
While the government’s failure to get its handout to multinationals and foreign investors through the Senate yesterday is ostensibly a failure for the Coalition, it wouldn’t take much to see it as, instead, an opportunity to reset the political debate on more favourable terms.
The government insists it is almost there with Derryn Hinch and Tim Storer, apparently convinced it can gull these politically and policy-inexperienced senators into backing its Great Corporate Tax Heist. It will try again in budget week, it says. But it was dead keen to get a win this week, well in advance of the budget. While the tax handouts for larger corporations have little impact over the Forward Estimates from 2018-19 and are in any event already built into the budget figures (although not, as the government lies, “paid for”), getting the issue legislated this week would have cleared the air around the budget for the government’s expected personal income tax cuts. It would have also spared the government the embarrassment of revealing, as it will be forced to do around the budget, the escalating cost of the handouts, given an extra year of the full-blown five percentage point tax cut for big companies will be added to the decade-long cost, pushing the total cost above the current $64 billion to, likely, closer to $75-80 billion. It will have to hope Hinch and Storer don’t notice that the cost of caving in and enabling the Heist is getting bigger all the time.
The problem the tax handout represents, though, is that it significantly curbs the capacity of the government to offer personal income tax cuts to ordinary Australians without delaying the return to surplus or reducing the size of the future surplus that we need to pay off years of Labor and Liberal debt. There’s an obvious answer to the problem — abandon the non-legislated part of the tax handout to corporations, or a significant chunk of it. That won’t deliver more than a few hundred million dollars over the Forward Estimates — not enough to pay for big personal income tax cuts — but will make them affordable over the medium-term. One option would be to hold the tax rate at 27.5% instead of dropping it to 25% over 2024-26. That’s when, combined with the extension of the tax cut threshold to truly huge businesses, the cost of the handout gets truly eyewatering, going from around $3 billion a year to well over $10 billion a year in the blink of a fiscal eye. Another option would be to leave the biggest businesses out altogether — after all, isn’t the government always insisting small business is the real engine of job creation? That will save tens of billions.
It’s a particularly difficult problem now that Labor has the best part of $60 billion in additional revenue to play with from ending the dividend imputation refund rort, and has exempted the biggest whingers, nullifying the government’s pensioner scare campaign. Labor can make personal income cuts the centrepiece of its budget reply, outdoing whatever the government offers and portraying the government’s cuts as “sandwich and a milkshake” stuff that only illustrate how out of touch the Coalition is with the financial pressures on ordinary families etc etc. The rhetoric writes itself.
Making a further token effort to con Hinch and Storer and then declaring it is abandoning the cuts, or a large slab of them, will give the government a similar warchest and signal to the electorate it is refocusing on ordinary Australians, rather than pandering to big business. The Business Council will scream, and maybe some of the approximately $3 million in donations BCA members have gifted the Coalition in the last two years will no longer be forthcoming — an important consideration.
But it would move the political contest from one where the government keeps trying and failing to make a dent on Labor’s lead, to one where it has a better chance of getting voters to look afresh at its offering — if only it would remove its ideological blinkers.
The case of the whinging pensioners is an example of entitlement winning over fairness. If a pensioner has a share portfolio yielding thousands of dollars of refunded imputation credits then (s)he doesn’t need, or deserve, a pension.
This morning I received a $24,000 tax-free dividend (owing to the imputation credit covering the tax owed). Because I also receive tax-free superannuation, I wouldn’t know what to do with it. So it’s saved, as a dividend re-investment scheme.
If I’d rorted the system even more, I’d have the shares in a SMSF, and get an additional $6,000 in cash from the taxpayer.
Why should I receive a very good income, tax-free, a large part of which is saved, when wage-earners have to pay tax?
unlike the economically illiterate coalition, tim storer is a trained economist and will not be swayed by turnbull/cormanns bullshit, this policy is dead in the water and justifiably so, its much like shortens brainfart attack of the franking credits of the pensioners and low income retirees and will suffer the same fate, shortens grab will actually turn into a loss as retirees sell their shares and live off their capitol for a while, then go onto the pension, so not only will shorten miss the franking income he`ll have to pay billions in extra pension costs from those that would otherwise have supported themselves. this just shows what dumb bastards both sides of politics are and that does`nt include the abbott / hanson style of political lunacy
Didn’t Shorten just clarify that pensioners won’t be hit by this?
And I think franking credits need to be got rid of anyway. Does it not encourage companies to use their earnings to pay off shareholders, rather than investing in the company/higher wages?
If franking credits were abolished, the company tax rate could be lowered to around 20%, which would make some people happy.
wayne, its not tax time so why would you receive a tax refund today on your share franking credits, and if you did receive $24,000 in franking credit refunds that means you have a share dividend return of close to $100,000 meaning a possible investment of one and a half million dollars at least or even more in share holdings, so whats your point, in the case of a small no tax payable retiree on $40,000 income he will be hit with a $10,000 direct reduction in income, that income is hardly in the greedy wealthy class as yours is, so shorten should be attacking you and your like much harder because thats where the money is, I think I`ll send a few emails to the different politicians and point out where they should be looking to raise some serious cash and leave the little blokes alone
Brian, I received a dividend of $24,000 in addition to a imputation credit of $12,000. The $12,000 based on last year’s return will pay the tax on the $24,000, so the $24,000 is tax-free. I don’t need to worry about paying anything on it.
I’m saying that it’s unfair. I should at least be paying tax on my superannuation. John Howard stuffed up the federal budget when he made superannuation tax-free in 2004.
I personally think that the refund of excess imputation credits shouldn’t be limited to pensioners, but it should be capped. At perhaps $7,500 per year, which would correspond to around $300,000 in shares.
If you have $300,000 in shares, you don’t deserve a pension.
Asking the Liberal Party to remove its ideological blinkers is a lost cause, Bernard. They aren’t abandoning the tax cuts, because they fundamentally don’t govern for Australia, they govern for their ideology and their donors (or, in Turnbull’s case, to see his name in Who’s Who as Prime Minister of Australia for as many years as possible). Your suggestions would make sense for a more centrist Liberal Party that many journalists seem to yearn for but which doesn’t exist and hasn’t since John Howard became Prime Minister at the latest.
Please stop trying to help Turnbull and his gang do something for the good of the country BK.
Don’t worry EG, they won’t.
Yep, it is like trying to teach pigs to sing….wastes your time and annoys the pig.
Bernard – maybe I missed something
you say if ScoMo abandons the high end of the tax cuts Labor will have a similar war chest
The way I read the tea leaves Labor has the tax cuts war chest (or what ever ScoMo decides) + negative gearing, + capital gains tax discount + franking credits – 20% tax right off
WAY ahead?
Although there is the fake medicare levy