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Shorten’s New Class War!

Yep, I was mightily confused when I saw the headline today:


And I really wished that the sub-editor was around so I could ask him when the old class war ended. Surely you can’t have a new war when you haven’t called off the old one.

Of course, the Liberals were a lot more restrained. Scott Morrison accused Labor of “stealing” from retirees…

Before I go on, I guess that should make sure you all understand what’s actually being proposed by Labor.

Ok, companies pay tax. No, really. Some of them actually do. Anyway, the theory goes that if the dividends from any shares you own have already paid tax, then you get a tax credit so that you’re not taxed on this income twice. I won’t go into all the detail about fully franked and partially franked shares, because it’s enough for you to grasp what’s being proposed by Labor if you grasp the concept that the franking is simply a way of stopping the money being taxed both as income made by the company in which you own shares, and by you personally, as income tax.

While some rabid socialists may tell you that any income earned by companies should be confiscated and distributed to the Society for the Promotion of Non-Trotskyist Communist Thought In Schools, the average person in the street would see that taxing the same income twice is a little unfair.

Whatever your feelings on this concept, however, Labor aren’t proposing to get rid of franking. Under John Howard, people who were earning an income below the tax-free threshold, could convert their franking credits and receive a cash refund from the government. While this is similar in concept, there’s an important difference, and the best way to understand it is to look at how negative gearing works.

You buy a property (or shares) with the idea of producing an income. However, in most cases, when you borrow money to buy a property, the interest you pay on your loan will be more than the income you receive from your investment. Because you are making a loss, you can claim this loss against the rest of your income. Why this is a good investment plan for some people is that they can claim the loss against a high income, but as time goes on, the difference in interest in rental income and interest becomes smaller and eventually the property is positively geared. Not only that, but there’s a capital gain which doesn’t get taxed until one sells.

The important thing to realise with negative gearing is that there’s not much point in doing it if you’re not on a high rate of tax. And, there’s no point in doing it, if you’re paying no tax, because the government doesn’t give you a cash refund for the money you’ve lost. In that case, if you don’t pay tax and you’ve negative geared properties or shares, it’s just bad luck. In other words, it’s completely different to the franking cash refund for people who own shares and pay next to no tax.

Now, some would argue that this is a bit of an anomaly and why should people in similar situations be treated differently. They are not being taxed twice as the Liberals want us to believe. They’re being taxed once. They just don’t have the sort of income to offset the franking credit, like someone with an investment property.

So who would own shares and not be getting a big enough income?

Ok, Nanna might miss out on twenty bucks a year from her hundred Telstra shares, but if you add a couple of thousand dollars to the aged pension with the billions you save from the cash back scheme, she should be no worse off. It’s the people with the self-managed super schemes who’ll be most likely to be hit, and given that these people are arranging their affairs to minimise their tax, then who could have a problem with ensuring that they haven’t taken advantage of the system to pay almost none at all?

Well, obviously the Liberal Party could. See, according to them, this is stealing from retirees. I was waiting for an interviewer to ask Scottie if he was going to report the Labor Party to the police and have them charged with theft.

Yep, Mr Morrison was in Michaelia Cash-like form. He was complaining that Labor already planned to tax everybody and that they were the party of high tax and they couldn’t get their spending under control and just when we’ve got the Budget back into… well, anyway, just when we’ve got the Budget back into a position where we can give away $25 billion to multinationals and add $200 billion to Defence, why we can even give an extra couple of billion to schools… Just when we’ve done all the hard work, Labor will come along and tax all these people and so they can spend on things that aren’t Defence related.

I hadn’t seen a performance like his since Barnaby told us about the $100 lamb roasts and we were being asked to say good-bye to Whyalla. It was almost like when Labor proposed asking people to keep a log book to prove that their leased cars were actually being used for work.

That, we were warned, would mean the end of the auto industry in Australia. How fortunate that the Liberals got in, and we had to wait an extra year or so.


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  1. Clean livin.

    Nana WILL miss out on $20 per week for her 5000 shares, but her neighbour, Alex the sparky, who also has 5000 shares, will not be impacted.

    Maybe not theft, but certainly a BBQ stopper

  2. Rossleigh

    If Nanna has 5000 Telstra shares, AND earning no income then it’d be $300 for the year, tops. Like I said, an increase in the pension should take care of Nanna, which is affordable with the billions saved!

    Unless Nanna is one of these Mum and Dad investors that the Liberals like so much… Then she probably has about two million in a self-managed super fund with another two or three million in the Cayman Islands. After all, if she’s a Nanna, she’s also a Mum!

  3. Clean livin

    Rossleigh! stick to your blogs, they are excellent, but your maths leaves something to be desired. ($664)

  4. Rossleigh

    Ok, 5000 Telstra shares would be about $17500. At ten percent she’d be earning, $1750. The franking credit would be thirty percent which is close enough to your figure of $664 for me to agree with your maths, but I stick to my point that it’s not a figure that couldn’t be offset with ha rise in the pension.

