And the news just keeps getting worse for the NSW Perrottet Government five weeks out from the 25 March 2023 state election

 

The Sydney Morning Herald, 17 February 2023:

The NSW government is in disarray just five weeks from the state election as one of Premier Dominic Perrottet’s most senior ministers and closest confidants was forced to quit cabinet after it emerged he owned shares in the tolling company that controls most of Sydney’s motorways.

The premier was also forced to reveal on Friday that one of his parliamentary secretaries had stood down amid a scandal involving intimate photos he shared.

Finance minister and leader of the government in the Legislative Council Damien Tudehope quit just hours after he confirmed he held shares in Transurban, which owns the majority of tolling concessions across Sydney, including WestConnex, NorthConnex and the M2.

Perrottet sought legal advice on Friday afternoon over whether Tudehope “knowingly breached” any disclosure rules under the ministerial code of conduct.

In a statement late on Friday, Perrottet confirmed the advice from the Department of Premier and Cabinet had “cleared Damien” however Tudehope had decided to resign from cabinet…..

Upper House MLC Peter Poulos resigned on Friday from his secretary role amid internal anger after an admission he shared explicit images of Hawkesbury MP Robyn Preston in the lead-up to a bitter preselection battle. Poulos has apologised to Preston, who modelled as a Penthouse “pet” in the 1980s.

In a major embarrassment for Perrottet, Tudehope on Friday confirmed he held shares in tolling giant Transurban, which owns the majority of tolling concessions across Sydney, including the WestConnex motorway, NorthConnex and the M2.

Tudehope said he had unknowingly held the shares in a family superannuation fund, but insisted he gave a “printout of the assets” contained within that fund to both Perrottet and former premier Gladys Berejiklian.

He said the Transurban shares were sold overnight, and conceded they had risen in value considerably since he was appointed minister in 2019. Tudehope said he would donate to charity any profit he made, which he expected to be about $6000.

Tudehope said he did not recuse himself from cabinet over discussions involving Transurban because he did not know he owned the shares as the superannuation fund was managed by a fund manager…..

[my yellow highlighting]

Financial Review, 17 February 2023:

Transurban recently reported record half-year earnings of $1.66 billion, boosted by some $835 million in tolls collected from Sydney drivers over the course of the past six months.

Mr Tudehope was a cabinet minister during the Berejiklian government’s decision to sell the WestConnex toll road to Transurban for $11 billion in 2021. More recently, he took part in a number of cabinet decisions to provide toll relief to NSW drivers.

Earlier, he denied being “involved in any discussions relating to WestConnex” and claimed he “was not on the relevant committee or relevant cabinet meetings”.

“The first thing is whether there was a significant impact, and whether I knowingly breached the code of conduct, and I have to say, I didn’t know that I held those shares at the time that I participated in policy decisions relating to Transurban,” he said.

It should be noted that Liberal MLC Damian Francis Tudehope has been a Member of the Legislative Council since 23 March 2019 having previously been a Member of the Legislative Assembly from 28 March 2015 to 1 March 2019.

He had been NSW Minister for Finance as well as Minister for Employee Relations since 21 December 2021, having been appointed to both ministries by Premier Perrottet. 

On 21 December he also became Leader of the Government in the Legislative Council and Vice-President of the Executive Council.

Damian Tudehope is reported as resigning as NSW Minister for Finance, Minister for Employee Relations and Leader of the Government in the Legislative Council on Friday 17 February 2023. Presumably he also resigned from the Executive Council.

Tudehope had previously been finance & small business minister during the Berejiklian Government years from 2 April 2019 to 21 December 2021.

Before entering parliament he practiced as a solicitor.

Interestingly, Damian Tudehope had been Chair of the Committee on the Independent Commission Against Corruption from 3 June 2015 to 22 February 2019 and, a Member of the Standing Committee on Parliamentary Privilege and Ethics from 29 March 2017 to 22 February 2019. Committee terms which should have seen him well acquainted with the ins and outs of of issues such as pecuniary interests and conflicts of interest.

According to ABC News on 17 February 2023; ...like Mr Perrottet, [Damien Tudehope] has links to the the Catholic Church's conservative Opus Dei organisation. 

It appears the families may know each other well. The Linkedin entry of the premier’s younger brother Jean-Claude Perrottet shows that he was an Electoral Officer for Damian Tudehope MP from March 2018 to March and 2019 and Policy Advisor for Damian Tudehope MLC Minister for Finance and Small Business.

The “family superannuation fund” to which Mr. Tudehope was referring is possibly a self-managed superannuation fund titled Claiyear Pty Limited ATF The Tudehope Superannuation Fund (est.1998) or perhaps even Imtaga Pty Limited ATF Tudehope Family Trust (est.1985), as set out in his Disclosures By Members Of The Legislative Council form dated 31 March 2021. Although the latter registered company was missing from his disclosure of pecuniary interest form signed on 20 September 2022.

