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The Coalition tax plan – protection for the greedy at the expense of the needy

Taxation reform will be a key issue in the next election but it is already obvious that the Coalition, rather than trying to use evidence to convince us that their plan is better, are opting for a scare campaign full of slogans about Bill Shorten’s $200 billion raid on retirees and mum and dad investors.

It’s interesting that the government are trying to sell themselves as the fiscally more responsible option, crowing about delivering a surplus when all they are delivering is another promise of one ‘next year’.

Federal net debt in 2013 was the equivalent of 13.1 per cent of GDP. And now? Morrison’s last budget predicts it to be 18.4 per cent in the new fiscal year.  That blowout has occurred during a time of global growth after the GFC that Labor had to contend with.

This supposedly fiscally responsible government used the last budget to try to curry favour by promising tax cuts, and by giving up the fight to properly fund the National Disability Insurance Scheme through an increase in the Medicare levy.  Frydenberg’s next offering will no doubt be more of the same with dubious assumptions about the future to try to make the books add up.

Taking Scott’s word for it, Labor intend to raise an extra $200 billion in revenue from large corporations and very wealthy people, not by raising taxes, but by closing loopholes and reducing some of the overly generous tax concessions introduced by the Howard government.  They won’t reduce taxes for big business and high-income earners but will give a larger income tax cut to low and middle income earners.

Coincidentally, $200 billion is the same amount as the Coalition has committed to spend on weapons of war.

By announcing their policies early, there has been time for analysis of the impact of Labor’s proposals and a comparison to the Coalition’s plan for lower taxes for big business and high-income earners.

Everyone who earns less than $125,000 a year – that is, most Australians – will get a bigger tax cut under Labor.  Labor is offering a maximum tax cut of $928 a year for middle-income earners – the Coalition’s $530 plus an additional $398 promised by Labor. And for the 2.4 million low-income earners promised $200 a year by the Coalition, Labor will give them an extra $150 for a total $350.

A report commissioned by the Australian Tax Office has found that wealthy people are funnelling money into private trusts and avoiding paying tax to the tune of possibly several billion dollars every year.  Trusts are widely used in Australia for investment, real estate and business purposes to hold property for individuals, families and companies, unlike other countries where they are mostly used for the administration of wills and deceased estates, donations to charities and to provide income for people unable to manage their own affairs.

Relying on PBO costings, Labor says its proposal to cancel cash refunds for excess dividend imputation credits would save the budget $11.4 billion over the forward estimates from 2018-19, and improve the budget bottom line by $59 billion over the medium term.  In 2014-15, only 8% of taxpayers claimed excess franking credits and Labor has exempted pensioners.  More than 80 per cent of excess franking credits claimed by SMSFs went to funds with balances above $1 million and more than half by funds with balances above $2.44 million, based on information provided by the PBO.

Treasury advice on Labor’s policy to change negative gearing concessions said “Overall, price changes are likely to be small, though the composition of ownership may shift away from domestic investors.”  Scare campaigns that this will lead to a drop in house prices seem incongruous considering the drop we are already witnessing.  Current investors will not be affected.  More first home buyers will release some properties for rent and restricting the concessions to new dwellings will stimulate construction.

Josh Frydenberg would have us believe that the changes to capital gains tax will hurt those ubiquitous teacher and nurse investors the hardest.  The 50% discount introduced by Howard means this “unearned income” is taxed at a much lower rate than income earned in the form of wages and salaries, and also at a lower rate than bank interest and other forms of income.  According to analysis at The Conversation, those who would feel the change most would be higher income earners, wealthy older Australians, and partnered women, quite often on behalf of their higher income partner.

As the wealthy scream blue murder at the idea of the overly generous tax concessions introduced by Howard being wound back, they do not seem to care about the not so wealthy losing Family Tax Benefit, School Kids Bonus, Baby Bonus, clean energy supplement, promised increases to the Superannuation Guarantee, the Pensioner Education Supplement and a whole raft of other things for people for whom every dollar counts.

Will Australians fall for the Coalition plan to continue this protection of the greedy at the expense of the needy?

Let’s hope not.

