Like everyone else, I expected a Labor victory in the election. I expected good things from that, and I see lots of bad consequences from the actual outcome.
Still, my personal disappointment is muted by the fact that I found the campaign so utterly depressing. The shift to positivity I noted a couple of weeks ago only lasted for a day. I saw the positive ad I wrote about only once. By election day, like the majority of the Australian public, I just wanted it to be over.
The lesson I draw from this election, and from Clinton’s failure in 2016, is that negative campaigning doesn’t work for the left. It hardens the resolve of the other side, and obscures the fact that most people agree with you on the issues.
But that’s not the lesson that the political class, (for whom the two sides are always interchangeable) and especially the hardheads who ran the campaign, will learn. They will conclude that the small target strategy has been vindicated once again.
John Quiggin 
@smith9 and Julian,
I don’t think it’s right to characterise company tax as some sort of withholding tax. Companies pay 30% tax on their profits to meet their own legal obligations as corporate entities under our current company tax laws. They are not paying on behalf of anyone else.
The imputation system exists to stop the government double-dipping its hands into the same pot of money. But if the shareholder is paying no tax whatsoever, the government isn’t double-dipping. But the government should be entitled to keep the revenue it has legitimately extracted under our company tax laws, rather than forego it and pass it on as some sort of gratuity to a shareholder.
Anthony,
I disagree with the fundamental point you make. Basically saying, if you’re genuinely a low income earner, you should pay company tax on your investment, whereas if you have a taxable income high enough to claim against, you don’t pay the company tax (which can be up to 30% – not often is these days for multinationals) due to double dipping imputation. Doesn’t sound fair on face value.
Saying that, Smith makes a strong case about the unintended gauging and manipulation of the scheme and it’s hard to argue against that.
Troy, there are two separate tax regimes in play here. The company pays company tax, on its profits. You pay income tax, on your income — some of which may be made up of dividends which represent the distributed profits of the company you own shares in.
The Hawke government, in its impotent wisdom, decided the same basket of dollars should not be taxed under both regimes. So to the extent that the company has already paid tax on its profits under the company tax regime, you should be excused from paying tax under the income tax regime if some of those profits happen to be distributed to you as income. As I said, if at the end of the day you’re paying no tax whatsoever, then you are by definition excused. End of story.
Let’s be clear: companies aren’t paying “income tax” on behalf of shareholders, and shareholders — low income or otherwise — aren’t paying “company tax” on behalf of companies. Companies pay company tax and shareholders pay income tax.
Anthony,
So, what you’re suggesting as a fundamental guiding principle is to do away with dividend imputation period?
No, I think it’s defensible that if a fistful of dollars has been taxed at 30% in the company’s hands, a shareholder should get a credit for that if some of that money find its way to them as a dividend. That is, they only need to make up the difference between the 30% already paid on the money and whatever their own marginal income tax rate is.
But in the case of a shareholder paying no tax, the double dipping problem simply doesn’t arise. The government has legitimately collected its 30% company tax on profits; as dividends in the hands of a shareholder below the tax free threshold no further tax is going to be levied on that same pot of money anyway. Problem solved.
As I said earlier, why in that case should a government who has legitimately extracted its tax on company profits simply forego it in favour of passing it on as a handout to a non-tax paying shareholder?
Anthony
the company tax is not in law a withholding tax. But, for many though certainly not all taxpayers, it works in effect as a withholding tax. This is the source of the confusion.
@Smith9
Yes, as you say *for taxpayers* it does work in effect as a withholding tax. The Labor policy was directed at non-taxpayers — for whom it shouldn’t operate as a handout.
Smith9:
“the company tax is not in law a withholding tax. But, for many though certainly not all taxpayers, it works in effect as a withholding tax. This is the source of the confusion.”
Have you ever filled in a tax return and recorded an imputed credit? I think not.
It is very important not to seek to create confusion deliberately. The money collected by the company is sent to the ATO. It does constitute a credit on a return against the taxpayer’s tax liability – that is true for every shareholder whether they pay zero tax or the maximum personal marginal tax rate. But to say it is effect a withholding tax though it is not a withholding tax is obscurantist and unhelpful.
“It does constitute a credit on a return against the taxpayer’s tax liability”
Only if the company decides to pay a dividend, and if it does decide to pay a pay a dividend, if it also decides to make it a franked dividend.
