Are retrospective tax policies fair or foul?

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The introduction to Cuffelinks Newsletter Edition 280 (15 November 2018) says: ‘Both sides of politics are guilty of misrepresenting the retrospective nature of policy changes.’

This is true. However, these days, behavioural psychology holds sway over rational economic assertions (example: ‘expected losses occasion greater pain than the pleasure from identical expected profits’); how other stakeholders respond to policy changes is instructive in shaping policy.

These include consumers, product and service providers, associated advisers, employers, employees, academic and media commentators and their many lobby groups. Have they upheld the principles they flaunt in opposing retrospective changes?

All policies have some retrospective element

To clarify: this is not a discussion on the legality of such proposals. Retrospective rule-making has been a feature of Australian policy, and for reasons fair and foul, this will continue.

Take the latest furore on banning imputation refunds larger than the tax due. We have been here before: Contribution limits, the dreaded Super Surcharge (not at all a ‘tax’ if you recall the government spin), Reasonable Benefit Limits and their latest offshoot balance caps and event-based reporting.

Even those who reluctantly accept the truism that there is no equity, symmetry or justice in taxation – governments tax you because they can and hope in democracies they would get away with it – baulk at the apparent abuse of applying rules to the outcome of their past conduct.

Reality check: all proposals will have an element of deliberate or inadvertent retro effect as they apply to people who were there before the changes. While the ‘flow’ of tax laws changes, the ‘stock’ balance of people to whom they apply carries on from before.

Until Howard and Costello made them refundable in the dying days of their government using the largesse from the mining boom, while also tax-exempting pensions to those aged 60 and above from taxed funds, excess franking credits were lost. Foreign tax credits have had a similar chequered history. Pensioners then got a whopping bonanza in relation to their accumulated balances as they grow in pension phase. The payouts were also exempt for 60+ olds.

Many benefitted from ‘suffering’ retrospective changes

By any measure, they were retrospective changes as those who had arranged their affairs based on current rules got a windfall they could not have dreamt of. Those who now complain of retrospectivity in the Labor proposal ‘suffered’ all the elements they decry. Equity, logic, symmetry and integrity will all mean they should have complained as loudly and clearly as they do now, when, in the light of the pressure on unfunded age pensions as we live longer, adverse changes were mooted.

There was no protest. Thus the bipartisan political hypocrisy Cuffelinks has correctly identified seems to derive from the wider community, perhaps proving politicians (most, anyway) are human too.

A less tongue-in-cheek observation: political parties in opposition opposing the government for its own sake invariably get a Damascus-like conversion on the way to government. Suddenly they realise that the burden of holding the purse-strings entails unpopular retrospective steps that they had railed against. On cue, roles are reversed. The erstwhile government assumes their strident mantle.

The objective reality is that every tax measure – beneficial or adverse to particular groups – has an equal and opposite short-term effect on the faceless taxpayer, discounting exaggerated claims about fuzzy long-term benefits. While stakeholders and their lobbyists clamour to protect their interests, the lobbyist for the taxpayer in the fiscal short term, by default, is the incumbent treasurer. It gets very lonely at the top of national finance.

That they try to spin their way out of seeming contradictions and distract, with a grandfathering here and an exemption there, is just another shared bi-partisan attribute.

Tinkering versus noble reforms

This is similar to those who complain against constant tinkering of rules, especially in super. Like retrospectivity and beauty, tinkering is in the eye of the beholder or wallet-holder. Using a semantic makeover, changes against us are ‘tinkering’, while others are overdue reform, of course. Lobby associations are good at this.

We can reasonably blame the structural mismatch between having to make long-term policy that affects generations on the one hand, and our short-term electoral cycles which oblige many would-be parliamentarians to pander to prevailing populism. One would have to be a true visionary, Machiavellian or plain foolhardy, to attempt otherwise. Death duties, for instance, would tick most boxes in terms of desirable taxation criteria, but the visceral resistance to taxing the inheritors (which is conveniently conflated with ‘taxing their dead’ benefactors) makes it a ‘no go’ area.

