TAX: Labor’s backdown on crackdown

Labor has wilted under pressure to exempt pensioners from its plan to end cash refunds for credits on dividends – a concession that would shave only $700 million off its large projected savings over the budget forward estimates.

The “pensioner guarantee” would mean more than 300,000 people would be excluded, full and part-pensioners, and people on government allowances, as would 13,000 self-managed superannuation funds with at least one pensioner or beneficiary before last week.

The decision follows a government scare campaign and some sharp public reaction through the media. Newspoll found 50% were opposed when asked about Labor’s policy.

On figures costed by the Parliamentary Budget Office (PBO), the revised crackdown on cash payments – currently made when the person does not have taxable income against which to offset the dividend imputation – would save $10.7 billion over the forward estimates and $55.7 billion over a decade. This is $700 million less over the estimates than before the exemption.

Even with the revisions, the policy leaves Labor with a massive amount of money to offer income tax cuts and use for other purposes.

The opposition initially said it would not change its plan but would ensure pensioners were protected in other ways, after negative public reaction and when it became clear that the exemption would be relatively cheap.

“These are people who typically own their own home and also have other tax-free superannuation assets, and don’t pay tax on their superannuation income,” the ALP statement said.Eighty percent of the present benefit went to the wealthiest 20% of retirees, and the top 1% of self-managed superannuation funds received an average cash refund of $83,000.

The ALP accused the government of running a “dishonest scare campaign … using ‘taxable income’ data to indicate that Labor’s policy was targeting people on very low incomes”. But a lot of income that retirees had was out of super funds and so tax-free – meaning some people had low taxable income but high disposable income.

Labor gave the example of a wealthy self-funded retired couple which would pay no tax on a mere $15,000 in taxable income – despite a $3.2 million super balance, a home, and $200,000 in Australian shares – with superannuation income of $130,000 and dividends of $15,000.

Treasurer Scott Morrison told parliament that the opposition’s policy “announced just two weeks ago … has turned to custard in a matter of days”.

From an original article in The Conversation, by Michelle Grattan.

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Some win, some lose

Labor’s revised crackdown on refundable tax credits is set to hit self-funded retirees, with new warnings it will leave some self-sufficient couples thousands of dollars worse off than those who claim a part-pension.

Prime Minister Malcolm Turnbull used question time last week to attack Labor’s backdown, dismissing claims that all pensioners would be exempt from the tax crackdown under Bill Shorten’s revised “pensioner guarantee”.

But under the revised policy, only about 13,000 existing pensioners with self-managed funds will be exempt from its tax crackdown. All self-funded retirees who move on to the age pension after today will still be captured.

The Prime Minister seized on the inconsistency in parliament, saying pensioners with self-managed super funds would still have their refunds scrapped.

“They have said that no pensioner will be affected. Completely and utterly untrue,” Mr Turnbull said. “It’s another example of the shambolic policy on the run from an economic team that has one bungle after another.”

John Maroney, the chief executive of the Self-Managed Super Fund Association, said the amended policy would exacerbate the effect of the tax crackdown on self-funded retirees.

He cited the example of a home-owning couple with a self-managed super fund of $900,000 currently drawing an income of $45,000 a year before receiving their franking credit refund.

He said the revised policy could leave them worse off than a home-owning couple with a self-managed super fund of $700,000 drawing an income of $35,000. This is because the couple with a $900,000 SMSF are ineligible for the part pension, given they hold assets in excess of the cut-off threshold of $837,000.

Under Labor, they would be denied their refundable franking credits worth about $7,700 — reducing their income from $52,700 to $45,000. The couple with a $700,000 SMSF are still eligible for a part pension of $9900 and would keep their franking credit refund of $6000 — pushing their income to $50,900.

The Australian, March 28, 2018, by Joe Kelly, Political Reporter

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