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Shorten’s class-war $59bn tax on wealthy shareholders, retirees, super funds

Source: The Australian

Bill Shorten has opened a new front in his class-war tax grab on the wealthy, with a pledge to axe cash refunds for excess imputation tax credits claimed by super funds, which are estimated to balloon to almost $60 billion over the next 10 years.

Unwinding a superannuation measure introduced by the Howard government, the Opposition Leader will announce today that a Labor government will abolish the rebate component of the ­imputation credits system that benefits primarily high-wealth shareholders and self-managed super funds by allowing them to cash in unused imputation credits.

Mr Shorten claims that the chief target of the policy is about 200,000 of the 600,000 self-­managed super funds in the ­country, the largest of which have been claiming up to $2.5 million in cash rebates under the imputation credit system. Labor says the policy will not apply to 92 per cent of the 12.8 million Australians who lodge annual tax returns.

While 90 per cent of the tax hit is directed at self-managed super funds, a small number of “low-income, high-wealth” retirees could also be caught in the net if, for example, they had other assets held in tax-free superannuation funds.

A small number of large retail and industry super funds, which have millions of average Australians as members, could also be ­affected, with the policy claiming 10 per cent of refunds were accrued by APRA-regulated funds.

Presently, shareholders are able to use imputation credits to reduce their tax or claim it as a cash refund if the value of the credits exceeds their tax liabilities. Under Labor’s policy, the credits can be used only to reduce tax liabilities and cash refunds will not be paid. The Turnbull government is likely to seize on the measure as a class-war tax raid on the retirement savings of average Australians.

Mr Shorten claims that average Australians and wage earners will not be hit by the changes to a system that he says has become an unsustainable taxpayer-funded loophole being exploited by only the very wealthy.

The move will open a war chest estimated to be worth $11bn in the final two years of the four-year budget forward estimates that the opposition is likely to put towards income tax cuts to match or ­exceed any commitment made by the Turnbull government.

Over the 10-year medium term the budget savings, however, would equate to $59bn, which is almost of equal value to the cost of the Turnbull government’s $65bn corporate tax cuts.

Labor believes the savings would also give it “wriggle room” potentially to shift its position on corporate tax cuts, with the possibility it may move to support them for businesses under $2m a year in turnover and potentially keeping the currently legislated cuts for those with up to $50m a year.

Mr Shorten will announce the scrapping of the rebate today in a speech to the Chifley Institute at the KPMG offices in Sydney.

“Every dollar that slips through these loopholes is a dollar that cannot be invested in the Australian people and their potential,” a copy of Mr Shorten’s speech says.

“Every dollar allocated to tidy little arrangements for people who already have millions of ­dollars, is a dollar that can’t be used to repair the budget and bring Australia back to surplus.

“Firstly, this change only affects a very small number of shareholders who currently have no tax liability and use their imputation credits to receive a cash refund. These people will no longer ­receive a cash refund, but they will not be paying any additional tax. Let me repeat that: a small number of people will no longer receive a cash refund — but they will not be paying any additional tax.”

Mr Shorten claims that the new tax policy would return the imputation system, originally designed to stop double taxation, back to its original design under the Hawke-Keating government in 1987.

The scheme created imputation (tax) credits for dividends paid to shareholders equal to the tax paid by a company on its profits. The credits can be used to offset a person or entity’s tax liabilities.

The scheme was expanded by the Howard government in 2000 to allow cash refunds to be paid to those who had amassed imputation credits that exceeded their tax liability or for those with a zero tax liability.

This was considered a sweetener for controversial changes being considered to the tax treatment of trusts, which were ultimately abandoned.

The major and direct beneficiaries were those with self-­managed super funds which in pension phase became tax-free.

Labor claims that further changes in 2006 to the tax treatment of superannuation funds compounded an issue that was then already costing about $550m to the budget bottom line.

“The Howard-Costello subsidy entirely distorts the original design of the dividend imputation system,” Mr Shorten will say.

“In fact, it makes Australia the only OECD country with a fully refundable dividend imputation credit system. And every dollar our opponents spend on preserving exemptions for the top end of town is a dollar they have to cut from schools and hospitals, extracted from middle Australia in tax increases or forcing taxpayers to pay more interest on the ­nation’s debt.”

The opposition’s policy claims that of “the excess imputation credits refunded to SMSFs, 50 per cent of the total benefits go to the wealthiest 10 per cent SMSF balances (which have balances in excess of $2.4m)”.

It further claims that Parliamentary Budget Office figures from 2015 show that the top 1 per cent of SMSFs received a cash refund of $83,000 on average — with some claiming up to $2.5m.

“Recipients of cash refunds are typically wealthier retirees who aren’t PAYG taxpayers,” the policy document says. “These are people who typically own their own home and also have other tax-free superannuation assets.”

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