Mar 14, 2018

Labor’s tax reform sets the scene for a real class war

Labor's dividend imputation refundability reform could kick off an out-and-out brawl between a major political party and an interest group that is used to getting everything it wants.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

For decades, negative gearing and capital gains tax reform was politically toxic. It was backed by the Greens, but neither major party wanted to go near it for fear of a scare campaign from their opponents, even though the case for reform was compelling -- as even Joe Hockey admitted in his valedictory speech, as even Scott Morrison acknowledged when he referred to "excesses" of negative gearing. Then Labor went there in an act of policy bravery unseen from an opposition for several parliamentary terms.

Fortune favoured the brave. The resulting Liberal scare campaign was crueled from the start by over-the-top claims from senior ministers, the government's own abandonment of meaningful tax reform and a decision by Turnbull to avoid negative campaigning in the 2016 election. After the election, we found out Treasury had given Scott Morrison very different advice to what he claimed about Labor's policies. You wonder what would have happened if Tony Abbott, the master of cut-through negative messaging, had still been Prime Minister.

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54 thoughts on “Labor’s tax reform sets the scene for a real class war

  1. rhwombat

    Aux armes, citoyens!

  2. Wayne Robinson

    Well, I’m an old white male who has a very large share portfolio and a reasonable superannuation income (tax-free, thanks Mr Howard – for stuffing up the federal budget), which more than covers my normal and abnormal day-to-day spending.

    I don’t think that it’s going to affect me much if at all. I still pay tax, perhaps not as much as I should (I pay PAYG quarterly and usually receive a tax refund that almost matches it after the end of the tax year).

    In the very unlikely event that it affects my cash inflow I could always cancel the dividend reinvestment scheme in the Commonwealth Bank or Woolworths and take the dividends in cash instead of new shares. And stop saving.

    I doubt seriously that this is going to affect anyone who can’t afford it.

  3. [email protected]

    Vox ran a similar article today:

    How the baby boomers — not millennials — screwed America

    The boomers inherited a rich, dynamic country and have gradually bankrupted it. They habitually cut their own taxes and borrow money without any concern for future burdens. They’ve spent virtually all our money and assets on themselves and in the process have left a financial disaster for their children.

    We used to have the finest infrastructure in the world. Now it’s crumbling, and the boomers have allowed it to crumble. Our public education system has steadily degraded as well, forcing middle-class students to bury themselves in debt in order to get a college education.

    1. bref

      Yep, that pretty well describes what happened here as well. I expect the upper class to run massive campaigns at the next election against Labor. I can only hope the hoi polloi will put them in their place.

      1. Woopwoop

        These comments seem to be conflating “upper class” and “baby boomers”.
        As a baby boomer, I didn’t want house prices to rise etc – I had nothing to do with it.

        1. bref

          No, the upper class are the ones who now seem to be in control of our parliamentarians and therefore our lives. We the baby boomers, like the proverbial frogs in slowly heating water, let it happen on our watch, culminating with Howard and Costello (thinking the boom would last forever) ripping out around $35-40B out of the tax revenue in tax cuts & benefits mainly to the already wealthy, helping to create the upper class. Its high time Labor and the Greens put some equilibrium back into to our society.

  4. leon knight

    Great work again Bernard – the pathetic squawking from the privileged few has already begun in earnest, and you are right…the ABC is giving them a sympathetic hearing.
    But the next generation have social media, the Greens, and groups like GetUp on their side, so the gamble for Labor is not so bad as it would have been a few years ago.
    Go Bill and team, more power to you..!!

    1. Di Keller

      Not sure having social media is such a good thing. It helped give us Trump.

      1. Arky

        That’s an excuse. America didn’t need social media to blame for electing George W Bush and then re-electing him.

  5. Pearler

    Well as another old white baby boomer, I really hope fortune favours the brave this time, too, and that the toxic relationship between the Libs and the big end of town is dealt a severe blow. The country will be better off. Vive la révolution!

  6. Mark Gibson

    Um, what is the demographic profile of Crikey readers? Is it so far from the ABC? If not, how do you explain a Bernard Keane? Yes, there are obviously relations between the line taken by media outlets and the reader demographic. But I’m not sure it is always a simple one. Are we media consumers driven always and only by self-interest?

  7. Itsarort

    Some of these boomers are the same ones that, back in the ‘early’ days of super, squirreled away thousands each fortnight and then claimed low income allowance. “Take the rag away from your face, now ain’t the time for your tears!”

  8. Barry Welch

    The rich and their groupies will squeal “Politics of Envy” while practicing the “Politics of Contempt”.

  9. CML

    It seems to me that if a company/corporation pays tax on share dividends to the ATO…and then that same organisation gives it back to the shareholders, then who pays ANY tax on these dividends? Sounds like one big rort to me!
    Go Labor!!

    1. Wayne Robinson

      Dividend imputation works like this; suppose a company pays a shareholder $100 in dividends, and the tax it has payed on behalf of the shareholder on this dividend is $50, which is the imputation credit. The $100 dividend is added to the $50 imputation credit and the shareholder pays tax on the $150 at the marginal tax rate. Suppose it’s 50%. The taxpayer pays $75 and then gets a credit of $50 reducing it to $25. The ATO in the end gets $75. The same result could be achieved by not charging companies any tax on dividends going to Australian taxpayers and taxing dividends at the full marginal tax rate, but that would be more difficult.

  10. Duncan Gilbey

    As I understand it, under this proposal someone with a large share portfolio and a high taxable income will still be able to claim franking credits and reduce the effective tax rate on their income while someone with an income at or under the tax free threshold will not. Dividends will effectively be double taxed in the hands of the lowest income earners. How is this fair?
    The Opposition’s own figures suggest that 200,000 part pensioners are going to lose out.
    Will they be angry? Well, duh.

    1. AR

      Yeah, those damned “..lowest income earners…” with their share portfolios & dividends! There ordabealore agin it!

    2. Alex

      If a person receives a part aged pension to make up the difference between, for example, a income of around the tax free threshold and the amount paid as the aged pension, their non-pension income will drop so the difference will be made up by receiving more pension. Clearly, the amount collected by the proposal would far surpass the extra paid out to pensioners. So, it seems to me that those represented by Duncan’s example will be hit the hardest.

      1. Alex

        Apropos my previous comment – only if Duncan’s example is not a pensioner will they be hardest hit.

    3. CML

      Duncan…that is just daft!
      How can you pay ‘double taxation’ when you are not paying ANY in the first place?
      At present these people just receive a cash hand-out for paying NO tax.
      Read my comment above!!

    4. Wayne Robinson


      No. Someone who isn’t paying any tax on dividends at the moment won’t be paying tax on dividends in future. There’s no double taxation on dividends. It just means that they won’t get a credit for the imputation credit.

      1. Duncan Gilbey

        Using your figures from above Wayne, assuming a $100 dividend and an imputation credit of $50, someone at the tax free threshold will only get an imputation benefit of $27.50 ($150 taxed @ 19% less the imputed dividend of $50 – remembering that this amount will not go into credit) compared to $50 for someone in a higher tax bracket.
        Agreed, someone at this income level will not pay tax on dividends and it’s not really double taxation, but the full $50 imputation will now only available to higher income earners (somewhat incongruous that a policy from the Labor party favours this group).

        Bernard and many posters pointedly ignore how this change will effect low income Australians that have a small parcel of shares, instead choosing to assume that all pensioners and shareholders are millionaires.

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