Before everyone gets too excited about those personal tax cuts in Budget 2018-19

According to the Turnbull Government Budget 2018-19 papers, eligibility for the Low and Middle Income Tax Offset (aka personal income tax cut) will assist over 10 million Australians, with about 4.4 million taxpayers with incomes between $48,000 and $90,000 receiving the full $530 benefit for 2018–19.

The non-refundable offset is calculated on “taxable income” which is “equal to an individual’s assessable income (such as salary and wages and interest from bank accounts) minus their allowable deductions”.

The announced ‘tax cut’ has a life of four financial years and technically ceases after 2021-22. 

It will not see actual tax rates change and will not see the dollar amount in wages paid on a weekly, fortnightly or monthly basis alter.

The 'tax cut' will be applied by the Australian Taxation Office and form part of any tax refund due after tax returns are lodged in 2019.

The bottom line is that any person with a taxable income of less than $20,548 will not receive the announced personal tax cut according to the Budget 2018-19 website income tax calculator.

https://www.budget.gov.au/2018-19/content/incometax.html?income=20547

Those with a taxable income of est. $20,548 on 30 June 2019 will receive exactly one dollar a year as a ‘tax cut’ for the next four years.

One would have a taxable income of est. $21,600 to get a ‘tax cut’ of $200 a year for the next four years.

However the first $18,200 of any individual’s personal income is currently exempt from taxation.

https://www.ato.gov.au/Rates/Individual-income-tax-rates/

Hopefully for the purposes of calculating any tax refund the budget measure includes in "taxable income" the first $18,200 on which no tax is payable.

Otherwise this budget measure means that anyone with an annual wage of $38,747 ($18,200 tax exempt + $20,547 taxable income) will not receive the announced ‘tax cut’ for low and middle income earners.

There is nothing found in Budget Measures Budget Paper No. 2 2018-19 or on the Budget 2018-19 website which clarifies the situation.

Elder abuse and profit shifting go hand-in-hand in the age care sector?

Any regular reader of online news would have seen mentions of elder abuse, neglect and sub-standard health care over the years.

hellocaremail.com.au, 2017:

Elder abuse is a critical issue in aged care homes, with thousands of cases reported to the Health Department every year…. In 2016-2017, there were 2853 reports of “reportable assaults’’ and 2463 allegations of “unreasonable use of force”.

Australian Law Reform Commission, Elder Abuse (DP 83), Abuse and neglect in aged care, 12 December 2016:

1.34   Stakeholders reported many instances of abuse of people receiving aged care. These included reports of abuse by paid care workers[55] and other residents of care homes[56] as well as by family members and/or appointed decision makers of care recipients.[57] For example, Alzheimer’s Australia provided the following examples of physical and emotional abuse:

When working as a PCA [personal care assistant] in 2 high care units, I witnessed multiple, daily examples of residents who were unable to communicate being abused including: PCA telling resident to ‘die you f---ing old bitch!’ because she resisted being bed bathed. Hoist lifting was always done by one PCA on their own not 2 as per guidelines and time pressures meant PCAs often using considerable physical force to get resistive people into hoists; resident not secured in hoist dropped through and broke arm—died soon after; residents being slapped, forcibly restrained and force-fed or not fed at all; resident with no relatives never moved out of bed, frequently left alone for hours without attention; residents belongings being stolen and food brought in by relatives eaten by PCAs.[58]

1.35   The ALRC also received reports of other forms of abuse, including sexual[59] and financial abuse.[60] Restrictions on movement[61] and visitation[62] were also reported. Many submissions also identified neglect of care recipients.[63]

The Sydney Morning Herald, 15 October 2017:

Across NSW, 58 per cent of aged care workers surveyed said they have not been able to provide the level of care residents deserved because of budget cuts. Of those, 80 per cent said staff shortages were the main barrier to providing proper care.

The Courier-Mail, 19 April 2018: 

PROFIT-HUNGRY aged care companies are charging fat “administration fees” to skim up to 40 per cent of government payments for in-home nursing care.

More than 100,000 elderly Australians are on a waiting list to receive as much as $50,000 a year in a “homecare package” to pay for nursing, housekeeping or companionship at home. But an investigation by The Courier-Mail has revealed that some home-care companies are pocketing as much as $19,000 of the taxpayer cash through hefty “administration” or “case management” fees.