“It does constitute a credit on a return against the taxpayer’s tax liability –that is true for every shareholder”
Apart from when it isn’t true, such as with foreign shareholders.
Give it a rest, Harry. Waiving your hands at a high level might cut the mustard in afternoon tea discussions among economists but it doesn’t constitute knowledge of tax law.
How can there be an imputation credit if the firm does not pay a dividend? What are you on about?
It doesn’t “decide” to make the dividend franked – that depends on its tax position – whether it is paying company tax or not. Obviously only talking about domestic shareholders as foreigners do not benefit from imputation.
You are deliberately confusing a simple point for goodness knows what reason. Why not just be straightforward? Is it too hard or are you involuntarily always confused?
Harry
You said a credit goes to the taxpayer when the company sends tax to the ATO.
I said that only applies if the company pays a franked dividend.
When the company sends its tax to the ATO it does not also send a note to the ATO saying “these are our shareholders, if we issue a dividend this is the credit they get”. All it does it send the money.
If the company does issue a dividend, which could be fully franked, partially franked and not franked at all, it also sends its shareholders a statement telling them how many franking credits are attached to the dividend. Most companies also send a statement at the end of the tax year to their shareholders where all the information is conveniently in one place.
Summarising, I am right and you are wrong.
Smith9, Maybe lithium.
Smithy is correct
Can I jump in here about franking credits, because it’s not really clear to me that the ALP policy was actually fair.
Suppose I am a retiree, but took what was in my super fund as a lump sum, then invested the lump sum in shares. AFAIK, this is now a private investment, and has no superannuation attachment.
If a company pays, say, a $15,000 dividend, fully franked, then the company will send me a cheque for $10,000 and a franking credit of $5,000. If this is my only income, then currently, as I’m below the tax free thresh hold, pay zero tax, and get the $5,000 refunded by the ATO. My understanding under the ALP plan, I would not.
If I have other income, so my total gross was, say, thirty something thousand, then I could use the $5,000 franking credit to reduce the tax I need to remit to the ATO.
So it seems, high income earners (in a relative sense) get a benefit from the Government that low income earners do not.
The sticky point comes if all your income is paid out by a super fund, in which case it’s entirely tax free, so you’re always below the taxable threshold.
Seems to me, the answer would be to tax superannuation distributions just like any other income – they do after all get preferential tax treatment at the contribution stage.
Am I misunderstanding the topic or not ?
Brian a person who holds a $300k share portfolio is not low income.
you have actually shown how fair it is. ironic
nottrampis – irrelevant. If you’re concerned that someone with a lot of assets gets a benefit when someone else does not, then you means test that benefit.
I’m talking about tax liability, and in that regard, a person with a low taxable income does not receive the same benefit as a person with a high taxable income. The amount of assets a person has is only tangentially relevant to that.
You make the highly improbable suggestion that a person ob low income is able to acquire a share portfolio which only has companies that has fully franked shares.
The said person has a large amount of assets that he/she does not want to liquidate to income but rather wants to live of the taxpayers teat.
you have made my point again
Bryan
If you are single and have $300k in assets and not a home owner then you are eligible for the age pension and you would have got your excess franking credits paid to you under Labor’s policy.
If you are single and have $300k in assets you are not eligible for the age pension and so would not have got your excess franking credits paid paid to you.
If you are part of a couple and have $300k in assets (between the two of you) then home owner or not you would be eligible for the age pension and so would have got the excess franking credits back.
You are quite right about the taxation of income in super pension accounts. When it was taxed at 15% then the excess franking credits issue was a small deal because the franking credits could be used to offset the tax liability. But now that it is taxed at 0% it is a big deal, because there is no tax liability.
All the whingers who cried “I get $3000 a year back and Labor is going to take it from me” are only getting that amount back because they pay zero tax on the income generated in their pension accounts, thanks to the Howard/Costello largesse that was gifted to them at the height of the mining boom.
Second paragraph should read … “and a home owner” …
Bryan,
Exactly. In terms of fairness, you are correct. I do have some appreciation for Anthony’s philosophy of not handing out cash refunds as a general principle, but that doesn’t completely reconcile with a fairness test.
