Joe Kelly and Paige Taylor of the Australian have tried to make their readers believe that turmoil in the Coalition is the reason that the Labor policy to dump Howard’s overly generous cash refunds of imputation credits is not having the impact it should1. Although I explained this nine months ago, I’ll reiterate. When he was Treasurer in 1987, Paul Keating introduced imputation credits. This was to prevent the double taxation of company profits. A company pays tax on its profits, it then distributes those profits to the shareholders as income. Imputation credits prevent shareholders paying tax on those distributed profits again, thereby reducing their income tax. If the shareholder’s taxable income was thereby reduced to zero then any excess imputation credits (or franking credits) remained unused. However, when he was Treasurer, Peter Costello extended this by allowing individuals whose franking credits were unused to obtain a cash refund from the taxpayer for those unused credits2,3. It is a form of negative taxation for shareholders.
Kelly and Taylor relate the results of a Newspoll that supposedly indicates that support for this has fallen slightly (3%) over the last 9 months and the group showing the greatest disapproval are the over 65s. They gave an example of a couple (both in their 70s) who felt they could not support the plan because it would punish ‘middle Australia’. They estimated that they will lose something between $10,00 and $12,000 per annum. I own shares (about $20,000 worth) and I get a dividend of about $1,000 per annum. So, this couple must have a hell of a lot more shares than I do (maybe upwards of $200,000 worth). As Kelly and Taylor note, the cost of this Costello largesse has blown out from $550 million to more that $5 billion per annum1.
Kelly and Taylor finished off their story by relating part of a submission to the parliamentary standing committee on economics. This submission stated that the main groups affected would be retirees on modest incomes holding shares, and suggested these people would shift their assets out of Australian shares. It also suggested that some self-funded retirees would increase drawdowns from their superannuation making them reliant on the pension earlier than expected1.
Nowhere do Kelly and Taylor mention the modelling by the Australia Institute4 that found 75% of the benefit from dividend imputation goes to the richest 10% of households. Hardly ‘middle Australia’. The average Australian household earns about $110,000 per annum, and has a net worth of $929,400. The top 20% of households in Australia earn more than $260,000 per annum, and have net worth of $2,906,4004,5. Hardly ‘middle Australia’.
Among self-managed superannuation funds, 81% of excess franking credits (i.e. tax refunds) go to funds with a balance of over $1,044,622 (much more than my super fund balance), while 52.7% of excess franking credits go to funds with a balance of over $2,443,8436. Hardly ‘middle Australia’.
This is simply another case of lying by omission by the hacks of the Murdoch media. Their lack of professionalism is astonishing. They will do anything in support of the government or to damage the opposition, facts notwithstanding.
- Parliamentary Budget Office, 2018. Request for budget analysis on Dividend imputation credit refunds – further information, by Hon Matt Thistlethwaite MP, 19 November.