Most of the political commentariat were convinced that Bill Shorten had got things badly wrong by announcing his policy on dividend imputation immediately before the Batman by-election. It was even more striking that, despite the pressure, Shorten didn’t cave into demands for changes to the policy. Michelle Grattan, for example, described the policy as an “own goal“. After Labor’s easy win, she backed off a little bit, but still claimed that Labor “has a selling job“. M
Maybe so, but I’d say the government is the one that has scored goals for the other side.
(Update 27/3) As predicted, Labor has tweaked the policy to exclude pensioners. That blunts the remaining lines of attack, but doesn’t cost much money, since the benefits go primarily to high-wealth self-funded (but massively tax-subsidised) retirees. By waiting until after the Batman by-election and the latest Newspoll, Labor looks gutsy (even Dennis Shanahan in the Oz conceded this) and Turnbull looks even weaker than before
Immediately after Labor’s announcement, the government’s preferred media outlet ran with a Treasury analysis showing that most of the losers were people with a taxable income of less than $18200 and the observation that Labor had supported the original decision to refund imputation credits to people who didn’t pay tax.
The trick was that the analysis ignored one of the many timebombs Peter Costello left in the budget (after the 1999 change to dividend imputation). By extending tax concessions on income from superannuation, Costello created a large class of retirees who had relatively high incomes, but little or no taxable income. These are the big beneficiaries of the current system. This point has already been discussed a fair bit in our comments thread. This <a href="http://Grattan“>explanation from Brendan Coates & Danielle Wood of Grattan sums up the key points.
The other line of political attack is the discovery of some deserving voter who will lose from the tax change (there are always some losers). The Oz managed, at very short notice to find a self-proclaimed lifelong Labor voter who was going to switch sides as a result.
People like this can’t be very numerous however. Self-funded retirees mostly vote conservative and LNP governments have given them big handouts. The fury with which they greeted recent attempts to scale back some of the biggest Costello handouts reflected a genuine feeling of betrayal from a core component of the LNP base. Conversely, if a self-funded retiree is a lifelong Labor voter, it’s likely that they are not driven primarily by hip-pocket concerns.
Putting all that to one side, the government has already used up its best opportunities for a scare campaign. Having been caught out cheating with its initial analysis, it will face a lot more scepticism next time around. Meanwhile, Labor has plenty of time to make tweaks to the policy if they are needed.
John Quiggin 
@EconoManOz
I believed it an assessment of merit, fairness, and also believed in this case it would not be divorced from the negative political fallout for the ALP.
“but if Labor can exclude all Pensioners for <10% of the revenue impact as suggested over last few days, that is very low 'collateral damage' by typical tax policy standards."
From Chris Bowen's spin comments heard this morning about the proposal back down he had announced it seems projected revenue is hardly lowered at all. As I and others maintained, the collateral damage would bite them back at the ballot box, and so the ALP has walked the proposal back.
"Contrast it with two main alternatives suggested in the comments/elsewhere: 1) ending 'tax-free super' in pension phase, which would impact many more people,"
I believe this is what the ALP was/is ducking all along. Their change in their proposal to now only remove the franking credit tax payment from SMSF's remains less than a half measure.
"Finally, it's wrong to assume all those people who would get hit would vote accordingly – or more to the point, change their vote accordingly."
The less wealthy people among them, the many, who would have been hit but say they wouldn't change their vote are either not to be believed, or have a questionable understanding of the original ALP proposal. There are numerous alternatives to vote for.
Econo, can Bowen be believed now? What now is the ALP proposed situation re franking credit payment to super funds other than SMSFs?
Ha how funny… just discovered this Grattan article from 2016 calling for cuts just like the ALP is proposing 🙂
https://grattan.edu.au/report/age-of-entitlement/
Does anybody have statistics on how many age pensioners have claimed a dividend franking credit refund in the past? I am thinking of pensioners who have a few Telstra or IAG shares and no tax accountant.
The argument from the investment community is that you shouldn’t tax people twice, and it has a merit. What these advisors neglect to mention is that super contributions are taxed at a lower rate, which is only of benefit to high income earners, and the super fund can benefit from these larger contributions by way of untaxed growth that is compounding. All at the expense of the tax payer.
As Ross Gittins recently pointed out, the banner of “self funded retiree” is a complete furphy as their wealth has a component that has been subsidised by the tax payer.
@Svante
You keep saying/implying that the policy was/is regressive, despite all the argument and evidence to the contrary.