Obviously the system is being gamed by wealthy parties with one Murdoch paper stating that a number as much as 800,000 *wealthy* individuals/parties are claiming the refund.
Sounds like SMSFs are being used as the central tool to game it, but that’s just the impression I get from the conversation here.
One would’ve imagined the relevant ALP executive team would have consulted with lots of clever accountants to formulate a policy to tackle the issue… obviously a solution that didn’t involve a whopping nasty hammer (remove the refund) wasn’t available… alas…
Thank you Smith. That clears up why it’s blown out.
nottrampis
It seems risky but many people do have all their assets in domestic equities,. Indeed a lot of them have all their assets just in big 4 bank shares, which have traditionally paid high dividends, which means they get the not just the franking credits back but out-sized franking credits back since the shares are high yielding.
It’s seems likely a crazy risky strategy but if the shares go pear-shaped and lose their value and the dividends stop, hey presto, these people are then eligible for the age pension.
It’s like if you go to the casino and if you win, you keep your winnings and if you lose, the government steps in and refunds your losses.
The financial advisors are all onto this and are putting their clients into risky investment portfolios.
The people who swung heavily against the ALP were low income and low education types. The very people the ALP were targeting and who would have benefited big time by the ALP policies
none were affected by either franking credits or negative gearing.
This reminds me od 2013 when the ALP were deservedly thrashed. most voters thought interest rates were higher under the ALP than under the Libs way back in 2007.
It seems selling the policies was a problem
nottrampis – “You make the highly improbable suggestion that a person ob low income is able to acquire a share portfolio which only has companies that has fully franked shares.”
It maybe highly improbable, but P(E) != 0.
I’ll give a highly contrived example, but one that could never the less occur.
Suppose I’m a struggling artist living on a commune, and I make $3000/year, no other assets. A long lost auntie leaves me $5000. I buy $5000 worth of penny dreadfuls. Some time later it turns out that this company is sitting on some sort of valuable asset. Obviously, the shares shoot up to roughly equal the NPV of the asset. I can sell my shares and realise a capital gain, and pay the appropriate tax, or, perhaps the directors of the company decide to sell the asset (in which case the
value of the shares drops back to penny dreadful status), and the directors declare a special dividend, fully franked, from the sale of the asset. I get a $15,000 dividend – $10,000 in cash, and $5,000 franking credit.
Come tax time, my gross income is $15,000 + $3,000 = $18,000 < tax threshold, so pay no tax, and the franking credit, from my POV disappears.
Suppose, now, I'm earning $100,000/year, have the same auntie, and do the same thing, no other assets. My taxable income is $100,000 + $15,000 = $115,000. I owe ($X – $5,000 franking credit) in tax.
So, a high income earner gets a benefit denied to a low income earner, which, IMO is unfair, as per my original argument.
BTW, I actually agree with the thrust of your argument, I'm just mainly pointing out the unintended consequence of the ALP policy (assuming my understanding of such is correct).
These discussions are kind of beside the point. Morrison and the LNP have won the election which means negative gearing and franking credits stay for another three years at least. My prediction is that they will stay in the system much longer than that. Labor have already retreated from the position of doing anything about them. Labor have done this because the propaganda war in favor of negative gearing and franking credits has been won comprehensively by the neoliberals.
The modern economic system is essentially an auto pilot system, where institutionalized and often fully computerized rules and calculations are automatically and continuously applied to sustain and endlessly replicate the modules of capitalism. The self regulating or auto pilot system of capitalism is pre-set to endlessly build more units of itself. This quasi-machine algorithmic meta-process (powered by real machines at the real process level) is currently more powerful than human resistance.
It is sometimes said that North Americans have 500 “energy slaves” working for them. (Hugo Bardi’s calculation). “An energy slave is that quantity of energy (ability to do work) which, when used to construct and drive non-human infrastructure (machines, roads, power grids, fuel, draft animals, wind-driven pumps, etc.) replaces a unit of human labor (actual work). An energy slave does the work of a person, through the consumption of energy in the non-human infrastructure.” – Wikipedia.
However, the assumption that the energy slaves are all working FOR you may well be flawed. A considerable portion of these energy slaves actually work against you (if you are middle class or poor). The hierarchical superstructure of capitalism, in both the corporate and government arenas, employs a considerable portion of these “energy slaves” to maintain inequalities of wealth and power. Without this high-energy-input separation process it is much more likely that wealth would flow and equalize to a much greater extent. In all of nature it takes energy to maintain imbalances a long way from equilibrium. There is no reason that the maintenance of high wealth inequalities would be any different.