  5. Pierre Wilkinson

    Hey, Mum and Dad investors exist in the parallel universe of “trickle down”, where wealth inequality is class warfare and penalty rates an assault on business and unions are too dirty to talk about, but somehow Labor has been the serpent in this paradise and is to blame for everything that people do not understand is only being done for their benefit.
    Simple really.

  6. Matters Not

    Yes Rossleigh there’s a mountain of inconsistencies in the tax system. Reform is the way to go if you want some fairness via principles, and perhaps consistency and predictability. Yes predictability is important. Retrospectivity is usually considered to be a no no. Ambushes, generally, are considered to be political poison. Not only for the retirees in this case but also for their offspring who for various reasons (including selfish ones) will also be upset.

    It’s one hell of a gamble. One might note:

    It must be considered that there is nothing more difficult to carry out nor more doubtful of success nor more dangerous to handle than to initiate a new order of things; for the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order; this lukewarmness arising partly from the incredulity of mankind who does not truly believe in anything new until they actually have experience of it.

    Seems to me that Shorten has lost votes today in the hope he will win some in the ‘morrow.


    Given his past and recent decisions re funding of Catholic schools via unprincipled deals, I think his political nous is somewhat lacking. But only time will tell.

  7. helvityni

    Husband is fuming and predicts vote losses for Bill. Labor’s me-too treatment of asylum seekers turned him Green some time ago…

    What about taxing all overly sugary, unhealthy drinks instead…

  8. Mark

    Well let’s stop wages being a tax deduction then, that would make all income taxed the same way.

  9. wam

    A very clever man is our shorten:

    He is the obverse of Philby, Maclean, Burgess and Blunt all rolled into one.

    Only a dream but Oh wouldn’t I love to see the ceo’s bonus of millions of franked shares getting whacked? Capital gains???

    ps Helvityni your old man is half right votes are going going gone making SA Labor’s job harder and half wrong batman’s sludged to the pragmagreens what a tragedy.

  10. Glenn K

    Are you all forgetting that the over 65 generation are more pro LNP than any other party? This is a great move by Labor. Let’s see more reforms like this.

  11. Rossleigh

    Mark, wages paid by an employer are only a tax deduction against income earned. If they were treated the same way as franked dividends, someone could their employees more than they received in income and hit the government for a cash refund.

  12. Alpo

    This ALP policy only affects 10% of retirees, the wealthiest ones…. It’s a very safe Labor policy…

    A class war?…. Yes, I agree that there has been a class war for a very long time and Warren Buffett famously declared that the top 1% were winning it…. Perhaps the situation in the battlefield is turning around right now and the advancing Social Democratic army is defeating the Neoliberal/Conservative army…

  13. ace Jones

    to add insult to injury ABC interviewer Fran Kelly had Corman on AM to ‘explain’ Labors new policy , what chance does the truth stand
    the influence murdoch has on the abc is complete, the germ couldnt buy it so he white-anted it out, from the inside!

  14. Alpo

    Helvi, your husband is a very wealthy Green if he is worried about this… why is he “fuming” against Bill? This policy affects just 10% of retirees and it is expected to make “fume” only that proportion of 10% who are greedy Liberals. Your good Greens-voting husband surely will appreciate the need to ask wealthiest Australians to contribute more to this country, rather than always relying on bashing the poor and the middle class, which should be abhorrent to any Greens voter.

  15. paul walter

    Alpo, you don’t overestimate the intelligence of the public, do you?

    Labor will have to be careful how they handle this, they must surely have anticipated a fear and smear campaign?.

    Buffet is of course quite right, yet look at the election results and the polls.

  16. paul walter

    The Liberals and their supporters…you can’t shame them.

    They are like something out of a Dickens novel.

  17. helvityni

    Alpo, the Liberals decided that because we have been sensible and saved, and although our savings were only a tad over the pension cut-off rate; NO pension…Now we, (life-time Labor siders), will not get the franking credits either…squeezed in from both sides…we do not have a taxable income…we are not wealthy..

  18. Catherine

    Someone correct me if I’m wrong, I’m sure you will anyway. I was led to believe that a single pensioner could earn up to $2996.80 per fortnight before they lose the pension all together.

  19. Zathras

    Now would be a good time to drag all tax concessions and handouts into the public arena for discussion – Mining and Gas companies and private Health Funds for example and how much taxpayer money we keep shovelling into their coffers.

    Like Capital Gains Tax and Negative Gearing, Treasury advised the Government about this two years ago but they just but they sat on it and pretended it didn’t exist.

    I’m a self-funded retiree and beneficiary of imputation handouts but even I can recognise a rort when I see one. I’m still amazed that my private pension income remains totally tax-free.

  20. Kaye Lee

    Could I point out that these self-funded retirees must have significant capital to be getting these large deductions. Is it beyond the realms of possibility that they actually have to use some of their own money to support themselves? Draw down some of that capital if the dividends alone are insufficient. That’s what those of us who don’t have a share portfolio or a defined benefit superannuation policy are forced to do.

