Abbott/Liberal Govt Watch

[Q.]

To me that's where it breaks down. Why should Jodi get a tax return, but not Sally. Both have dividends that were taxed at a higher rate than their personal tax bracket.

Because your last example is a tax exempt super pension.

[Trader]

To me that's where it breaks down. Why should Jodi get a tax return, but not Sally. Both have dividends that were taxed at a higher rate than their personal tax bracket.

Because your last example is a tax exempt super pension.

I am asking why is that fair. Not what is her classification that means Sally doesn't get her credit but Jodi does.

They are both share holders, who's dividends have been taxed through company tax at a higher rate than their personal income tax rate, and therefore both should receive the difference back.

To put it another way. A shareholder is essential an investor who provides capital for the company to undertake its business, and receives a return as a result.

Now instead of buying 100k in shares and earning a $5k dividend plus 2k in franking credits, now lets say Sally gives them a 100k loan, with a 7% interest rate.
The company pays no tax on the 7k, and Sally declares that 7k and as she's under 18,200, she pays no tax either.

That's fair and no one is complaining about that, so why when Sally is called a shareholder, should the ATO get 2k out of it?

[Jimmy_041]

It was Robert Gottliebsen. I’ll copy and paste from my iPad

Here’s another version: https://www.dcadvisorygroup.com.au/blog/are-you-a-loser

[Grenville]

The policy of giving dividend imputation cheques for dividend recipients who are outside the tax system is one of many examples of why Howard/Costello were poor economic managers. The policy created structural deficit for every government since (and does not exist in ANY other country in the world) and will cost the taxpayer $8bil a year if it stays. $8 BILLION! It is a policy that only favours the wealthy (who have the temerity to claim they are "self-funded") and there isn't an economist worth his salt that thinks the policy is a good idea.

It's not whether it's a good idea or not. Its the fact that its not fair to hit one group of people and keep it for everyone else. That's the argument. If its such a $hit policy - scrap it for everyone. Plus, I read in the AFR that this will not affect wealthy people as much as the not wealthy (but I cant remember why) and that the argument is purely to make it popular. I will see if I can find the article and post it

Three other things I was told last night:
1. Many inside Labor think the Coalition have a very real chance of winning the election.
2. Bill Shorten would be gone if it wasn't for the leadership rules. Their polling is showing very real evidence that the majority of voters don't trust him.
They are connected - Labor would (deservedly) win in an absolute landslide, even if Albanese was brought in the day before.
3. The factional union battles are in full swing (eg) Adani where slippery Bill is promising the CFMEU that they wont stop it, and everyone else he will.
Even The Guardian is reporting this: https://www.theguardian.com/australia-n ... head-warns

I think there's one thing that's not going to change after the election - political chaos.
The days of political statesmen like Chifley, Curtin, Deakin, Menzies, Hughes, Hawke, Howard and, dare I say it: Fraser and Whitlam, are truly behind us with no hope in sight. We can look forward to another 3 years of chaos whichever side gets in.

Unfortunately true Jimmy.

[Q.]

To me that's where it breaks down. Why should Jodi get a tax return, but not Sally. Both have dividends that were taxed at a higher rate than their personal tax bracket.

Because your last example is a tax exempt super pension.

I am asking why is that fair. Not what is her classification that means Sally doesn't get her credit but Jodi does.

They are both share holders, who's dividends have been taxed through company tax at a higher rate than their personal income tax rate, and therefore both should receive the difference back.

To put it another way. A shareholder is essential an investor who provides capital for the company to undertake its business, and receives a return as a result.

Now instead of buying 100k in shares and earning a $5k dividend plus 2k in franking credits, now lets say Sally gives them a 100k loan, with a 7% interest rate.
The company pays no tax on the 7k, and Sally declares that 7k and as she's under 18,200, she pays no tax either.

That's fair and no one is complaining about that, so why when Sally is called a shareholder, should the ATO get 2k out of it?

Why should the ATO get 2K? Because a company pays 30 cents to the dollar in company tax. That company then pays a fully franked dividend to a SMSF where the sole member is in pension phase. The SMSF then gets the 30 cents cash back as a refund when the fund’s tax return is processed. This results in a net government revenue of effectively nil.

We are the only country in the world that does this. So currently it is more effective for a company to pay dividends to investors than it is for them to retain their profit and invest the capital for more growth. And then share portfolios get concentrated on only high dividend companies, which stifles investment elsewhere. The ASX is ****** because we're hooked on high dividends, rather than growth.

With the policy only targeting refunds, we still have a more favourable system than most of the OECD, most of which don't have a dividend imputation system at all. So you're right in a way - get rid of the dividend imputation system altogether (a Labor introduction) so that Jodi and Sally can be equal.

[Jimmy_041]

And tax everyone at 60% because the government are better at managing our money than we are? Why do you always want higher taxation?



And you keep either missing, or avoiding, the point that Trader, and I, are making. Why should an SMSF not get the same treatment as everyone else in traditional super funds? The policy is flawed because it targets one group of people and it’s not rich people. Absolute garbage. Why haven’t they proposed cutting it out for everyone? You can have >$1m in you Hostplus account and still get it but not if you have $500k in your SMSF. Cut it out for everyone if it’s such a stupid idea. But they can’t. Why not? Because the unions, who leach off the industry funds, won’t let them.

[Jimmy_041]

Self-funded retirees under attack
ROBERT GOTTLIEBSEN
Follow @BGottliebsen
Both major parties think self-funded retirees are not yet a big enough part of the community to influence elections, so are fair game.
Both major parties think self-funded retirees are not yet a big enough part of the community to influence elections, so are fair game.
8:04AM MARCH 13, 2018
NO COMMENTS
By discriminating against retirees the ALP has left the door open for Treasury to convince the Coalition government to make a frontal attack on franking credits.

Later in this commentary I will set out what they will be now be considering.

But first let’s look more closely at the way self-funded retirees are under attack.

Under the Peter Costello rules, superannuation funds in pension mode were tax-free. The current Coalition government limited the tax-free portion to $1.6 million and introduced other nasties to attack retirees. One of those nasties encouraged people with in the vicinity of between $400,000 and $800,000 in assets to liquidate part of those assets and go on the government pension. They received a 7.8 per cent return on assets liquidated. Cruises have boomed thanks partly to the Coalition. It was stupid policy but the Coalition attitude was: “Who cares? Self-funded retirees don’t carry enough votes and the increased eventual pension bill will be met by a future government”.

However Coalition policy encouraged retirees to invest that $1.6 million tax-free money in shares, particularly those that paid franked dividends.

Now the ALP says that that those $1.6 million tax-free funds will not be able to claim franked credits, substantially lowering the value to self-funded retirees of banks and other securities that pay high franked dividends. Many bank hybrids are among those to be affected.

That means if your superannuation fund is paying tax, ie not in retirement mode, you can claim franking credits but if it is in retirement mode (or not paying tax because of large volumes of franking credits) then the fund can’t claim the benefit of those credits.