If the number of “energy slaves” working for companies, corporations and those government operations which support companies, corporations, judiciary, police, prisons and military are greater than the number of “energy slaves” working directly for people (including a count of one “energy slave” for each adult person as their own body working) then the energy available for the control and perpetuation of capitalism is greater than the energy available for the people to overthrow it. This consideration suggests capitalism can reach an energy disparity setup such that it cannot be overthrown for energetic reasons. Force is the ultimate controller of outcomes and the force that can be mustered is proportionate to the energy that can be employed. I suspect that the elite have more “energy slaves” at their disposal than do the people. What’s more these “energy slaves” are insentient and logically and mechanically fully obedient and hence more controllable.
With the advent of automated systems, robots and drones these “energy slaves” may be fully instantiated in security, automated, robotic and drone machinery. The value of plant, machinery and vehicle operators joining the common people in any rebellion is annulled. Programmers alone are much more easily controlled by the securitat (security apparatus personnel). At this level, only cyber rebellion would seem to be feasible. Physical rebellion would be ruled out. However, the cyber relies on the physical so the cyber can also be controlled by physical suppression. This scenario might seem like 1984 on robot-drone steroids but it does appear to be where we are headed.
The only limits may turn out to be the natural physical limits of the biosphere. It seem we must depend on nature to rebel for us and to release us (mostly by death unfortunately) from our own inhuman machines.
Bryan, simply means test them.
Iko
the tax system needs broadening. Morrison went into the election not expecting to win thus his proposals after 2020 are affordable.
franking credits and negative gearing are easy ways to broaden the base.
As usual Ikono has put it quite succinctly. I was not aware of the energy-slave argument, but my children and I have come to a similar conclusion. I have no grandchildren.
Regarding the “fairness” or otherwise of imputation credits, I am certain that no matter what taxation system you devise, it is always possible to come up with an example where someone is “unfairly” treated. So unless there are a very large number of persons being unfairly treated, and can be compensated in some way, such arguments are pointless.The imputation credits “refund” scheme appears to fall into that category viz. removing the refund and using the money thus saved to improve hospitals and schools is a good idea. However, from a political point of view, existing pension arrangements should have been grandfathered, just as was done for negative gearing. Why they didn’t do this I don’t know. Perhaps it was because they were trying to show “bigger surpluses than the coalition”, that immensely stupid single indicator of “good economic management”.
nottrampis,
I agree that franking credits and negative gearing need to be repealed from an equality point of view. I simply don’t expect it to happen in the next ten years or so. After Labor’s “crushing” defeat, policies attempting to repeal franking credits and negative gearing appear to be off the table.
“Crushing” because Labor were heavily backed and widely expected to win. If Labor can’t win with all the factors in had in its favor for this election then it probably can’t win at all for another two or three terms.
Iko – “If Labor can’t win….”
You could equally say, with the TPP counts at (AEC currently) LNP 51.15%, Labor 48.85, given the relentless negative campaign against the ALP from Palmer, Murdoch, real estate lobby, coal lobby etc, and Australia having supposedly been blessed with six years of “good economic management”, if the best the LNP can do is barely scrape home, if the ALP runs any sort of credible campaign next time, the election is there to be won.
Well said, Bryan. Both victories and defeats tend to prompt exaggeration.
I will again say I expect the ALP to win easily.
Morrison has to campaign of very expensive tax cuts and there is no way large expenditure cuts will come in.
Morrison is simply aping Keating of 93
1 in 7 Australians are over 65. This fraction will increase as the population ages. Unless Labor repeals and rejects the idea of not paying out the pre-taxed deductions collected by firms but owed to retirees because they had low tax liability, then Labor will not govern this century. Generally ,if you attack retirees electorally you will lose. Saying that Labor has decided retiree wealth is too great and needs to be redistributed to sectors Labor favors (even if justifiable) will not work because of practical politics – seniors have the numbers. Telling retirees they are “selfish” “loop=hole exploiters” and that they need to make sacrifices to fit in with Labor’s visions is an insult and will not only fail to work, it will harden the longer-term sentiment against Labor by a major, and growing, slab of the population..