ASX Graph of Transurban Group (TCL) Share Price & Dividends issued 14 March 1996 to 17 February 2023

https://www2.asx.com.au/markets/company/tcl

This graph shows 20 dividend issues to shareholders over a 10 year period. Not a shareholding one would normally expect to be overlooked in the investment portfolio of any politician.

As a member of the NSW Upper House Damian Tudehope  does not stand for re-election until his term of service expires at the end of the 58th Parliament (05 Mar 2027).

It is not outside the bounds of possibility that if the Perrottet Government is re-elected on 25 March 2023, Damian Tudehope will be restored by Premier Perrottet to a Cabinet-level ministry or ministries and a place on the Executive Council. 

In fact as recently as last Saturday, Premier Perrottet left the door open to reinstating Tudehope after 25 May; "Mr Perrottet, who described Mr Tudehope as a man of "the highest integrity and honesty", was quizzed on Saturday about whether he would consider making him a minister again post March 25. "I'll make those decisions in due course," the Premier told reporters."

The last time Damian Tudehope did Dominic Perrottet a favour — by vacating his Lower House seat in order for Perrottet to contest the 2019 election in a preferred safe seat — he was amply rewarded. I have a strong suspicion that both men understand that he will be similarly favoured this time around.

UPDATE

In an effort to walk back just one of the Premier's errors of judgement the NSW Liberal Party has acted.....

The Sydney Morning Herald, 19 February 2023:

"This afternoon, the State Director, in consultation with the State President, exercised campaign powers to suspend Peter Poulos from the NSW Division for a period of 6 months," a spokesperson for the Liberal Party said in a statement.

This in no way stops Poulos standing as a nominal Independent at the 25 March state election. Nor does preclude him changing from Independent MLC back to Liberal MLC in 2024 should he be re-elected in 33 days time.

BACKGROUND

North Coast Voices

Friday, 17 February 2023

And the rolling political disasters continue to arrive on NSW Premier Perrottet's doorstep

Former banker and now Australian Treasurer promises market sensitive Banking & Finance Royal Commission final report would not leak - then it did

On 1 February 2019 the Commissioner, Kenneth Haynes, submitted his final report on the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry to the Governor-General of Australia.

Then this happened...... 

The New Daily, 5 February 2019:

Last week Josh Frydenberg “guaranteed” the royal commission’s final report would not leak while the government sat on it for three days.

About $22 million says that guarantee wasn’t worth anything.

The welter of news in Kenneth Hayne’s report has tended to overshadow what appears to be some rather obvious insider trading.

Someone, somewhere, somehow received a nod and wink on Monday morning that the banks would actually come out of the royal commission better than expected.

“Front running” is the market euphemism for what happened next.

“Any alternate explanation is fanciful,” a fund manager wrote to me.

“With the banks down a quarter per cent, some trader looked out the window at 11am and noticed it was all sunny and cheerful and decided to buy a half billion dollars worth of the major banks ahead of the report into their own malfeasance. I don’t think so.”

That half-billion plunge at 11am was worth a quick $22 million profit on Tuesday morning.....

The first question I have is "How many Morrison Government Cabinet Ministers contacted their own stockbrokers between 1 and 3 February 2019 asking them to buy bank or insurance company shares on their behalf or on behalf of family members?"

The truth about dividend imputation/franking credits that Morrison and Co are not telling you

“Example – low taxable income A self-funded retiree couple has a $3.2 million super balance, plus their own home, and $200,000 in Australian shares held outside super. Even after drawing $130,000 a year in superannuation income, and $15,000 a year in dividend income, they would report a combined taxable income of $15,000, and pay no income tax at all.” [Australian Labor Party, Fact Sheet, 2018]

In 1987 the Hawke Labor Government introduced legislation which changed taxation law regarding dividend imputation/franking dividends.

In order for tax on dividends not to be paid twice – once by the company issuing the dividends via underlying company tax on profits and once by the shareholding receiving those dividends – it introduced franking credits. Whereby the tax on dividends for which the shareholder has previously been liable was credited to them for use in a given financial year to offset all or part of their tax liability for that year*.

Any excess franking credits could not be used as there was no shareholder tax liability remaining to which these credits could be applied and, therefore no chance that any dividends were being taxed twice.

In 1997, 1999 and 2000 the Howard Coalition Government changed the rules on franked dividends until by July 2000 excess franking credits became fully refundable and a great many shareholders began to receive cash tax rebates from the Australian Taxation Office (ATO) for taxation that they had never personally paid.

Based on ATO 2014-15 figures people earning more than a million dollars a year received 17 per cent of franking credits and about half of all franking credits went to those who earn more than $180,000 a year. 