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22 comments

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  1. Shaun Newman

    Kaye, it’s worth noting that far in excess of 3 million Australians are currently living “below” the poverty line in Australia the coalition tax plan will exacerbate their position, what irritates me is that a percentage of this already disadvantaged population will vote for the coalition in the belief that they are doing “the right thing.”

    Apathy is our number one enemy.

  2. Kaye Lee

    I agree Shaun. Discussions about tax tend to ignore the most disadvantaged. We must keep pressuring Labor to listen to the endless reviews that have already been conducted into the necessity of increasing welfare payments. I have hope that they will do this and are just saying they want to do it in an integrated way but they could bump up Newstart by $50 a week while they think about it IMO.

  3. Ill fares the land

    Unhappily, the Coalition’s rantings and hollow promises show two things. One is how stupid they are. The second is how stupid we are.

    The Coalition’s policies are not fact or evidence based. Facts show that high tax cuts for the wealthy and multiple avenues for tax avoidance that can be exploited by the wealthy don’t generate economic activity, or at least buying a $500,000 supercar doesn’t generate as much activity as the lower classes having $500,000 to spend on “essentials”. The facts show that when the wealthy cheat on their taxes, the revenue “cost” is much, much higher than the revenue “cost” of welfare cheating, for example (studies suggest the former outstrips the latter by around 4 to 5 times).

    But for those who are anti-Labor (many of the wealthy are utterly convinced that Labor will reintroduce a form of death duties) fall for the Coalition claptrap without ever bothering to check the underlying evidence and substance. It is a bit like barracking for a football team – we remain loyal despite losses and scandals because our support happens at an emotive level that can be entirely divorced from any notions of facts and evidence.

    Moreover, the system is now well and truly stacked against the lower levels in society. The influence of a few mega-wealthy on government policy totally drowns out the voices of many living below the poverty line. When you have idiots like Julia Banks insisting she could live on Newstart (forgetting that she owns about 6 properties), you can see what is at the core of the approach of conservatives to the poor. The core belief is that the poor are undeserving as they contribute nothing and are a net drain on society. Conversely, apparently, a wealthy person who uses super-expensive tax lawyers to set up structures in the BVI or Gibraltar or Cyprus to keep income out of the Australian, or any, tax net is still making a vast contribution!

    Labor need to be careful with their franking credit policy – for many retirees, low, low interest rates mean they are only really able to generate adequate returns by investing in listed shares and the refunds of excess franking credits offer a small but important cash supplement. I know several low-income pensioner who have inherited their few listed shares from their parents and rely heavily on the tax refunds arising from excess franking credits and they would really, really notice the loss of that cash annually – even $400 or $500 matters a lot to someone living on an aged-pension. Appropriate exemptions need to be considered.

  4. pierre wilkinson

    although bumping the newstart allowance up would improve the economy, stimulate new business and alleviate some of the stress on its’ recipients, it would not be wise to announce such a move prior to the election as the murdochracy would have a field day declaiming the Labor party as the welfare party, a party for bludgers, de-incentivising people from wanting to have a go… you get the drift

  5. helvityni

    “Will Australians fall for the Coalition plan to continue this protection of the greedy at the expense of the needy?”

    Many will, especially when/if Josh puts on his most earnest face on: ‘you can trust me’ face…

    Scomo is too fast speaking for most people, also too many repeats; it confuses some, at least it does it to me….

  6. Kaye Lee

    Ill fares the land,

    More than 300,000 low-income retirees will be spared from Labor’s plan to scrap cash payments for excess franking credits after the opposition amended the policy to exempt full and part-time pensioners, as well as every pensioner who is currently a recipient from a self-managed superannuation fund.

    The backdown, badged as the Pensioner Guarantee, will reduce from $11.4 billion to $10.7 billion the revenue the policy was estimated to make in its first two years, and from $59 billion to $55.7 billion the revenue it was slated to earn next decade, a fall of $3.3 billion.

    After days of dropping hints that pensioners would be looked after, Labor moved to spare the most vulnerable retirees from the policy that was always meant to be aimed at those who were better off.

    https://www.afr.com/news/politics/labor-spares-300000-pensioners-in-33b-policy-backdown-20180326-h0xy8t

    I do understand your concern, but I also have concern for people who will never inherit anything. They have to provide for their own retirement or manage on the age pension which should also be increased. “Gifts for the grandkids”, as one lady put it, is of less importance than food for the kids or food for yourself for that matter.