Chris Bowen must not be in a position of political authority at the next political encounter in 3 years time. The conservatives then will remind retirees of Bowen’s policies and suggest that it still underlies a predictably softer and more palatable agenda that Labor will seek to put across. It is a credibility issue that will be difficult to diffuse.
Listening to Bowen and Wong talk today I think they have not got the message still. Labor needs candidates who have not spent their whole lives working in the trade unions or as hacks for Labor. Working in these environments distorts your view of the world. Think about it. How could Labor lose this election given that the Coalition is a shambles? The answer: People were frightened of Labor’s radical agenda and its policies (as fun as they might be to discuss on left-wing blogs and among beer garden radicals) were out-of-touch with community aspirations.
Taxi drivers have negatively geared properties they hold for their children. Teachers retire with smallish nest eggs invested in fully franked shares. In many cases the electorates that turned strongly anti-Labor were avrage income with the more affluent areas voting for the Greens and Labor.
Harry Clarke,
I am not sure if you approve of all this retiree power or if you are simply pointing to it as a current political reality in Australia. It is a reality for the time being but I doubt it will last much longer. Ecological limits are fast approaching. I think any society has a serious problem if the old completely dominate the young in wealth, power and opportunity terms. This is socially pathological and leads to a sclerotic society incapable of conceiving and commissioning change when change is most required. I say this BTW as a person who will turn 65 in one month’s time.
I have had my time and my chances. Anything from here on is a bonus which only my over-privileged generation, the baby boomers, will ever get to experience. It’s not a bonus previous generations got and it’s not a bonus subsequent generations are going to get due to accelerating climate change and massive ecological damage. Current late age wealth is not a right. It’s more like an ecological crime. We have drawn down seriously on the biosphere’s natural capital and we have left a despoiled disaster for subsequent generations. It’s nothing to be self-righteous about. Shame and a willingness to re-share would be the more morally appropriate response.
One problem with your theory Harry,
It was not the small number of ‘independent’ retirees that voted agin the ALP. It was the low income, low educated people who did.
Just remember that.
The very people who would have gained from an ALP victory turned their backs on the ALP.
It is stretching it to say that franking credits has much to do with the loss. I would also add negative gearing. Another form of middle to upper class welfare
There are many descriptions that could fairly be applied to Ikonoclast, but ‘usually succinct’ is not one of them.
Harry, we all have a tendency to lend undue weight to ONE THING as the cause of “X” based on our personal hobby horses. The truth is that the 2PP was very close and there are actually hundreds if not thousands of ONE THINGS that could have changed the result.
Bryan and Troy, It seems to me confusions may be due to one word missing in some sentence.
Assuming I understand the ALP’s franking credit policy, then
1. It keeps the idea of dividends being taxed only once
Bryan and Troy, It seems to me confusions may be due to a word missing here and there in some sentences.
Assuming I understand the ALP’s franking credit policy, then for ‘fully franked dividends’:
1. “Fully franked dividend”:= the fraction of after tax profits being distributed to shareholders whereby the tax rate is the corporate tax rate (30% I believe it was and still is the corporate tax rate).
2. The idea of dividend imputation is that the share of profits distributed to shareholders should be taxed at the marginal income tax rate of the shareholder who receive this share of profits (equality in treatment of income from financial capital and labour). The share of profits distributed to shareholders = the dividend received + the corporate tax.
3. The marginal income tax rate of individual shareholders differs according to the income tax rate schedule for individuals. Income tax is calculated on taxable income. And the system is run via the ATO. Therefore dividend imputation is possible only for people who are residents of Australia.
4. Considering shareholders with a marginal tax rate greater than the corporate tax rate. These people will have to pay a bit extra tax on their dividends. And people with a marginal tax rate lower than the corporate tax rate get a ‘refund’ in the sense of paying less tax than they would otherwise do. (So far the idea is quite simple to follow.)
5. The confusions between the LNP and the ALP proposal relates to ‘pays no tax’. This phrase ‘pays no tax’ is too vague to be useful. Firstly, the personal income tax schedule allows for a tax free personal taxable income of $18200 (‘pays no tax’). Second, there are books full of tax legislation too thick in more than one sense for me to open them. But I do know these laws have an affect on ‘taxable income’ (superannuation, family trusts, ……) such that the disposable income is much bigger than the taxable income.