This is clear discrimination. Both the industry and retail funds will argue that overall they are big taxpayers and there should be no discrimination between members in retirement mode and those saving for retirement. It’s only those dreadful self-managed funds that should be attacked.

I fear that between now and coming to power in an election, lobbying by the big superannuation funds might cause the ALP policy to be converted into a full-scale attack on self-managed funds by giving industry and retail funds a special advantage. I hope I am wrong.

Such a move would decimate self-managed funds but given they have a third of the superannuation market it would be dangerous politically.

As more people move into retirement phase any restriction on the use of franking credits will reduce the market value of bank shares and those hybrids increasing their returns by the use of franking credits.

But on the favourable side, under pressure from institutions, companies like banks, Telstra and BHP paid out far too much of their profits in dividends. Many of the current bank problems relate to the fact that they underinvested in the technology backing the administration of many products they introduced. The required money to fund that investment was being foolishly being paid out in dividends.

But Telstra and BHP have sensibly changed policy and reduced or restricted payouts. The banks so far have not adopted such a policy. For BHP, with $11 billion in unpaid franking credits, many shareholders will press the company to pay them out quickly because they could lose their value for retirees, depending on the result of the next election.

In the case of BHP this is an extra money grab discriminating between BHP shareholders who are retirees and those who are not.

Like all political games that discriminate between people it is not the high-income earners who will suffer, they will find a way around the problem.

Rather it is mum and dad who worked hard and saved for their retirement who cop it in the neck every time.

The Coalition’s attack on this group set a policy that discouraged retirees from selling their house and downsizing. They have made some amendments to that.

But the ALP is now saying the same thing. If you free up cash by selling your house and investing it in shares with franked credits then you are deprived of the benefit of those franking credits.

Many will either keep their house or increase their cruise enjoyment and live on the government pension.

Rather than hit the battlers where it hurts a more enlightened ALP would have been much better to restrict franking credits to dividends that are less than half the profit.

That would have been good for the country as well as for the long-term shareholders and it would have raised as much money. The ALP has left the door open for the Coalition to adopt such a policy.

In addition I believe there is a very good chance that the Coalition will embrace the “Calderon plan” which was announced at the Melbourne Mining Club by the CEO of Orica, Alberto Calderon (under the plan Australia follows the US in new plant and research write-offs but does not lower company tax).

ROBERT GOTTLIEBSENBUSINESS COLUMNIST
Robert Gottliebsen has spent more than 50 years writing and commentating about business and investment in Australia. He has won the Walkley award and Australian Journalist of the Year award. He has a place in t... Read more

[Jimmy_041]

Labor’s franking credit attack is hitting the wrong target

ROBERT GOTTLIEBSEN
BUSINESS COLUMNIST
@BGottliebsen
OCTOBER 31, 2018

This week I met with some nine retirement and investment organisations representing close to one million Australians. Going under the banner of the Alliance for a Fairer Retirement System, they had come together because they have been sickened by the total unfairness of the retirement and investment tax measures proposed by the ALP and its shadow Treasurer Chris Bowen.
These organisations would love to be part of a community debate covering the total issue of retirement tax, franking credits, the linking of retirement benefits and social security and any other taxation matters, including the GST.
But such debates are not on the table.
So instead, the focus is on now the ALP retirement investment tax, which breaks all ALP and Australian community traditions by discriminating between Australians in the same income and asset situation. It also discriminated between Australians on the basis of their birthdays.
To illustrate that unfairness I am first going to describe the ALP retirement tax by stripping away the mechanisms used to levy the tax. Then I will provide the detail of the tax’s mechanisms that justify the harsh descriptions.
Let’s assume that we are looking at two retirees with exactly the same financial situations and roughly the same investment portfolios.
One saves via the ALP’s mates (or approved non-mates) and so they are spared the ALP retirement tax.
But the other retiree has his or her money invested outside the ALP mates circle. And so, under the ALP plan, those retirees cop it in the neck and must pay the retirement tax. They suffer a reduced standard of living. Remember, they have same asset and income situations.
It’s simply outrageous.
But the ALP retirement tax gets worse, because the selective tax differential is then extended to those on government pensions. For the last century, the ALP could be relied on to treat all pensioners in the same category in the same way. But that longstanding policy has been torched.
People who were registered as government pensioners on March 28, 2018 and had their investments with non-ALP mates avoid the retirement investment tax.
Those who register for the government pension on March 29 2018 or any date thereafter pay the retirement investment tax, unless their money is invested with ALP mates or approved non-mates
The smokescreens set up to camouflage this retirement/pension investment discrimination revolve around the Paul Keating franking credit system. The ALP claims that the new retirement tax is aimed at the rich. But the rich can quickly adjust their portfolios and few will be affected.
Instead, the ALP hopes to raise $55 billion over 10 years from 1.4 million people, most of whom are lower-income battlers. And remember the higher retirement tax blows are reserved for those battlers who don’t support the ALP’s mates or who were born on the wrong date.
Traditionally, governments lose elections rather than oppositions win them and the current government has done its best to lock in a 2019 election loss.
Moreover, neither the Coalition nor journalists like myself understood the full impact of the ALP retirement tax on ordinary Australians until the remarkable research of Deborah Ralston of the Self-Managed Superannuation Association. I set out the groups who make up the 1.4 million people who will play the retirement tax in The Weekend Australian last month.
The Coalition has been too busy fighting itself to worry about ALP policy, but is now waking up.
On October 25 I set out what the Coalition can currently do help the victims of the ALP discrimination and raise large sums of money. Assistant Treasurer Stuart Robert also spoke with the retirement and investment groups and clearly the government now understands that this is a Coalition opportunity. The ALP’s bad behaviour could theoretically cost them the election, particularly if the Coalition can get its small business package right, although that is not a forecast.
Yet set this blunder aside, and in many ways Bowen looks likely to be a good treasurer. Still, his negative gearing measures were good policy when he announced them in the boom although are now dangerous because of the credit squeeze. ALP people will be scratching their heads as to why he made this mistake. My guess is that Chris Bowen has spent too much time in the company of former public servants who when in office hated the Keating franking credits plan. They now see a way to attack it via the back door.
The ALP retirement and investment tax works this way: All Australians who have shares in listed public companies are entitled to tax credits from the tax that those companies have already paid tax on the profits that are distributed via dividends.
For most taxpayers that tax credit simply reduces the income tax they are paying.
But if you are a retiree (and not a rich one) you may have no other income and are in a tax-free state, so the tax the company has paid is returned to you in cash.
Under the ALP plan, if you have your savings in an industry fund (who are among the ALP’s best mates) or a large retail fund (approved non-mates) there is no policy change and you keep your cash franking credits.
The ALP retirement tax only applies to those who have invested their savings outside the industry and big superannuation funds. Accordingly the retirement tax will be paid by those investing in smaller so called APRA funds, people who saved outside superannuation, self-managed super funds and retired small business people.
The “retirement tax” is simply levied by removing the cash franking credits entitlement currently being received. Also excluded from the retirement investment tax are those registered for the government pension on March 28. Register today for the pension and you are too late and must pay the retirement investment via the removal of your cash franking credits unless your money is with the ALP’s mates.
My guess is that Chris Bowen will try to reduce the impact by restricting the retirement investment tax to franking credits above $15,000. But that just makes bad policy even more complex, even if it manages the politics a little better.
One of my suggestions for the Coalition is to end the racket whereby big superannuation funds conspire with overseas shareholders to enable overseas holders to gain franking credits that they’re not entitled to. Large sums will be raised by simply closing that loophole.
And I emphasise that none of the above is a criticism of the industry funds. They are winning fair and square and don’t need an ALP leg up.
ROBERT GOTTLIEBSEN

[Jimmy_041]

Shorten franking policy must be fair to retirees
The Australian

Robert Gottliebsen, Business Columnist

24 December 2018

On the day before Christmas this letter goes to Bill Shorten, who according to the
opinion polls is the 2019 prime minister-in-waiting, plus his would-be treasurer Chris
Bowen and Ged Kearney, who is the member for the northern Melbourne seat
formerly known as Batman that has been renamed Cooper.

