News National Labor tax loophole plan is theft, Scott Morrison says

Labor tax loophole plan is theft, Scott Morrison says

Scott Morrison's tax cuts aren't as simple as they look.
Scott Morrison says Labor's plan is 'theft'. Photo: AAP
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Treasurer Scott Morrison has signalled the Turnbull government will fiercely oppose Labor’s pledge to end a Howard government-era tax concession favoured by wealthy retirees, labelling the move “theft”.

Mr Morrison said on Tuesday that the policy, which allows shareholders who do not pay tax to get a tax cash refund through dividend imputation, meant people would be taxed twice.

Labor’s plan would hit “low-income earners and pensioners” who invested their money in shares, the Treasurer said.

“You have paid tax twice on this, and we’re going to keep it,” he told reporters.

“That’s not good tax design, that’s theft.”

The original scheme was introduced under Paul Keating to make sure company profits aren’t taxed twice – once with corporate tax and again via personal income tax.

But changes under John Howard in 2000 allowed investors to get a cash refund from the government if their tax imputation was more than the tax they owed.

Finance Minister Mathias Cormann also savaged the plan, saying Labor had “lost the plot”.

Opposition Leader Bill Shorten on Tuesday announced plans to wind back the Howard-era reforms, in a move Labor says will save the budget nearly $60 billion over the a decade.

“If nothing is done, this subsidy alone will cost the budget $8 billion every single year,” Mr Shorten said in a speech in Sydney.

Reforming the system to eliminate this concession will save the budget $11.4 billion over the final two years of the current forward estimates, and $59 billion over the medium term.”

Under the current system, investors who pay zero tax can get a cash refund from the government because the companies they invest in have to pay tax on their profits.

“A small number of people will no longer receive a cash refund – but they will not be paying any additional tax,” Mr Shorten said.

Labor says Australia is the only developed country in the world with a fully refundable imputation credit scheme.

Self-managed super funds are a major beneficiary of the scheme, with some getting cash refunds of more than $2.5 million a year.

The policy would apply from July 1 next year under a Labor government and only affect future earnings from then on.

Shareholders who may be affected will have the ability to adjust their investment decisions to limit any impact from this policy.

Shadow Treasurer Chris Bowen says the changes have the approval of the system’s architect, Mr Keating.

“I have discussed it with Paul,” he told ABC radio.

“While it’s not for me to comment on his views, he’s made it clear that he’s comfortable with these changes.”

Charities and not-for-profit institutions, such as universities, will be exempt from these changes.

The Parliamentary Budget Office estimates the policy would impact just 8 per cent of taxpayers, including about 200,000 self-managed super funds.

Ordinary retirees paying zero tax on modest shareholdings could find themselves noticeably worse off under the policy, as they would no longer receive 30 cents back from the federal coffers for every 70 cents’ worth of franked dividends they receive.

Larger super funds would likely make different investment decisions to blunt the impact of the changes.

-with AAP

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