Shorten's Mining Tax 2.0

Daily Telegraph 12 February 2019

The last time the Labor Party delivered a surplus budget was in 1989. 

If elected this year, Labor is on track to repeat the mistakes of years past and lock Australia into more deficits.  

Labor’s deficits occurred simply because expenditure exceeded revenue each year.

Creating poorly thought out new taxes which fail to raise money but lock in spending has often driven Labor’s hopeless record. Labor’s latest effort is their $55 billion Retiree Tax and the $32 billion Housing Tax.

Unlike Labor’s 2010 Mining Tax which had specific expenditure tied to the revenue, we have few clues where the money is going this time. It is buried, probably deliberately.  

Labor Treasurer from 2007-2013, Wayne Swan delivered one of the most memorable and least credible promises in the economic history of Australia on 8 May 2012. “The four years of surpluses I announce tonight… I am very confident that we will achieve a surplus and build our surpluses over time.” 

The surplus(s) never happened. The new taxes failed, the big promises were not kept and the biggest deficits in Australian history were delivered.

Sound familiar? Labor in 2019 increasingly sounds like the Labor Party of 2010.  

There are two main reasons that Labor is on track to make the same mistakes of the Rudd Gillard period and should not be trusted on the Treasury benches.

Firstly, Labor’s new taxes strap unfunded, unsustainable spending into the budget.

Wayne Swan created his own problems like new taxes such as the Mining Tax which he claimed would deliver endless revenue but failed to do so. 

The initial Mining Tax was supposed to raise $49.5 billion from 2012-13 to 2016-17. Then, after a few nips and tucks by the same Treasurer, it was claimed to raise $26.5 billion over the same period. 

It was given plenty of time to raise the promised several billion dollars in each of the 2012-13 and 2013-14 financial years. Swan’s 2012 budget promised $3 billion in receipts in 2012-13 alone.

When repealed in late 2014, total receipts collected to 2014-15 were $500 million. 

The trouble is, Labor started spending the money. 

The Mining Tax was to pay for increasing the superannuation guarantee to 12%, school kids bonuses and a range of mining industry changes.

This is how a permanent deficit is created: politicians promising payments against a flimsy revenue base. 

This is what Labor is promising again in 2019. 

Labor say their new Housing and Retiree Taxes will drive $87 billion of new revenue. No doubt all of this money will be spent in Labor’s alternative budget figures which are unlikely to link spending commitments to these new tax hits.

Whether the spending promises are in block programmes like national Centrelink services or are as scattered as an MRI machine, they will not be paid for by these new taxes. 

The fly in the ointment is the revenue will not be raised. Australians will invest less in shares and houses. We are already starting to see large market distortions which will reduce Labor’s revenue hopes.

Earlier this month it was reported “the nation’s largest and oldest listed investment company, Australian Foundation Investment Co, dumped shares in BHP and Rio Tinto to capture the value of franking credits for its mostly elderly, retired shareholders before the dividend imputation system is ripped up by a future federal Labor government.”

These movements will reduce the cash that Labor has already included in its alternative budget.

As former OECD Director Adrian Blundell Wignall wrote in January,the Retiree Tax “policy (will not) achieve the hoped-for revenue gains. It is precisely the sort of thing that financial markets are good at avoiding.” 

Similarly the Housing Tax measures will reduce investment in housing and therefore the revenue collection levels will be lower than claimed when Labor announced their Housing Tax when house prices were rising. They are now falling. 

Secondly, Labor is promising a surplus but its new taxes will cut growth and its record shows it cannot cut spending.

The economy will be smaller thanks to the higher taxes. For instance, the Centre for International Economics found Labor’s CGT tax alone will hit GDP by $3.7 billion per annum & reduce state balance sheets by $1 billion each year.

As Wayne Swan discovered, a smaller economy generates less revenue! 

If Labor wins and legislates its big new taxes, shrinks the economy, fails to generate the promised revenue but is politically stuck with its spending commitments, what can be done?  

Cut spending. The trouble is cutting spending is hard. Even as the Mining Tax which paid for the “SchoolKids Bonus” was being repealed, Labor voted against its abolition.

From its last period in office, Labor had spending hitting 26.5 per cent of GDP by 2023-24. Spending is now on its way to 24.6 per cent in 2022. 

In annual growth terms, Labor had the budget growing at over 4 per cent. Spending growth is now down to 1.9 per annum since the Coalition was elected in 2013. This is the lowest spending growth in 30 years. 

