Labor’s dividend imputation reforms

BILL SHORTEN, LEADER OF THE OPPOSITION: Good morning everybody. Today I've announced that if elected Labor will have a fairer tax system and we will create incentive in our tax system for businesses to invest in Australian jobs.

This is a continuation of Labor's economic plan. We want to see higher growth; we want to see fairer wages; we want to see a stronger budget; we want to see improved productivity so that we can deliver an economy which works for working and middle class Australians.

Today we've said that we will reform the excesses within the imputation credit system, so that we're able to afford and clear the decks for tax relief for working Australians, for budget improvement and of course, to be able to pay for our schools and our hospitals.

We've also announced today an important building block in our growth strategy, which is to provide accelerated depreciation for Australian businesses who choose to invest in Australia.

Economic plans are part of politics, and it's about the choices we make. We're choosing to invest in Australian business so that they invest in growth. We're choosing to clean up our tax system, to make sure that we have a stronger budget position, improved productivity, better wages and of course growth for Australian business, which makes an economy which delivers for working and middle class Australians.

Now I'd like to ask Chris Bowen to talk a little further about our announcements today and then take some questions.

CHRIS BOWEN, SHADOW TREASURER: Thanks very much, Bill. Today, the Labor Party continues doing what we do best; big, bold economic reforms. Just as we have last term and this term, providing an alternative to the Australian people and seeking a mandate for that alternative.

 

Now, the two announcements that Bill has spoken about briefly - dividend imputation reform. Let me say this up front, dividend imputation is an important part of Australia's financial infrastructure, it's a proud Labor reform. Paul Keating introduced dividend imputation in a way which changed the way our economy works. But then John Howard and Peter Costello changed it in a way which is now unsustainable. It costs now, $6 billion a year and is projected to rise to more than $8 billion a year, more than the Commonwealth Government spends on public schools or on child care, and the system is unsustainable.

 

That's why David Murray found in the Financial Systems Inquiry that it was a very significant fiscal drag. It's why perhaps, the Government's own discussion paper for their aborted tax reform process said it's something that should be looked at.

 

Now we fully recognise this will lead to a government scare campaign. We've seen that already this morning. The Treasurer, in his normal shrill style. Just remember this about Scott Morrison - this is the man who had Treasury advice that said Labor's negative gearing reforms would not have the impact that he said they would. He has been lying about that and he will engage in the same scare campaign this time.

 

The fact of the matter is that Labor's reforms are carefully designed. Labor's reforms are properly designed, and Labor's reforms are sensible, adding to the budget bottom line.

 

Secondly, Bill and I are announcing today a well-targeted and funded tax relief, which is conditional on investment for businesses. The Government wants to give away $65 billion on the hope and the prayer that it gets invested. We'll provide tax relief to business on the condition that it gets invested in Australia. We'll provide tax relief to businesses on the condition that they're investing in Australia's future, not on the wing and the prayer, not to go to share buy-backs or increased dividends, regardless of where the shareholder lives, but targeted and funded.

 

Our proposal will cost $3.3 billion over the forward estimates. That's of course partially funded by the other announcements we've made today. So, these announcements come together as an important part of our alternative plan. We're ready for the Government's scare campaign. We know that's what they'll do. That's all they've got. They don't have their own ideas, all they've got are lies about Labor's policies, just as they did on negative gearing, just as they did on family trusts. It's what they'll do here. It's a debate we welcome very much.

 

SHORTEN: Thanks Chris. Are there any questions?

 

JOURNALIST: Scott Morrison says you're planning to steal from pensioners. Is he correct?

 

SHORTEN: That's just complete rubbish. What we're doing is reforming the tax system. I think all fair-minded observers of Australia's tax system know that the current tax system has advantages in it which are weighted to the very wealthy and to large corporations. What we want to do is put the weight back in the economy and government to looking after middle and working class Australians.

 

This is the government remember, who banned the energy supplement for pensioners. So, there's 400,000 pensioners not getting an energy supplement. They're the ones who changed the asset tests which saw in excess of 90,000 pensioners thrown off the pension altogether, and another 370,000 pensioners have reduced part pensions. This is the government who's frozen Medicare payments for the last four plus years, which has seen 2.5 million pensioners pay greater out-of-pocket costs to go and see the doctor.