6. The Howard/Costello franking credit policy refunds in cash the corporate tax per share owned by an individual whose taxable income is such that he/she does not have to pay tax. (The reasoning seems to be that if the marginal tax rate is zero for a person then refund the corporate tax paid on the shares owned by the person.)
7. The ALP dividend policy proposal is to keep the Howard/Costello franking credit policy of refunding in cash the corporate tax paid on the distributed profits for one group of low income people known as full pensioners. There are income and asset texts to be met to become a full pensioner, they differ for single vs couple pensioners.
It seems to me the ALP didn’t leave itself enough wriggle room to consider other low income people who for one reason or another have disposable incomes as low or lower than full pensioners. (People pay bills with disposable income or loans or savings). IMHO, it might have helped to outline the policy objective, noting the complexities of the taxation system, taking full pensioners as an example of ‘low income’ while stating a little more work needs to be done to achieve a reasonable degree of fairness between full pensioners and other low income people.
I hope I haven’t introduced more confusion.
Thanks Ernestine.
With this LNP victory, Australia continues to lurch to the right. Our Overton Window moves right yet again and Labor leaders are falling over themselves to stay in frame and proclaim that coal mines, franking credits and negative gearing are all part of the natural order of Australian economics. This neoliberal victory is the last nail in the coffin for Australia. Australia’s realistic chances of dealing with its emerging ecological and social problems in a preemptive fashion are effectively over. The real crisis is now too close for preemptive action. Reactive responses to the emerging crisis are the only possible path in future.
To get elected again, Labor has to adopt the same suite of neoliberal policies and rely on advertising, personality politics and image polishing to garner more votes. Late stage, two-party “democratic” capitalism has become unchangeable from within. The wealthy elite have considerable control over voting patterns (giving a clear success bias to the major right wing party) and have near complete control over the major policies of the major parties by donation and influence. In this way, no matter who you vote for you get a neoliberal. Shorten’s effort shows what happens when you run against the heavily propagandized neoliberal consensus.
Consistent with the thesis of absurdism, voters make decisions predominantly on issues irrelevant to actual civilizational survival. Conventional economics is the secular religion, the belief system of our age. Neoliberalism is the dominant sect. It is entirely a belief system and changing mass belief systems is one of the hardest things to do. The only harder, and indeed impossible, thing to do is to break fundamental laws. We now have a rigid mass belief system actuating our economics and pushing us towards a final crash.
The market is messiah and endless wealth is the promised land. But what happens when prophecy fails? Capitalism (now corporate and oligarchic) promises an endless cornucopia of goodies for the people. What happens when this endless cornucopia fails to materialize and the system goes into unstoppable collapse? What happens when wealth accumulation goes into serious reverse for the majority of the people and leads to the specters of starvation and death? This will eventuate with scientific (5-sigma) certainty. Endless growth of a system (the economy) in its host system (the biosphere) is impossible. The discovered fundamental laws of physics, chemistry and biology assure us of this impossibility to a certainty of about 99.99994 per cent. Further, when growth overshoots carrying capacity and massively damages and reduces carrying capacity, as is happening right now, then collapse, axiomatically, must be catastrophic.
Instead of preparing for the resource and ecological overshoot we are doing everything we can to make sure we “hit the wall” at the highest speed possible. Belief in the secular religion of capitalist economics will be shattered by the collision. That will be the time of catastrophic changes in human material circumstances and radical change in modern belief systems.
Ernestine, Fairly lengthy but correct. If pensioners are exempted from the move it shows that as a redistributive measure Labor’s policy was poorly thought out. Lots of self-funded retirees with low wealth cop it in the neck. If 2% of voters (or their families) are implacably opposed that’s enough to swing an election but it was much more than that. .
Hugo and Homer, There are many self-funded retirees who would have been hurt by Labor. Not all of them wealthy as Ernestine observes. If you want to target wealth then do so directly or by changing the tax treatment of super. This was lousy policy.
I disagree that I place too much emphasis on the imputation issue in understanding the election results. Labor itself obviously agrees with me with the sidelining of Chris Bowen and the forthcoming termination of Noah Carrol. I could cite links but everywhere in the press the links are made between these moves and Labor’s franking policy.
