Scott Morrison delivers - but it is not good economic news

This was then Australian Treasurer Scott Morrison in 2016 with blunt warning about a future recession and dip in living standards..... 

The Sydney Morning Herald, 25 August 2016: 

A generation of Australians has never known a recession or high unemployment but unless hard decisions are taken soon, there is a "terrible risk" complacency could end Australia's 25 consecutive years of economic growth, Treasurer Scott Morrison has warned. 

In the first of three "economic headland" speeches the Treasurer will deliver in the coming weeks, designed to set out the budgetary challenges facing the nation - and the government's vision for how to tackle them - Mr Morrison will argue that it should not take an economic crisis to trigger a wake-up call, or restart the economic reform process, so that Australia enjoys a prosperous future. 

In extracts of the speech seen by Fairfax Media, which will be delivered in Sydney on Thursday, Mr Morrison made a simple plea. 

"I do not want my kids to know what a recession is and everything that goes along with that," he will say. 

"I recognise that in the absence of a 'recession we have to have', or the threat of 'becoming a banana republic', achieving necessary change will be more frustrating and more difficult. 

But it is no less necessary, and achieving it this way is far better than the alternative."  

In addition, Mr Morrison will say that on the current settings, a generation of Australians are likely to never pay tax, setting up a new divide - the "taxed and taxed-nots", prompting the Treasurer to ask: "Are we still up to the challenge of doing what we need to do to ensure another 25 years of consecutive economic growth? 

"Do we really appreciate how quickly our economic success can turn, and are we as prepared as we can be to deal with it ... my greatest concern is that we end up answering these questions the hard way." 

This is Australian Prime Minister Scott Morrison in 2019 delivering a fall in living standards and what looks like the beginning of that recession.....

The Australian, 4 September 2019:

The Prime Minister said on Tuesday that the GDP figures would show that Australia is still doing better than many other developed economies.....

“Today’s growth figures will show over the year a softness … what we will see is that in a tough climate we are actually battling away quite well.

The Guardian, 4 September 2019:

Today the government has been madly attempting to spin the GDP figures as good. So let’s cut straight to the point – the figures are terrible and are among the worst we have seen this century. 

But what makes it worse is this government would have us believe they saw them coming. 

How bad are things? Today’s figures show the worst annual economic growth for 18 years. GDP per capita is now lower than it was a year ago, productivity is plunging and the economy is pretty much staying above water purely because of government spending and a drop in imports due to weak investment and household spending. 

And yet these are the figures the treasurer, Josh Frydenberg, would have us believe are evidence of the “resilience of the Australian economy” and which the prime minister, Scott Morrison, said would “come as no surprise to me”. 

If this is how bad things get when the government says it is not being surprised, God help us if they ever get a shock. 

 That trend growth figure is the worst since March 2001. 

We have now had four consecutive quarters of trend growth below 0.5% – that hasn’t happened since the 1990s recession nearly 30 years ago. It is also the first time since the GFC that GDP per capita is lower than it was a year ago.... 

It was little wonder, in his press conference announcing the figures, that the treasurer quickly turned to talking about employment growth compared with the rest of the OECD, because there is not much to boast about on the whole economy side of things. 

Current growth has us in the bottom half of the OECD..... 

The figures also showed, despite the treasurer’s protestations, that living standards are continuing to decline. 

The treasurer suggested that “living standards continue to increase with real net national disposable income per capita rising 1% to be 2.7% higher through the year”. 

But that figure includes all income – both profits and wages. As such, when profits grow strongly due to big increases in export prices, then national income rises. But unless that flows through to households via wages growth, it is pretty meaningless to use it when talking about living standards. 

And we know that the big increase in income is coming from profits – primarily from the mining sector – and it is not flowing through to households. 

When we look at household disposable income we see that it fell not just in the June quarter but over the past year – down more than 1%. Household incomes per capita are currently at the same level they were in real terms in 2010. 

Today’s figures released by the ABS show the economy grew by 0.5% in the June quarter in seasonally adjusted terms and 0.4% in trend terms. Through the year the growth was a truly pathetic 1.4% seasonally adjusted and 1.5% in trend terms. 

Households of course know their living standards are falling, because they are showing it in how they spend their money. In the past year household consumption grew just 1.5% – again the worst result since the GFC..... 

But the treasurer, despite his talking up the figures, knows just how bad they actually are. He even noted that while profits in the mining sector rose 10.6% in the June quarter, in the non-mining sector they “actually fell 0.6%”. 

