Facebook 1 February 2019
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.