“There is nothing more difficult to take in hand, more perilous to conduct, more uncertain in its success, than to take the lead in a new order of things” Niccolò Machiavelli wrote around five centuries ago. The beneficiaries of reform, he wrote, will be quiet, but those who benefit from existing arrangements will be very loud in their defence of the status quo.
Geoff Wilson, writing on these pages last Friday, is certainly intent on being noisy. As I have said, he is entitled to set up a partisan campaign with the Liberal Party if he wants to: that is clearly what he is doing. And the campaign is getting shriller and more ridiculous as the next election approaches. He started a petition against Labor’s imputation policy but now campaigns against our negative gearing reforms as well and is now clearly engaging in a political campaign, not a policy discussion. Mr Wilson can engage in politics all he likes. But he should not expect his factual inaccuracies to go unanswered.
Labor will return dividend imputation to its original design, as envisaged by Paul Keating. Australia is the only country in the world which provides a refund for corporate tax paid to shareholders if they don’t pay income tax. It’s a $5 billion a year anomaly that must be fixed in the interest of budget responsibility.
Claim: In his oped in the AFR on Friday, Mr Wilson claimed that franking credit refunds are about returning an “overpayment” of corporate tax.
Fact: He has a different definition of “overpayment” to me. Every dollar of excess franking credits claimed as a cash refund is effectively a dollar less of company tax collected by the government for health and education. The refunds mean that every dollar of corporate tax paid by an entity is then just returned to its shareholders as a cash refund, to the extent that its shareholders do not pay income tax. At a time when people are concerned about the erosion of the tax base and that companies pay their fair share of tax, to suggest that the headline rate is an “overpayment” is remarkably out of touch.
Based on existing policy
Claim: That Labor’s reforms won’t raise as much as we’ve indicated, including because the independent Parliamentary Budget Office didn’t take account of the government’s $1.6 million transfer balance cap in their costing.
Fact: As the PBO told Senate Estimates, the costing incorporates a raft of potential behavioural effects and is based on all existing government policy, including the $1.6 million transfer balance cap. The PBO went even further, confirming after questioning that the approach taken when costing this policy was “relatively conservative”. Even the Treasury modelling, leaked by the government, showed it would raise close to $10 billion over the forward estimates, very similar to what the PBO estimated.
Claim: That Labor’s policy will hit retired “battlers” and “low income earners”.
Fact: Those retired Australians with the lowest wealth and income receive either a full or part pension. Every one of these 2.5 million Australians is exempted from the change. Distributional analysis has shown that for people of retirement age more than 80 per cent of the benefit of imputation refundability goes to the wealthiest 20 per cent of households. Analysis from the PBO shows that for self-managed super funds, more than half of all cash refunds accrue to people with balances over $2.4 million. To use taxable income figures, as these people do, is just fundamentally dishonest: our highly concessional treatment of superannuation means people can be of significant wealth and still have no or little taxable income.
Claim: There is an economic case for dividend imputation refundability because it supports the Australian share market.
Fact: When I learnt tax theory at university I was taught the best tax system is the least distortionary one: people should make economic decisions because of economic fundamentals, not because of favourable tax treatment. The current system encourages people to be overweight Aussie shares, meaning they have not adequately spread their risk and may suffer significantly in a downturn because of this overweighting.
Claim: Mr Wilson claims that Labor will “crack” if they get 50,000 or 100,000 signatures.
Fact: This is, frankly, a pretty arrogant claim. Unlike the coalition in 2013 and 2014, Labor hasn’t hidden its budget plans until after the election. We’ve announced our plans early and proudly. In fact, we announced our imputation policy in the lead-up to the Batman byelection. We’ve proudly campaigned for our policies in the Longman, Braddon and Perth byelections, all of which Labor won. Anybody who makes a claim that Labor will “crack” has significantly underestimated Labor’s resolve to improve the sustainability of the budget and fairness of the tax system. Half the Labor front bench has been signed up to Mr Wilson’s petition without our knowledge, which makes the claim a little more laughable.
Labor has shown a willingness to tackle issues that have been in the too-hard basket for too long and to argue the case for ambitious reform. This sometimes involves taking on vested interests and batting away misinformation. That’s part of the reform story. We’ll continue to seek a mandate for dividend imputation reform and we’ll implement that mandate if the Australian people agree at the election.
Chris Bowen is shadow federal treasurer.