Nor do I agree that the election outcome was close. Labor lost the unloseable election and most of the marginal seats it targeted (barnaby’s, Dutton’s, Christianson’s etc) moved further into Coalition hands. The election in 3 years time will have to offset the old Coalition vote plus the shift. Anything can happen in politics but my best bet is that Labor is out of contention for at least 6 years.
I concede there were other issues. There was a general community fear of a class-struggle-based agenda with Labor ripping off some to give to others. This was intricate to explain to say the least – we will give some retirees $1000 every 2 years for your teeth but take away your franking credits. Labor did not explain it well and people got wind of a con – a redistributive agenda that they did not trust or seek. Also a raft of bone-stupid policies on increasing one of the highest minimum wages in the world, subsidising the wages of very particular workers, moving back to what looked like centralised wage fixing, rebuilding an Australian car industry based on electric vehicles etc etc etc. It looks like the political agenda of a bunch of beer garden radicals not serious policy.
Labor’s problem is that its leaders have not operated out of Labor politics and the union movement. Bowen, Albanese, Wong, Plibersek are all the same. These vocations give a particular slant on life in Australia that is different from that experienced by people running businesses, trying to get kids through school, wanting a better car or house and so on. Indeed these latter concerns are treated with derision by left-wing party theorists – unless of course the issue is their own self aggrandizement.
The last comment is not entirely a glib aside. The distributive agenda Labor offered was taking from some to give to others in order to buy themselves into power. It is an issue when you see people with low creativity who have never worked outside of politics forcing policies on a community and doing very well themselves (given their limitations) as a byproduct. People didn’t buy it and won’t.
“30% I believe it was and still is the corporate tax rate”
It’s 27.5% for companies with turnover up to $50 million, to be reduced to 26% in 2020/21 and then to 25% in 2021/22
“The Howard/Costello franking credit policy refunds in cash the corporate tax per share owned by an individual whose taxable income is such that he/she does not have to pay tax.”
Not quite. It’s not that they don’t pay any tax at all, it’s that no additional tax is owed on the dividends.
So a self managed super fund whose only income is dividends from domestic equities pays 15% tax on that income, but because the corporate tax rate is higher than 15% it gets about half the franking credits back in cash. If it has other income (such as interest or dividends from foreign equities) it can use the excess franking credits from its domestic dividends to reduce its tax on that other income.
Harry you have missed the main point of what occurred.
The people that voted against the ALP were people that were unaffected by franking credits ( and negative gearing).
Low income self funded retirees is a complete contradiction by the way
I give up Homer. There is evidence that your first claim is wrong (cited in the press and Conversation) and Labor are certainly acting on this. Your second point is just wrong and I did not say “income” but “wealth” anyway. People with $1m in savings and ineligible for the pension would be moderate wealth individuals who might have a self-managed fund invested entirely in bank shares and Telstra. That Labor exempted pensioners shows that they realized the policy had distributional injustices.
And of course the wealth that people accumulate out of after-tax income is their property not yours or Labor’s to redistribute. If you want a wealth tax or want to change the taxation of super then argue for it but stop being so precious about an issue that you are clearly wrong on.
I agree and disagree with Harry Clarke in different parts.
Where I agree:
(1) “If you want to target wealth then do so directly or by changing the tax treatment of super.”
(I agree with this but it does not mean that I am particularly fond of franking credits per se.)
(2) “Nor do I agree that the election outcome was close.”
(Correct, Labor received a stinging and damaging defeat likely to leave them in the wilderness for 6 years at least, unless the economic and climate crises bight within 6 years.)
(3) “Labor’s problem is … its leaders.”
(Yes, what a bunch of useless, incompetent, unimaginative hacks.)
Where I disagree:
(A) There may be “a general community fear of a class-struggle-based agenda with Labor ripping off some to give to others” but this is a false and propagandized perception, not a reality. It is in truth LNP neoliberalism which implements class warfare most strongly and rips people off. Shorten’s Labor was trying to address that but they had clumsy policy, ineptly presented. Of course, insofar as Labor will now conform to this same agenda it will become more neoliberal itself. I’ve noted in other posts that I now regard neoliberal capitalism as endogenously undefeatable. It will be exogenously defeated by climate change, environmental and even human biological limits. This exogenous defeat of capitalism is as scientifically certain as the fundamental laws of physics, chemistry and biology which underpin the real limits to attempted endless growth and attempted endless shifting of wealth to the rich elites.