  7. Kaye Lee

    helvityni,

    I am so sick of the earnest trust me face from Josh Frydenberg and Greg Hunt. They are both very ambitious men who have shown they will say and do anything at all if they think it will promote their career. Matt Canavan likewise.

  8. helvityni

    …yes, little Hunt, his forehead all furrowed; I understand and care….

    If you are out of work, disabled, sick, and your kids go hungry, you are not having enough GO in you, says Scomo….

  9. Matters Not

    Now hearing that retirees have already paid tax on their ‘nest eggs’ and therefore should pay no more. Rubbish. It doesn’t take too much thinking to realise that in the years to come pensions drawn from super will be (again) subject to tax. The costs of roads, hospitals, medical services and the like are growing exponentially and money has to be found to pay for same (please no MMT lectures at this point). It’s simply not sustainable to have significant numbers with millions in super and property (the family home) and yet not pay a fair share of tax.

    Responsible politicians should give fair, advanced warning because there’s nothing more annoying than a changed set of rules after retirement. The ALP is doing that with capital gains tax on housing and the like but not so with dividend imputation. Initially, Labor espoused a principle on dividend imputation, but soon ran away when the political ramifications became apparent. When the ramification for super balances (real and imagined) are publicised, there might be more concessions. For that lack of grandfathering re dividend imputation they will pay a political price.

    What is particularly galling is the number of multi nationals who are paying nothing. Not a cent. Zero. No imputational credits there because no tax paid. But let’s not mention that. And the number of deals done with some sections of education community – sections which are now getting more assistance because of specials deals.

    To get a fair taxation system we have some way to go. But let’s put it all on the table because there’s so much that’s not transparent. Not much chance of that.

  10. Kaye Lee

    The excess franking credits refund only came in in 2000. If the rules are announced well in advance then people who own shares have time to rearrange their investments. I have not put enough thought or research into why this would not be grandfathered and if that is unreasonable. I understand it would be to those who will be affected but my understanding is they would have to be reasonably well off and therefore have choices?

    But I completely agree that cracking down on corporate tax avoidance/evasion should be a priority. If the rules are inadequate, change them. I am sick of people saying “it was legal” or “it was within entitlements” when we can all see it is unethical.

  11. margcal

    Matters Not: January 25, 2019 at 4:10 pm
    ….. It’s simply not sustainable to have significant numbers with millions in super and property (the family home) and yet not pay a fair share of tax.

    I disagree re the family home. While not worth$1m, I could sell up and move to Woop Woop and live on the balance. That’s what happens when you live in the same place for long enough – price (not necessarily value) increases. I’m on the age pension because I worked hard and was paid peanuts. Why should I and the very many like me move away from our friends, families, support networks? Re-introduce death duties.

    Similarly, tertiary education should be free. Not every course produces graduates who will earn mega-bucks, or even middling bucks. Income tax should reflect that rather than saddling all graduates with the same but inequitable HECS debt.

  12. Matters Not

    margcal, You shouldn’t have to sell up and move to woop woop (there’s other options) but you do have an asset that has increased in value and that value is not reflected in your overall financial situation. You see I (a renter) have this boat which is at the centre of my existence – and has been for decades. It’s for the family. It’s the love of my life. To sell it would change my life radically. But guess what, those who decide whether I will get a pension or not are blinded to my emotional and social attachment. The boat worth say $1 million disqualifies me for the pension but my next door neighbour in a house worth say $10 million suffers no such penalty. It’s a pension for them.

    It seems that some assets (with strong emotional attachment) get treated differently from others. Perhaps on you demise such assets might be subject to a differential tax treatment – otherwise the ‘family home’ distorts the tax system as well as the property market. (But don’t worry, it’s not going to change in the foreseeable future because that would disturb too many voters.)

    We will just ignore the unfairness of it all. We won’t operate from principles – that would be asking far too much.

    As for tertiary education – yes it should be free for all and those who earn squillons should be caught up in the tax system. But that won’t happen either.