Because profits in the mining sector have grown so strongly and compensation to employees is growing so weakly, the share of national income going to workers has plunged. 

The last time the share of national income going to workers was this low, the Beatles had just toured Australia.....

Read the full article here.

The Sydney Morning Herald, 6 September 2019: 

“The crisis,” the [Reserve Bank] governor announced at a conference in 2017, “is really in real wage growth.”......

Instead of wages rising at more than 3 per cent a year, as they had in the five years to 2013, the average pay rise since has fallen to 2.2 per cent annually. 

After inflation, the average pay rise has been a scant 0.5 per cent.....

...without higher wages to pay for people’s groceries, medical care, homes and holidays, spending is weak and the economy enfeebled. 

Lowe has urged governments, state and federal, to lead the way, breaking their 2.5 per cent annual limits and paying workers more.

Then there is this headline demonstrating the folly of Liberal-National ideology......

Former failed advertising executive and Institute of Public Affairs adherent Scott Morrison clearly missing the point entirely.

Morrison, McCormack, Frydenberg & Co are hugging their projected budget surplus so tightly they are strangling the national economy.

Scott Morrison and News Corp need fact checking - again!

The Australian Labor Party released its dividend imputation policy in 2018 and began to come under sustained political attack by the Morrison Government and News Corp with claims that there was a $10 billion dollar hole in Labor’s costing of its policy.

On 18 June 2018 the Parliamentary Budget Office issued a media release:

Imputation credits policy costing

Earlier today, comments have been made about the Parliamentary Budget Office (PBO) estimates of the gains to revenue that may flow from the Australian Labor Party’s (ALP’s) policy to make imputation credits non-refundable.

“The PBO brings our best professional judgement to the independent policy costing advice we provide.  We have access to the same data and economic parameters as The Treasury and draw upon similar information in forming our judgements,” Parliamentary Budget Officer Jenny Wilkinson stated today.

“We stand behind the PBO estimates that have been published by the ALP in relation to this policy, noting that all policy costings, no matter who they are prepared by, are subject to uncertainty.”  In its advice, the PBO is explicit about the judgements and uncertainties associated with individual policy costings.

The PBO confirms that it always takes into account current and future policy commitments, as well as behavioural changes, in its policy costings.  In this case, as outlined at the recent Senate Estimates hearings, these included the superannuation changes announced in the 2016–17 Budget and the scheduled company tax cuts.  In addition, the PBO explicitly assumed that there would be significant behavioural changes that would flow from this policy, particularly for trustees of self-managed superannuation funds. 

The PBO was established as an independent institution in 2012 with broad support from the Parliament.  A key rationale for the formation of the PBO was to develop a more level playing field, by providing independent and unbiased advice to all parliamentarians about the estimated fiscal cost of policy proposals.  The purpose of establishing the PBO was to improve the public’s understanding of, and confidence in, policy costings and enable policy debates to focus on the merits of alternative policy proposals. 

Ten months later on 25 April 2019 News Corp’s The Daily Examiner ran an article on page 8 concerning Labor’s dividend imputation policy which stated:

The independent Parliamentary Budget Office has estimated Labor’s plan would save $7 billion less over a decade than the party expects and that it would affect 840,000 individuals, 210,000 self-managed super funds (SMSFs) plus some bigger funds.

Now the Parliamentary Budget Office publishes the requests for information it receives, including requests for policy implications and costings, however there appears to be no new request for information and costings on Labor’s dividend imputation policy on its website.

Morrison & Co have been caught out misrepresenting the source of their costings before and even flat out lying on occasion, so one has to suspect the veracity of their latest attack on this particular policy.

It's just as likely costings and other figures were done on the back of an envelope by Morrison or Frydenberg.

Morrison & Co can’t guarantee delivery of promised tax cuts this year if they win May 18 federal election

The West Australian, 17 April 2019:

Scott Morrison has been forced to explain why his promise to deliver immediate $1080 tax cuts for low and middle-income earners from July 1 may not happen.

Treasury officials today confirmed a key plank of the Morrison Government’s re-election platform – immediate tax cuts for 10 million workers when they receive their 2019 tax returns – cannot occur without Federal Parliament’s support.

Treasury officials said the tax cuts had to be legislated before the end of this financial year – on June 30 – before workers could receive the rebates with their 2019 tax returns.

With the Federal Election on May 18, it means the Coalition has little time – if it wins the election - to pass the tax cuts through Parliament before June 30.

The Coalition has promised rebates of up to $1080 for low and middle-income earners, and up to $2160 for dual-income families, who lodge their tax returns from July 1.

