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If Labor Are Elected, There’s A Very Real Risk That Australia Will Tumble Into A Recession!

A few days again our PM, Scott Moribund, warned that there was a real risk of a recession in Australia under a Labor government. Well, given the polls and the state of the world economy, one would have to say that he’s right.

I mean, he didn’t say that Australia wouldn’t end up in a recession if he were re-elected, he spoke about the likely possibility of what could happen under Labor, and given that he’s not likely to be PM in a few months, there’s almost no chance of Scottie being there if a recession hits, so it’s far more likely that we’ll have a recession under Labor than the Liberals. In much the same way, Roger Federer is much more likely than me to lose the final of Wimbledon this year.

Still it IS hard to imagine a recession hitting Australia in the near future given how much jobs and growth the Liberals have “created” with their plan. I still haven’t heard them articulate exactly what their plan is beyond ensuring that the economy is STRONG, growth is happening and we keep bringing out people on temporary work permits to hide the unemployment rate. What’s their plan for ensuring that the economy is strong? Well, sound economic management? What does that mean? Ensuring that the economy is strong.

Apart from Mr Morrison’s tricky way of suggesting that if the world economy hits the wall and we have the GFC Mark 2, then it will all be Bill Shorten’s fault even though the Liberals keep suggesting that Labor will be running an expansionary spending program, while the Coalition intend to suck money from the economy through running Budget surpluses, we’re going to hear another slippery use of data quite frequently in the coming weeks.

Last year, school funding was changed so that it was the taxable income of the parents rather than where they lived that would determine funding. While it seems fair on the surface that people with low taxable incomes should get the most in terms of funding, you only have to remember that adding the word “taxable” in front of income means that I’m wealthier than many of the multinational companies that grace our shores, generously providing jobs even though they’re seemingly making less profit than if they sold up all their assets and invested the money at two percent interest. While in some cases the taxable income will reflect the lack of wealthy parents at a school, in others, we’ll just be rewarding people who’ve managed to minimise their tax by giving them more in government funding.

Yes, we’re hearing about these poor people who are going to miss out because of those bloody socialists taking away their franking credits. An article in “The Financial Review” the other day suggested that it was mainly women who were going to miss out, while adding that they were taking money away from “Nana”. The writer used the word “Nana” a number of times. Why that’s even worse than when they hurts the “mum and dad” investors. Of course, nobody ever points out that Rupert and Gina are “mum and dad” investors.

Personally, if Nana is going to lose twenty thousand dollars under Labor’s scheme, I say bad luck but I’ll certainly be nice to her in the hope of being part of her will. While Josh and Scott have been telling us that some of these people are on very low taxable incomes, they never point out that retirees over 60 aren’t taxed on their superannuation earnings at all. So even if Nana is has a Self-managed Super Fund from which she draws a million year, her taxable income will be zero from this.

However, if we’re not talking about Nana, but one of those mum and dad investors. Let’s call him, Ken. If Ken has negatively geared twenty properties and managed to reduce his taxable income to somewhere near Nana’s, he too can claim the franking credits back in cash from the government.

Of course, there haven’t been many stories in the papers which point out that if someone was going to lose out, for example, $12,000 under Labor’s changes, they’d need to earning dividends of around $40,000. This would mean that they had over a million dollars in share holdings. Ok, I understand that if they have no super they may not be holidaying on their yacht, but it’ll be a few years before you have to use your house for a reverse mortgage.

There may need to be some tweaking so that someone who only owns a handful of shares  -which they bought when John “Shifty” Howard assured them that Telstra 2 was a great investment and we’re selling it for ideological reasons not because we want to grab your hard earned money  – doesn’t end up struggling to pay their energy bill… Although, we have been assured that energy bills are coming down so that should be ok.

Franking credits were introduced to stop people being taxed twice. Once when the company paid the tax and again when your dividend was added to your other income. If you don’t have enough taxable income to pay any tax, then your not being taxed twice, you’re not even being taxed once because you get the money that the company paid to the government and the government get nothing.

On another matter, I noticed a tweet today from John Riddick, who wrote Make The Liberal Party Great Again (Again? Someone needs to break it to him gently):

“Zali Sunday, Banks today & more to come. Phelps & Sharkey plugged into these campaigns. These ‘indies’ are not independent. They are part of a co-ordinated well-organised national campaign … also known as a political party in disguise.”

Personally, I don’t think that Independents should be allowed to be part of a “co-ordinated well-organised national campaign”. It’s unfair on the poor Liberals who haven’t been able to co-ordinate anything apart from their blue ties.

Cheers.

