Economy

Mar 15, 2018

Refundability distorts more than just the tax debate

With dividend imputation in the spotlight courtesy of Labor's refundability policy, some are pointing out the perverse consequences of the distortion introduced by the Howard government.

Glenn Dyer and Bernard Keane

Crikey business and media commentator / Politics editor

As the nation's newspapers -- read almost exclusively by old people -- go the full-court press on Labor over its reversal of the Howard-era dividend imputation refund, and that hitherto-undiscovered species, the wealthy shareholder retiree who insists "I've always voted Labor, but no more!" takes the media spotlight, what about the implications for the efficiency of our savings pool?

We've been banging on about the efficiency, or lack thereof, of our colossal national savings pool for some time. Back in 2000 -- when Howard and Costello, in an effort to shore up their then-ailing political prospects by loading taxpayer money into a cannon and firing it at their political base, introduced refundability for dividend imputation -- the super pool was around $400 billion. The latest figures from the ABS shows it's now $2.65 trillion. It's the fourth largest pool of savings in the world.

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10 comments

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10 thoughts on “Refundability distorts more than just the tax debate

  1. Itsarort

    The obvious reason why our political parties are lacking in having any real policy is the stunning knee-jerk (mostly jerk) reaction from the mainstream media every time they have a go. From a world perspective, surely the main recipients of this financial gift would have to be the greediest little toads on the planet. If nothing else, this just further illustrates the profligacy of the Howard/Costello years.

    1. Nudiefish

      I really believe that the media has been steadily losing the power to effect political outcomes for years. Labor just needs to hold its ground and argue policy and it will win this one.

      What generally happens is the Tories mount a scare campaign and Labor immediately surrenders. Look at Rudd and the climate debate – now even rusted on LNP voters have panels on the roof and are investigating battery tech.

    2. Stephen Doolan

      Actually, the main recipients of this refund are people who rely on dividends for income, and are on relatively low incomes. If you are retired and supporting yourself with share dividends, your refund progressively decreases the more your income from shares increases. At the level of around $90,000 per year income from dividends, you will not receive any refund from dividend imputation because your individual tax rate will be too high. Someone earning $30,000 from shares alone will lose around $6,500 per year if this policy succeeds, which is about 18% of their income.

  2. klewso

    One of the lasting legacies of Howard-Costello will be what they did for the parasite industry.

    1. klewso

      …. While their eggs hatched this government.

  3. AR

    Perhaps super funds could attract members by promising only to invest in infrastructure in this country.

    1. gjb

      I would definitely prefer a Australian infrastructure focus by my super-fund, and i think many others would as well.

  4. Tom Jones

    And therein lies the problem for the MSM. They have an aging base of whingers who have been flooding talk back radio. And yet none has bothered to compare what a real pensioner needs compared to the entitled elderly brats demanding public largesse while no doubt whining about socialists. It is one thing to be able to take income tax back to zero but expecting a cash handout is completely different and should like the pension require declaring income, assessment of assets and regular reporting – and possibly drug testing. I saw one of the “Woe is me” brigade on TV last night. He was 56, retired with only a house, boat, car and caravan. Just a normal bloke it seems – incredible.

  5. Arky

    Really good article. Would that there was more of this in the Australia media generally.

    I always knew the effect of a healthy record of paying dividends had on a share price, of course, but the way in which the refund pumped it up and distorted the market had not previously occurred to me.

  6. Stephen Doolan

    I think you need to look at the figures for this policy. Nobody living on dividends alone earning more than $90,000 per year receives a refund. As a percentage of income, those who will lose a greater percentage of their income will be those on lower incomes. As your dividend income rises, the amount of refund as a percentage of your income decreases progressively. Anybody who earns more than $37,000 from wage income receives no refund if they also own shares, because they are now in a tax bracket that is greater than the company tax rate. If the dividend imputation refund is distorting income by investment funds, then maybe you need to target those funds rather than low income shareholders.

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