Trying to see wood for the retirees

It was supposed to be an independent House of Representatives inquiry in a particular aspect of the tax system. Instead it had all the hallmarks of a political rally.

Jon Gaul president of the Liberal Party Merimbula-Eden branch, spruiked for Eden-Monaro Liberal candidate Fiona Kotvojs while making his three-minute presentation. Chair of this independent committee and Liberal MP Tim Wilson was happy to give the thumbs up for a photo with a placard-carrying Mr Gaul. 

If this is an independent committee then no wonder there is disillusionment about our political system. Mr Wilson has already been under fire for using the inquiry to gather momentum for the Liberal cause and Labor MPs are considering lodging a complaint. 

The combination of a marginal seat – Eden-Monaro lost its bellwether status at the last federal election after Labor’s Dr Mike Kelly won it with a 5.84 swing from the Liberals - coupled with a location that has a considerable number of self-funded retirees, made Merimbula an attractive location.

Dividend imputation (franking credits) was introduced by Labor in 1987 to eradicate double taxation. It entitles a shareholder to a tax credit on a dividend which is equivalent to the tax already paid by a company. Labor wants to bring the system back in line with this 1987 design.

The Howard government made the system more generous in 2000 so that if a shareholder had an imputation credit higher than their personal tax liability, the investor would receive the excess credit as a cash refund. So in the case of a dividend from a company paying tax at 30 per cent, a shareholder taxed at 15 per cent receives a tax credit for the 15 per cent tax and cash back for the remaining 15 per cent.

Many self-funded retirees have a taxable income below the threshold ($18,200) but this is taxable income as opposed to non-taxable income from superannuation funds. The system costs an estimated $5.9billion a year. Australia is alone in developed economies in using this system.

Self-funded retirees say they will be forced on to the pension; the question is whether the country will be better or worse off if they are.

Will the cost of paying pensions or part-pensions instead of franking credits be better for our economy? 

While the politics continue it is a little difficult to find the real truth.

Comments