The above is not meant to be critical of valid criticisms against the proposed cut. Those who complain of retrospectivity would be more credible had they consistently opposed retrospective measures – good or bad.

What might work, apart from reiterating the Keynesian rationale that we must change our mind whenever circumstances change?

Policymakers can transparently announce the alternatives they had canvassed before settling on the proposed measure, instead of allowing arbitrary and whimsical discrimination to be alleged. Take the wind out of their sails, as it were.

On the other side, for each submission that critiques proposed revenue measures, we should require the antagonists to recommend alternatives that affect their group to the extent of the tax revenue targeted. Otherwise, each will point fingers at others, as generosity begins and ends elsewhere.

There is truth in the aphorism, ‘Uneasy lies the head that wears the crown’, though the crown itself is often tarnished by self-interest. Like the rest of us.

 

Ramani Venkatramani is an ex-APRA regulator, now the Principal of Ramani Consulting Pty Ltd. He advises on risk, regulation and retirement outcomes and trains global regulators in supra-national core principles of banking, insurance and pensions supervision, crisis pre-emption & remediation.

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40 Responses to Are retrospective tax policies fair or foul?

  1. Franky November 29, 2018 at 10:30 AM #

    Excess franking credits are not “lost”, they are simply not used. People using Howard’s profligacy to structure their investment to get more reward for no uplift in risk. Why would someone who is 60+ have most of their funds in Aussie equities?

    • Greg Hollands November 29, 2018 at 10:54 AM #

      It’s called rate of return Franky! It was also one of the major reasons for the implementation of the imputation system by the Keating Govt – it would make investing in the Australian sharemarket a more attractive proposition and thus boost it as an investment option. The very reason for its being is now proposed to be destroyed! BTW, it doesn’t matter if “most” of their funds are in the Australian sharemarket, no imputation credit refund means exactly what is says!

      • Philip Carman November 29, 2018 at 12:24 PM #

        Keating wasn’t trying to advantage shares, nor provide refunds to non tax-payers, so don’t use the original policy to push that argument. And DON’T say it’s being destroyed. The privileged who pay no tax while holding very large asset pools should be ashamed. Those of us who understand the role of responsible citizens paying taxes for a society that can function fairly are getting tired of the self-serving rhetoric. More importantly, in this forum, you give the rest of us a bad name and need to stop associating with financial services. We have enough problems dealing with the RC fallout – again those with the most taking even more!

      • Victor de Lorenzo November 29, 2018 at 2:39 PM #

        Not one person has mentioned the reason which drove the Howard Government to introduce the refund of franking credits. It was implemented in response to a recommendation by the Committee of Inquiry into the Financial System in the early 1980’s, chaired by Sir Keith Campbell. In the report the Committee states that the distinction between company and shareholder is an artificial one, and that the ultimate tax liability should rest with the shareholder. Hence the tax rate ultimately payable on company earnings is that of the taxpayer, with both double taxation removed and a refund for those on a tax rate below the corporate rate. Labor’s proposal will destroy this principle and create many contradictions, such as dividend income being taxed for those on incomes below the tax threshold; receiving refunds based on the type of super fund you are in (nowhere else in the tax system does this arbitrariness occur); and providing a lower tax liability to taxpayers with high diversified income compared with low dividend income shareholders. The chief aim of Labor’s change seems to be to shift retirees from SMSF’s into union run Industry Funds. This apparent aim is the worst type of tax policy.

      • Franky December 6, 2018 at 3:25 PM #

        Victor, if you are a PAYE taxpayer, you can not get a refund beyond your tax liabilities. Why can you do it in the phase of your super when you should be drawing down on your savings?
        Why is it a bad thing to move to a super fund with higher returns and lower fees?

  2. Greg Hollands November 29, 2018 at 10:51 AM #

    Well, I am pretty sure that the Labor Party could never be accused of worrying about the “burden of holding the purse-strings” – your description of “profligancy” should be applied to them in spades.