Labor is relying on a Henry Kissinger proverb “It is not often that nations learn from the past, even rarer that they draw the correct conclusions from it.”  

The market distortions the Retiree Tax are now provoking cuts away at Labor’s economic credibility on a daily basis. 

This ensures the froth of an election campaign will not provide cover for Labor to advocate its flimsy alternative budget free of proper scrutiny. 

Andrew Bragg is a Liberal Senate Candidate for NSW – Twitter: @ajamesbragg

 

Five big problems with Labor's Retiree Tax

Facebook 1 February 2019

Five big problems with Labor's Retiree Tax

Tim Wilson - Federal Liberal Member for Goldstein's House Economics Committee is currently investigating Labor’s unfair, retrospective Retiree Tax.

The tax will hit 900,000 people. 300,000 of which are in NSW alone. 

The Retiree Tax overturns a legal arrangement to ensure profits in Australia are taxed only once. The arrangement is called dividend imputation. 

If someone invests in an Australian company that pays tax on profit, the investor receives a franking credit (tax credit). 

The investor who owns the company receives this tax credit because the company has already paid tax on behalf of investors.

This way, tax is paid once.

Labor’s proposal rips this mechanism from 900,000 self-funded retirees. These retirees will no longer be allowed to receive all of the franking credits they are entitled to as investors in companies that pay tax.

The Committee is giving people a voice. In NSW, hearings are being held in Merimbula, North Sydney and Bondi.

If you are new to this issue or haven’t been following it. Here are five big problems with the Retiree Tax.

1. It is retrospective 

You've saved for your retirement and now your income in retirement will be lowered because Labor want to move the goal posts mid match.

It is not grandfathered. This overturns a strong Australian tax law principle that the rug should not be pulled from people who have structured their affairs in accordance with the laws of the day. 

If enacted, a retrospective law of this magnitude will shatter confidence in the superannuation system.

As Townsville resident Greg Maloney told the committee on Tuesday:

"Changing the rules after the game has started is unfair. The only group adversely affected by this is self-funded retirees."

2. It punishes people who have self-funded their retirement

The new tax only applies to people who are fully self-funded and not taking a pension - in full or part. It sends the wrong message - something like “if you want to be self-sufficient in retirement, we will tax you to the point you will need a pension”

This surely sends the wrong message to people who have tried to be independent in retirement. Why bother trying to be self-funded? 

3. It is not targeted at the big end of town 

This policy will hit 300,000 NSW retirees, many of modest means. Queenslander Rex Grattidge who has an income of $30,000 per annum would lose 25% of his income if the Retiree Tax is enacted. 

“People feel hurt that they are being classified as rich and wealthy and don’t understand why they are being forced into a higher tax bracket because they are not getting the credit back. Why them?” (The Australian 22/1)

The Association for a Fair Retirement says: 

In 2014-15 more than half of the 1.16 million individuals initially impacted had taxable incomes below the $18,201 tax-free threshold, and 96% had taxable incomes of less than $87,000. The most severely affected in this group, however, will be the 34% of older Australian retirees who take great pride in being self-funded in retirement , many of whom have little, if any, superannuation.”

Self-funded retirees will face a new tax in the form of an effective tax rate of 30 per cent on dividend income. Meanwhile it preserves the arrangements for the big funds which can keep their credits as a result of being bigger and having both accumulation and retired members.

4. It won’t raise the revenue & Labor's spending promises will be unfunded and unsustainable

This policy will be like Labor’s Mining Tax. It will not raise the $55 billion because people will change their financial arrangements. It will be too late for many who will be hit with the retrospective tax but the wealthier will get away from the Retiree Tax.

Yet like the Mining Tax, Labor has already committed the money. This is how structural deficits are created: Labor promises revenue which never materialises and therefore cannot fund its big promises.

“Labor will raise a lot less revenue than it imagines, and the social costs of this policy are higher than they anticipate.” RMIT academic (AFR 29/1)

“Nor will the policy achieve the hoped for revenue gains. It is precisely the thing financial markets are good at avoiding.” OECD official (AFR 16/1) 

5. You’ll pay Labor’s tax but Labor won’t 

Labor has responded to criticism of their unfair policy by stating that retirees who don't like Labor's retiree tax are "entitled to vote against us” (ABC 30/01)

But don’t worry, Labor has exempted senior politicians who are members of retail and industry super funds from the new tax! The Opposition Leader and Shadow Treasurer are off the hook. You’ll pay but they won’t.

