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Tag Archives: tax changes

Shorten’s New Class War!

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

“SHORTEN’S NEW CLASS WAR!” it blared.

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 twiced. 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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