    However, you miss the whole point about franking credits and why they should flow down to the individual shareholders upon dividend payments. The principle is that the income of the company is “imputed” to the shareholders – that is the shareholders ( as entity owners) pay the tax on their respective share of the income of the company. The company tax that has been paid is merely a prepayment of the ultimate liability. Thus, you appear to have no problem about a shareholder who is on the maximum rate of tax paying an additional 16.5% on any dividends received. But, when a shareholder has a lesser rate of tax, you would deny them their fair due!

    This view denies that the very principles of imputation are abandoned and clearly “double taxes” those taxpayers who are in a lower tax rate – just because you can! Where is the symmetry and fair go for which we are (apparently) famous for?

    This is an absolutely outrageous proposition on this ground alone – and should be called out for being so! ( And what a surprise that the industry super funds will be able to manage this issue without any additional cost to any members!!!)

    That is the real problem here – the absolute arbitrariness of the impact of this proposal – particularly on some of the population that have been savers over a very long time! My only hope is that all of those people have their revenge at the ballot box!

    • Philip Carman November 29, 2018 at 12:08 PM #

      All the nonsense about industry funds getting a windfall is pathetic and smacks of a complete disengagement with reality that comes from the sense of entitlement so many in our industry have and share with their clients. All super funds except those that don’t pay any tax can still collect the credits. That includes all the for-profit (public offer) funds out there that remain silent on this issue. And who do you think will pay the taxes we need to have a good society if we don’t? Anybody but YOU??? Give it a break and make your usual arrangements to shelter yourselves and your clients from their responsibilities. You know you can/will and so do we. All this public hand-wringing does you no service whatsoever.

      • Greg Hollands November 29, 2018 at 2:07 PM #

        Philip, You have not addressed the core issues set out in my comment. What is the fundamental purpose of imputation – see my original comment. The purpose/principle has been bastardised for short term political gain. The Labor Party estimate is that they will raise some $55 BILLION over 10 years. Guess where that is coming from?

      • Shylock November 29, 2018 at 7:58 PM #

        Dear Philip Carman

        Exactly how much money do industry funds “donate” to the Labor Party each year ?

        Can you provide the answer please, as I cannot find this data.

        Anyone who knows may the answer.

      • Chris O'Neill November 30, 2018 at 8:18 PM #

        “who do you think will pay the taxes we need to have a good society if we don’t? Anybody but YOU???”

        A strawman argument. No-one supporting imputation is suggesting tax law should be inequitable. On the contrary. The issue is about whether different types of income should be taxed equitably. Some think that a particular type of income should have a minimum average tax rate of 30% (which is very high by personal tax standards) while other types of income should (as now) have a minimum tax rate of zero. This is massively inequitable. If the government wants to raise more tax then raise it on everyone equitably. Raising more tax is not an argument for raising it inequitably.

    • David November 29, 2018 at 4:40 PM #

      436 submissions received by the committee for The House Standing Committee of Economics formal enquiry into refundable franking credits. The honourable Tim Wilson MP advised the objective of the enquiry was to give a voice to the Australians who will be directly impacted. I don’t think such a minuscule minority will have any great impact at the ballot box. The lobby groups may have to concede this one.

    • Chris O'Neill November 30, 2018 at 7:56 PM #

      “The principle is that the income of the company is “imputed” to the shareholders – that is the shareholders ( as entity owners) pay the tax on their respective share of the income of the company.”

      Or slightly more logically, the income and the company tax of the company are imputed to the shareholders. i.e. shareholders are imputed to pay company tax. Notions that some shareholders don’t pay tax are in denial of the principle of tax imputation.

      “My only hope is that all of those people have their revenge at the ballot box!”

      Even without revenge at the ballot box, Labor are unlikely to get their multiply regressive policy through the Senate. Expect to hear much wailing and gnashing of teeth about “we’ve got a mandate” sometime next year.

    • Franky December 6, 2018 at 4:04 PM #

      Greg, Labor have lower tax to GDP than the Coalition.

  3. Avey November 29, 2018 at 11:17 AM #

    Two retirees declare exactly the same income from exactly the same spread of assets in a financial year.

    Self funded retiree number 1 receives their excess imputation credits to their pension account held in an Industry Fund.

