When economist Saul Eslake said last week that ‘chump change’ from Labor’s dividend reform plan would be enough to compensate any genuine battlers affected, he’d clearly done his sums.
On Tuesday, Labor proved the point by announcing that fully one-quarter of the affected retirees – the ones actually on low incomes, as opposed to those on high ‘tax-free’ incomes – were carved out from the policy, at a cost of only 5.5 per cent of the total revenue the plan was supposed to collect.
That’s the ‘chump change’, but what most people probably still don’t realise is what a huge sum of money the other 94.5 per cent represents.
If Labor won government and legislated the plan, it would save the budget $55.7 billion over 10 years – which, for example, is more than double what we’ll spend on the federal police over the same period.
For those who turn off the TV every time a newsreader says ‘dividend imputation’ or ‘franking credits’, it’s enough to know that since 2001 the Australian Tax Office has been ‘refunding’ tax on dividend income to people who haven’t actually paid any tax at all.
In strictly economic terms, that never should have been allowed to happen. It was one of the over-generous tax concessions left behind by former treasurer Peter Costello that have punched ever-larger holes in the federal budget since.
But Labor’s back-pedal on the issue of genuinely low-income retirees is not about economics – it’s about basic morality, and something they should have thought more about when the original policy was released.
Successive governments have implicitly told people to buy franked shares, enjoy the dividends, enjoy the ‘negative tax bill’ from the ATO, and to plan their retirements around it.
So although no retiree should be receiving a refund for tax they haven’t paid, basic decency suggests that lower-income Aussies that walked into Mr Costello’s garden of Eden shouldn’t be penalised for munching on a few apples.
The battle’s not over
Labor’s ‘backdown’ on the issue of lower-income retirees receiving cash refunds will head off one of the attacks by its critics, but not all.
Since announcing the original policy two weeks ago, Labor has been slammed for its ‘granny tax’ which, as one columnist at The Australian wrote, would hurt only “those on low incomes with a few shares who won’t be able to rearrange their affairs to continue to capture the value of franking credits”.
Those crocodile tears for people on low incomes can now stop.
Low-income shareholders won’t be affected, and if wealthy retirees with large superannuation incomes, but zero taxable incomes, want to ‘rearrange their affairs’, they should.
That does not mean Labor’s policy will suddenly be embraced by voters.
The latest Essential Media poll shows that while only 21 per cent of Australians know “a fair amount” or “a lot” about dividend imputation or franking credits, a larger proportion – 30 per cent – are opposed to Labor tinkering with them.
Labor has its work cut out, therefore, to explain that low income retirees won’t be touched, and that things they care about – especially healthcare – could be funded better if the ATO wasn’t firing off $5 billion in cheques to wealthy Australians each year.