Ultimately, Labor doesn't care that the retiree tax hit elderly widows the hardest, that it will drive down retirees living standards - the standard of living of your loved ones - your parents, or grandparents.

Picking retirees' pockets

Daily Telegraph 12 December 2018

After a decade of deficits, Australia is set to return to a budget surplus next year under the Coalition. 

Yet the Labor Party is promising to introduce a swag of new taxes – on shares, housing and trusts. 

If elected, Labor will deploy a new tax on the shares held by 310,000 New South Wales retirees.

 The new retiree tax would ban tax refunds to self-funded retirees where companies in which they hold shares have already paid tax. 

The kicker is Labor’s new tax on shares only applies to self-funded retirees! 

Retirees will pay tax on already taxed profits. Australia’s system of dividend imputation which supplies franking credits was designed to abolish this form of double taxation. 

For decades, Australians have planned for retirement on the fair assumption the system of franking credits, which has enjoyed bipartisan support, will exist in future.

This new retiree tax does not discriminate between the city and bush or rich or poorer electorates. In the South Coast seat of Gilmore, 8587 will be affected. In the seat next door of Eden Monaro it is 6918 and inner city Wentworth has 8443 people who will lose out.

There are three big problems with this tax. 

Firstly, the retiree tax is premised on Australia not having enough tax revenue – even as we are about to approach a surplus budget. 

Labor take their advice from extreme activists like the Australia Institute who say: “Australia is a low-taxing country… Australia raises far less tax revenue than most developed countries.”

This “less revenue” claim is based on misleading apples with oranges international comparisons from the OECD and World Bank which try and compare economy wide tax systems that are wildly different. 

The Productivity Commission says these comparisons are “complicated by the fact that some benefits provided by employers (for example, employer superannuation contributions) are not measured as a tax in Australia but are part of SSCs [social security contributions] in other countries.” 

Thankfully the PC disagrees with the Australia Institute and has said: “taxation revenue as a share of GDP from all other sources would be higher in Australia than the OECD average…”

With the OECD average tax to GDP ratio being 33%, Australia comes in at 34% under an apples with apples comparison. 

Anyone who lives in Australia knows we are not a low taxing nation. Labor doesn’t want to manage the budget properly – their only solution is more taxes.

Secondly, this policy is not targeted at wealthier people. 

The 310,000 NSW retirees to be hit by the retiree tax are not the cigar chomping, caviar set. They are self-funded retirees living in Bateman’s Bay or Bondi. 

Treasurer Josh Frydenberg has said of the hit to NSW retirees: “The people (Labor) are hurting most are those on lower taxable incomes, with about 84 per cent of those impacted having a taxable income of less than $37,000.”

This flies in the face of Labor’s policy statement that this new tax is about “reducing superannuation tax concessions for millionaires.”

Labor says “Low wealth households typically don’t benefit from the current taxation arrangements – they have little capacity to accumulate the wealth needed to do so.” 

Clearly, they have not done their homework or do not understand their own policy. 

A typical self-funded retiree to be impacted by this policy has simply invested in Australian shares (inside or outside of super) and is planning to use the tax refunds to pay for their retirement. 

The losses for many will be significant. For example, a couple that retires today with $800,000 in their superannuation fund and a 25 per cent allocation to Australia equities will lose $3,080 if this new tax is enacted.

This is a typical allocation to Aussie shares most retirees have in their super fund; which suggests thousands of retirement plans will onlynow be viable if the Coalition is re-elected.  

Thirdly, the policy is retrospective in practice. 

When planning retirement, Australians plan decades in advance. Retirement savings plans are set with the expectation a future government will not pull the rug from underneath. 

Self-funded retirees are heroes in our community. People who have scrimped and saved to be totally self-sufficient. 

Many people retiring now invested heavily in Australian shares which were demutualised or privatised in the past two decades: Commonwealth Bank and Telstra for instance. 

The franked dividends paid by these companies underwrite many retirement plans. No one would have foreseen a future government overturning the long held principle of taxing a person at their marginal tax rate. 

Retrospective taxes are commonly found in dictatorships and unstable nations – not Australia.   

The fact is, the new tax would apply to existing investments. It would apply to all Australian shares held by self funded retirees. It is therefore retrospective and has not been “grandfathered”.

How could you possibly plan for the future under these circumstances? When the goal posts are moved in mid-match, you cannot win. 