 

This Government can't be trusted on pensioners, and when we talk about pensioners, the vast bulk of the dividend imputation scheme that we're talking about reforming goes to the top end of town. The reality is that 50 per cent of all of the funds that come out of the budget and cash bonuses to people go to the top 10 per cent of SMSFs.

 

I think most Australians would be surprised and appalled to discover that they go to work and pay their taxes, and that some self-managed super funds are able to get $2.5 million of cash bonus from the government. That's not what people pay their taxes for.

 

So, Mr Morrison can run all the scare campaigns he likes. The fact of the matter is that we've got an unsustainable tax concession. Sure, it started at $550 million, that's money out of the budget in 2001, but now it's at $5 billion and unless Labor reforms are carried out, it will be costing $8 billion in the future, each year.

 

That's more than we spend on child care or government schools. That's three times as much as we spend on the Australian Federal Police. You know, it's not sustainable, it's not fair and what we're doing is we're clearing the decks to make sure that we have a stronger budget position, to make sure that we can fund our schools and hospitals, and to make sure that we can offer tax relief for low and middle income Australians.

JOURNALIST: But is your policy specifically going to impact pensioners?

SHORTEN: No, it's specifically going to impact people who receive cash bonuses, who don't pay any tax. So this is people who receive cash payments from the government, even though they're paying no tax. So they're getting a refund on tax they haven't even paid. So this isn't going to increase taxes. I think most Australians will be surprised to know, and will be learning about dividend imputation for the first time today. I'm sure that perhaps even people in the media are just getting their heads around the detail of it and that's fair enough. The reality is 92 per cent of taxpayers don't get this cash refund. It's really a matter of choices and priorities. This government sees that their job is to stand up for the wealthy at the expense of the workers. My priority is to stand up for middle class and working class people, to make sure that they get a proper go in Australia.

 

JOURNALIST: You mentioned that it would impact a small number of people but do you have specific numbers, exactly how many Australians would be impacted?

 

SHORTEN: I'll get Chris to supplement but it's about one percent of pensioners.

 

BOWEN: Less than one percent of full pensioners will be affected and 92 percent of taxpayers generally and of Australia's self-managed super funds, of which there is 600,000, 200,000 only impacted.

 

JOURNALIST: And do you plan to release the PBO costings?

 

BOWEN: Well we've already indicated what the PBO costing is, in the normal course of events and that's what we always do with our policies.

 

JOURNALIST: Can we have access to it then?

 

BOWEN: Well what we always do is outline what the PBO costings says and if the PBO has any issues about what we've said, as they do with any political party, they will correct the public record.

 

JOURNALIST:  Would the additional revenue be directed more at reducing the budget deficit bottom line as opposed to the additional spending that Labor would be undertaking?

SHORTEN: Well, thanks for that. I said in my speech that this decision and along with the other decisions we've made, I mean, let's just briefly recap the other decisions we made. 

We said we wanted to reign in some of the excessive superannuation tax advantages at the top end, we've done that. And to be fair, the government after bagging us, copied us. Although, their copy wasn't very good, was it? 

 

Then we said we want to reform negative gearing and capital gains tax deduction. So that raises a fair amount of money but also allows negative gearing still for new housing. We've said we want to cap accountants' deductions so that people can't make an unlimited deduction on claiming unlimited things in the tax system. We've also said that we want to reform income splitting and discretionary trusts, and now we've also said that we want to move forward in terms of dividend imputation, this cash bonus system which most people don't benefit from. 

 

What that has meant is that over the medium term, Labor has a much better fiscal position, full stop, than the government. Because remember this government is still persisting with their $65 billion corporate tax giveaway. When you add up all of those numbers the simple story is this: Labor is making hard budget decisions which will allow us to do three things; improve the budget position, make sure that we can have a proper safety net of schools and hospitals and aged care and public transport, and also, this serious and genuine reform, today's action, will allow us the option of offering tax relief to low and middle income Australians before the next election.

JOURNALIST: Isn't there a risk here that someone worse off will end up being taxed or thrown under the bus by this policy as you try and target the rich?

 

SHORTEN: No. Let's go through it, you know I would make a sporting bet that this government will somehow say that dividend imputation and cash bonus is a strategy to help the poor, not the rich. That's just not right, though. There's no doubt there's a few people who have some Telstra shares and that, and they get a very modest payment - let's be clear what we're talking about, a very modest payment.