Treasurer Josh Frydenberg, when he released the Budget weeks ago, claimed the timing of the Federal Election would be “no impediment” to the tax cuts being delivered quickly.

But Treasury officials appeared to contradict that claim today.

They said the tax rebates would require “the relevant legislation to be passed before the increase to the low and middle income tax offset (LMITO) can be provided for the 2018-19 financial year.”

They also warned if the tax cuts were not delivered by June 30 the revenue cost of the measure would “need to be reassessed.”

Australian Tax Office Excess Franking Credits: “When people next receive their dividend refund cheque from the government, remember the government has had to borrow that money”

The Australian Government's public debt stood at an estimated $541.73 billion and growing on 8 February 2019.

On 8 February 2019 in Sydney economist Stephen Koukoulas made a short three minute statement before the House of Representatives Economics Committee ‘inquiry’ into the Labor Federal Opposition’s policy to eliminate excess franking credits.

Excess franking credits are refundable to a shareholder who receives a dividend but has no tax liability to use those franking credits against. 

It is free money - money for jam - granted to shareholders for the last eighteen years under a Liberal-Nationals federal government tax policy.

By 30 June 2015 these excess franking credit refunds were costing the federal government an est. $2.54 billion annually and, are currently estimated to be costing the Australian Government well in excess of $5.9 billion each year.

Below are the notes Koukoulas used for that oral Statement which boiled down to two issues, the cost to the budget and how the policy is distorting investment decisions from investors and lazy financial planners.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Tax policy is always riddled with trade offs.

No government wants to tax anyone more than it needs to, nor should it impose a tax regime that is unfair if it means cuts to services, a heavy tax impost on others in the community or adds unnecessarily to the budget deficit and government debt.

Labor’s policy on refundable franking credits will impact the budget bottom line by more than $5 billion a year.

Without the change, this $5 billion, or $100 million a week, means less money is available for the government to provide health care, roads, education, disability assistance and defence.

It is disconcerting that every dollar of refundable franking credits is currently borrowed by the government.

When people next receive their dividend refund cheque from the government, remember the government has had to borrow that money:

… every cent of it.

… this adds to government debt that will have to be repaid one day in the future by our children and our grandchildren.

I think this is unfair.

The policy also distorts the way we Australians invest our savings.

Many investors put money into companies that pay high, fully franked dividends regardless of the underlying strength or potential of that business.

Look at Telstra. The banks.

It is blind, uneducated and lazy investing recommended by lazy financial planners.

It is only the dividend, not the underlying strength of the business, that guides the investment decision.

This is one reason why the Australian stock market is still 15 per cent below the 2007 peak, while the US, German and Canadian stock markets are substantially higher.

None of these countries have refundable franking credits.

Investors in those countries provide finance to dynamic growth companies and strong businesses.

In Australia, such companies are often shunned by investors because they pay no or low dividends.

Investors instead place their money with what are average firms that structure their businesses according to tax policy distortions.

Imagine if the ASX was at 10,000 points, not the 6,000 point level prevailing today?

I suspect the concerns about dividend refunds would be trivial.

The Australian tax distortions mean that local entrepreneurial firms have less access to local capital.

The money is instead tied up in dinosaur companies paying high dividends.

It is one reason why so many of the 21st century technology and start up firms in Australia head overseas to pursue their business models.

This costs the Australian economy growth and jobs.

With the policy change on refundable franking credits, there will be a greater incentive to invest in companies and other assets for reasons of growth and entrepreneurial flair…

… which will be a positive for the economy and jobs …

… and it will be good for the long term future of Australia.

Thank you

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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.

The Morrison Government has given permission for oil and gas exploration in NSW coastal waters by a company set up as a tax minimisation ploy

Those Liberal-Nationals MPs and senators preparing to return to Canberra late next month appear determined to annoy NSW voters - especially those who live in coastal communities.

Having wrecked the Murray-Darling freshwater river system that runs through four states, they have now turned their eyes towards the coastal commercial and recreational fishing grounds of New South Wales.

This is how it is playing out........

Asset Energy Pty Ltd holds an 85 per cent interest in Petroleum Exploration Permit PEP11, an offshore petroleum exploration lease covering 4,649 square kilometres in Commonwealth waters off the coast of New South Wales.

Asset Energy is a wholly owned subsidiary of the Melbourne-based (formerly Perth-based) mining company MEC Resources Ltd’s investee company Advent Energy Ltd.