Bill Shorten is deservedly way ahead in opinion polls, firstly because he has held his
party together for five years when his opponents split and secondly because he and
Chris Bowen announced key policies way ahead of time.

In office, like the Coalition, the ALP will have policies that create disagreement.
That’s part of our democracy.

But in 2019, the community wants stability so once again we can respect the office of
prime minister.

We have had nine years of chaos. Australia wants policies where, even if we disagree,
there is community fairness.

I put Ged Kearney on this Christmas list because in November she took time to understand that one of my readers — an ex-teacher — was a victim of the proposed retirement and pensioners tax (RPT) that removes cash franking credits from selected people. I really appreciated that.

There are hundreds of thousands of battling victims of RPT, but the letter I have chosen to highlight comes from Bundaberg’s Boo and Lizzie Nitschie, who are not battlers. They both worked hard to be independent of government pensions. Boo is good at picking shares, but his superannuation fund will lose its franking credits unless he shifts the management of his money to the ALP’s mates in industry superannuation funds or selected non-industry funds.

For doing the “right thing” and replacing himself as manager, he will be rewarded by
receiving his cash franking credits entitlements in full.

Taxing on the basis of who manages a person’s money is simply not fair. Some of
Boo’s mates are on government pensions and will get their cash franking credits
entitlement. But others were not entitled to register for the government pension by
March 28 so while they will be pensioners, they will not get franking credits. Taxing
legitimate government pensioners in such an indiscriminate way is again simply not
fair

Boo’s letter defends franking credits and in my view he is right. But Chris Bowen and
Bill Shorten are entitled to have a different view and policies. But if they are to have
respect in the commodity, they must be fair in the way they implement those policies.

The Christmas before the election is a time for Bill, Chris and Ged to recognise the
unfairness of the way they are implementing their policy. And they might even
discover there are better ways to handle imputation credit entitlements. But that’s a
separate issue.

Over to you Boo (and thanks for the compliment):

Dear Mr Gottliebsen,
Thank you for your continuing efforts to expose the inequities of federal Labor’s
policy to abolish the refund of excess franking credits.

My wife and I retired from the work force several years ago.

I would like to tell you why we think this policy is so unjust. Twenty years ago, we
could see that access to the age pension was going to become increasingly
problematic, so we made the decision to fund our own retirement.

We reduced our lifestyle somewhat, living on one income and investing the other in the Australian sharemarket.
Shorten franking policy must be fair to retirees https://www.theaustralian.com.au/busine ... ttliebsen/…

We chose to invest in equities because I had some knowledge of the sharemarket but
would be a “babe in the woods” in the property market. As shareholders, we own a
share of the companies we invest in. It follows that we also own a share of any profit
or loss the companies may make. We pay others to manage these companies. These
managers determine how much of the profits (typically 60-80 per cent) they will
distribute to us as dividends. But first they must pay 30 per cent of our profits to the
tax office as company tax and the remaining 70 per cent is available to pay us our
dividends along with a credit for the 30 per cent tax that have paid on our profits.

My wife and I currently each received about $35,000 in (grossed up) fully franked
dividends per annum consisting of $24,500 in actual dividends and $10,500 in
franking credits. As this is our only source of income, we each have a tax liability of
approximately $3500.

The balance of the franking credits ($7000 each) is refunded to us when we lodge our
tax returns. Obviously, the value of the shareholding underlying this number of
dividends precludes us from any entitlement to the age pension.

If the refund of excess franking credits is abolished, we will both pay tax of $10,500
on our $35,000 taxable investment income. If we were still earning personal income
(pre-retirement) of $35,000 each per annum our tax liability would be $3500 each —
the difference in tax liabilities ($7000) is not a retirement tax. It is a retirement
SUPER TAX! And Mr Shorten still goes on about fairness.

Imagine the outcry of every wage-earner had to pay a minimum of 30 per cent tax on
every dollar they earned regardless of their actual income (and sorry no tax return for
you!).

Yours sincerely,
Boo (Selwyn) Nitschie
Bundaberg, Qld

[Jimmy_041]

Labor franking policy will change behaviour
by Deborah Ralston on January 23, 2019 62

Labor’s plan to disallow excess franking credits to Australian shareholders with low taxable incomes is flawed on several levels. On 19 November 2018, the Parliamentary Budget Office (PBO) released some additional detail on the likely impact of the proposed policy, commenting:

“there are significant uncertainties around the baseline data and the behavioural responses of individuals, superannuation funds and companies to the proposal”.

What we do know from the PBO data is that in 2014-15, more than half of the 1,132,380 individuals receiving refunds had taxable incomes below the $18,201 tax-free threshold, and 95% had taxable incomes of less than $65,000. Around half of these refunds go to people over the age of 65. With 320,000 receiving a ‘pensioner’s exemption’ from the policy, around 812,380 individuals are still likely to be affected.

Anticipated changes by people who self-fund retirement
For older Australians, shares have often been a preferred saving vehicle. Around 70% of taxpayers over the age of 75 receive franking credits, with an average value of $6,347. These individuals take great pride in being self-funding in retirement. The PBO anticipates responses by those individuals to the policy may include shifting from Australian equities into other forms of investment, or couples may shift share ownership from the lower-income to the higher-income individual.

The impact will be felt mostly by self-funded retirees and SMSFs, while those with an institutional super account will be largely unaffected.

People who saved for retirement through an SMSF will lack the tax liabilities in pension phase to offset their franking credits and will therefore lose income unless they develop alternative strategies. Potential income loss will be significant as SMSFs tend to favour Australian equities, although the proportion invested in this way varies widely.

In 2014-15, SMSFs with balances over $1.5 million accounted for 30% of all franking credit refunds, and indeed these high balance funds have been a particular target of the Labor policy which has at times been described as a ‘wealth tax’. As the intended revenue from this source is significant, the impact of the $1.6 million transfer balance cap on tax-free pension accounts introduced in 2017 may have a material effect on the potential revenue. To the extent money was transferred to the accumulation phase, trustees will have tax payable against which the franking credits can be used.