    Self funded retiree number 2 does not receive their excess imputation credits to their pension account held in a Self Managed Superannuation Fund.

    How is that in any way fair?

    I should have got John Wood to say that…

    • Philip Carman November 29, 2018 at 12:02 PM #

      It’s completely fair, like an IQ test is fair – the two retirees have the option of rolling over to the better option…just as they did years ago. One chose a path that (some would say) was preferable, but which now (others would say) is no longer advantageous. What to do? Doh!

      • Greg Hollands November 29, 2018 at 2:10 PM #

        Oh Philip! What to do?

        Let’s advantage a bunch of associated players and beat up on the others so that the associated players get a benefit shall we?

        Where I come from that is called communism and it is just plain wrong!!! Especially when it is done in the name of “fairness” ???? You might be instructed if you had a read of Animal Farm by George Orwell.

      • Chris O'Neill December 1, 2018 at 2:25 AM #

        “It”

        the abolition of horizontal equity

        “is completely fair.”

        “What to do?”

        The Labor Party is counting on the vast majority of people not doing anything, as well as getting its legislation through the Senate.

  4. Greg Hollands November 29, 2018 at 2:16 PM #

    Wow Philip! A lot of aggression in this response, but you have still not articulated why certain sections of the community will be disproportionately dealt with via the tax system under a Labor Government.

    If you are involved in the financial services sector, I don’t think I would like you to me my advisor if you are advocating that I should pay more tax that another person who has the same investment in an industry super fund?

    Whose side are you on – certainly not of the individual clients! I think I will let the readers decide on this one.

  5. Jan November 29, 2018 at 2:45 PM #

    Ramani: Your argument that retrospective tax changes are to be expected is all very well, but what people are railing against is the unfair and arbitrary way retrospectivity is being applied. An article in The Australian, June 26, 2018, by Ben Packham reveals that ” many of Labor’s frontbenchers are multi-millionaires, courtesy of bulging property portfolios. Parliamentary records show Labor’s 45 frontbenchers own or have an interest in a total of 105 properties, including 57 classified as residences, and up to 48 classified as investments, holiday houses or blocks of land.”

    One can assume that at least some of these properties are negatively geared to reduce tax liabilities. No wonder then that Labor is grandfathering its planned negative- gearing changes to a “yet undetermined date”. Whereas franking credits cash refunds will end 1 July 2019.

    I wonder if Labor MPs held large share portfolios would the franking credits be grandfathered.

    Chris Bowen , speaking at the National Press Club, 17 May 2018, said that allowing some pensioners to continue to receive cash refunds is “fair because those people have made investment decisions based on the rules at the time. Big investment decisions and we respect that.” Like government pensioners, trustees of Self-Managed Super funds in pension mode as of 28 March without an aged pensioner member also made investment decisions based on those same rules. Yet, they alone will be disadvantaged by retrospectivity. To add further to the discrimination, unions, charities that also pay no tax will continue to receive cash refunds.

    My recommendation is that if this is about budget repair, then let’s return everyone to the pre-GST status quo: return tax-free threshold to $5400 and no cash refunds. That way everyone will be retrospectively treated equally.

    Why should wage-earners get $18200 tax-free, while low-income self-funded pensioners have their income slashed by 30%–many receiving well under the TFR Labor introduced in 2012/13?

    • Chris O'Neill December 1, 2018 at 2:42 AM #

      “To add further to the discrimination, unions, .. that also pay no tax will continue to receive cash refunds.”

      I don’t know if that’s true or not (the Law Council made a submission questioning the status with non-profits) but if it is then it’s absolutely appalling. One rule for the Labor Party’s mates and another rule for nearly every one else.

  6. Jon November 29, 2018 at 3:03 PM #

    To Victor, thanks, this is a pretty convincing argument:
    “the distinction between company and shareholder is an artificial one, and that the ultimate tax liability should rest with the shareholder”.

  7. Tony Godeassi November 29, 2018 at 3:21 PM #

    It was my understanding that refundable franking credits were introduced as compensation for the inflationary effects of the GST when that was introduced. It is a pretty deplorable situation when a regressive tax is introduced then subsequently the compensation is withdrawn, and in a most regressive manner.