In this half-baked proposal, Labor would expose 310,000 NSW retirees to a new retrospective tax. 

 Self-funded retirees deserve our total support and should never be collateral damage – especially as Australia is finally returning to surplus budgets.  

Andrew Bragg is a Liberal Senate Candidate for New South Wales

Labor's tax sledgehammer would damage budget repair

The Australian 26 December 2018

Next year the Federal Budget returns to surplus for the first time since the Howard Government’s 2007-08 Budget. 

This follows years of steely determination by the Coalition Government, in the face of an obstructionist Senate led by a Labor-Greens alliance.  

Yet as we approach budget balance, the Labor Party proposes raising taxes by more than $200 billion if elected.  

Why would Australia change course just as the books are about to balance?

Labor’s tax sledgehammer has barely had any scrutiny. The $200 billion tax hit will lead to less investment and jobs, fail to deliver the reputed revenue and return Australia to permanent deficit, higher debt and higher interest payments.  At least three big questions must be answered before the election.

Question one: can we expect any distortions or negative behavioural changes?

Labor’s two big tax proposals are to (1) introduce a new housing tax and (2) a new retiree tax. 

The housing tax abolishes negative gearing on existing homes while the retiree tax steals franked dividends from self-funded retirees invested in companies that have already paid tax.

Labor claims the housing tax will raise $32 billion over 10 years while the retiree tax is designed to raise $55 billion over the same period.

Both new taxes will only raise money if people continue on the path of saving and investing.

Labor’s signal to hard working Australians is if you invest in housing or Australian shares, “we’ll tax you more”. It sends a clear message to Australians seeking to be self-sufficient in retirement - don’t bother.

Increasing property taxes will drive less investment in housing. With the prospect of paying higher capital gains tax and the loss of negative gearing, rents will have no option but to go up.

Increasing taxes on shares will drive less investment in Australian companies through retail shareholding and self managed super funds. 

Instead, Australians will be more likely to invest in foreign companies. The distortion will lead to fewer houses, fewer jobs and more risky investing to make up returns.

Question two: will the money actually be raised?

Labor loves to create new taxes that come up skint. Labor’s Mining Tax was probably the least credible attempt to establish a new tax Australia has seen. 

The Mining Tax was announced in 2010 and legislated in 2012. Labor projected it would raise $10.5 billion in its first year, whereas it collected just $500 million over the one and a bit years it was in place.  

Labor locked in spending against the revenue that never materialised, such as paying to increase the Superannuation Guarantee and infrastructure.

The national budget is no different to a household budget, if no money comes in, no money can be spent. Unless it goes on the credit card - which must be paid later, with interest!

The proposed taxes on housing and retirees are built on equally shaky foundations. Behavioural changes (reduced investment in housing and shares) will ensure much of the money will never come in the door. Meanwhile the plans to spend it are well advanced.

This is the precise cycle Labor repeats. It’s how deficits are made. It’s how debt is built up. It’s how Labor loses control of the budget every time.

Question three: is history really going to repeat itself if Labor is elected?

The Coalition is Australia’s best economic manager. Partly that is because we believe managing anything requires a rule book. 

In the case of the national budget, the Coalition places a “fiscal rule” which ensures tax revenues do not exceed a certain proportion of the economy – 23.9 per cent. This rule ensure taxes do not stifle growth and it incentivises spending restraint.  Labor’s national platform says:

"Labor considers the Coalition's arbitrary cap on the proportion of tax collected as GDP does not fulfil any useful economic purpose."

Translation: we will raise taxes.  

The other issue is Labor cannot control spending. On the spending side, when last in office, Labor was projected to spend 26.5 per cent of GDP by 2023-24. 

After five years of Coalition government, spending as a proportion of GDP is down to 24.9 per cent. It is on track to be 24.6 per cent from 2020-21. 

Finance Minister Mathias Cormann noted the Coalition has limited “real spending growth to 1.9 per cent on average per annum since our election to government… (and) over the last 30 years, Labor Government have been in office for 14 years.  In that time they have not delivered a single surplus budget.” 

Labor takes its budget advice from Getup who said “deficits are, and should be the norm.” 

No nation can afford permanent deficit with never ending debt. Eventually, borrowing solely to meet interest costs is required.

The past shows how this will play out, Labor cannot manage the Australian budget. Australia cannot afford to repeat the cycle.

