Constituency Statement: Labor’s proposed retiree tax
(North Sydney) (18:40): Today I rise to speak about a matter which is of great concern to residents in my electorate, as it is across Australia. Labor’s proposed retiree tax will hurt retirees and low-income earners by abolishing tax refunds for share dividends. The policy imposes a $45 billion tax on 900,000 Australians, 200,000 self-managed super funds and 2,000 super funds. Many of those affected live in my electorate. In fact, around 10½ thousand residents in North Sydney stand to lose under Labor’s proposal. My electorate ranks sixth in Australia for the number of people who would feel the impact of Labor’s policy if ever they got elected to government.
Retirees from all walks of life have reached out to me, concerned about the devastating impact of this proposal on their own personal circumstances. These are people who, just as they have helped build our prosperous nation through their own hard work, have sought to ensure they have a reasonable income in their later years. In doing so, many have reduced the burden on our pension system. Yet Labor wants to penalise their efforts. The policy goes to the core of why the Labor Party cannot be trusted to manage the nation’s economy. I have been inundated with calls, letters, emails, responses to surveys and other forms of communication from local residents concerned about Labor’s plan. Many of these people are not what the Labor Party would consider to be wealthy. A taxable income below $37,000 a year is not wealthy. Yet the overwhelming majority of those impacted by Labor’s plan receive taxable incomes of less than $37,000 a year. How can that possibly be fair or equitable? What we see at the core of Labor’s proposal is a blatant cash grab, using our retirees to fund Labor’s election policies rather than taking the hard and responsible decisions to manage federal government spending properly.
My grievance with Labor’s retiree tax is threefold. Firstly, it is flawed in principle. Australia’s tax system is predicated on avoiding double taxation. In fact, we have double taxation agreements and treaties signed with over 40 countries to avoid this problem for those overseas. These agreements are designed to eliminate the occurrence of double taxation, where money that has already incurred tax is not taxed again. This principle is the reason that franking credits exist. They allow investors to pay tax only on the difference between the company tax rate of the day and a person’s marginal income tax rate. Without such a mechanism, not only would double taxation occur, but it would also erode the investment case for many hardworking Australians, who will pay more in tax.
For those on low incomes or a pension, this franked component of the dividend is repaid to the investor in the form of a tax credit. Having read many of the submissions received by this House of Representatives Economics Committee and correspondence from my own constituents in North Sydney, I know this is a vital source of income for so many Australians. Rather than encouraging more Australians to invest and get ahead, this policy seeks to take away from those who have tried to do the right thing.
The second issue with this policy that I want to raise today is that it is fundamentally retrospective. If Labor were serious about reforming our retirement system, they would have come to the table with a comprehensive policy. Instead, they have taken the easy route and seek to play the politics of envy. For decades retirees have saved and invested their hard-earned money on the basis that they would receive franking credits. Labor’s policy is to change the goalposts mid-game. This is not only unfair to those who have done the right thing; it also impacts on investment confidence. Who is to say what the next tax grab might be when debt and deficits inevitably start to climb under a Labor government? Ironically, it will discourage investment in Australian companies in favour of overseas companies, hurting our own economy. It would also put more pressure on our age pension. We have a growing ageing population and, without a strong superannuation system that encourages investment, the pension scheme will become more and more costly and less sustainable. This is a reckless and poorly thought out policy that really says a lot about how a future Labor government would run this nation’s economy if they were elected.
It’s not just me or those in the Liberal Party saying these things. For example, Ian Henschke, from National Seniors Australia, said:
National Seniors is concerned about the large number of its members and non-members who could be affected by the policy.
… … …
So, we will end up with a two-class system of retirees: one group protected; the other not.
Professor Ralston from the Alliance for a Fairer Retirement System said that, under the proposed policy, a couple retiring on the full age pension with $300,000 of savings invested in Australian shares will be better off than a self-funded retiree couple with a million dollars invested in Australian shares. Geoff Wilson of Wilson Asset Management, a very considered critic of Labor’s policy, said:
Labor has pushed this ill-conceived policy by claiming it would only hurt the rich and deliver significant savings for the government …
Far from being ‘rich’, 69 per cent who completed our poll earn $90,000 or less a year and 53 per cent would be forced to reduce their family’s living standard and quality of life in order to accommodate the loss of income.
Associate Professor Geoff Warren of the Australian National University said that ANU research estimates Labor’s retiree tax could result in Australians’ superannuation balances being up to nine per cent lower at the point of retirement. A Citi report of 12 September 2018 said that Labor’s retiree tax would hurt high ‘dividend-paying stocks including the banks, miners and Telstra’. It ‘would impact domestic shareholders with low tax rates’—most significantly self-managed super funds.
Self-managed super funds make up the third and final grievance of residents in North Sydney who have contacted me about this proposal. The super funds most severely impacted by this policy are not the big industry funds supported by Labor’s mates in the union movement; it is the self-managed super funds—mum-and-dad investors who are working hard to provide for themselves and their families. Big industry funds can pool together the contributions of members who do receive dividend imputations and those who don’t, reducing the impact on members in these funds. This overwhelmingly benefits the big end of town and will cause many self-funded retirees to struggle in what will become an increasingly unattractive investment market if this policy were ever put into effect. This means the cumulative impact on these fund will be minor for union funds when compared to those who rely on franking credits as part of their overall investment portfolio.
We all acknowledge that we need to do more as a country to ease the pressure on the age pension. In Paul Keating’s day, it was all about empowering individuals to save for their own retirement. Now the approach under Labor and under the current Leader of the Opposition is to empower unions by pitching middle Australians against the biggest funds in the nation. The Liberal government is committed to stopping Labor’s retiree tax and will continue to create the jobs growth and investment environment Australia needs for the future. Like all Australians, the people of North Sydney deserve a government that encourages personal responsibility, rewards hard work and allows them to keep more of what they earn. Labor’s retiree tax attacks and undermines these values, ripping over $45 billion out of retirement savings. This is part of Labor’s plan for more than $200 billion in additional taxes to people’s homes, incomes, business and savings.
Many of my residents have asked me what they can do to help stop Labor’s proposals. I want to congratulate the member for Goldstein, as the chair of the Standing Committee on Economics, for his work in providing opportunities for Australians to raise their concerns with this parliament through that process. We saw the strength of interest in doing that last week in Sydney, and I hope that the committee will visit my own electorate some time in the not-too-distant future. It will provide the opportunity that people so desperately want to raise their concerns about what this proposal will mean to their own livelihoods. Of course, the biggest answer to this problem is simple: don’t vote Labor; support a Liberal government that will protect the hard-earned savings of the people of North Sydney and all Australians.