  13. Florence Howarth

    The debate from the Neoliberals is not about the tax system. They start from the proposition that all tax is bad. They believe all should be able to keep all they earn, as they know better how to spend their own money.

    Added to this is the belief that all government spending except defense & law & order is bad.

    They don’t believe in welfare or any type of foreign aid, as all are responsible for their own plight. All people have to do is have a go. Giving welfare only encourages sloth, people ripping off the taxpayer.

    They say the above every time they open their mouths. To succeed in their society, all one has to do is have a go. That slogan sums up their whole political agenda.

    To top it off, they believe business should be able to do as they wish with no regulations at all.

    They despise the poor, even lower income earners. They do not see themselves as responsible for any but themselves. Sadly, even in this case, they blame their failures on others. Such as it is Labor’s fault.

    PM now can’t bring himself to say Shorten without rising anger. Has become close to angry cursing when doing so. Had to cut words coming out of his mouth. Doesn’t understand Shorten is not to blame for mistakes he seems to make each day.

  14. Diannaart

    Florence

    Morrison is a typical bully, projecting onto others his own behaviour. Shorten is a convenient target, particularly because Shorten is likely to be next PM (barring a ‘Tampa’).

  15. Matters Not

    On the door (or above) of every school, hospital, police station et al should be an illuminated sign – simple and to the point.

    Taxes doing good! Or something like this. Taxes at work. Or Taxes pay for this. Taxes – working for you. Or No Tax – No Hospital. No Tax – No School. (teachers, nurses, police, doctors. roads.etc)

    We should get positive about tax. (Yes the MMT advocates are having kittens.) But leaving aside the tax part – the positive role of government needs to be stressed

    No government – no civilisation.

  16. Kronomex

    The Scummo and Crony Co. tax plans (and just about everything else for that matter) can be summed up in a single line from a certain Mel Brooks film: “F-ck the poor!”

  17. Matters Not

    Kronomex re:

    “F-ck the poor!”

    Look no further than the good ole USA. All done under the banner of drain the swamp. Sure it’s the richest nation in the world but the recent partial government shutdown demonstrated the concentration of wealth in so few hands. So many in what we in Australia might call middle class jobs who need food stamps to live. Teachers who need to moonlight in two other part-time jobs to make ends meet. No universal health care, massive educational debts, minimum home ownership, etc etc.

    Yet it’s the model of excellence the LNP will have us pursue. When will the Sleepers Awake – because all we see at the moment is REM deep sleep. And too many punters say – once more please – and this time with feeling.

  18. Alan Nosworthy

    Does this not come back to the gutting of the Public Service in both funds and expertise as the primary enabler of this dead end path. The chimera of leaner, meaner, lower cost private “expertise” has failed to meet our needs in every case.
    The foxes have long been gifted the security contract for the henhouse and encouraged to make a profit for themselves in doing so.

  19. Kaye Lee

    And the appointment of Scott Morrison’s ex chief of staff as secretary of Treasury not long before Scott became PM?

  20. Harry

    Better to frame the tax debate as “taxes give room for the federal government to spend on its programs without running into capacity constraints” rather than funding its programs.

    Without taxes there will likely be inflationary problems as taxes destroy some of our ability to spend. Therefore the real debate becomes “whose incomes need to be curtailed the most?”

    The answer is in my view: “those who have the most, not those who have the least”. And that means income and capital gains tax minimisation loopholes must to be closed down– not to reap more taxes to “fund” federal programs but to ensure some spending curtailment is not thwarted.

    In contrast,lower income earners should pay no tax until they earn at least $50,000 per annum.

  21. Shaun Newman

    Matters Not yes taxes need to be raised but preferably not from superannuates, while a third of corporations pay not a cent in income tax of their billion dollar incomes. Perhaps some taxable deductions should be removed so that all corporations do pay a fair share,

    The working class have paid their dues, I believe the general public have had an absolute gutfull of mostly foreign corporations making a killing here and not paying a fair share of income tax. Likewise religious corporations who pay no rates, no taxes all clear profit because they are owned by a religious cult like the 7th day Adventist who own Sanitarium which is why I will not buy their products.

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