The PBO states that this has been factored into their calculations but will:

“only have a minor impact on the stated revenues as it only affects a relatively small proportion of pension-phase superannuation assets”.

No official ATO statistics are available in this regard, but data from a major SMSF platform shows that total SMSF balances in pension phase dropped from 31% of the sector in March 2017 to just 14% at June 2018.

Potential changes in strategies
The strategies or behavioural responses SMSFs could employ to offset any loss of income are unclear. They may:

diversify away from Australian equities
shift all funds from pension phase into an accumulation account and draw an occasional lump sum so that tax on earnings offsets franking credits
roll their SMSFs or at least the Australian equities component into an APRA-regulated fund
add younger family members to the SMSF to better utilise franking credits
There are really no prior experiences to indicate which way most people will go.

The PBO estimates also that by 2019-20, SMSFs will have shifted around a quarter of the value of their Australian listed shares into APRA-regulated funds, although the caveat for that estimate is that it is not clear “how open SMSF trustees” would be to that strategy. Given the dominant motivation of SMSF trustees is control of their own funds, it may be more likely that they would diversify out of Australian shares but stay within their SMSF.

Equally, there has been little modelling on how companies may:

behave given potential impacts on capital markets if there is a substantial reduction in investment in Australian shares by SMSFs and other investors
alter dividend payment policies if the demand for franked dividends changes react to divest substantial banks of franking credits
It appears the intentions of the Labor policy to contain the costs of the dividend imputation system, to improve government revenue, and to impose some kind of wealth tax are well intended from a fiscal perspective. However, the policy will impact differently on people on the same income, depending on whether they are a self-funded retiree, an age pensioner, a large super fund member or an SMSF member. SMSF members with an age pension on 28 March 2018 would also be in a different position to one who commenced their age pension on 2 April 2018.

As the PBO has said, there are many uncertainties around the baseline data and the behavioural responses. It is not clear that the policy will achieve the intended outcome of reducing the costs of dividend imputation and generating higher government revenues. Excess franking credits may simply be transferred as they move from those who can’t use them to those who can.

It is also unlikely to impact the wealthy who can reallocate asset portfolios, leaving older Australians with modest retirement incomes to bear the brunt.



Professor Deborah Ralston is Chairperson of the SMSF Association. Deborah has held a number of leadership positions in Australian universities and is a researcher and recognized thought leader in financial services.

[Jimmy_041]

Who will be the losers under Labor’s proposed franking credit change
March 16, 2018 - 10:59 am

The best way to show that Chris Bowen and Bill Shorten have miscalculated the impact of their franking credits thrust is to go deeper into the world of superannuation.

As I pointed out yesterday there were a significant number of people who in the last set of superannuation statistics received large franking credit refunds in their self-managed superannuation funds. These are the people the ALP are targeting.

But to receive those credits they needed to have substantial sums invested tax free in pension mode superannuation — say over $5 million.

But Scott Morrison limited the amount of money you could have in superannuation tax free pension mode to $1.6 million. In other words he confined the vast majority of the franking tax credit refunds to the battlers who were struggling to fund retirement in an environment of low interest rates.

This is not the ALP story, so let’s show the impact of the ALP measures on three groups.

Bill’s battlers the biggest losers
First, a battler with up to $1.6 million in investable funds (usually it is much less); a person who has a substantial sum over and above $1.6 million that is invested, say, 40 per cent in shares that have fully franked dividends and, finally, a person who invested all their money over the $1.6 million tax free zone in franking credit shares.

The Battlers: These people have been struggling to fund their pensions given low interest rates and normally have well under $1.6 million in superannuation. Their money is in pension mode and therefore the income is tax free.

For every $100 they receive in franked dividends they gain a franking credit of just over $42 which takes their taxable income to $142, which is currently tax free. But under the ALP proposal they receive no return of their franking credit so they are just over $42 in every $100 of franked dividends worse off. Their privately-funded pensions will be reduced. That’s a huge blow to the hundreds of thousands of Australians in this situation given the pitiful interest rates being received on bank deposits. Some may get partial compensation from the government pension but it will not be enough.

The Prudent Big Investor: The prudent big investor would not have more than 40 per cent of their money in franked shares and hybrids. So we look at the impact of the Shorten-Bowen measures on their money over $1.6 million in pension mode.

On $100 of income in the fund they will receive say $17 in franking credits but those franking credits are matched by tax payable so they continue to receive the benefit. And that also applies to those with funds not in pension mode. Accordingly, to the vast majority of Australians who have saved more than $1.6 million, there is minimal impact.

Big investor with all money in franked credit shares: Very few big investors would do this. It’s not a prudent strategy They will have mixed their portfolio with international shares and property investments.

But here are the sums:

For each $100 in income they receive a franking credit of just over $42 so their taxable income is just over $142. But these people pay 15 per cent tax on amounts over $1.6 million and that absorbs about half of the franking credit. They lose about half the value of their franking credit. And they will also have taxable capital gains which means they receive even more of the franking credit. People in that position will adjust their finances so that the impact is much less than losing half the franking credit. They simply will not have all their money in franked shares and nor should they. There will be no big money raised in this area.

Sorry Chris, sorry Bill.

Unfortunately the money comes from the battlers. If the large sums that Chris Bowen believes can be raised have a substantial content from groups two and three, then his sums will be wrong.

If he has done his sums based on almost all the money coming from the battlers then his sums will be right, but the impact is outrageous in this time of low interest rates and totally different to the ALP rhetoric.

Bill Shorten and Chris Bowen are going to be minced. They may be forced to retreat.



Robert Gottliebsen



Business columnist

Melbourne

[Jimmy_041]

and HERE is the union/industry fund influence exposed:

Labor franking credit grab ignores the party’s principles,

by Robert Gottliebsen.

Opposition leader Bill Shorten has handed Prime Minister Scott Morrison a present to help him overcome the Victorian state election debacle. It’s a new ALP taxation precedent whereby individual members of select organisations, often ALP-friendly, receive lower individual tax imposts than the rest of the community. …

All retired people whose savings are in pension mode and/or their assets and income are regarded as low, pay little or no tax. That means if they invest in large listed companies like BHP they receive their franking credits in cash rather than income offsets. And those cash payments currently extend to anyone with franked dividends and no other taxable income

Bill Shorten has declared that if he is elected those cash franking credits will no longer be paid. … But this tax has an exit clause. If retired people pool their savings with workers in large superannuation funds (led by industry funds) then the tax paid by the workers can be used to deliver those cash franking credits.

But where retired people’s savings are not pooled into funds that have lots of current employees, then those retirees will find the income on their savings is reduced by the removal of franking credits.

Imagine if Bill Shorten told the great Ben Chifley that retired people with the same assets and income should be taxed at different rates and those receiving lower tax rate received that tax rate by joining organisations that allowed them to sponge on workers with income. …

Ben Chifley would tell Bill very firmly that tax rate should not be about those with whom you associate, with but rather that people with the same financial position and the same sources of revenue should be taxed in the same way. …

There are 1.4 million battlers who have not pooled go their money with ALP mates who will be hit hard.