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28 comments

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  1. John Hermann

    By the way, it’s not only the Coalition that intends to suck money from the economy through running Budget surpluses. According to Chris Bowen, Labor shadow Treasurer, Labor also will be running budget surpluses. Not only that, Labor’s surpluses will be bigger than any surpluses the Coalition might be able to manage.

  2. Kaye Lee

    “Personally, I don’t think that Independents should be allowed to be part of a “co-ordinated well-organised national campaign”. It’s unfair on the poor Liberals who haven’t been able to co-ordinate anything apart from their blue ties.”

    Hilarious.

  3. RomeoChrlie29

    This must be the ‘sensible centre’ Party. First Phelps used the term, then the skier and I notice it popped up from Julia Banks today. These are all Libs who aren’t rwnj’s but who are, nevertheless conservatives. The skier, for instance says she opposes Labor’s neg gearing and cap gains changes. Can’t see any of them supporting the franked credits issue even though it is one of the crudest rorts there is. They are all to be congratulated for their position on the importance of doing something about climate change but, frankly, I hope Labor ends up not having to rely on any of them to govern.

  4. Joe

    Please don’t make stupid comments on a subject you know nothing about.
    Franking credits and self funded retiree’s have changed dramaticly since bank interest has collapsed and mortgage rates have gone down
    The self funded have moved investment from bank interest to Australian shares . you have forgotten like your labor mates that those with large super balance now pay 15% tax on the income and can use the credits. Us poorer retirees need the franking credits A couple in their early 80’s could have rexeived 600000. Dollars in Old age pension it they had wasted their money. Yet we get nothing!;! The few franking credits that could be saved are nowhere near $1.6 bill as he has done the sums on old data.

  5. pierre wilkinson

    “What’s their plan for ensuring that the economy is strong? Well, sound economic management? What does that mean? Ensuring that the economy is strong.”
    thanks Rossleigh… yes minister in Oz,
    and Kaye’s selection, too funny…
    and John Hermann, yes , but didn’t Chris Bowen qualify his claim by suggesting that if the large corporations payed their fair share of taxes, then it would be easy to deliver services and still have a budget in surplus?

  6. Rossleigh

    Which part of my maths are you disputing, Joe?
    I did suggest that it probably needs to be tweaked.

    As for those with a large super balance paying 15%, this is only true in the accumulation phase and it applies whether your balance is large or small. My understanding is that income for those over sixty is not taxed once it’s in the pension phase.
    If you can quote me any official documents, I’d be more than happy to revise this, but I don’t remember any changes since Peter Costello made all superannuantion tax free for those over sixty in the pension phase.
    As for not making stupid comments, it’s a free country and I’ll make as many as I damn well please. Stop trying to shut down free speech with your political correctness!

  7. Harry

    Joe has a point about one issue for retirees: the income from bank interest term deposits have dramatically fallen. Of course anyone drawing a regular pension from their fund need to keep some free cash (even at low rates) in their fund to pay their regular pension but surely Joe does not just have his super in term deposits alone?? There are many investments which offer a relatively low risk attractive return. Some pay quarterly.

    Labor needs to clarify that it does not propose to hit retirees on the age pension who may currently receive some useful topup from franking credits. Currently ShoutyMcShoutFace is claiming Labor will hit them too.

    John Hermann: I agree that if Labor follows through with its declarations that it will outdo the Coalition with the “our budget surplus will be bigger than the Coalition” they will most likely bring on a recession by sucking even more money out of the economy.

    I hope that Labor is smarter than that and its rhetoric is intended to deflect the usual Anti-Labor “debt and deficit” BS that Abbott used to get enough voters on board.

  8. paul walter

    I think last time Labor was in there was a recession- the Meltdown caused by international financial capitalism- and the Rudd government handled it perfectly.

    If a recession happens it will be because of the eLNP clamping down on incomes growth inducing a housing market bust because people can’t afford to pay even more.

  9. Harry

    paul walter: Labor did respond to the GFC by injecting significant stimulus into the economy that avoided the worst of the GFC but under pressure from the “debt and deficit” screams from the Coalition he buckled and withdrew the stimulus too early.

  10. Matters Not

    RE;

    would mean that they had over a million dollars in share holdings.

    Maybe not. It would depend on the type/category of shares owned. Shares that promise good capital growth, more often than not, don’t pay good dividends and (perhaps) pay relatively little tax – hence offer only weak dividend imputation returns. On the other hand, certain companies focus on good returns via dividends, pay higher taxes and therefore offer much better levels of dividend imputation. As always – it depends.