Bounty Oil and Gas NL is the junior joint venture partner in PEP11 holding a 15 per cent interest, 

Newcastle Herald, 9 January 2019

In March 2018 the National Offshore Petroleum Safety and Environment Management Authority (“NOPSEMA”) gave approval for a survey which acquired high resolution 2D seismic data over the Baleen prospect, approximately 30km southeast of Newcastle, which evaluated (amongst other things) shallow geohazard indications including shallow gas accumulations that can affect future potential gas drilling operations.

NOPSEMA falls within the portfolio of Australian Minister for Resources and Northern Australia & Nationals Senator for Queensland, Matt Canavan.

That particular survey has been completed and on New Year's Eve 2018 MEC Resources informed the Australian Stock Exchange that it now intends to do 3D seismic mapping in the vicinity of the potential test drill site at the earliest opportunity.

Underwater seismic testing involves continuous seismic airgun blasts approximately every 2-3 seconds for 24 hours continuously, for days or weeks at a time. That is, such testing creates compressed air streams or focused sonic waves - in simple language, loud booms - towards the ocean floor in order to gauge the depth, location and structure of the oil or gas resources. The sounds of which can travel many thousands of square kilometres and which are known to have a negative effect on marine ecosystems.

Previous to this, on 15 May 2018 the NSW Parliament had called on the federal government to suspend Asset Energy’s permit to conduct seismic testing off the coast of Newcastle, with the NSW Minister for Resources and Energy & Liberal Party Member of the Legislative Council Don Harwin expressing a lack of confidence in Australia’s current offshore mining regulations.

The Morrison Coalition Government in Canberra appears to be ignoring NSW Government  and community concerns. Being more concerned itself with offering tax free investment opportunities to the market.¹

It is worth noting that any significant Advent Energy/Asset Energy drilling rig (left) mishap has the potential for an uncontrolled release of untreated oil into coastal waters.

It is reportedly intended that one or more exploration drilling rigs should be in place sometime in 2020.

MEC Resources (formerly MEC Strategic Ltd) is a registered corporation which only been in existence for the last thirteen years and for the last three years there has been a bitter rift between the board and certain shareholders involving repeated calls for removal of the entire board, with the last call for a spill occurring in November 2018. The company was also involved in a dispute with a former managing director, as well litigation involving a $295,000 loan.

One of the shareholder bones of contention appears to be the cost of exploration in PEP11. On 31 October 2018 MEC Resources informed the stock exchange that a cost reduction plan remains in place to ensure all costs are reduced wherever possible.

Questions raised about the rigour of offshore mining regulations covering PEP11 and an oil & gas exploration company determined to cut costs. What could possibly go wrong? 

Concerned readers can sign Stop Seismic Testing Newcastle's change.org petition to Minister Canavan and NOPSEMA here.

Footnotes

1. www.mecresources.com.au, Tax Advanatges, retrieved 10 January 2018:

MEC is a registered Pooled Development Fund (PDF). PDF shareholders pay no capital gains tax on the sale of their PDF shares. Investors who receive dividends will also be exempt from income tax on dividends.

This can be particularly attractive to both traders and investors, since any profits derived from trades or investments are tax-free or low tax. The Pooled Development Fund Programme was established by the Federal Government to develop the market for patient venture capital for growing small and medium enterprises and to provide a concessional tax regime to encourage such investments. Any capital losses on the sale of PDF’s are not deductable.

To encourage investors, the government offers tax benefits to both the PDF and its shareholders as follows:

capital gains made by PDF shareholders are not taxable,

shareholders can elect to treat dividends paid by a PDF as tax free,......

PDF’s tend to invest in a portfolio of growing companies, thereby potentially reducing investors’ risk through diversification. Investee companies have the potential to become listed companies in their own right, which has the possibility of providing investors with attractive returns.

This is not a complete list of the taxation issues surrounding Pooled Development Funds. For further information please contact AusIndustry.

See  Pooled Development FundsAct 1992 as amended up to September 2018.

Why has Australian Treasurer & Liberal MP for Kooyong Josh Frydenberg morphed into a frenzied Trump?

“Ultimately, a dollar of tax avoided by high income Australians is an extra dollar of tax paid by all other Australians.” [Australian Labor Party (ALP) policy document Positive plan to help housing affordability]

The Australian Labor Party has put forward a number of policies which limit the degree to which affluent groups in our society can manipulate the tax system.