The fees are billed on top of hourly charges for home help – leaving clients with less cash to spend on in-home care such as nursing. And if clients want to switch to a cheaper provider, they are being slugged up to $1000 in “exit fees”.

The Age, 3 May 2018:

Scandals, including a recent national audit showing 600 aged-care homes failed in the past five years to provide minimum standards, prompted a government review. The Coalition, accepting a key recommendation, has ended the ridiculous practice of alerting operators to spot checks. The review also urged the streamlining and strengthening of the regulator.

If one does a simple online search many of the big ‘for profit’ aged care providers are named in relation to such abuse, neglect and sub-standard health care allegations.

Now in May 2018 the Tax Justice Network^[1]  is looking at aged care provision from another angle. One which shows that the budgetary meanness which sees these big companies expect elderly residents to remain in sodden incontinence pads or live-off meagre meal rations occurs in spite of the millions in profit made on the back of billions in taxpayer funding of the age care sector.

It has released A Tax Justice Network – Australia Report, TAX AVOIDANCE BY FOR-PROFIT AGED CARE COMPANIES: PROFIT SHIFTING ON PUBLIC FUNDS.

Sadly, this report only confirms the fact that corporate greed runs rampant through all major aspects of Australian life, including aged care.

Executive Summary, Background, p.5:

Older people are a growing proportion of Australia’s population; in 2016, 15% (one in seven) Australians were aged 65 years or older. By 2056 this percentage is expected to grow to 22% (8.7 million).1 The need for aged care services is increasing. Between 2015– 2016 almost 214,000 people entered aged care in Australia. On average, older people in Australia spend three years in permanent residential care, just over two years in home care, and one and a half months in respite care.2 The Australian tax payer, via the Commonwealth Government contributes around 75% of the expenditure in aged care in Australia, which is around 96% of the total funding on aged care from Commonwealth and State Governments. Government recurrent spending on aged care services in Australia was $17.4 billion Australian dollars (AUD) in 2016- 2017, with residential aged care services accounting for 69.3% ($12.1 billion AUD).3 Some of this funding is provided as subsidies to aged care provider companies including those that operate for profit. In 2018 the Australian Nursing and Midwifery Federation (ANMF), Australia’s largest national professional and industrial nursing and midwifery organisation with over 268,500 members, commissioned the Tax Justice Network - Australia to analyse possible tax avoidance by for-profit aged care companies and to provide recommendations for improving transparency on Government spending on for-profit aged care.

Key points from the report

* By number of beds, not-for-profit providers are the largest aged care provider group in Australia (52% in 2013-2014), however there has been a rapid growth in the size and spread of for-profit companies; Bupa, Opal, Regis and Estia are the largest aged care providers nationally. If Japara and Allity are included, these 6 for-profit companies operate over 20% of residential aged care beds in Australia.

* In the most recent year (mostly the 2017 financial year) the six largest for-profit companies were given over $2.17 billion AUD via government subsidies. This was 72% of their total revenue of over $3 billion. These companies also reported profits of $210 million AUD (2016-2018).

* Companies can use various accounting methods to avoid paying tax. One method is when a company links (staples) two or more businesses (securities) they own together, each security is treated separately for tax purposes to reduce the amount of tax the company has to pay. Aged care companies are known to use this method as well as other tax avoiding practices. Another practice is by “renting” their aged care homes from themselves (one security rents to another) or by providing loans between securities and shareholders.

* The six largest for-profit aged care providers have enormous incomes and profits:

* The largest company, BUPA, had almost $7.5 billion in total income in Australia (2015-16) but paid only $105 million in tax on a taxable income of only $352 million.

* BUPA’s Australian aged care business made over $663 million in 2017 and over 70% ($468 million) of this was from government funding.

* Funding from government and resident fees increased in 2017, but BUPA paid almost $3 million less to their employees and suppliers.

* The second largest, Opal, had total income of $527.2 million in 2015-16 but paid only $2.4 million in tax on a taxable income of only $7.9 million.

* 76% ($441 million) was from government funding in 2016.