I’m glad you know their mind better than they do. And yet again you (incorrectly) assume these people were “less wealthy”. (I’m including face-to-face conversations I’ve had with current and soon-to-be self-funded retirees.)
This kind of policy tweaking to refine a tax proposal and/or seek to blunt a political attack is common for Governments, let alone Oppositions that don’t have the benefit of full access to Treasury and the ATO before they announce.
Personally, I believe that Bowen has a better understanding of the proposed policy and distributional impacts than you do. And he is way more credible than his opposite number!
Exempting pensioners may be necessary politics but it is actually lousy policy. Just think how much extra effort anyone with an SMSF invested in Australian stocks will now make to restructure their affairs to qualify for just a dollar a week of pension ….
@derrida derider
For a home owning couple just on the asset limit to get a part pension, if they are $1 above, they’ll get a $0 tax refund on the imputation credits. If they are $1 below, they’ll get around $8000. This is big bikkies.
@Smith
Actually, they’ll get $18000. Every year.
In a tax and welfare system filled with nuttiness, this might be the nuttiest.
It’s actually more interesting than that: it’s the claim inter alia that anybody who purports to be motivated by altruism / concern for others is, well, lying. Only selfishness is honest.
The really interesting yhing about the virtue signalling explanation is that it makes no actual sense: if lying about your altruism is effective as deceit then the person you’re
The person you’re lying to has to belueve you: either they’re honest and altruistic themselves (and so most people aren’t virtue signalling) or they’re lying but think nobody else is, which is… strange.
(Again: virtue signalling as an explanation makes sense coming from a theory-of-mind-impaired perspective… and nothing else I can think of
@EconoManOz
As the ALP proposal hit the less wealthy classes (including share owning aged pension claimants) harder than the rich, I called it regressive. As it still hits the middle classes harder than the rich I call it regressive. I’ve not a clue as to your definition of ‘regressive’. The Australian level of aged in poverty is at 26%, and the ALP intended to hit the small shareholders amongst them with a tax ripoff. The OECD average for the aged living in poverty is but 13%!
“I’m glad you know their mind better than they do. And yet again you (incorrectly) assume these people were “less wealthy”. (I’m including face-to-face conversations I’ve had with current and soon-to-be self-funded retirees.)”
Oh? Who are they? What category of self-funded do those folk fall into? There are several categories with various additional permutations. Be clear in what you are describing. “Less wealthy” obviously is not the “rich” all the ALP fanfare was about but weren’t about to touch in any serious way, and still won’t..
Are those folk you spoke with “rich”, or perhaps they have nice middle class defined benefit pensions like the smarmy Bowen shall have one day. Those folk were not going to be hit at all, and, due to the ALP still dodging what would be truly a fair and comprehensive policy, they still won’t be. Or those folk may be other than SMSFs super income phase self funded retirees who of course weren’t and aren’t much affected. Or they may be self funded retirees without any super account and via in part directly owning dividend imputed shares they could and can still adjust their affairs to minimise or duck the hit altogether and maximise their franking tax offset. However, if they had any part of the aged pension and directly owned dividend imputed shares they were to be hit relatively the hardest and meanest, but now they shan’t be, or so we’re now told..
“Personally, I believe that Bowen” Thanks for an answer.
@Smith
“Actually, they’ll get $18000. Every year.”
An incomplete view, going way over the top.
I suggest you best have another look at that $1 mentioned, the aged pension asset limits, the consequent deemed income, and consequent pension payment reductions.
@Svante
Asset limit to get part pension for home owning couple = $837k (excluding house)
Invest in shares, dividend yield say around 5%, so fully franked dividends say $42k.
Franking credits on $42k dividend = 10/7*$42k – $42k = $18k.
Assume assets are owned 50:50 so taxable income = $21K + $9k = $30k each.
Tax on $30k with SAPTO is close enough to $0 so they get all the franking credits ($18k) as a cash refund if they are part pensioners (assets of $836,999) or zero cash refund if they just miss out on the part pension (assets of $837,001).
@Smith
I see, thanks Smith. Deemed income won’t apply as the asset test results in the lowest payment rate, so they receive no actual aged pension payment, but they get some of the extras such as the aged pension supplement minimum of $1398.80 per year for a couple living together.
That $1 is likely then to exert some notable effects on real estate and building, or live-aboard yacht residences and boat building.
As only 31% of Australian adults invest in shares I can’t see that many, if any, would fall within a group identified as “less wealthy”.
https://www.asx.com.au/education/2017-asx-investor-study.htm
@rog
IIRC, the number given was some hundreds of thousands.