(B) It is not “bone stupid” to increase the minimum wage. Indeed, it is bone stupid to not increase it. One person’s wage is another person’s income. The best way of depressing economic activity is to give more income to people with a lower marginal propensity to spend (the rich) and to corporations with a higher propensity to repatriate that income overseas without paying taxes.
Private property capitalism does face a real dilemma in that it requires endless growth to employ enough people in the face of automation and over-production. It requires over-production, immense waste and endless growth to function at all. Endless growth is impossible on a finite planet so it’s a catch-22 situation. Transition policies to a stable-state, sustainable and renewable economy are what is required. These policies are impossible to implement under capitalism. Capitalism itself is not reform-able endogenously. Exogenous overthrow of capitalism by biosphere natural limits is the only possibility. New policies will finally become politically possible beyond that point of overthrow but only in a condition of rolling collapse where the real difficulties of implementing such policies will be immense.
Ikonoclast, you are facing an uphill battle since book-keepers, an honourable profession, have elevated themselves into economic advisers (based on the balance sheet model of the economy) and the whole system is sustained by the legal profession, who tend to look at precedents, which seems to me to be very important in criminal law, based as it is on moral and ethical considerations. I know there is a growing number of environmental lawyers (with lower incomes than corporate lawyers).
Harry, I essentially have no opinion on the politics. In terms of a macro-economic framework, it seems to me Chris Bowen (and whoever else involved) has done a good job in developing policies that a) make a balanced budget and a process of government debt reduction plausible, b) take a few steps in the direction of reducing income and wealth concentration by means of carefully undoing policies which have encouraged income and wealth concentration, including improving housing affordability, c) not increasing financial instability, d) not forgetting the environment (CO2 emissions and water). So, in short, the program is internally logically consistent, using the typical broad brush of macro-economics. My comment regarding ‘wriggle room’ is not based on how a political strategist might think. It is based on, and you would appreciate this, the problem of course development at a university. To make it clear, this is not being elitist. It is taking note of the fact that a non-trivial change in policy setting (course material new to the students but not to the lecturer) to address acute and widely understood problems requires the voters (students) to have enough time to think through (analyse) what is proposed.
Smith9, if you open the thick taxation law book then you can’t just pick from one section. (See Bryan’s comment regarding considering other possibilities.) Furthermore, you seem to ignore the possibility that something serious is happening between today and 2021/22 or even in 6 months time, which requires by force of circumstances to ditch the plan. Neither Howard/Costello nor Rudd/Swan allowed for the GFC in their policy proposals.
Ernestine, the lower future tax rates are not policy proposals. They are already legislated.
Harry,
The people that voted against the ALP were loiw income and low educated types. They did not have franking credits indeed they probably would no know what they are. go to my blog and find out. Ben Phillips says the same thing.
some-one has to come up with a good reason to show why these people voted as they did because of franking credits or negative gearing for that matter.
you cannot change the way super is changed now. It should only be taxed at the benefit level and aligned with income tax. This is what the ALP were gong to do until Bill Kelty intervened.
Ah Bill Kelty and Peter Costello two people who have changed super for the worse
Harry, a small but important correction, if I may. You write:
“Hugo and Homer, There are many self-funded retirees who would have been hurt by Labor. Not all of them wealthy as Ernestine observes.”
I did not observe what you ascribe to me and I did not claim otherwise (because I don’t have the data). I wrote: “It seems to me the ALP didn’t leave itself enough wriggle room to consider other low income people who for one reason or another have disposable incomes as low or lower than full pensioners. (People pay bills with disposable income or loans or savings). IMHO, it might have helped to outline the policy objective, noting the complexities of the taxation system, taking full pensioners as an example of ‘low income’ while stating a little more work needs to be done to achieve a reasonable degree of fairness between full pensioners and other low income people. “
“The people that voted against the ALP were low income and low educated types. They did not have franking credits indeed they probably would no know what they are.”
Chances are they would have seeked financial advice from either their accountant or financial advisor or someone who did know what they were when setting up there investments and the chances are many of them would have seeked clarity from such experts during all the selling & scaring of the campaign.