* Allity had total income of $315.6 million in 2015-16 and paid no tax.

* 67% ($224 million) of Allity’s revenue was from government funding in 2016-17.

* Regis, Estia, and Japara are listed on the Australian Securities Exchange (ASX) but appear to be using methods to reduce the amount of tax they pay while earning large profits from over $1 billion of government subsidies.

* Family owned aged care companies (Arcare, TriCare, and Signature) receive between $42-$160 million each in annual government subsidies but provide very little public information on their operations and financial performance and may use accounting methods to avoid paying tax.

 * (All figures quoted above are in AUD)

* The Australian Government and the Federal Opposition (the Australian Labor Party) have proposed several ways to fix the problems with companies avoiding tax by using trust structures and other methods but there are still loopholes.

* It is difficult to get a detailed and complete picture of the full extent to which these heavily subsidised aged care companies are avoiding paying as much tax as they should, because Australian law is not currently strong enough to ensure that their financial records and accounting practices are publicly available and fully transparent.

Conclusion

The six largest for-profit aged care providers in Australia received over $2.17 billion AUD in annual tax payer funded subsidies which provided after tax profits of $210 million AUD. The actual operating profits were much larger. These providers only paid around $154 million AUD in tax in 2015-16. Companies that receive millions of tax payer dollars via Australian government subsidies must be required by law to meet higher standards of transparency in financial reports and be publicly accountable. The report calls upon the Government, Opposition, and cross-bench Senators to work together to make laws to stop aged care providers from avoiding the taxes they should pay and provide clear records of their business dealings.

The Tax Justice Network – Australia strongly supports recent government legislation that has been introduced to close loopholes in the Multinational Anti-Avoidance Law and government reforms to stapled structures. However, there is still a need for additional transparency measures. The Tax Justice Network – Australia also strongly supports a policy proposed by the Australian Labor Party to introduce minimum taxation of discretionary trusts. These reform measures are examined in more detail by this report in the section: Current Reform Measures.

This analysis of tax payments and corporate structures of the largest for-profit aged care companies provides clear evidence that simple common-sense reforms are needed immediately to restore integrity to the tax system and to ensure public accountability on billions of dollars in government spending.

RECOMMENDATIONS FROM THE REPORT

Any company that receives Commonwealth funds over $10 million in any year must file complete audited annual financial statements with Australian Securities and Investments Commission (ASIC) in full compliance with all Australian Accounting Standards and not be eligible for Reduced Disclosure Requirements. Public and private companies must fully disclose all transactions between trusts or similar parties that are part of stapled structures or similar corporate structures where most or all income is earned from a related party and where operating income is substantially reduced by lease and/or finance payments to related parties with beneficial tax treatment.

Australia’s Largest For-Profit Aged Care Companies

In Australia, non-profit providers collectively operate a majority of residential aged care beds. However, the market share of large for-profit providers continues to grow rapidly. Likewise, the influence of for profit providers on shaping government policy and influencing broader trends in the aged care sector has never been greater. Ranked by the number of government allocated residential aged care places (beds) in 2017, the six largest for-profit aged care companies in Australia are; Bupa, Opal, Regis, Estia, Japara, and Allity. Combined, they operate over 20% of all residential aged care beds in the country. These companies continue to expand market share through new developments and acquisitions. These companies are also expanding to provide more retirement living and home care services, which allow access to additional government funding. In the most recent financial year (2016-2017), these six for-profit aged care companies combined received over $2.17 billion in government subsidies.4 This made up 72% of their combined total revenue of over $3 billion.5……

COMPANY SNAPSHOT

Bupa: A United Kingdom-based mutual insurance company with global operations including aged care services. Australia is Bupa’s largest and most profitable market.

Regis, Estia, and Japara: Public aged care companies listed on the ASX.

Opal: A private aged care company owned by subsidiaries of two listed companies, AMP Capital and Singapore-based G.K. Goh.

Allity: controlled by Archer Capital, an Australian private equity firm with large foreign pension fund investors.

Arcare, TriCare and Signature (formerly Innovative Care): three family-owned, for-profit aged care companies.