    Further, as far as I am aware Bowen et al haven’t yet had the parliamentary counsel draw up any legislation – so the detail is lacking. Also changes of this nature will have to pass BOTH houses. What eventuates is to some extent – still up in the air. To date Labor’s made several revisions to what they originally called a well thought out policy – clearly it wasn’t. The original principle was sacrificed on the altar of political pragmatism. So who knows where it will end up.

    Originally (years ago) the principle (supported then by Labor) was people with no or low income should receive equivalent tax treatment as others. Them days are gone. In my view it would be a better political policy if it was grandfathered of introduced over time. We’ll see what happens to this well thought out policy – that wasn’t.

    http://insidestory.org.au/the-real-story-of-labors-dividend-imputation-reforms/

  11. Harry

    Matters Not: you make some good points. Labor’s policies will have to pass through what is likely to be Senate not controlled by them. So their policy will probably have to be substantially amended or tweaked to have a hope of getting through.

    As for its policy on Negative Gearing, I agree it would be sensible to grandfather the phasing out of Franking credits for those who pay no tax at all in super. You make fewer enemies that way and over time your goals can be achieved.

    Chris Bowen may just be trying to appeal to Labor’s base of course.

  12. totaram

    Harry: We can discuss this franking credit issue endlessly, but the bottom line is to look at some actual cases with the NUMBERS. Until then it’s all waffle, like the coalition’s scare campaign as prosecuted by the MSM and the shock jocks, who appear to be the sources of Joe’s “information”. As far as I know, pensioners have been exempted, so it’s a non-issue if Joe is a pensioner. A pension for a couple who own their own home is around $18000 a year. How they would have got 600,000 as pension is anybody’s guess but it’s hardly relevant.

    Regarding surpluses, they always suck demand out of the economy and are only useful if inflation is rising. Nothing to do with taxes. The 3 sectors identity ensures that the surplus will only eventuate either if the private sector takes on more debt or if there is a trade surplus. For those who don’t know, an identity is a relationship that is true “by definition”. I have anecdotal evidence that the Labor “economists” don’t even accept this identity.

    Our civilisation has truly reached its level of incompetence. Fortunately, I will soon be gone! Unfortunately for them, my children will still be here.

  13. Rossleigh

    Matters Not. True, but not many companies pay dividends in excess of 4% in the long term, so I based my figure on that.

    Whatever way you look at it, it still remains a government handout. I’d rather see it abolished even if all the revenue saved went into increasing the age pension.

  14. Matters Not

    RE:

    pensioners have been exempted,

    That’s my understanding as well. Initially, they weren’t but now are – under the revised policy. As are some types of carers etc. Pragmatism replaced principle. Not unusual – to some extent that’s what politics is all about.

    RE:

    still remains a government handout

    as are ‘aged pensions’ and so are many other ‘outlays’ including what the economists call tax expenditures. (Depends on definitions.) What we need is a root and branch review – put it all on the table – so we can all see where the rorts are. We need to define categories such as assets for example. Then decide what tax treatment should be handed out and, more importantly, the why.

    Should the emphasis be on good public policy – or good political policy? Both are not always possible.

  15. Matters Not

    Well aware that when it comes to tax, governments ought to be able to walk and chew gum at the same time (or to use the original statement by LBJ – fart and chew gum at the same time) but until governments of all political persuasions get serious about tax evasion by multinationals, then resentment will build when governments are seen to ‘pick’ on the locals. (Who by the way – spend locally.)

    Take West’s top 40 tax avoiders. Take Energy Australia Holdings Limited (EA) as a specific example (3 on the list).

    Electricity and gas bills have doubled. Pay for executives and directors has shot up. Some 42,000 Australians live in energy poverty. This, once a state-owned enterprise, now has a parent company in a Caribbean tax haven and pays zero tax. Auditor PwC.

    Yes zero tax. More detail: Total Income 3 years $23,901,332,940 . They’ve done well. Note also – Taxable Income 3 years $51,800,099. And here comes the cruncher: Tax Payable 3 years 0. Yep on an income of nigh on $24 billion over three years, EA paid zero tax – not a brass razoo. (I mention Energy Australia because they are my provider.)

    Yes rorts of this nature persist and yet we have governments that focus on prosecuting ‘robo debts’ and the like. But it works politically because it gives the punters someone to hate – while the big fish fly above and below the radar. And EA don’t head the list.

    Quick – look over there! Whatever you do, don’t look at my political impotence – or my lack of political will – or my incompetence.

    https://www.michaelwest.com.au/companies/tax-dodgers/energyaustralia-holdings-limited/

    and

    https://www.michaelwest.com.au/companies/tax-dodgers/glencore-investment-pty-limited/

  16. paul walter

    Yes, nice one, MN.