According to a study by the Australian Institute reported in 2015; the wealthiest 10 per cent of households – those earning disposable income of more than $207,000 – gain almost 75 per cent of the $10 billion in franking credits siphoned directly to them.

CommSec explains the franking credit system this way (retrieved 4 February 2019):

Dividends are paid out of profits which have already been subject to Australian company tax which is currently 30%. This means that shareholders receive a rebate for the tax paid by the company on profits distributed as dividends.

These dividends are described as being 'franked'. Franked dividends have a franking credit attached to them which represents the amount of tax the company has already paid. Franking credits are also known as imputation credits.

You are entitled to receive a credit for any tax the company has paid. If your top tax rate is less than the company's tax rate, the Australian Tax Office (ATO) will refund you the difference.

Case study: James receives a tax refund

James owns shares in a company. The company pays him a fully franked dividend of $700. His dividend statement says there is a franking credit of $300. This represents the tax the company has already paid. This means the dividend, before company tax was deducted, would have been $1,000 ($700 + $300).

Come tax time, James must declare $1,000 (the $700 dividend plus the $300 franking credit) in his taxable income. If his marginal tax rate was 15%, he would have paid $150 tax on the dividend. Because the company has already paid $300 in tax, James will receive a refund of the difference, which is $150.

If James was in a higher tax bracket he may not have been entitled to a refund of any of the franking credit, he may even have to pay additional tax. However, if he is a low [taxable] income earner, it is possible to be refunded the full amount of the franking credit…..

Refunding of excess imputation credits

The refund applies when your total imputation credits that are attached to your franked dividends paid exceeds your basic income tax liability for the year.

A cash amount can be refunded to you reflecting the amount of excess imputation credits, after applying them and any other tax offsets to which you are entitled to. This will in turn reduce your basic income tax liability to zero.

If you are required to lodge an income tax return, you can use it to claim a refund of excess imputation credits. If you are not required to lodge a tax return, the refund is available on application.

In other words, if “James” after deducting all other tax concessions available to him finds himself with zero tax liability then since July 2000 he has been able to claim a cash tax rebate from the ATO on tax he has never personally paid.

There are an estimated 1.1 million shareholders receiving this type of rebate on a tax they haven’t paid and they are currently costing the Australian Government well in excess of $5.9 billion each year. 

That’s billions of dollars that should rightly remain in Treasury to help cover the costs of things like national infrastructure, defence, health, education, aged care, pensions and other social services.

In 2017 the Labor Opposition announced that if it won government in 2019 it would return the franking credit rules to their original intent and no longer allow excess franking credits to be realised as ATO cash tax rebates – with the exception that shareholders who also receive a Veterans Affairs or Centrelink full or part age pension or an allowance would still receive a full cash tax rebate for their excess franking credits commencing July 2019.

Whenever Prime Minister Scott Morrison, Treasurer Josh Frydenberg or one of his other cabinet ministers and backbenchers like the MP for Goldstein Tim Wilson open their mouths on the subject of excess franking credits they are very careful not to let truth escape their lips - until such time as they get found out.

A case in point is Tim Wilson's financial interests. A subject which became sensitive once his irregular behaviour as Chairman of the Standing Committee on Economics'  
Inquiry into the implications of removing refundable franking credits became public knowledge.

This is a snapshot of a part of his financial interests. As a 50 per cent holder of equity in at least two investment/superannuation funds which may benefit from excess franking credits:

Register of Members Interests- 45th Parliament - Tim Wilson, excerpt February 2019

Tim Wilson is also an investor in funds run by Wilson Asset Management, a firm founded and chaired by Geoff Wilson with $3 billion in funds under management… Under an entry listed as a 'shareholding', Mr Wilson's register of parliamentary interests shows he and husband Ryan Bolger invested in a Wilson Asset-managed fund in May 2017 through the couple's self-managed superannuation fund. They invested in another Wilson Asset fund, WAM leaders, in December 2017.

It has been further reported in mainstream media that Chairman & Chief Investment Officer of Wilson Asset Management, Geoff Wilson, is in fact a relative of Tim Wilson and, that during one public hearing Geoff Wilson gave evidence before Tim Wilson as inquiry chairman and neither declared their personal or financial relationship. 

Indeed, Tim Wilson could now be considered ethically compromised  in his role as Chairman of the Standing Committee.

Australian Parliament, House of Representatives Practice 6th Edition

Wilson is a politician whose statements and opinions on excess franking credits cannot be trusted, heading a a parliamentary inquiry whose formal report and findings cannot be trusted.

So it is up to every voter to acquaint themselves with the facts. Make Internet search engines your friends between now and the May 2019 federal election if you want the facts on legislation and policy which is being debated in the media.

* Currently an individual's personal tax liability is calculated only on income above the first $18,200 which is exempt from taxation.

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.