[cracka]

No matter what either party does, the rich will always find a way to get around it.

[Jimmy_041]

Labor’s Tax Plan Hits SMSFs Hard, Has Major Knock-On Effects

Parliament
News
Miranda Brownlee
13 March 2018 — 3 minute read
Labor’s proposal for imputation credits “unfairly targets” the SMSF sector and will lead to unforeseen consequences including significant shifts in investment strategies, according to various groups in the super industry.
Labor this week announced a proposal to remove cash refunds for excess dividend imputation credits, as a way of “improving the budget bottom line”.
In a public statement, Bill Shorten said that Australia’s dividend imputation system was introduced by Paul Keating to eliminate double taxation on dividends from company profits.

“Under this system, shareholders can use imputation credits to reduce their overall tax liability,” he said.

“Under Howard and Costello, a concession was created allowing some individuals and superannuation funds to receive a cash refund from the ATO if their imputation credits exceeded the tax they owed.”

Mr Shorten said that the Labor government will seek to close down the concession created by Howard and Costello, and return to the arrangement first introduced by Hawke and Keating – so that imputation credits can be used to reduce tax, but not for cash refunds.

The proposed policy has been largely criticised by the superannuation and wider financial services industry, with a number of groups expressing concern it will erode retirement savings and impact millions of Australians.

The Self-managed Independent Superannuation Funds Association (SISFA) said the policy “fails the test of fairness” as it will benefit taxpayers on higher incomes at the expense of those on lower incomes.

SISFA managing director Michael Lorimer said that under this proposal, taxpayers with an effective average tax rate of 30 per cent or over will receive the full benefit of franking credits while those on lower incomes will lose out.

“Mr Shorten is meddling with the successful concept of imputation – that when company dividends are paid, they are taxed at the individual’s tax rate with full credit for the tax already paid by the company,” said Mr Lorimer.

“Under Labor’s plan, anyone in retirement and living on their superannuation savings will now have every dollar of their income from dividends taxed at a rate of at least 30 per cent.”

Mr Lorimer said while Bill Shorten says his plan to deny dividend tax refunds to super savers will mainly hit self-managed funds, in reality it will hit millions of members of the large industry and retail funds as well.

Tax Institute Senior Tax Counsel Professor Bob Deutsch described the policy as a “low hanging fruit” for Labor as it will require minimum legislative change, generate around $11 billion over the 2018-19 forward estimates and cause relatively minimal damage to Labor’s constituency.

“It will, however, cause some ructions in equity markets where tax refunds of excess imputation credits have been an important part of the investment matrix for equity investors, particularly self-managed superannuation funds,” said Mr Deutsch.

The SMSF Association estimates that this proposal would impact more than 1 million Australians saving for retirement and other purposes.

SMSF Association chief executive John Maroney said based on calculation by the association, removing the cash refund for imputation credits would cut about $5,000 in income from the median SMSF retiree earning about $50,000 a year in pension income.

“To be saying these people won’t be paying any more tax is just semantics,” said Mr Maroney.

“This change would single out SMSF members as one of the few groups of taxpayers who will have the profits of companies they own taxed higher than their marginal tax rate. Instead SMSF members in retirement phase will have company tax paid on their share of a company’s profits when none should be paid at all.”

Mr Maroney said the current system should remain as it removes double taxation of corporate profits, promotes corporate discipline in capital management and encourages corporate compliance with tax obligations.

It is also likely to have “unforeseen consequences” such as a shift in superannuation fund investment strategies, he said.

“Funds seeking yield to deliver retirement income, especially SMSFs which are paying income streams, would need to shift their asset allocation towards investments which can provide increased yield. This may lead to funds having to shift to a higher risk asset allocation in the retirement phase,” he said.

“Another possible outcome is SMSFs looking to shift investment from Australian companies to foreign companies with the after-tax return on domestic companies less attractive.”

JBWere technical services manager Kym Bailey said this latest policy position is a reflection of the “unofficial war that industry funds declared on SMSFs a number of years ago which now has a fully receptive political sponsor”.

Ms Bailey said the SMSF industry should pay attention to the Opposition’s policy as there is “an equal chance that it will become government policy in the future”.

[Jimmy_041]

No matter what either party does, the rich will always find a way to get around it.

You dont have to be rich. You just say "eff you" and get a good accountant or financial planner to work around it.

I am still trying to post the best commentary about the consequences.

The biggest group to be hit by this are the baby boomers (of which I am one)
In fact: this should be named as the Baby Boomer Tax as that's who, with their savings mentality, big super and investments, they are targeting.
I started contributing to super when I was 18 because my parents told me to.
I set up and contributed to my childrens' super when I could, because that's what my parents taught me was a good move, and the government matched it (until Labor took most of that away as well)

Baby Boomers were taught to do three things: adapt, work and save.
I will just keep on working and paying tax and deprive the following generations of a job.

[Jimmy_041]

Retirees in the crosshairs
It’s a time of reckoning for middle-class retirees who held the flawed assumption that concessions in the past would remain in the future.

By BERNARD SALT
From Inquirer
February 21, 2019

In 2001 I published my first book, The Big Shift, which included a thought piece I had published some years earlier. Here’s what I wrote 20 years ago: “Greedy Boomers Bleed Xers. So runs the headline … in 2021. The story proceeds, ‘The Australian president today launched a stinging attack on the now-retiring baby boom generation for what she calls its bleeding of the taxpayer after a life of self-indulgent spending. We, the X generation, are now being asked to support a bunch of bludgers,’ the president said.”

As you can see my taste for satire, which peaked with the smashed avocado brouhaha of 2016, was evident early in my writing. Plus, it’s nice to see that the term “bludgers” remains as relevant and as piquant today as it was back then. And we may not have a president today, but we have had a female prime minister, so I’m claiming this entire piece as a prediction proven.

You will immediately see the parallels with today’s debate around proposed plans to limit the payment of dividend franking credits. This is a policy designed to rein in what is being presented as generous if not unfair concessions to the mostly baby-boomer self-funded-retiree set.

It is indeed a time of reckoning for middle-class retirees who have built nest eggs and a lifestyle on the apparently flawed assumption that concessions granted in the past would be maintained into the future. Or that previous concessions would be grandfathered, meaning existing arrangements would continue to be honoured.

The president continues: “Baby boomers had it better than their kids, and certainly much better than their parents. They are the ‘spoilt generation’ who forged culture around their every whim: hippies, punks, dinks and yuppies. Now they want us to install them as WOPs (wealthy old people). Well, it’s not on. They should have provisioned better in their time. Not ours.”

I admit I was also way off the mark about generation X — born between 1965 and 1982 — being ­incensed. It’s the millennials (1983 to 2000) — the children of baby boomers (1946 to 1964) — who seem to be most aggrieved about the perceived privileges of the once mighty but now wounded baby boomersaurus.

As it turns out the Xers have been both a placid and a stoic life form. Oddly, the generation that entered the workforce in the 1990s recession didn’t complain about their lot. It’s the later-blooming millennials who are angry, including Adam Creighton, The Australian ’s economics-writing Xer-millennial cusper, who has put (and I think quite enjoys putting) the case for limiting all forms of generationally bestowed largesse.