    • Warren Bird November 29, 2018 at 6:56 PM #

      Tony, that may have been a part of the political justification at the time, but the original concept of imputation always envisaged it being applicable to all income layers, including refunds to tax payers below the company tax rate.

      From my perspective it is the original pure policy arguments that need to be looked at, rather than the Keating and Costello political justifications and shorthand explanations like “avoiding double taxation”. It was always about more than that!

  8. Johnny H November 29, 2018 at 7:01 PM #

    We have an ex public servant (APRA) here telling people how things should run while he has enjoyed the enormous largesse from the taxpayer in his super. And of course the politicians have the benefit of taxpayer largesse also. Even when they stuff things up – as they always do – they still get away with their barrow loads of tax payer money for the term of their natural life. However, the ultimate advice to public servants (including politicians) is to stop stuffing around with the friggin’ system.

  9. Pauline November 29, 2018 at 11:43 PM #

    Dear Mr Hand,

    My husband and I have our own SMSF and are in pension phase. As you can imagine there are so many articles about this issue and how if affects SMSFs as apposed to Super funds, that I am beginning to get confused as to whether there would be any advantage to us to move our money over to a so called Industrial fund or Retail fund. I do not intend doing anything unless this policy is passed, but would like to be correctly informed as to our options if it should.

    How will this policy affect retirees income in Retail funds and how will it affect retirees income in Industrial funds?

    Will any of these funds actually be exempt from the policy and still receive cash for unused franking credits and if they do, will the cash go back to the individual member who has generated them by their own chosen investment option, or will they go into a common pool?

    Regards
    Pauline

    • Graham Hand November 29, 2018 at 11:45 PM #

      Hi Pauline

      We are not licensed to give personal financial advice, but some general comments.

      We published this article written by AustralianSuper to explain what happens in a pooled fund like an industry fund.

      https://cuffelinks.com.au/direct-investment-options-deal-franking-credits/

      Then in response to a comment, the reply provided was:

      Hi Phil, the assets supporting each investment option across the accumulation and pension phases are combined in the one entity. The franking credits are then allocated to the investment options that have exposure to Australian equities. This means that all members in the pension phase, whether they’re in Member Direct or another investment option, will receive their respective benefit of the credits.

  10. Philip Carman November 30, 2018 at 2:25 AM #

    There’s a reason why people choose to invest via a company – it’s to limit/avoid their financial liability to that of (only) their shareholding. (Hint: Limited Liability is in the appendage to the name – “Pty Ltd”. That’s why the position of the company and the shareholder is NOT the same and won’t ever be unless shareholders are willing to drop their limited liability and accept responsibility for all debts, etc. As if! This is simple business law 101. Get over the slight loss of tax avoidance that Shorten is clawing back after Howard added it and be grateful for your good fortune. Frankly, those who don’t want to pay a fair share of taxes in this country should probably shove off and go live in Bermuda…or some other tax haven.

    • Warren Bird November 30, 2018 at 8:28 AM #

      Since you’re going to continue to peddle your views, I’ll continue to peddle the response to them.

      30% of the earnings the company you own makes is far too much to be charged for the privilege of being in a limited liability company structure.

      And if it’s not (too much) then there should be NO dividend imputation – all shareholders should pay full freight of company tax, not just those who happen to be on a zero tax rate for their personal income (which means they are lower income earners). I might have missed it, but I don’t see you advocating the policy change go quite that far.

      I’ll say it again. If there are tax payers you don’t think should be on a zero rate, then advocate for a change in their rate. But leave a perfectly good taxation policy alone.

      It’s got nothing to do with people not wanting to pay a fair share of taxes. It’s about having a fair and properly constructed taxation policy, one that fully integrates all your sources of income as is achieved by the dividend imputation system.

    • Chris O'Neill November 30, 2018 at 1:19 PM #

      “the position of the company and the shareholder is NOT the same and won’t ever be unless shareholders are willing to drop their limited liability and accept responsibility for all debts”

      So why should company tax be imputed to ANY shareholders?