 

If you're a pensioner, I'll tell you what matters to you; can you afford to go and see the doctor, can you pay your power bills. These are the big issues confronting pensioners. You know we had 370,000 pensioners have their part pensions reduced by this government. So no, if the government says all of a sudden, that because of dividend imputation and their desire to look after the very wealthy, somehow that makes them the champion of the poor, that doesn't stack up. 

 

Let me go again to some of those core numbers, 92 percent of taxpayers don't get this dividend imputation, this cash refund. If you look at how much money is being - where the benefit principally goes, it goes to self-managed super funds at the very top end. You know, 50 percent of the total taxpayer largess goes to the top 10 percent of SMSFs. The fact that the taxpayers of Australia are writing a cheque to an SMSF fund for $2.5 million when that has paid no tax - has no earning, that's just absurd, isn't it?

JOURNALIST: Are you confident of winning the Batman by-election this weekend and what would a loss mean for Labor's Melbourne heartland?

 

SHORTEN: Well it's an uphill battle but Ged Kearney and the Labor team, they're giving it every shot. Ged's message is that she's a person of integrity, a vote for her will be real action on the issues that matter. She's offered good policies for the local community - extending the number 11 tram line, properly funding the schools, both government and non-government in Batman and looking at the health measures, she's certainly outlined new measures that we would do to improve the health outcomes for people living there.

 

But it's an uphill fight. The fact that Mr Turnbull chose not to run makes it harder for Labor to win because the fact of the matter is that there will be some Liberal voters who will just stay at home and they won't allocate their preferences, they just won't vote. One thing is clear, Malcolm Turnbull has lost Batman because if he had run, he would have got a lower vote than he would have otherwise got at the last election. So there's already one loser out of it and I'm very happy with the campaign that Ged has run, albeit it's an uphill battle.

 

JOURNALIST: Mr Shorten back on tax reform has Labor taken into account the $1.6 million cap on superannuation transfers and how would these changes effect that?

 

BOWEN: Yes, yes, of course we have and of course the Parliamentary Budget Office has taken into account its impacts on other government policies.

 

JOURNALIST: David Gillespie wants to see rules around the adoption of Indigenous kids relaxed in instances where they're being abused. What's your view on that?

 

SHORTEN: I just saw that this morning. I have to say my mind has been on tax reform. We'll certainly have a look at that and I'll consult with my colleagues.

 

JOURNALIST: On tax reform, is this a policy that could be phased in or?

 

SHORTEN: Are you talking about the Australian Investment Guarantee or the reforms to the current unsustainable arrangements for dividend imputation?

JOURNALIST: Reforms.

SHORTEN: From July 1.

 

BOWEN: They'll apply from 1, July 2019. Of course, the imputation works on a fiscal year and the Australian Investment Guarantee will apply from 1, July 2020.

 

JOURNALIST: Just on the tax relief to businesses on the condition that they're re-investing in Australian companies, are you trying to make Australia great again? It's got some themes of President Trump's policies.

 

SHORTEN: Well it's interesting, President Trump has a couple of aspects to what he's done in America in terms of those economic policies. One of them has been to lower the corporate tax rate, that's the piece which Malcolm Turnbull loves. You can't stop him talking about him, the Donald, and corporate tax reduction. But what the government has missed is that what I think experts in America say is driving job creation in America is actually depreciation. In other words, if companies choose to invest in productive assets or intangible assets, that's what's driving, I think, some of the American economic growth at the moment. 

 

So, the great irony is we've studied what's happened in America, but we've always believed that the best thing you can do is if you're going to provide a taxpayer support to a business, it's got to come with conditions. It's got to come with strings attached. I think just giving away $65 billion out of the nation's ATM to big business, 60 percent which will go overseas, it's a mug's strategy. 

 

Because the government hasn't offered any way they're going to replace that income. They're just sort of hoping and praying that something will come along. What Labor is doing with our Australian Investment Guarantee, which we can pay for because of the changes we've announced over the last two years, is we're saying to Australian business, if you spend, we will reward you. What the Government is saying to Australian corporations is, we'll reward you, no strings attached. So that's the difference. We're choosing jobs, investment and productivity, the government is just throwing money away. 

 

Any last questions?

 

JOURNALIST: Just so back on Gillespie, has anyone made representations to you wearing your Indigenous Affairs hat about those concerns that he's raised?

 

SHORTEN: There have been some discussions with my colleagues, but I'll take that on notice. Alright thanks, everybody.