NOTE:

1. The Tax Justice Network - Australia is the Australian branch of the Tax Justice Network (TJN) and the Global Alliance for Tax Justice. TJN is an independent organisation launched in the British Houses of Parliament in March 2003. It is dedicated to high-level research, analysis and advocacy in the field of tax and regulation. TJN works to map, analyse and explain the role of taxation and the harmful impacts of tax evasion, tax avoidance, tax competition and tax havens. TJN’s objective is to encourage reform at the global and national levels.

Membership of the Network can be found here.

Repeat after me: Australia is a low-taxing country, a low-taxing country.....

“Australia is a low-taxing country. While tax debate in Australia tends to focus on tax rates, with endless comparisons of different countries’ rates of different taxes, these debates ignore the fact that Australia raises far less tax revenue than most developed countries.

This is not a problem in itself. There is no right or wrong level of taxation. However, the level of tax revenue raised inevitably affects governments’ ability to fund essential services such as health, education, social security, defence and infrastructure. Polling consistently shows that the Australian public would prefer higher levels of spending on public services than lower tax collection.” [The Australia Institute, 17 April 2018]

In two weeks time a federal government ideologically glued to cutting company tax and spending big on infrastructure on the back of ever-decreasing taxation revenue will deliver its 2018-19 Budget Papers.

So Prime Minister Turnbull and Treasurer Morrison will ignore polls like this one, because the only voters with influence are found in the ranks of political donors, big business and industry.

The Australia Institute, 18 April 2018:

Small government has small support - National poll

A large national poll of 1,557 Australians, released today by think tank The Australia Institute, has shown 64% of people want more public spending funded by tax revenue. Just 11% want lower taxes and less public spending.

* Two-thirds (64%) said they would prefer more public spending, funded by more tax

   revenue, and less inequality.

* Only 11% said they wanted lower public spending, lower tax and more inequality.

* A majority of voters for all parties selected the more spending and more tax option:

* 56% of both PHON voters and Other voters;

* 60% of LNP voters;

* 71% of ALP voters;

            * 75% of Green voters.

Polling Brief - April 2018 - more or less spending tax inequality.pdf

P521 Australia a low tax country.pdf

Australian Taxation Commisioner discreetly warns staff to keep their mouth shut when approached by ABC Four Corners reseachers

ABC TV airs “Mongrel bunch of bastards”, the Four Corners/Fairfax investigation into the Australian Taxation Office (ATO) on Monday 8 April 2018 at 8.30pm.

At least one ATO employee appears to have talked with some of the journalists involved in the investigation. His home was recently raided by the Australian Federal Police accompanied by an ATO investigator.

The ATO is not happy and issued this warning to all staff.....

Image via Twitter

Quotes of the Week

"the average tax evader may be financially better off even after they're caught and penalised" [Chris Leech, writing about low tax evasion penalties applied by the Australian Taxation Office in an unpublished study, quoted in The Age, 24 March 2018]

“Civil disobedience and protest are vital in a democracy. They open up political space for communities to intervene when the doors of governments are closed to them, and the price of entry to corporate boardrooms and political party fundraisers is beyond reach.”  [Barrister Julian Burnside writing in The Sydney Morning Herald, 25 March 2018]

Corporate tax cuts lead to 'jobs and growth' in Australia? Pull the other one!

This Business Council of Australia survey was apparently mothballed when initial results indicated that it would reveal the truth about outcomes flowing from the Turnbull Government’s planned corporate tax cuts - a distinct lack of jobs and wages growth.

Financial Review, 27 March 2018:

Fewer than one in five of Australia's leading chief executives say they will use the Turnbull government's proposed company tax cut to directly increase wages or employ more staff, according to a secret survey conducted by the Business Council of Australia.

More than 80 per cent said they would either use the proceeds to boost returns to shareholders or invest in the company.

The explosive revelation comes as the government is still struggling to secure the final two Senate votes needed to pass the remainder of the $65 billion package.

The survey follows a letter to all Senators last week by the BCA and 10 of the nation's top chief executive officers in which they pledged to reinvest the proceeds of the tax cuts with the ultimate aim of increasing wages.

"If the Senate passes this important legislation we, as some of the nation's largest employers, commit to invest more in Australia which will lead to employing more Australians and therefore stronger wage growth as the tax cut takes effect," the letter said.