  11. Dane November 30, 2018 at 9:42 AM #

    Perhaps disgruntled SMSF Trustees should use this as an opportunity to invest more sensibly vs heavily overweighting a small subset of cyclical stocks to game the tax code. This is a suboptimal strategy in terms of targeting attractive risk-adjusted returns, which should be the objective. Home bias has led to a substantial opportunity cost for 10 yrs since the GFC where Aus shares have underpermed considerably (perhaps because all earnings are paid out as dividends impacting company’s ability to grow earnings but that’s another conversation). It not unreasonable to surmise that you will earn back the ~1.5% p.a in lost franking credits by properly diversifying into other asset classes. Our market represents ~2% of the world’s investable stocks. Narrative around this debate feels equally small-minded..

    • Chris O'Neill November 30, 2018 at 1:11 PM #

      SMSF trustees of pension funds will still forfeit the value of any imputed tax credits unless they reduce the weighting of franked dividend paying shares to zero. This is hardly a motivation to invest more sensibly.

    • Graeme B December 2, 2018 at 4:30 PM #

      I get exposure to overseas markets for my SMSF through locally listed LICs. They pay me mostly franked dividends. If you are suggesting I should invest directly in overseas stocks my response is that I know my limits. Perhaps you should take the time to figure out your limits. or are you just a shill for industry funds? My SMSF does quite well thanks.

    • GO December 3, 2018 at 9:14 AM #

      Dane, now this policy is a good thing because it encourages “better” asset allocation through overseas investments?.

      End of November, my SMSF is 32.5% in international investments through investments in Australian listed companies with exposure to global revenues and through investments in Aussie LICS with specialised analysts and managers of overseas assets.

      Many years back I looked at sourcing research on international shares, obtaining access to global share registries, dealing with foreign tax, currency and governance regimens etc. It didn’t take long to realise the lowest cost and risk option for me was through ASX listed “international” businesses (which, generally, do pay franked dividends).

      I think it is naïve to suggest the proposed franking grab policy is decreasing risk for SMSF retirees by nudging them into dealing with offshore share registries, currency, economics, tax etc.

  12. Lance November 30, 2018 at 9:50 AM #

    “Hence the tax rate ultimately payable on company earnings is that of the taxpayer”

    So why do we get so upset when Google, Apple or any other company pay no tax in Australia, if for those companies, there are so few Australian shareholder?

    • PeterT December 3, 2018 at 2:12 PM #

      Great observation, Lance, which highlights the silliness of the legal fiction which imputes the corporate entity’s tax rate to be the same as that of the shareholder. It’s fair and right that foreign companies should pay tax on every dollar of their earnings here in Australia (putting to one side for the moment the problems arising from all the legal ways those companies minimise their “earnings”). By extension, if BHP and Telstra etc., were owned by corporate entities domiciled in offshore tax havens, then effectively none of their earnings would be taxed to help pay for roads, hospitals, schools, etc here in Australia. Accordingly, the government takes a clip (ie., witholding tax) from the dividends paid to foreign shareholders. There is no reason similar rationale should not apply to resident shareholders, ie., irrespective of the shareholder’s tax rate, the government should put a floor on the tax rate applied to every single dollar of corporate earnings. And that brings us nicely back to Keating’s original implementation of dividend imputation: dividends are not taxed twice, but are taxed once, at the higher of the corporate tax rate and the shareholders marginal tax rate.

      • Allan December 3, 2018 at 4:37 PM #

        Thereby ensuring, Peter T, that the very lowest income shareholders pay an effective income tax rate of a regressive flat 30 percent. Of course 30 percent just happens to be almost exactly equal to the overall average tax rate paid by a top marginal rate income earner on $180000 a year.

        But it seems that is fair because, while every other source of income is assessed against their overall tax situation, the dividend income came from shares, and genuine low income earners couldn’t possibly own shares, could they?

        Keating’s original implementation was amended because it was inequitable. Since then, Labor have been supportive of the policy. I’m sure this apparent ‘pot of gold’ seemed like an easy grab, given how poorly the rationale for the refund of imputation credits is understood.