Andrew Bragg is a Liberal Senate Candidate for NSW 

Labor not as safe as houses

Daily Telegraph 17 January 2019

The Coalition government is due to return Australia to surplus from next financial year. 

Despite the improving financial standing of the nation, the Labor Party proposes to hit the economy with $200 billion in new taxes.

Labor will turn Australia into a high tax paradise. There will be brand new taxes on houses, shares, superannuation funds, trusts and there will be higher personal income taxes for millions.

Small businesses, typical “mum and dad” investors and the economy at large will suffer from this swag of unnecessary taxes.

One of the worst new taxes is Labor’s housing tax. 

The housing tax has two elements: (1) a ban on negative gearing on existing homes and (2) a reduction on the capital gains discount for assets held for more than one year from 50 to 25 per cent. 

This proposal will end the practice of deducting investment costs (such as loan interest) against wage and salary income unless the investment is a new house. This overturns a fundamental principle that expenses are deductable for tax purposes.

There are three significant problems with this new tax. 

Firstly, this will do nothing to boost housing affordability – indeed it will likely increase rents.

Labor’s attack focuses on the evils of negative gearing exercised by “property barons” and have promised to improve housing affordability.  

Labor says: “this policy will see a boost in new housing and will provide young families with the chance to find a home, and will take pressure off inner city housing markets that are predominantly made up of existing dwellings”

Any link between banning negative gearing and increasing capital gains tax with increasing affordability is totally confused. 

How would increasing housing taxes which reduces investment in housing create more homes?   

With studies showing the policy will dry up investment into both new and existing houses, it is more likely we will end up with fewer houses which are worth less with higher rents.

Cadence Economics’ study for the Master Builders Association shows the housing tax will reduce supply of housing in Australia: 

“Changes to limit negative gearing to new dwellings and reduce the CGT discount to 25% are estimated over the next five years to reduce new dwelling starts by between 10,000 and 42,000.”

Over summer, new analysis from housing market experts Corelogic Data highlights the prospect of misguided tax policy is already impacting the supply of new homes: 

“Potentially investor sentiment is being weighed down by the potential for changes to taxation policies related to housing should there be a change of government.” 

UBS’ chief economist has warned the changes could badly damage the economy: 

“My concern would be that if you were to make a material change to tax policy at the same time as banks are tightening lending standards, it could exacerbate what's already a downturn into something more serious.” 

Secondly, Labor’s housing tax is poorly targeted.

Australians with more modest assets will suffer the worst consequences. The policy cancels the ability to deduct investment expenses against wages but not against non-wage income.

70 per cent of people using negative gearing have one property and have a net rental loss of less than $10,000.

Prior government analysis shows people earning less than $100,000 will be able to claim on average 28 per cent of their investment costs (unless they invest in new housing). Whereas people earning more than $109,000 will be able to keep claiming 86% of their investment costs in existing housing.

Big wig investors will be able to use income derived from non-wage income such as investments in other houses or complicated investment schemes. 

Property tycoons win out whilst the nurses, teachers and police investors miss out. 

The Centre for Independent Studies has said: “the proportional benefit of negative gearing is substantial at low income levels. This could include non-working spouses holding negatively geared property. Abolishing negative gearing will disproportionately hurt the lower income earners.” 

Thirdly, it is unclear what the purpose of this policy is; and when it starts.

On purpose, despite the policy being likely to reduce housing supply and therefore affordability, its confused stated aim is to improve housing affordability by reducing investment.  

Even one of Labor’s key budgetary advisers Bob Officer says “What is the social cost associated with home ownership or investment in housing? As a generality there is none. In fact, one could argue for a social benefit in that providing housing encourages better citizenship and social cohesion.”

Why would any political party want to reduce investment in housing?   

In reality, it is a populist exercise which has the illusion of smashing rich people when it simply reduces opportunities available to all working Australians. 

Surely now that Sydney and Melbourne house prices are falling by 9 and 6 per cent respectively, even Labor will not maintain the lie this policy will increase affordability.  

On timing, Labor’s official website says:  “Labor will limit negative gearing to new housing from a yet-to-be-determined date after the next election.”

Newspaper reports claim the Opposition Leader is “unsure” when the policy would start. Sound good? Only if you don’t want to buy a house, rent a house or invest for the future.  

Australia is soon to be back in surplus and cannot afford amateur hour economic management. 

Andrew Bragg is a Liberal Senate Candidate for NSW - @ajamesbragg