  17. Zathras

    I’m a self-funded retiree who – thanks to Howard’s desperation at the time – pays no tax on my pension income and is also entitled to have my Dividend Imputation Credits reimbursed by real taxpayers. It’s one of the budget structural problems he left behind for future generations.
    The amount I can claim is less than the cost of paying an accountant to submit a tax return.

    With the annual cost of the Dividend Refund Concession around $5 billion a year and the budget still in deficit, the Government has been borrowing $100 million a week – week in week out – to fund this concession.

    And some people reckon getting rid of it is unfair.

    Young people in particular should be worried about the debt they will have to repay one day.

  18. Harry

    Zathras: I am also a self funded retiree and we benefit from the imputation credits. I will not be happy to lose them but it is a rort really as is Negative Gearing and the widespread use of trusts by the wealthy to minimise tax.

    To take your last point about debt: by convention rather than necessity, the federal government issues debt (bonds) whenever it spends more than it takes in taxes. This is a monetary operation not a funding operation. What does it mean for the federal government to owe money when it creates it whenever it spends, daily and every day by marking up bank accounts.

    Taxes are needed though to control overall demand, and should fall most heavily on the very well off. I do support your call to close tax loopholes.

    The real problem is PRIVATE debt which does have to repaid.

    Did you read the recent series of very accessible articles by John Kelly ?

  19. New England Cocky

    “Personally, I don’t think that Independents should be allowed to be part of a “co-ordinated well-organised national campaign”. It’s unfair on the poor Liberals who haven’t been able to co-ordinate anything apart from their blue ties.”

    In New England, Northern Tablelands and Tamworth we only get public infrastructure projects when we have an Independent MP who represents the voters rather than the unelected political hacks who control preselection in the Notional$ Party for the benefit of foreign owned multinational mining corporations and broad acre farmers in NSW NSW and SW Qld ‘stealing’ MDB environmental flows.

    The Notional$ are making much of the present upgrade to the killer Bolivia Hill 35km south of Tenterfield and the Scone Town By-Pass. These two projects were funded in the 2013 ALP Federal budget thanks to the efforts of Tony Windsor (Independent) and struck out by Toxic RAbbott while Barnyard Joke was reported as “laughing”. Now it is 2019 and the Nat$ are crowing about “their public works in regions”!! Hahahahahaha!!!

    VOTE ANYONE BUT NAT$ & SAVE MDB COMMUNITIES

  20. flogga

    Rossleigh, $1.6 million is the maximum that can be in pension phase; any excess must remain in accumulation phase (taxable at 15%) or be transferred out of the super system. Nana can’t draw down a cool million each year tax free any more.

  21. Rossleigh

    Thanks, flogga. That’s a change that I wasn’t aware of. Still. Being taxed 15% on anything that you have in super OVER $1.6 million won’t be much unless you have much, much more. For example if you had $2.6 million in your super and a million was left in accumulation phase, then you would only be earning about $80,000 on this even if you were getting 8 percent. The idea that you couldn’t then afford the 15% of this in tax ($12,000) is a bit of a stretch.

    Who brought this change in? Surely not the Liberals!

  22. Zathras

    Harry,

    I did read those John Kelly articles and it’s a pity such information never seems to enter the mainstream media.

    I’m also aware of the difference between private and public debt and how it’s blurred for political advantage (debt trucks, tax threat horrors and other stunts) but since it’s the weapon the coalition like to use at election time I think it’s fair enough to play by their own standards.

    As I recall, Negative Gearing was introduced as a way of creating more available new housing stock but it’s become something else entirely and in the end our imputation credits are little more than middle class welfare.

    Although I’d like to claw back some years, I’m sort of glad not to be young enough to be battling against the odds in the current environment.

    Meanwhile, happy retirement!

  23. margcal

    The title of this worries me.
    If someone only reads the title and doesn’t bother with the article, that’s the message they take away and there’s a vote for the LNP.

  24. Rossleigh

    Ah, margcal, if I can influence people to change their minds with just a title, imagine what I’m doing with those who read what I write…

    However, I suspect that those who think that Labor are likely to ruin the economy are unlikely to be persuaded by me on any topic.

  25. OPPOSE THE MAJOR PARTIES

    BHP has $9.6 bill in franking credits in the bank that it has accumulated from owning shares in itself (via buybacks) and from its shares in its subsidiaries that it is considering distributing to shareholders. Is BHP a poor humble self funded retiree?

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