tests
that the former Labor prime ministers would have applied.
My sadness is that Chris Bowen in his letter did not address these fundamental criteria.
Instead it was all about attacking me. I have no problem being attacked but the
attacker must also address the issues.
And the fundamental issue is that a huge section of the non-government pensioner
Australian population will continue to receive their cash franking credits in full as they
currently do simply on the basis of the fund manager they have selected.
Once we decide that cash franking credits should be banned it is grossly unfair to
divide the population on the basis of who they choose to manage their money.
If my savings are in the superannuation system in pension mode and I want to
continue to receive my cash franking credits, all I have to do is transfer my money
from my current large fund that is caught or from my self-managed fund to an industry
fund (or big retail fund).
My money stays in superannuation and simply by changing fund manager I continue
to receive all my cash franking credits. And the industry funds have been performing
well so I am not being penalised on the fund return comparison.
There is no way such legislation can be fair. How are the industry fund managers able
to continue to provide my cash franking credits while other managers can’t do it?
The industry funds have a vast army of Australian members who are wage and salary
earners whose superannuation is not in pension mode.
The industry and big retail funds “sponge” on those workers by using the tax they pay
to offset against the retirees’ non-tax status.
The fund manger is able to net off two entirely separate tax situations. If my money
happens to be in a fund that does not have enough salaried workers then I lose my
franking credits.
This is blatant discrimination so it would seem there is clearly another agenda. I won’t
spell out what agenda might be but readers can make a fair guess.
If Chris Bowen’s only agenda was to stop the payment of cash franking credits then
everyone who receives them must lose them. Then it’s a fair tax.
That still leaves the government with the ability to legitimately exclude those on the
government pension—they can still receive their franking credit entitlement in cash.
But again, under the Bowen plan there is discrimination —-a portion of government
pensioners miss out because those in self-managed funds discover there is cut off date,
March 28. All those in self-managed funds who became entitled to the government
pension after that date do not receive their cash franking credit entitlement.
When you tell the population that they can continue to receive cash franking credits by
changing fund managers or being born on the right date then clearly cash franking
credits aren’t your only target.
If the key agenda is to concentrate superannuation in a few hands then be bold and say
that upfront rather, than using cash franking credits as a smokescreen.
And the real debate should be about the total issue of franking credits.
Again, as treasurer of Australia, if you believe the system is too generous then be open
about it and tell Australians your view and we will debate it.
Maybe we will then reduce the franking credit entitlement from 100 per cent to, say,
95 per cent.
Then everyone pays and the tax is not just levied on a select group of people who
happen have saved outside industry superannuation funds.
ROBERT GOTTLIEBSEN, BUSINESS COLUMNIST
