Bill Shorten and the Labor party are beginning to demonstrate true grit. The latest policy announcement that will see an end to a welfare handout to the rich, otherwise known as the Dividend Imputation Scheme M2, is a masterstroke.
The dividend imputation scheme enables salary earners who own shares to minimise their tax liabilities with franking credits. However, where a person has a very low income those franking credits not only mean they pay no tax, but they result in non-taxpayers being owed money by the ATO.
Yes, it will hit some part-pensioners, perhaps as much as $4800 a year but, as they weren’t paying any tax, it was only acting as a supplement to their pension payment anyway. Its cancellation will result in them receiving a larger pension payment.
They will likely be no worse off, or minimally out of pocket. But for those who have large shareholdings and have used John Howard’s overly generous system to firstly, pay no tax, and then receive a cash handout each year from the ATO, effectively working the initiative in a way Paul Keating never intended, their days of sponging off the system are coming to an end.
This is just another example of the Howard era’s middle-class welfare that has reached its use-by date. We can place this in the same basket as capital gains tax breaks and negative gearing concessions that are wasted on the wealthy and which offer no benefit to our economy.
This May, Scott Morrison will deliver the last budget before the next federal election and it is not surprising he has been talking up the possibility of personal income tax cuts. So it wasn’t surprising then, when Bill Shorten made his announcement, that Morrison immediately began a scare campaign trying to frighten pensioners into thinking they will lose their imputation credits. They won’t.
They will only lose the amount over and above the point where they stop paying tax. And that will likely mean they receive a higher pension payment as compensation. As if to counter Morrison’s plan, Shorten has demonstrated that Labor can also offer tax cuts and he is showing us how they will pay for them.
And just so we get it straight, the amendment to Paul Keating’s original scheme was one of several measures introduced by Peter Costello in the early 2000s, that was introduced on the back of the mining boom and which was nothing more than a vote-buying exercise.
Shorten believes that the economy cannot afford such generous arrangements for the wealthy in much the same way Morrison believes we can no longer afford welfare for the unemployed, the sick and the less well off. It’s an interesting dichotomy. It’s neoliberalism versus left-wing ideology. We now have a clear distinction in policy approaches by the two major parties.
At a time when we have record high levels of private debt, record low interest rates, and mortgage stress tied to wage stagnation, the combination of which threatens to bring about an economic meltdown, highlighting the two starkly different approaches will make for a robust debate. It is one Shorten and his shadow treasurer, Chris Bowen are confident they can win.
We will probably get some indication of its acceptance or otherwise when the next opinion poll is published. However, putting some sense and sensibility back into the dividend imputation scheme is the right call.