But The Australian Financial Review has learned that the BCA directly surveyed the chief executives of its 130-plus members about a company tax cut this year, in the wake of the company tax rate cut in the United States.

The chief executives were asked which of four options they would nominate as their preferred response to the company tax cut in Australia.

These were: returning funds to shareholders; more investment; increasing the wages of their existing workforce; or increasing employment.

More than 80 per cent nominated one of the first two options while only 16 per cent to 17 per cent nominated higher wages or employment.

The survey results are understood to have been tightly held but were reported on internally in a memo entitled "the good news and the bad news".

A spokesman for the BCA confirmed the survey to the Financial Review on Monday but downplayed its significance…….

This lobby group has now decided that 'spin' is more important than fact and senators have all received a BCA video appeal promising well-paid and meaningful jobs and wages growth that only growing investment can deliver if the comapny tax cits are passed.

A neat trick given that its members are also arguing before the Fair Work Commission Annual Wage Review 2017-18 that the minimum wage should remain as is or only be increased by 34-35 cents an hour which represents no growth in real wages.

The vague, slyly worded non-promise to lift workers wages received by Senators

via @Tony_Burke

Google some of the businesses on this short list and one finds an unflattering employer history with regard to employee wages and job terms & conditions.

The tweet Malcolm Bligh Turnbull thought it was wise to delete from Twitter

On 22 March 2018 Australian Prime Minister Malcolm Bligh Turnbull deleted this tweet.

@hannj666

The video this tweet contained survives for a limited time elsewhere.

The reason why this tweet came and went so swiftly? Because many of the people with speaking parts are not low-income aged pensioners who just happen to have shares.

They are former business owners who are now self-funded retirees and, a least one of them structured his superannuation now in the pension phase on the premise that he would be receiving a taxpayer-funded cashback payment for unused franking credits - that is cash handouts for tax he never paid - for forever and a day.

One suspects that Turnbull suddenly realised that the video was not the tearjerker he originally thought it was.

Australian personal investment portfolio profiles reveal a sjgnificant lack of diversification and a fondness for shares

“This is indeed the wealthiest retired generation ever in Australian history…. Self-funded or partly self-funded retirees appear to enjoy a significantly higher standard of living than those who rely on the Aged Pension”  [Australian Centre for Australian Studies, August 2016]

According to the Australian Stock Exchange in 2017 there were over 11 million investors across the country.

Given the many words being written on the subject of share dividend imputation and franking credits here is a broad breakdown of the investment types these people hold.

Sources of income during retirement

In 2016–17, there were 3.6 million persons, aged 45 years and over, who reported that they were retired from the labour force. This group comprised 1.7 million men and 1.9 million women. Just over half of all retired persons were aged 70 years and over (56% of retired men and 52% of retired women).

Approx. 49% of male and 45% of female retirees stated main source of income was 'government pension/allowance'. In total this represents an est. 1.6 million individuals retired from the labour force.

Approx. 33% of male and 17% of female retirees stated their main source of income was 'superannuation/annuity/allocated pension' (37% of females state ‘partners income’ as main source of income). In total this represents an est. 884,000 individuals retired from the labour force.

Est. 30% of all retirees appeared to be eligible to claim a government part-pension.

Australian retirees (60 years and older) investment portfolio profile:

68% hold cash

58% hold shares

26% hold investment property

18% hold other on-exchange investments.

Retirees on average expect an 8 per cent return on investment.

Australian all adult (18 years of age & older) investment portfolio profile:

60% hold investments

Up to est. 42% hold investment property

31% hold shares

Up to 25% hold other on-exchange investments, including derivatives

10% hold family trusts

15% hold self-managed super funds (SMSFs), with the majority held by individuals over 45 years of age

Est. 44% of SMSFs contain shares and over 50% hold cash.

Adult investors on average expect an 8.2 to 9.2 per cent return on investment.

Only est. 5% of investors borrow money in order to invest.

Overall less than half (46%) of all investment portfolios are diversified to lessen financial risk.

Currently, most investors in Australia are self-directed, choosing to conduct their own research.