Actually, to the growing bucket of boomer critics should be added politicians who are remarkably adept at spotting a taxation opportunity.

“The problem for baby boomers is that there is no unifying voice to argue their case. They’re scattered across the country in electorates that aren’t likely to shift an election, and are divided.”

I have an idea. Let’s have a special “fairness tax” levied on all Australian billionaires, shall we? I mean, they can’t have amassed such wealth without at least the tacit support of the Australian people and nation. And to be entirely transparent and fair, if they don’t like the proposal, they are most welcome to vote against it. All 76 of them. What do you think?

Here is the problem that well-to-do baby-boomer retirees have. There’s a lot of them and so any concessions granted in their favour are significant and expensive. This underlying logic will never change. There’s a lot of quite healthy 65-year-old baby boomers now; there’ll be vastly more quite frail (and expensive) 85-year-old baby boomers in 20 years than there are today. This equation will tempt politicians to be even bolder and even “fairer” every election for another generation. Welcome to retirement, baby boomers. .

No one complained when baby boomers were pouring en masse into the workforce in the 70s and 80s, paying taxes to governments, which spent that money on infrastructure and defence and education … but which made no provision for the retirement of the boomer-boosted worker bulge. Other than, of course, setting in place generous defined-benefit superannuation schemes for state and federal government workers, including the political class.

I guess boomers are at fault because in their 30s they didn’t hold governments of the day to account — saying, “You shouldn’t be spending money on infrastructure and health, you should be setting up a national retirement scheme for when we retire in 30 years.” Although I suspect that had boomers made this case, politicians of the day would have said, “Yeah, right, let some future administration deal with that problem; we have an election to win!”

For the record, the superannuation guarantee come into play in 1992. The first baby boomers entered the workforce as 15-year-old apprentices in 1962 and subsequently paid tax for 30 years of a 50-year career, with nothing being saved by the governments of the day for their collective retirement. That kind of lack of a safety net builds a culture of self-reliance and of frugality. Here’s the logic of that 1962 apprentice, now aged 72: Fine, I’ll look after myself, but you can’t come along after the fact and commandeer what I have fairly saved by the rules of the day.

Self-funded retirees have a problem. If the proposal to limit franking credits is rewarded with success at the upcoming election, it will merely confirm the logic that they are fair game. All that scrimping and saving and self-denial; all the principles of effort-and-­reward that boomers learned from their Depression-raised parents, is diminished, and not just in terms of monies lost.

It’s the idea that a lifetime’s sustained effort and frugality is no longer rewarded by a me-me-me society that cannot remember a recession of double-digit unemployment or of a time when interest rates topped 18 per cent. It’s more than money. It’s putting your heart and soul into a place, into a country, over a lifetime with an eye to retaining your dignity and your pride through self-sufficiency in retirement. And then discovering late in the game that the social contract on which you have built your life, your savings, your sense of pride, your independence, can be whipped away.

And not only whipped away but quite reviled by an ascendant zeitgeist for supposedly having unfairly garnered more than your fair share. Baby boomers will say they have worked hard, they have paid all required taxes at every stage of their lives, they raised families and scrimped and saved to buy a house, and on top of all this they will also say that they have provisioned for their own retirement. This isn’t an issue of money. This is an issue of the kind of society we want for our nation. Do we want to encourage self-reliance and resilience and pride in work whereby the efforts of a lifetime are protected, or are at least respected? Or do we want a society where the underlying ­social contract can be changed at any point in the future? And for such changes to be made by a political class whose own retirement is assured by an uncommon level of generosity?

It doesn’t seem fair to self-funded retirees. They are upset.

The problem for baby boomers is that there is no unifying voice to argue their case. They’re a disparate lot scattered across the country, in electorates that aren’t likely to shift an election, and are divided among themselves.

Some self-funded retirees agree that past concessions have been too generous. The problem isn’t so much with well-to-do self-funded retirees losing concessions, it’s the barely rich.

It’s the private-sector worker who has worked and scrimped and saved and who has taken pride in being independent. It’s the worker whose big plan for retirement is to look after grandchildren and to spoil them a bit, to help out their kids a bit, to go around Australia in a campervan, or to take a single “big trip” to Europe and to come back declaring that Australia is the best place on earth.

It’s hardly a glamorous lifestyle.

But it has taken hard work, sacrifice and belief in a social contract with the Australian people to achieve. We will work hard. We will provide for our own retirement. We will make the required sacrifices. But we need you to keep your side of the bargain and either maintain the social contract on which our retirement planning has been built, or at the very least honour existing arrangements.

I think baby boomers — or at least self-funded retirees — would say, “We get that if there’s a war or if there’s a recession then sacrifices need to be made by the collective. But these are prosperous times — unemployment is at a record low, employment growth is strong. This is a shift in the social contract and it’s unfair. “

Bernard Salt is managing director of The Demographics Group and is not planning to retire anytime soon.

-

‘What I can’t abide is the discrimination’

When Ken and Sue Moffitt retired in their mid-50s a little over a decade ago, they thought they had enough money in their self-managed super fund to last a lifetime.

The couple sold their Sydney home and businesses to pay for a camper-trailer and four-wheel-drive and set off on a five-year dream trip around Australia, before finally settling in Darwin.

If Labor’s proposed superannuation changes become law, Ken says he and his wife will have to “die six years earlier”, or begin claiming a government pension to cover their expected losses.

“I could swallow the loss of money if everyone was treated equally,” he says. “What I can’t abide is the discrimination: people in the exact same (financial) circumstances are being treated differently. I find that un-Australian and very unacceptable.”

The couple has about $1.7 million in joint fund earning around $13,000 in franking credits annually.

Ken estimates Labor’s changes will cut the fund’s total yearly income by up to 30 per cent but says franking credits contributed 15 per cent of its income in 2016-17.

Sue says the only alternatives to relying on government handouts are restructuring their portfolio with riskier assets or reducing their standard of living.

“Why should we have to when we worked for (a combined total) of 60 years and planned for our retirement?” she says. “It’s really, really annoying, frustrating and ridiculous.”

She ran a luxury travel business tailoring itineraries for wealthy clients while her husband consulted to large companies about financial software. They have godchildren who they “spoil rotten”, but no children of their own.

Experts have warned Labor’s proposed changes are unfair because someone with the same assets as a self-managed retiree would still receive franking credits if they held those assets via an industry fund.

On arriving in Darwin, Ken helped establish the Association of Independent Retirees to help others manage their savings. Some of those affected by Labor’s policy could move their money into industry funds, while others might take extra risk and potentially “shoot themselves in the foot”, he says.

More still could burden the pension system. The combined superannuation, capital-gains and negative-gearing policies could “profoundly impact” markets.

“The problem we’ve got is that I now no longer have the capacity to make up the difference,” Ken says. “They (Labor) think they’re going to get the rich, but they’re not.

