Opinion Pieces

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

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