On Tuesday, Opposition Leader Bill Shorten released a plan for tax reforms targeting investors, that Labor admits will affect over 200,0000 pensioners. The Labor Party plans to pull the plug on refunds for imputation credits for individuals and superannuation funds in a move that could net savings of $11.4 billion. But many experts see the reforms as a way for Labor to fund tax cuts to attract voters in the next election.
The Tax Institute’s senior tax counsel professor Bob Deutsch described Labor’s plan as:
‘…what one could readily describe as the politically low-hanging fruit — easily done with minimum legislative change…[It] saves a bundle in revenue and causes relatively minimal damage to Labor’s constituency’.
Chief executive of the Self-Managed Superannuation Funds Association, John Maroney, said Labor’s proposed reforms would affect ‘more than one million Australians saving for their retirement and other purposes’ and ‘cut about $5,000 of income from the median SMSF retiree earning about $50,000 a year in pension income’.
The reaction from the coalition was even more scathing. Treasurer Scott Morrison branded the reforms ‘a brutal tax grab by the Labor Party, who cannot control their spending’. Mr Morrison claimed that 97% of those who would be affected earn $87,000 or less, and half of that figure earn less than the $18,200 tax-free threshold.
Former Labor treasurer Paul Keating introduced the current system in 1987. The Howard government then extended the scheme in 2000, enabling investors to receive cash refunds if their tax imputation was greater than the amount of tax they owed. Interestingly, Labor originally supported the scheme. Labor’s shadow treasurer, Simon Crean said in 2000 that the scheme ‘improves the current taxation system faced by low-income investors, especially retired Australians’.
Pensioners not the only ones in the firing line
But Labor’s proposed reforms will not only affect pensioners. Professor Deutsch predicted that Labor’s policy would cause issues for equity investors, because:
‘…tax refunds of excess imputation credits have been an important part of the investment matrix for equity investors, particularly self-managed superannuation funds’.
Wealth management partner for accounting, business and financial advice firm HLB Mann Judd, Jonathan Philpot agreed, saying that the reforms would have a big impact on the Australian share market. They would make ‘[Australian shares] less attractive to investors, because one of their attractive features is franking credits’.
If elected, Labor plans to implement the tax reforms on 1 July 2019. Mr Shorten’s claims that Labor’s tax policies support low-income earners are unlikely to carry any weight with the thousands of pensioners who may have to reassess their investment and self-managed superannuation options under a Labor government.