“They’re going to get all the people in the middle who’ve worked hard and saved hard to provide for their retirement — to give themselves independence from government handouts. The rug has just been pulled out from underneath them.” While critical of the Coalition’s past modifications to “taper rates”, Ken puts Labor’s policies in a different league. “I don’t think anybody truly understands the ramifications of what’s going to happen,” he says.

Labor could make its plan more palatable by capping “excess” franking credits for everyone and correspondingly curtailing generous defined-benefit pension schemes.

Although a Coalition-leaning voter, Ken says he is not a member of any party. Labor’s changes will not cause him to join, but he might independently canvass people.

“I feel probably more political now than I have at any time before in my life,” he says.

Amos Aikman

-

Helensvale, Queensland


John Cadzow, 68, former construction site supervisor.

Rhonda Cadzow, 64, former office administrator.

They will lose about $15,000 a year — about 15 per cent of their income — under Labor’s proposal.

“At some stage in the future we will rely on government handouts. At the stroke of a pen, our retirement plan, worked towards as paying taxpayers, is null and void.”- Rhonda Cadzow

-

Tweed Heads, NSW


Vicki Fitzgerald, 60, former accountant.

Peter Fitzgerald, 64, former general manager at the Australian Securities Exchange.

The Fitzgeralds will lose 30 per cent of their income and will eventually be forced to take a part-pension under Labor. The residents of the marginal seat of Richmond say they will vote against Labor for the first time.

“You make plans, save money, put money away and try and get a balance that you can live on and you do that based on the rules of the day ... We believed Paul Keating when he told us to save for the future because there would not be enough taxpayers to fund pensioners when we retired.” - Peter Fitzgerald

BERNARD SALTCOLUMNIST
Bernard Salt is widely regarded as one of Australia’s leading social commentators by business, the media and the broader community. He is the Managing Director of The Demographics Group, and he writes weekly co...

[Jimmy_041]

Retirees in the crosshairs
It’s a time of reckoning for middle-class retirees who held the flawed assumption that concessions in the past would remain in the future.

By BERNARD SALT
From Inquirer
February 21, 2019

In 2001 I published my first book, The Big Shift, which included a thought piece I had published some years earlier. Here’s what I wrote 20 years ago: “Greedy Boomers Bleed Xers. So runs the headline … in 2021. The story proceeds, ‘The Australian president today launched a stinging attack on the now-retiring baby boom generation for what she calls its bleeding of the taxpayer after a life of self-indulgent spending. We, the X generation, are now being asked to support a bunch of bludgers,’ the president said.”

As you can see my taste for satire, which peaked with the smashed avocado brouhaha of 2016, was evident early in my writing. Plus, it’s nice to see that the term “bludgers” remains as relevant and as piquant today as it was back then. And we may not have a president today, but we have had a female prime minister, so I’m claiming this entire piece as a prediction proven.

You will immediately see the parallels with today’s debate around proposed plans to limit the payment of dividend franking credits. This is a policy designed to rein in what is being presented as generous if not unfair concessions to the mostly baby-boomer self-funded-retiree set.

It is indeed a time of reckoning for middle-class retirees who have built nest eggs and a lifestyle on the apparently flawed assumption that concessions granted in the past would be maintained into the future. Or that previous concessions would be grandfathered, meaning existing arrangements would continue to be honoured.

The president continues: “Baby boomers had it better than their kids, and certainly much better than their parents. They are the ‘spoilt generation’ who forged culture around their every whim: hippies, punks, dinks and yuppies. Now they want us to install them as WOPs (wealthy old people). Well, it’s not on. They should have provisioned better in their time. Not ours.”

I admit I was also way off the mark about generation X — born between 1965 and 1982 — being ­incensed. It’s the millennials (1983 to 2000) — the children of baby boomers (1946 to 1964) — who seem to be most aggrieved about the perceived privileges of the once mighty but now wounded baby boomersaurus.

As it turns out the Xers have been both a placid and a stoic life form. Oddly, the generation that entered the workforce in the 1990s recession didn’t complain about their lot. It’s the later-blooming millennials who are angry, including Adam Creighton, The Australian ’s economics-writing Xer-millennial cusper, who has put (and I think quite enjoys putting) the case for limiting all forms of generationally bestowed largesse.

Actually, to the growing bucket of boomer critics should be added politicians who are remarkably adept at spotting a taxation opportunity.

“The problem for baby boomers is that there is no unifying voice to argue their case. They’re scattered across the country in electorates that aren’t likely to shift an election, and are divided.”

I have an idea. Let’s have a special “fairness tax” levied on all Australian billionaires, shall we? I mean, they can’t have amassed such wealth without at least the tacit support of the Australian people and nation. And to be entirely transparent and fair, if they don’t like the proposal, they are most welcome to vote against it. All 76 of them. What do you think?

Here is the problem that well-to-do baby-boomer retirees have. There’s a lot of them and so any concessions granted in their favour are significant and expensive. This underlying logic will never change. There’s a lot of quite healthy 65-year-old baby boomers now; there’ll be vastly more quite frail (and expensive) 85-year-old baby boomers in 20 years than there are today. This equation will tempt politicians to be even bolder and even “fairer” every election for another generation. Welcome to retirement, baby boomers. .

No one complained when baby boomers were pouring en masse into the workforce in the 70s and 80s, paying taxes to governments, which spent that money on infrastructure and defence and education … but which made no provision for the retirement of the boomer-boosted worker bulge. Other than, of course, setting in place generous defined-benefit superannuation schemes for state and federal government workers, including the political class.

I guess boomers are at fault because in their 30s they didn’t hold governments of the day to account — saying, “You shouldn’t be spending money on infrastructure and health, you should be setting up a national retirement scheme for when we retire in 30 years.” Although I suspect that had boomers made this case, politicians of the day would have said, “Yeah, right, let some future administration deal with that problem; we have an election to win!”

For the record, the superannuation guarantee come into play in 1992. The first baby boomers entered the workforce as 15-year-old apprentices in 1962 and subsequently paid tax for 30 years of a 50-year career, with nothing being saved by the governments of the day for their collective retirement. That kind of lack of a safety net builds a culture of self-reliance and of frugality. Here’s the logic of that 1962 apprentice, now aged 72: Fine, I’ll look after myself, but you can’t come along after the fact and commandeer what I have fairly saved by the rules of the day.

Self-funded retirees have a problem. If the proposal to limit franking credits is rewarded with success at the upcoming election, it will merely confirm the logic that they are fair game. All that scrimping and saving and self-denial; all the principles of effort-and-­reward that boomers learned from their Depression-raised parents, is diminished, and not just in terms of monies lost.

It’s the idea that a lifetime’s sustained effort and frugality is no longer rewarded by a me-me-me society that cannot remember a recession of double-digit unemployment or of a time when interest rates topped 18 per cent. It’s more than money. It’s putting your heart and soul into a place, into a country, over a lifetime with an eye to retaining your dignity and your pride through self-sufficiency in retirement. And then discovering late in the game that the social contract on which you have built your life, your savings, your sense of pride, your independence, can be whipped away.