@Svante
BTW, 31% cannot be the 1%, or even the 10% 😉
ALP should just deduct the tax refund rorts from the deceased estates of the pensioners affected. Problem solved. No pensioners were harmed in the making of this solution………
How does ripping off the dividend income earnings of a pensioner by 30% tax not specifically harm them when others are not subject to the same tax rip off?
I wouldn’t put it past the ALP. It already has a long record of unconscionable rip off scamming of pensioners past, present, and future, see:
Petition update
THE TRUTH ABOUT PENSIONS
change.org/p/lift-the-age-pension-above-the-poverty-line/u/21946801
“…A “Trust” Fund with the Parliament as “Trustee.” The Compulsory Contributions (levy) commenced as at 1st January 1946. It was shown separately on the personal Tax
Assessments for 1946, 1947, 1948, 1949 and 1950 and the compulsory levy was properly paid straight into the Special “Trust” fund and Welfare claims were paid out of the fund.
The balance in the fund in 1950 was almost 100 million pounds.”
smh.com.au/money/super-and-retirement/is-it-true-that-older-people-were-promised-a-pension-for-life-20161111-gsn07y.html
abc.net.au/news/2014-05-27/berg-chifleys-political-time-bomb-70-years-in-the-making/5480154
Contrast that with the “Future Fund” set aside for “public servants” and the ALP’s proposed franking changes resulting in a $1.5B per year shortfall to be covered by the government, ie by all tax payers including pensioners. They’ll certainly allow no harm to the retirement dream of their “public service”.
How does ripping off the dividend income earnings of a pensioner by 30% tax not specifically harm them when others are not subject to the same tax rip off?
Right.
The thing about “emotive language” — more technically, words that are heavy in connotative meaning but light in denotation, words that suggest a lot while stating absolutely very little — is that they’re difficult to handle “logically”. Logic only deals in absolutes, in the denotative meaning, and doesn’t engage with the connotative side. Yes or no. Maybe, even mostly, even “almost entirely”… you can’t deal with those using “logic”, or you can but it’s harder and less useful.
Rip-off is one of those “emotive words”, words that have more implied meaning than absolute meaning. There’s nothing wrong with communicating this way. I mean, I do it all the time too.
But it’s a bad basis to build logical conclusions in; handling the connotative meaning is hard, and because the slightest slip with deductions throws your entire conclusion out, “hard” means “error-prone” or “probably wrong”. You’re much better off — you’ll get better answers easier — if you think, if you run your logic, in more-denotative and less-connotative words. For something like this, maybe “take” rather than “rip off”. Or “take unjustifiably”, make the implications explicit [and absolute, thus tractable with logic].
@Collin Street
Well, that’s all a bit precious where red herrings come as cheaply tinned as ears.
The meaning of ‘rip off’ there is clear. The word, hyphenated or not, or phrase, has long common usage. It has long been found in dictionaries here and abroad, online and hard copy – my old 1987 Macquarie, for example: rip off… 1. to tear off violently 2. to overcharge; swindle. – where have you been?
You raise logic five times apparently ignorant of the several obvious logical fallacies you commit whilst being so pretentious. But what’s a few red herrings, a few ad hominems, some tone policing and genetic fallacy of irrelevance mixed in the ignoratio elenchi when the question is so apparently troublesome and disliked? Rather than pose on logic and communications you might do well to get about a bit more, and to get a dictionary.
So baby boomers shouldn’t get “ripped off” but Generation X and Millenials are already getting ripped off by raising the pension age to 70, which will affect the modified ALP policy on this nice little rort by limiting it mainly to baby boomer pensioners. I have no doubt that this rort will be shut down, but only after the majority of baby boomers have passed away.
@Shane From Melbourne
I’m a baby boomer, and Rudd raised my pension age 2% without raising my life expectancy. For millenials etc 70 is the new 40! They get a 5% raise above my pension age but a 22% extension to life expectancy. 16 years of expected life post pension age for me, but approaching 30 for the millennial… and you’re complaining? How is that a bad deal? How is “this nice little rort” limited mainly to baby boomer pensioners? How is it even a rort?
@Svante
22% increase to life expectancy? I’d seriously question that assumption even upon current medical advances. But by the time baby boomers are done milking health and aged care systems (those life extending drugs don’t come cheap!) I fully expect that not only tax loopholes for the aged to be shut down by government but schemes like the PBS shut down. In fact Generation X, Millenials and subsequent generations should not expect much of bankrupt governments if anything……….