        But the bottom line is that any problem that exists is due to the zero percent individual tax rate, not the imputation credit refunds.

  13. Chris O'Neill November 30, 2018 at 1:03 PM #

    “Howard and Costello made them refundable in the dying days of their government”

    A completely false claim. Howard and Costello made them refundable in 2000 and promised in 1998 that they would make them refundable, quite a few years before they lost in 2007.

    One of the things that is wrong with this country is that you can be ignorant and yet still be appointed to powerful positions in organisations and government.

  14. Elaine McCartin November 30, 2018 at 4:42 PM #

    And who do you think will pay the taxes we need to have a good society Phil Carman?? It appears a working couple can earn $36,000 between them before they have to pay any tax and I believe this is more than married pensioners earn per year. Bill wants to increase taxes to fund his promises and has hit on vulnerable SMSF pensioners who have not benefitted from superannuation contributions throughout their working lives. His move is divisive and plays to social media to encourage transferring money from SMSF retirees in the name of progress. The yearly fee for pensioners joining a Union Super Fund would be about the same amount lost in franking credits in an SMSF.

  15. Allan December 2, 2018 at 10:34 PM #

    There is no easy answer to the issue of retrospectivity when it comes to policy change. But it is a bit disingenuous to suggest that individuals should protest just as loudly whether proposed policy affects them to their benefit or detriment. Of course they won’t. This isn’t so much hypocrisy as basic human behaviour. Ever heard the saying about the noise made by an unhappy customer compared to a happy customer?

    On the other hand, I recall a number of my older peers who have opined that they did not believe uncapped tax free super pension distributions were fair or sustainable. This was partly addressed recently by the Coalition with the 1.6m cap. I’d suggest if Labor was proposing modest changes to the SAPTO and/or the zero percent marginal tax rate, taking into account the already implemented cap, there would still be some outcry, but possibly not to the extent the imputation credit policy has triggered. That would be because the ALP’s franking credits policy targets shareholders with low taxable incomes, while leaving higher income earners unaffected.

    So in considering retrospective change, is there a conflict of interest involved in Federal Labor politicians collectively owning a considerable amount of established property permitting existing property holders to be exempted from the negative gearing changes?

    Is there a conflict of interest involved in the ALP receiving financial support from Industry super funds while proposing changes that are largely neutral to those funds while explicitly targeting SMSFs?

    If the policy has such merit, why the arbitrary exemptions rather than applying it universally and providing offsetting compensation where appropriate?

    What business is it of anyone else if an investor chooses to weight their share investments in favour of local companies that they are comfortable with and can analyse more readily?

    Why should a taxpayer with a zero percent marginal tax rate be subject to a regressive 30 percent tax rate on one particular source of income, while their high earning cohorts only pay total equal to their current marginal tax rate?

    Why should a particular source of income be taxed in an entirely different manner in the hands of taxpayers to all other sources of income?

    What relevance do references to Australia being “the only country with fully refundable imputation credits” have without taking into account the bigger taxation policy picture in the comparison countries?

    How would a small business owner subject to the PAYG provisions feel about having any excess tax they had paid throughout the financial year confiscated rather than refunded? How do you think that would play in the media?

    Is this an issue which readily lends itself to feeding division in the electorate given it is poorly understood, and repeatedly referred to as a wealthy retiree related matter rather than an issue of taxation fairness?

    Is it really too much to expect a reasonable degree of independent intellectual rigour be applied to our policies to ensure they are effective, equitable, and achieve their intended goal without too many unintended consequences? By this, I don’t mean selective quoting of analysis by the PBO by the proponent of the policy.

    And to Philip Carman, never once in decades of taking an interest in investing and the markets have I heard an investor claim to have invested in a company “to limit/avoid their financial liability to that of (only) their shareholding”. Never. This is a non sequitur par excellence.

  16. Greg McKay December 3, 2018 at 2:05 PM #

    Ramani, your article is a very long winded way of saying that you think the Howard/Costello changes to super rules was too generous, as of course is your right.

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