And not only whipped away but quite reviled by an ascendant zeitgeist for supposedly having unfairly garnered more than your fair share. Baby boomers will say they have worked hard, they have paid all required taxes at every stage of their lives, they raised families and scrimped and saved to buy a house, and on top of all this they will also say that they have provisioned for their own retirement. This isn’t an issue of money. This is an issue of the kind of society we want for our nation. Do we want to encourage self-reliance and resilience and pride in work whereby the efforts of a lifetime are protected, or are at least respected? Or do we want a society where the underlying ­social contract can be changed at any point in the future? And for such changes to be made by a political class whose own retirement is assured by an uncommon level of generosity?

It doesn’t seem fair to self-funded retirees. They are upset.

The problem for baby boomers is that there is no unifying voice to argue their case. They’re a disparate lot scattered across the country, in electorates that aren’t likely to shift an election, and are divided among themselves.

Some self-funded retirees agree that past concessions have been too generous. The problem isn’t so much with well-to-do self-funded retirees losing concessions, it’s the barely rich.

It’s the private-sector worker who has worked and scrimped and saved and who has taken pride in being independent. It’s the worker whose big plan for retirement is to look after grandchildren and to spoil them a bit, to help out their kids a bit, to go around Australia in a campervan, or to take a single “big trip” to Europe and to come back declaring that Australia is the best place on earth.

It’s hardly a glamorous lifestyle.

But it has taken hard work, sacrifice and belief in a social contract with the Australian people to achieve. We will work hard. We will provide for our own retirement. We will make the required sacrifices. But we need you to keep your side of the bargain and either maintain the social contract on which our retirement planning has been built, or at the very least honour existing arrangements.

I think baby boomers — or at least self-funded retirees — would say, “We get that if there’s a war or if there’s a recession then sacrifices need to be made by the collective. But these are prosperous times — unemployment is at a record low, employment growth is strong. This is a shift in the social contract and it’s unfair. “

Bernard Salt is managing director of The Demographics Group and is not planning to retire anytime soon.

-

‘What I can’t abide is the discrimination’

When Ken and Sue Moffitt retired in their mid-50s a little over a decade ago, they thought they had enough money in their self-managed super fund to last a lifetime.

The couple sold their Sydney home and businesses to pay for a camper-trailer and four-wheel-drive and set off on a five-year dream trip around Australia, before finally settling in Darwin.

If Labor’s proposed superannuation changes become law, Ken says he and his wife will have to “die six years earlier”, or begin claiming a government pension to cover their expected losses.

“I could swallow the loss of money if everyone was treated equally,” he says. “What I can’t abide is the discrimination: people in the exact same (financial) circumstances are being treated differently. I find that un-Australian and very unacceptable.”

The couple has about $1.7 million in joint fund earning around $13,000 in franking credits annually.

Ken estimates Labor’s changes will cut the fund’s total yearly income by up to 30 per cent but says franking credits contributed 15 per cent of its income in 2016-17.

Sue says the only alternatives to relying on government handouts are restructuring their portfolio with riskier assets or reducing their standard of living.

“Why should we have to when we worked for (a combined total) of 60 years and planned for our retirement?” she says. “It’s really, really annoying, frustrating and ridiculous.”

She ran a luxury travel business tailoring itineraries for wealthy clients while her husband consulted to large companies about financial software. They have godchildren who they “spoil rotten”, but no children of their own.

Experts have warned Labor’s proposed changes are unfair because someone with the same assets as a self-managed retiree would still receive franking credits if they held those assets via an industry fund.

On arriving in Darwin, Ken helped establish the Association of Independent Retirees to help others manage their savings. Some of those affected by Labor’s policy could move their money into industry funds, while others might take extra risk and potentially “shoot themselves in the foot”, he says.

More still could burden the pension system. The combined superannuation, capital-gains and negative-gearing policies could “profoundly impact” markets.

“The problem we’ve got is that I now no longer have the capacity to make up the difference,” Ken says. “They (Labor) think they’re going to get the rich, but they’re not.

“They’re going to get all the people in the middle who’ve worked hard and saved hard to provide for their retirement — to give themselves independence from government handouts. The rug has just been pulled out from underneath them.” While critical of the Coalition’s past modifications to “taper rates”, Ken puts Labor’s policies in a different league. “I don’t think anybody truly understands the ramifications of what’s going to happen,” he says.

Labor could make its plan more palatable by capping “excess” franking credits for everyone and correspondingly curtailing generous defined-benefit pension schemes.

Although a Coalition-leaning voter, Ken says he is not a member of any party. Labor’s changes will not cause him to join, but he might independently canvass people.

“I feel probably more political now than I have at any time before in my life,” he says.

Amos Aikman

-

Helensvale, Queensland


John Cadzow, 68, former construction site supervisor.

Rhonda Cadzow, 64, former office administrator.

They will lose about $15,000 a year — about 15 per cent of their income — under Labor’s proposal.

“At some stage in the future we will rely on government handouts. At the stroke of a pen, our retirement plan, worked towards as paying taxpayers, is null and void.”- Rhonda Cadzow

-

Tweed Heads, NSW


Vicki Fitzgerald, 60, former accountant.

Peter Fitzgerald, 64, former general manager at the Australian Securities Exchange.

The Fitzgeralds will lose 30 per cent of their income and will eventually be forced to take a part-pension under Labor. The residents of the marginal seat of Richmond say they will vote against Labor for the first time.

“You make plans, save money, put money away and try and get a balance that you can live on and you do that based on the rules of the day ... We believed Paul Keating when he told us to save for the future because there would not be enough taxpayers to fund pensioners when we retired.” - Peter Fitzgerald

BERNARD SALTCOLUMNIST
Bernard Salt is widely regarded as one of Australia’s leading social commentators by business, the media and the broader community. He is the Managing Director of The Demographics Group, and he writes weekly co...

[DOC]

A point not raised (if so apologies) is that should this policy be enacted, what will companies do to change how they will pay dividends.

My analysis is that instead of paying out fully or partially franked (tax paid)dividends, they will revert to paying dividends without a taxed component which will increase the dividend pool and thus the size of the dividend. It will then fall to any person who receives a dividend to account for their tax liability, just as they do for interest paid on cash.

[Jimmy_041]

I haven’t really thought about it, but could they use more buybacks using excess tax credits seeing Labor are going to hit CGT as well?
Whichever company comes up with a viable response is going to be inundated with investors.
I’ll ask our CFO today whether they have considered the problem

[Q.]

:shock: And tax everyone at 60% because the government are better at managing our money than we are? Why do you always want higher taxation?



And you keep either missing, or avoiding, the point that Trader, and I, are making. Why should an SMSF not get the same treatment as everyone else in traditional super funds? The policy is flawed because it targets one group of people and it’s not rich people. Absolute garbage. Why haven’t they proposed cutting it out for everyone? You can have >$1m in you Hostplus account and still get it but not if you have $500k in your SMSF. Cut it out for everyone if it’s such a stupid idea. But they can’t. Why not? Because the unions, who leach off the industry funds, won’t let them.

Because pooled super funds have so many members still paying tax that they can still make full use of all franking credits.