[See https://www.asx.com.au/documents/resources/2017-asx-investor-study.pdf
& http://www.abs.gov.au/ausstats/abs@.nsf/mf/6238.0]

Excess Franking Credits derived from Share Dividends

The average annual cash refund for unused franking credits is thought to be in the vicinity of $5,000 per shareholder, while the average unused credits cashback payment for people in the top 1% of self-managed super funds is an est. $83,000 a year.

Social media opinion

A terrific example of the irrational, ill-considered investment "strategy" that the imputation tax rort encourages. People invest on the basis of the rort with no consideration of underlying corporate fundamentals https://t.co/6mswyubE0E

— Stephen Koukoulas (@TheKouk) March 15, 2018

Tim Lyons at Revielle 

Case studies mentioned in mainstream media

Case Study 1

via @GraemeEtt

It has been pointed out that with income from other sources being $130,000, "Jean" would have income producing assets possibly valued at est. $3.2 million. She appears to own her own home.

Case Study 2 - Stjepan has retired with what appears to be a self-managed super fund. As his fund is in the pension phase he pays $0 tax. He and his wife have a combined annual income of $89,000 and own shares valued at $200,000. He states that he will lose "several thousand dollars a year" if he no longer receives cash back for excess franking credits.
Stepan owns his own home plus a holiday unit.
If this couple's combined income is $89,000 then they would possibly have income producing assets valued at around $1.7 million.

Case Study 3 - "Peter" has a self-managed super fund. As his fund is in pension phase he pays $0 tax. Peter has an income of $60,000 a year. Dividends from his share portfolio see him receiving franking credit cashback payments of over est. $8,000 per annum which he lodges in his SMSF account to grow his balance.
His income producing assets are possibly valued at est. $1.2 million.

Case Study 4 - Margaret and her husband have a self-managed super fund. As their fund is in the pension phase they pay $0 tax. The SMSF appears to solely invest is shares - 85% of which are Telstra and big bank shares. 
Currently National Australia Bank shares are worth in the vicinity of $29.51 with an annual dividend yield of 6.71%, Westpac shares are worth in the vicinity of $29.52 with an annual dividend yield of 6.37%, Commonwealth Bank shares are worth in the vicinity of $75.34 with an annual dividend yield of 5.71% and, Telstra shares are worth in the vicinity of $3.35 with an annual dividend yield of 6.8%.
No income is stated but what is asserted is that the abolition of payment for excess franking credits will see their annual income reduced by 30%.
Margaret and her husband own their own waterfront residence in Sydney.

The bottom line is that investors who structured their portfolios to take maximum advantage of excess franking credit cash payments do not appear to have considered the relatively short history of this cash payment scheme or the possibility that a political push might occur to eliminate the 'value' of unused franking credits - given that current owners of these credits who had no tax liability were claiming refunds for tax they had never paid in the first place.

Let's talk about excess franking credits and why they have been money for jam for the last 17 years

This is what the Australian Taxation Office (ATO) states about imputation:

Refunding excess franking credits – individuals

Dividends paid to shareholders by Australian resident companies are taxed under a system known as imputation. This is where the tax the company pays is imputed, or attributed, to the shareholders. The tax paid by the company is allocated to shareholders as franking credits attached to the dividends they receive.

Dividends and franking credits

If you receive franking credits on your dividends, you need to let us know your:

* franked amount

* franking credit.

If you are an Australian resident, we will use this information to:

* reduce your tax liability from all forms of income (not just dividends) and from your taxable net capital gain

* refund any excess franking to you after any of your income tax and Medicare levy liabilities have been met.

Eligibility for arefund

You are eligible for a refund of excess franking credits if all of the following apply:

* You receive franked dividends, on or after 1 July 2000, either directly or through a trust or partnership.

* Your basic tax liability is less than your franking credits after taking into account any other tax offsets you are entitled to.

* You meet our anti-avoidance rules, which are designed to ensure everyone pays their fair share of tax.

If you have received a dividend that has Australian franking credits attached from a New Zealand franking company, you may be eligible to claim the Australian sourced franking credits.

The policy of giving cash back for unused franking credits was introduced in 2000 by then Howard Government treasurer Peter Costello and for the last 17 years it has been systematically rorted by superannuation funds, private corporations, trusts and individuals - to the point where Treasury pays out an est. $6 billion per annum under this scheme.

