Labor’s proposed tax plan is theft, treasurer Scott Morrison declared yesterday, adding that the government would strongly oppose the opposition’s pledge to scrap a commonly-used tax concession introduced by the Howard government in 2000.
Bill Shorten’s announcement earlier this week, of Labor’s intention to get rid of the franking credit cash refunds given to people who pay no tax, sparked an impassioned response from the government, investment community, self-funded retirees and pensioners alike.
Labor’s plan would hit “low-income earners and pensioners” who invested their money in shares, Morrison said in response to Labor’s proposed tax reforms, The New Daily reported.
“You have paid tax twice on this, and we’re going to keep it,” he said. “That’s not good tax design, that’s theft.”
The Australian cited Treasury analysis of Labour’s plan that reportedly shows the biggest group of people hit by the change will be those receiving incomes of less than $18,200 a year, most of whom receive the Age Pension.
According to the analysis viewed by the newspaper, more than 610,000 people will lose an average of $1,200 a year if franking credit refunds are abolished, while just 5,000 people on incomes of more than $180,000 will be affected.
Shorten refuted claims that pensioners would be hit hard, telling the Nine Network’s Today Show the plan was designed to save money and most pensioners would not be affected.
“Australia currently pays out $8 billion of taxpayer money in tax refunds to people who don’t pay any income tax,” Shorten said. “I can confirm that about 10 percent of pensioners, and there’s two-and-a-half million pensioners, will have a minor impact.”
“For a person on the part pension, they may get some taxpayer-funded supplement to their shares. What we’re proposing is that if they’re not getting some extra taxpayer-funded bonus for income tax they haven’t paid, their part pension will increase,” he said.
Scrapping the cash refunds on unused franking credits could make the tax system fairer, according to to Danielle Wood, Brendan Coates and John Daley from the Grattan Institute, who wrote that the proposed change will mostly affect wealthy retirees.
“Abolishing cash refunds for individuals and superannuation funds will raise about A$5 billion a year in extra revenue,” Wood, Coates and Daley wrote.
“About 33 per cent will be paid by individuals (mostly in high wealth households), 60 per cent will be paid by self-managed superannuation funds (typically held by wealthier retirees), and the remaining seven per cent will be paid by Australian Prudential Regulation Authority regulated superannuation funds.”
Even though the wealth of older generations has increased in line with asset prices, noted Wood, Coates and Daley, the share of older Australians who pay income tax has nearly halved (from 27 per cent to 16 per cent) in the past two decades.
“In an ideal world the federal government would reintroduce a number of higher income and wealthy older Australians to the tax system by taxing superannuation earnings and abolishing age-based tax rates. But in the absence of the political will to make these changes, abolishing cash refunds provides a big boost to the budget bottom line from more or less the same group,” the Grattan authors said.