Tax On So-Called Super Rich Could Prove Costly
In March the Labor Party announced a radical new policy. If elected it would close a “tax loophole” exploited by the rich.
It would reap $59 billion over 10 years by disallowing tax credits from Australian shares to be paid to people who had no income. Labor leader Bill Shorten said: “A small number of people will no longer receive a cash refund.”
But the “small number” was a large number. It included hundreds of thousands of pensioners, part pensioners, war widows, people on Centrelink payments and self-funded retirees. The Australian Stock Exchange says 58 per cent of retirees own shares and Australia has more than three and half million people over 65.
These people never saw the imputation credits they were being paid as a “tax loophole”. Quite the opposite. Many saw themselves as investing in the future of the nation and getting a benefit in their retirement. They’d been encouraged to take up shares in initial public offerings like CSL, Telstra, Qantas and the Commonwealth Bank. It was also income they had relied on for almost 20 years.
So, would it be fair to change the policy? We did a poll of National Seniors members and found nearly 90 per cent thought the removal of tax credits for retirees was unfair.
It was apparent the proposal to end the payment of tax credits had unintended consequences. Bill Shorten realised this after an extraordinary outcry. He announced he would modify his policy. National Seniors fought for and helped win that change for more than 300,000 pensioners who would have lost $3.3 billion over 10 years.
Labor said if elected it would exempt all full and part age pensioners from its policy. It was called the “Pensioner Guarantee”. We’re glad it listened to the concerns we voiced but we think more needs to be done. The follow-up poll we did after the “Pensioner Guarantee” was announced revealed two out of three members still thought the policy was unfair.
The “Guarantee” protects only a fraction of those affected. What about the rest who are self-funded retirees? The purpose of the policy, according to the ALP, is to stop the rich rorting the system. But what if you’re not rich, not rorting and not a pensioner?
The policy means a 30 per cent drop in income from shares - this is why the Coalition are calling it a Retirement Tax or tax on retirees.
One member, Joe, says he’d worked and paid taxes for 49 years and isn’t ‘rich’. He summed up the feelings of many self-funded retirees, saying: “My generation was encouraged to plough more into superannuation and, if possible, invest in shares in Australian companies so we could be self-sufficient.”
Joe, like hundreds of thousands of others, made his investment decisions based on a policy that’s been in place since July 2000.
Another member wrote: “By any measure the Labor policy is unbalanced and unfair. It should be either amended to focus on the truly wealthy, or (the policy should be) abandoned.”
Australians want a reasonable level of certainty in financial planning and superannuation. What happened in March shows you can’t afford to ignore people’s concerns and it’s possible to adjust a policy to make it fairer.
At the time, National Seniors said we hoped this would lead to a proper debate about how we can have a fair and sustainable retirement system in a rapidly ageing Australia. Former Minister and Labor power broker Graham Richardson wrote: “Self-funded retirees have never really organised themselves into a powerful lobby group and that makes it much easier for governments to send out a raiding party.”
This was a call to arms. Half a dozen organisations decided to band together to form the Alliance for a Fairer Retirement System. That has since grown to 10, including the Association of Independent Retirees. The Self-Managed Super Fund Association and National Seniors were founding members.
The Alliance chair is highly respected superannuation expert Professor Deborah Ralston and its website was formally launched last Friday by personal finance guru and author Noel Whittaker AM. Mr Whittaker gave a powerful example of how a couple who had saved $1m in shares would be worse off than a pensioner couple who had saved $300,000 in shares. He said the policy was “ridiculous”.
Earlier last week the Alliance took its case to Canberra. It met with politicians from both the government and opposition, also with officials from treasury and social security. National Seniors was part of an Alliance delegation that met with Shadow Treasurer Chris Bowen and his advisors.
It pointed out the new policy results in pensioners (who keep their credits) being better off than self-funded retirees who lose theirs. The Shadow Treasurer insisted the policy would not change between now and the next federal election. He also said he was open to an honest debate in good faith.
The Alliance stressed the whole retirement system needs to be fair, adequate, sustainable and have certainty. One in every two voters is now over 50. As Sir Humphrey says in Yes Minister, it would be a “very brave” move to ignore them.
It will be interesting to see what happens on by-election Super Saturday.
Ian Henschke is the Chief Advocate for National Seniors Australia
Ian has worked in film, television, radio and print for 37 years. He has served on the board of the ABC, presented regular radio programs and won prestigious media awards, including UN Media Peace Prizes in 2007 and 2009. Ian was named Telstra Rural Journalist of the Year in 1998 and was a finalist in the prestigious Walkley Awards twice. He was recognised for his service to Australian society through broadcasting' with the Centenary of Federation Medal in 2003.
He graduated from Adelaide University with a Bachelor of Arts (Hons) and Diploma of Education in 1977.