These tax reform policies will:

* limit negative gearing to investment properties already negatively geared and newly built residential housing. However net income losses on existing negatively geared properties will not be able to be used to offset salary & wage income;

* cease cash refunds for excess dividend imputation credits on which the investor personally paid no tax originally and who has no current tax liability to offset with these credits;

* reduce the discount on capital gains tax from 50 per cent to 25 per cent after the deduction for any capital losses. Some assets and events are exempt from capital gains tax. These include selling your principle home, personal car, personal use assets or selling an asset acquired before capital gains tax was introduced on 20 September 1985. 
According to the Australian Taxation Office if you are an individual rather than a corporation then the Capital Gains Tax Rate is the same as your Income Tax Rate in the applicable year.

These same policies have caused former Deutsche Bank director, current Australian Treasurer and Liberal MP for Kooyong Josh Frydenberg (left) to morph into a frenzied Trump. Pumping out slogans, misrepresentations and sometimes downright political lies on every media platform he can access.

The Australian, 5 December 2018, p.2:

Josh Frydenberg has launched a pre-election assault on Labor’s plan to halve the capital gains tax discount, warning that hundreds of thousands of Australians will be taxed at the “highest rates” in the Western world.

Shifting his focus from Bill Shorten’s proposal to limit negative gearing to new dwellings and the “retiree tax”, the Treasurer yesterday cited government analysis that showed Australians would be taxed up to 36.75 per cent on their capital gains under Labor’s policy, up from 23.5 per cent now….¹

Labor’s 50% increase to capital gains tax will cost jobs, punish those who work hard and save, and give Australia a CGT rate much higher than other advanced economies. pic.twitter.com/W4c3pgcgCt

— Josh Frydenberg (@JoshFrydenberg) January 4, 2019

.@JoshFrydenberg on Labor’s negative gearing: Everybody who owns equity in their home will be worse off under Labor’s policy.

This is a major tax grab by the Labor Party.

MORE: https://t.co/9fyClHfMTo #FirstEdition pic.twitter.com/H0H0WTtFV5

— Sky News Australia (@SkyNewsAust) November 6, 2018

So why is Frydenberg screaming misrepresentations at the top of his lungs, urged on by the Housing Industry Association?²

Could it be because 56.2 per cent of the tax benefits from Negative Gearing go to individuals whose incomes are in the top 20 per cent of Australian incomes and only 5.2 per cent of the tax benefits go to individuals in the lowest 20 per cent of incomes?

Or because est. 75 per cent of tax savings from Capital GainsTax discounts go to the top 10 per cent of high income families?

Perhaps it’s because Self-Managed Super Funds are a major beneficiary of cash refunds for excess dividend imputation credits, with 50 per cent of the benefit to SMSFs accruing to the top 10 per cent of SMSF balances and some funds receiving cash refunds of more than $2.5 million a year?

Likely he’s screaming because all three instances represent how successfully the affluent have gamed the tax system to date and he like most right-wing politicians see such tax manipulation as a right belonging to them and their mates and, therefore have no interest in supporting a fairer distribution of the tax burden.

He also appears to be ignoring the fact that Treasury modelling of these Labor policies shows an increase in federal government revenue by $2 billion over time and, that these same policies have the potential to put downward pressure on property prices in the short-term so that genuine first home buyers might get a foot in the door with more affordable residential housing.

Bottom line is that Labor’s tax reform policies are primarily targeted at investors with a marginal tax rate (including Medicare Levy) of over 45 per cent - which roughly equates with the top 20 per cent of Australian residents with private wealth.

That is, the 'professional' investors/tax avoiders amongst the 1.16 million Australians who according to Credit Suisse in 2017 are millionaires, some many, many times over.

Footnotes

1. KPMG, Demark- Taxation of investment income and capital gains: “Interest and rental income are taxable as investment (or capital) income with a marginal tax of 42 percent (2018).” Denmark's Capital Gains Tax Rate is higher than the worse case scenario of up to 36.75 per cent under Labor which Frydenberg postulates in Para 5 of this post. Therefore Labor would not be imposing "the highest" rates in the Western world'.

2. Australian Government, Treasury, Tax- Negative Gearing/Capital Gains, FOI, 5 January 2018.

    Shadow Treasurer Chris Bowen, A FAIRER TAX SYSTEM: DIVIDEND IMPUTATION REFORM, 13        

                      March 2018.

    Australian Taxation Office,  Individual Income Tax Rates 2018-2019 and CGT assets and exemptions
    National Australia Bank, Calculating and Paying Capital Gains Tax, 
     Domain.com.au, The ‘little known’ tax strategy some millennials use to amass large property portfolios,           23 May 2016.

* Photograph of Josh Frydenberg from msn.com