With one individual whopaid no income tax reportedly received millions claiming cash for unused franking credits and the average unused credits cash back payment for people in the top 1% of self-managed super funds being est. $83,000 a year.

In March 2018 Federal Labor announced a policy effective January 2019 which removes claims for franking credits - but only in those years that the prospective claimant has no income tax liability payable.

So ending taxpayer-subsidised money for jam for around est. 9 per cent of the population who were receiving cash refunds for tax they had never paid .

Turnbull, Morrison & Co then came out fighting – accusing Opposition Leader Bill Shorten of robbing low income self-funded retirees and aged pensioners.

At that point, somewhat predictably, embarrassment for the Turnbull Government began…..

What Treasurer and Liberal MP for Cook Scott Morrison considered low income retirees was elucidated.

The Australian, 14 March 2018:

A retired couple living in a $2m house, with $3.2m in super, are classified as ‘‘low income’’. They have no income tax liability. They could also have an investment property and still wouldn’t have a tax liability because of the bizarre “senior and pensioners’ tax offset”, which lifts their effective tax-free threshold to about $58,000.

Turnbull & Co were accused of telling political lies.

The Guardian, 14 March 2018:

You won’t have missed the foghorn blast from the Turnbull government and its media amplifiers that has accompanied Labor’s latest bold foray on tax policy.

Scott Morrison has declared Labor is stealing tax refunds from pensioners and low-income retirees, and Malcolm Turnbull says Bill Shorten “is going after the savings of your parents and their friends and their contemporaries”.

So how do these terrifying-sounding claims stack up?

Let’s bring in the respected economist Saul Eslake, who has no political dog in this race. Eslake is blunt. He says the government’s posturing is “misleading in the same way that most of what Scott Morrison said about Labor’s policy on negative gearing was misleading”.

To understand precisely what is misleading – the first thing to know is when we are talking about Australian retirees having low incomes, often what that means is people have low taxable incomes.

Income from superannuation funds is tax free once people turn 60. Eslake says the decision to make income from super tax free is “top of my list of the dumbest tax policy decisions of the last 25 years”.

It means people with substantial assets, and big super balances – millionaires in fact – are in a position to report low taxable income, and in fact structure their affairs to ensure they have low taxable income.

They were also quite rightly accused of knowing that dividend imputation à la Costello is an expensive rort.

The Sydney Morning Herald, 13 March 2018:

Treasury considered dividend imputation reform in the lead up to Treasurer Scott Morrison's last budget, creating a dossier entitled "Tax Policy - Dividend Imputation" more than a year before Labor announced it would target the tax refunds of more than one million Australians on Tuesday.

The confidential file itemised in a list required to be disclosed by departments as part of freedom of information requirements was opened by Treasury in the first-half of last year.

Fairfax Media understands Treasury has been examining withholding dividend cheques from non-taxpaying shareholders ahead of this year's May budget.

Investigating potential savings needed to fund budget initiatives such as personal income tax cuts is normal practice in the pre-budget period.

Mr Morrison said on Tuesday the "government has never entertained" changes to the way it gives cash back to shareholders in response to a policy he described as a "cruel blow for retirees and pensioners," but his predecessor Joe Hockey first asked how dividend imputation could be improved - not replaced - three years ago. 

A white discussion paper on tax reform commissioned by Mr Hockey and completed by Treasury in 2015 found "there are some revenue concerns with the refundability of imputation credits," indicating the department was receiving lower tax revenues than it expected. 

"It provides a greater incentive for shareholders of closely held companies to delay distributions until a time when individual owners are subject to a relatively low tax rate, to receive a refund of tax paid by the company." 

The list published by Treasury shows the department's work on dividend imputation policy continued after Mr Morrison became Treasurer in 2016…..

Labor, which has not released Parliamentary Budget Office costings of its policy, said it planned on cancelling an average cash refund of $5000 on share dividends from 8 per cent of taxpayers, including 200,000 voters who self-manage their own super funds and 1 per cent of full pensioners..….

Image found on Twitter

"Rethink: Better tax, better Australia" discussion paper information here and submissions here.