As I made clear last month, Treasurer Scott Morrison was lying by omission regarding the supposedly uncompetitive corporate tax rate in Australia. This was because he omitted to mention franking or imputation credits, which decreases the tax rate from the headline rate to a much lower effective rate1.
Now Morrison is at it again, and on much the same topic. The reason for this is that the Labor Party has announced they will get rid of cash refunds for excess imputation credits. The system of imputation credits was introduced by Paul Keating in 1987 to prevent the double taxation of company profits (by the company as tax on their profits and by the shareholder as income tax). Howard and Costello extended this to allowing individuals and superannuation funds to claim cash refunds for any excess imputation credits not used to offset their tax liabilities2. These cash refunds comprise money taxpayers have paid as tax. We are giving money to people who own shares and have arranged their income so as to pay no tax. This is effectively negative taxation.
Much as I hate to admit it, Adam Creighton explained it reasonably well in the Australian (I don’t subscribe to a Murdoch rag as a matter of principle). On the one hand, a retired couple living in a $2 million house, with $3.2 million in super, are classified as ‘low income’. They have no income tax liability. They could also have an investment property and still wouldn’t have a tax liability because of the bizarre ‘seniors and pensioners’ tax offset’, which lifts their effective tax-free threshold to about $58,000. As a consequence, they would get a cheque from the taxpayers of Australia for any imputation credits. On the other hand, a working couple living in an $800,000 home, with a mortgage, earning $100,000 a year combined income will be classed as ‘high income’. Being in the second-highest tax bracket, they will pay a 37% marginal tax rate on every extra dollar earned3. In one of the most extreme examples; one very wealthy individual in Australia has arranged their tax affairs so they have no taxable income, but because of the Howard and Costello excess dividend imputation, they received a cheque from the taxpayer for $2.5 million in a single year4. This was in addition to the dividends paid to them by the companies whose shares they owned. The benefits of this system flow overwhelmingly to the wealthiest Australians. Modelling has shown that 75% of the benefits of dividend imputation flowed to households with incomes in the top 10%4. This system costs the Australian taxpayer more than $5.5 billion per annum
Finance Minister Mathias Cormann lied when he said “If you are a self-funded retiree on a low income, you will pay more tax. If you are a pensioner who invested in some shares, you will pay more tax. More than a million retirees, many of them pensioners or part pensioners, will pay more tax under this proposal”5. Cormann lied by omitting the word ‘taxable’ from between ‘low’ and ‘income’ in his diatribe. This is lying by omission. He also states when he says they will be paying ‘more tax’. That is a lie. They will not be paying more tax; they just won’t be getting a cheque provided by us.
Like Cormann, Morrison also lied by omission, stating that “Labor wants to steal your tax refund”5. It is not a tax refund, because these people have not paid tax. They already have the dividends from the companies in which they hold shares; they just won’t get a subsidy from the rest of us taxpayers.
The overwhelming majority of those receiving significant taxpayer cheques are high net worth individuals who minimise their taxable income using negative gearing and family trusts, and, if over 60, by boosting their superannuation. You will never hear this from Mathias Cormann or Scott Morrison. You will also never hear that the Treasury was looking at this very same measure prior to Morrison’s 2017 budget6. These two are past masters at lying by omission.
- : https://www.theaustralian.com.au/business/opinion/adam-creighton/labors-proposed-tax-reform-only-adds-to-complexity/news-story/0fde5c9e9a0324d053ab5eda0494f634