  21. Jaquix

    Yet another loophole we didnt know about, being plugged by Labor. If there is a war, its a war on waste. The Liberals are wastrels. Its they who wage war, on the poor and vulnerable, yet leap into action when (mostly) wealthy people with good accountants, are threatened to have their cash cow (us) cut off. This is such an inequitable item introduced by Costello, its a wonder it hasnt been fixed before. But Libs wouldnt have the guts, and it favours “their own” so good for Labor bringing it up. There are plenty of ways peoples affairs can be rearranged to make up for the loss of this “cash grab” by the mostly wealthy.

  22. townsvilleblog

    Some time ago there was controversy concerning the pension and one of AIMS correspondents pointed out that a scheme was begun in 1930s to put aside 3% of every workers tax take towards their pension at the completion of their working life, which the tories have denied having, but it does exist, in other words the pension is not a burden on society because it is already paid for.

    These self funded retirees in the main have had high paying jobs and would not be living on the extremely poor amount that is paid in the pension. I exist on a part pension and believe me it’s not much, but in my working life I was a mere clerk, most of these self funded retirees have been highly paid managers and the like and wouldn’t have ever known what it’s like to do it tough!

  23. Kaye Lee


    I have to agree it is a rort, pure and simple. Good luck to those who have benefited from it but crying about it being taken away just doesn’t pass muster.

    The idea, as Rossleigh pointed out, was to stop profit being taxed twice. This system means that profit isn’t taxed at all. The tax the company pays is refunded to individuals who didn’t pay any tax. It isn’t a tax increase at all regardless of what Morrison says. It just means the government stops giving away revenue from company tax to people who don’t want to use their own money – people who want to preserve their capital presumably to leave to their children.

    This further exacerbates and entrenches inequality. The money would be far better spent increasing Newstart payments and pensions and building affordable housing and public transport. That would create far greater social and economic benefit.

  24. townsvilleblog

    Jaquix, I agree wholeheartedly the tories hate us working class people, they see us as a cost to themselves, if they didn’t have to pay us to make them money, they could make more money with the savings of our wages, it’s insatiable greed that drives them, which is why I hate them so much!

  25. townsvilleblog

    helvi you are either do not understand this policy (or your husband doesn’t) or you and he are wealthy, any attempt that the ALP make to make the wealthy pay their fair share of tax, including the multinational corporations should be welcomed by the populace in general. If anyone saw Q and A on Monday night concerning our aging infrastructure and lack of a plan for population control/immigration etc you should understand that governments local/state and federal will need a fortune to pay for new infrastructure in the coming decades.

  26. Glenn Barry

    Sky Fairy Scotty Morriscum doing interviews this morning, seeing fit to give the Labor party lectures on fairness – OH THE IRONY!!

  27. diannaart

    Australia is one of the world’s wealthiest nations – that there are people who have to struggle week to week just to stay fed, let alone a safe place to sleep…

    The LNP never has “got it” as, Paul Walter noted, they cannot be shamed, they do not feel shame.

    As for Labor, well anything they propose would be like walking on egg-shells – such has been the successful campaign by the hard-Right.

    Not being in the position of having a share portfolio nor any super left (I had to use my super to keep myself from winding up homeless), I don’t really care too much about those in such positions as to be outraged by Shorten’s proposals – you have a safe home, food on the table, clothes to wear? What IS your problem?

    To reiterate, as Australia is one of the world’s wealthiest nations, it can afford to bring its welfare system into one which helps people rather than keep them down.

  28. Peter F

    The Treasury has been considering this move for several years.

    I was surprised that 7.30 report last night presented the case of a 53 (!) year old retired Queenslander who complained that he would lose something like $17k per year under this proposed scheme. He claimed that this would mean that he could not pay off the large caravan he had parked behind his boat.

    He claims an income entirely from dividends of around $56K.

    If we consider that the proposal only applies to those who have a taxable income below the threshold, it would seem that his story does not really stack up. Even the payments on his van and boat would represent expenditure approaching the tax threshold. He would require funds from another, non taxable source for him to pay everyday living expenses . Otherwise he would have some taxable income, and the imputations would be credited against any tax due.

    The ALP have said that the whole idea of their scheme is to close a loophole where those who can afford a good tax expert can represent themselves as not having an income. Those people (not taxpayers themselves) are the ones this is aimed at.

    Anyone who DOES pay tax will continue to be given tax credits.

    Meanwhile the coalition continue to distort the facts , in support of the wealthy who pay no tax.

  29. Rossleigh

    I have realised that I didn’t need to go into a long, convuleted comparison with negative gearing.
    To put it much more simply:
    The franking credit was introduced so that the same income wasn’t taxed twice.
    Under the current arrangements, the company pays the 30% company tax. If this goes to someone earning no taxable income, they receive a refund. This means that the income wasn’t even taxed once.

  30. Zathras

    Anybody who rakes in $56K of dividends per year must be sitting on a pretty hefty share portfolio.
    Given the volatility of the share market I’d be surprised if that amount was consistent and to have all his pension invested in that way is somewhat foolish.
    I suspect a bit of exaggeration was at work or he hasn’t told the full story about his investment.

    That’s also far in excess of the annual aged pension for a couple and more than double the rate for a single.

    He certainly can’t be “a typical battler”.

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