A reader, Alan, received the following reply from Shadow Treasurer, Chris Bowen, on Labor’s franking credits proposal. It adds some balance to the debate in these pages which has been dominated by criticisms. Mr Bowen’s office has confirmed to Cuffelinks that the reply is genuine.
Also, many of our readers have said they wrote to Chris Bowen and did not receive a reply, so this is a way to reach them.
The original Labor policy on Chris Bowen’s website is here. Note it has an implementation date of 1 July 2019, only a few months away.
I sent an email to Chris Bowen and got an answer. I tried to identify reasons why I was not a company, that franking credits were both income and tax, since I paid no tax that Labor could not take my income, etc. I was told by Mr McCrudden in Bowen’s office that all my questions were dealt with in the email. I particularly liked the ‘nobody will pay more tax’ statement – but franking credits are both tax and income.
Thank you for your email regarding Labor’s plan to reform dividend imputation.
Australia is the only country in the world with a fully refundable imputation system. Under Labor’s policy dividend imputation will remain, but cash payments will no longer be made to people who have managed to reduce their tax rate to zero or have paid no income tax. Tax on company profits will continue to be paid only once under Labor’s plans. This is in keeping with the intent of the original dividend imputation system and with Labor’s principles of fairness and simplicity in tax policy.
Labor’s reforms to excess dividend imputation credits will remove a fiscally unsustainable tax arrangement that is seeing billions of dollars in lost revenue, making it harder for the government to fund important services and return to surplus. Dividend imputation worked perfectly well between 1987 and 2000 when cash refunds weren’t sent to people who didn’t pay income tax. Labor will return to that system. When cash refunds were introduced, it was estimated to cost the budget around $500 million a year. The annual cost has now blown out to $6 billion. An ageing population is set to put even further pressure on the budget in the coming years making it harder for future governments to fund important health care services, which is why this is a growing cost the budget can no longer afford.
It is important to remember that our policy means that no one loses a cent of their share dividends, and no one pays more tax. The very generous tax concessions provided to superannuation which allows many retirees to draw an income which is tax-free will continue to apply.
Labor is focused on creating a tax system that works for all Australians and that the burden of budget repair is evenly shared across the community. We also need to ensure that the budget can help support the delivery of world class health and education systems into the future. Whatever your income or wealth in Australia, I want to make sure that if people need to see a doctor or they want to give their children a good quality education, that they can afford it. This is why difficult decisions on the budget are necessary.
Unlike the Abbott-Turnbull Government, Labor is prepared to be honest about its plans well in advance of an election. While I understand not everyone, including yourself, will agree with this policy, it is necessary. If this issue is not addressed it ultimately means that working Australians will have to shoulder a larger burden of budget repair. By being upfront with our plans, people like yourself will have time to seek advice and if desired, restructure their financial affairs to reduce the impact of the policy.
I would also note that a recent Treasury FOI indicated that more than two-thirds of cash refunds to SMSFs are to those whose fund balance per member is greater than $1 million. I also refer to analysis from the PBO that shows the vast majority of individual taxpayers in Australia – 92 percent in 2014-15 – do not receive cash refunds for excess imputation credits.
Chris Bowen MP
Cuffelinks has contacted Chris Bowen’s office and confirmed this reply is genuine.