Shorten acts on tax as Batman votes
This week, Bill Shorten made sure the chattering classes would be talking about more than Saturday’s byelection in the Melbourne seat of Batman, which Labor is expected to lose. The opposition leader seized the political agenda in a dramatic way on Tuesday, overshadowing practically everything in domestic politics. He did it by homing in on a tax concession that is costing the budget billions but is a sacred cow for the Liberals.
His promise to scrap the cash rebate paid to shareholders whose dividend imputation credits exceed their tax liability has sparked a fierce reaction from the government and sections of the retirement industry. The concession was introduced by the Howard government at a time when it had revenue falling through the roof thanks to the China-driven mining boom, but it is now costing revenue of $6 billion a year, which will rise in the medium term to $8 billion if left untouched. As Shorten says, that’s more than Canberra is spending this year on public schools or child care: “It’s three times what the government spends on paid parental leave, or the Australian Federal Police.”
Donning his Sherwood Forest finest, Shorten vows to fight the government’s scare campaign “because I’m going to choose the battler over the top end of town”. He continued: “Mr Turnbull is using a few pensioners as human shields to justify feather-bedding the very rich who are getting a tax loophole which is simply unsustainable.”
Shorten says he intends to use the revenue saved for budget repair and politically more pressing income tax cuts for low- and middle-income earners. The war chest he is building from this, as well as from his intention to close other tax concession loopholes, should enable him to gazump whatever Scott Morrison comes up with in the May budget.
Franking credit cashouts – the dividend imputation rebate Shorten is targeting – were so unsustainable that Treasury and the Liberals themselves looked at this very issue of refundability in the 2015 tax reform discussion paper. It’s a practice no other country in the world employs. Why would they? The original scheme, introduced by the Hawke government in the 1980s, had a company pay tax on the income it earns so that when these earnings are distributed as dividends to its shareholders they then received the 30 per cent company tax rate as a discount. Depending on their marginal rate, they paid less or no tax. Shorten makes perfect sense when he says, “We don’t have a lot of money anymore and I’ve got to choose hospitals and schools and aged-care facilities over paying people refunds for income tax they haven’t paid.”
Shorten says that, based on work done by the Parliamentary Budget Office, for about 10 per cent of the 2.5 million pensioners it “will have a minor impact”. Some part-pensioners may find their part-pension will increase as a result of not receiving the cash rebate.
Taking benefits off anyone is always dangerous politically. But here Labor may be less vulnerable than the Liberals. In every budget since the disastrous Abbott–Hockey effort in 2014, the government has looked to pensioners for savings, more often than not being blocked in the Senate for their efforts. But in 2015 the government received the backing of the Greens to cut the pension to about 370,000 pensioners by as much as $12,000 a year when it changed the pension assets test. These efforts, along with changes to superannuation arrangements, are seen as an explanation for disgruntled older Liberal voters deserting to One Nation.
Labor says the government’s reaction to the policy proposal is based on “a big lie”. Shadow treasurer Chris Bowen says both Turnbull and Morrison are cynically leaving out the word “taxable” when talking about “low income” or even “no income” pensioners. In what economist Saul Eslake describes as “the dumbest tax policy decision of the last 25 years”, then treasurer Peter Costello excluded income you get from your superannuation fund if you are over 60 because that is not “taxable income”.
The Australian’s economics writer, Adam Creighton, gives the example of a retired couple living in a $2 million house with $3.2 million in super being classified as “low income”. They could even have an investment property and still no tax liability because of the seniors and pensioners’ tax offset. Little wonder he concludes Australia’s tax system is tilted in favour of older, wealthier people with little justification. Except that, by and large, they vote Liberal.
Turnbull came rushing to the defence of these votes, saying Shorten’s policy will affect people on low incomes. “That’s why 97 per cent of the people who are going to be affected directly by it are on incomes less than $87,000 and more than half are on incomes less than $18,000.” But you could be drawing $80,000 or more from your super, and only have a taxable income of, say, $18,000 on top of it from part-time work – you would hardly be in the poorhouse. Turnbull says this is Shorten’s cash grab. He says it is going to hit 3.5 million superannuation accounts.
National Seniors Australia’s chief advocate, Ian Henschke, reminds us that one out of three on the aged pension lives below the poverty line. He hopes that Labor would divert some of its windfall from this policy to improving their lot. At the same time, he is critical of Shorten for not taking into account “unintended consequences”. Henschke’s problem is, Labor fully intends to deny his wealthier members cash handouts in some instances of more than $2 million.
The peak body for the $1.2 trillion profit-to-member superannuation sector supported Shorten’s plan. Its chief executive, Eva Scheerlinck, says it is closing a “loophole that has existed for a long time”. She told Ten News that, “really it is only going to affect one out of every 10 taxpayers”. Of those affected, “half of those have retirement savings in excess of $2.5 million”.
The argument continued all week and draws a sharp line between the Labor and Liberal approach. The treasurer accuses Labor of having its spending “out of control” and needing to go on a mammoth tax grab to pay for it. He says, “they have $220 billion worth of higher taxes now”. Here, Morrison conveniently conflates abolishing a tax concession with a tax rise. A concession denies the budget revenue whereas a tax rise boosts the bottom line. Someone has to pay for the concession and that’s mostly other taxpayers who don’t receive it.
Still, the announcement is unlikely to help Labor in Batman. The issues playing out strongly are refugee policy and climate change, as epitomised in the “Stop Adani” campaign. As one Labor heavyweight says: “There’s probably not another electorate in the country that is more opposed to the major parties’ bipartisanship over refugee policy than Batman.”
Shorten himself is pessimistic, despite being sure former union leader Ged Kearney is an excellent fit for the electorate. She has run a tireless campaign, backed by an army of volunteers. But he says the fact Turnbull “chose not to run makes it harder for Labor to win because the fact of the matter is that there will be some Liberal voters who will just stay at home and they won’t allocate preferences, they just won’t vote”. Labor points to the Northcote state byelection, which the Greens won in a landslide, and estimates the 20 per cent of the electorate that didn’t turn up then were Liberal voters. If the same happens in Batman, that’s an insurmountable handicap for Kearney.
Whatever the outcome, the fundamentals of the federal political game won’t be changed. The seat will still be non-government, the budget will still be in need of repair, and the relentless march of the opinion polls will continue. Except the government is hoping a Labor loss will undermine confidence in Shorten inside the Labor Party. One Liberal insider says it won’t only be their side that will claim the loss of the seat for the first time since Federation as an indictment on Shorten’s pulling power and appeal. He says Shorten’s old rival for the job, Anthony Albanese, is already on the record saying the byelection was winnable for Labor.
But this kind of point scoring will only count if the government somehow regains the ascendancy. Shorten’s abandonment of a “small target” strategy gives Turnbull a sniff if he can turn the Labor leader’s “class war” against him. In the present climate, however, this will be harder than it looks. Robbing from the rich to give to the poor has more than a romantic or nostalgic ring to it. American billionaire Warren Buffett summed it up this way: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” Thanks to 30 years of trickle-down economics, the widening gap between the top and the bottom urgently needs addressing.
If the opinion polls are right, a majority of voters agree. Shorten’s proposed reforms to negative gearing, capital gains tax and trusts have not stopped Labor extending its poll average lead to seven points this week. There’s little reason to believe his clampdown on unaffordable cash handouts will be a deal breaker for him, either. Although that won’t save his band of merry men and women in Batman.
This article was first published in the print edition of The Saturday Paper on Mar 17, 2018 as "Batman and Robin Hood".
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