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

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

Australian Marine Life: lovely to look at but do not touch

ABC News. 10 February 2019:

A striking blue dragon sea slug, that eats bluebottles and can give a powerful sting, has been washing ashore and capturing the imagination of residents on the north coast of New South Wales.

The unusual, soft-bodied nudibranch is sometimes described as resembling a dragon in flight, a Pokemon or a blue lizard, and goes by the official name of glaucus atlanticus.

Australian Marine Stinger Advisory Service director, Dr Lisa Gershwin, said it was a fascinating little creature…..

PHOTO: The 'blue dragon' nudibranchs float on the surface and have been spotted on beaches and in rockpools in Port Macquarie recently. (Supplied: Michael Spooner)

Similar to bluebottles, the blue dragon nudibranchs float on the surface of the water and normally spend most of their time in the open ocean.

Dr Gershwin said regular onshore winds along the northern NSW and Queensland coastline this summer had been washing them onto beaches.

"Like bluebottles, they hang out right at the air/water interface, and are all floating, living as a community together, so when the wind blows it moves all of them," she said……

"They are able to store the stinging cells from their prey, that is, bluebottles, in their little … fingers and toes and then use them for their own defence. I've been nailed by them, they hurt."

What the Australian Parliament might look like after May 2019

The second Newspoll survey of the year polling 1,567 voters was conducted from 7 February to 10 February 2019.

The results were:

Primary vote – Labor 39 per cent (up 1 point) to Coalition 37 per cent (unchanged).

Two-party preferred vote – Labor 53 (unchanged) to Coalition 47 per cent (unchanged).

The two-party preferred result represents a 31 month long losing streak for the Liberal-Nationals Coalition to date.

If a federal election had been held on 10 February 2019 the swing to Labor would have been 2.5 percent.

This would have given Labor 82 seats in the House of Representatives to the Coalition’s 63 seats (Liberal 38, LNP 16, Nationals 9).

Based on these percentages then at the May 2019 federal election Labor MP for Ballina Justine Elliot will comfortably retain the seat she has held since 2004, Nationals MP for Page Kevin Hogan will likely lose the seat he has held since September 2013, it is uncertain if the Cowper electorate will vote in a Nationals candidate, Nationals MPs David Gillespie and Barnaby Joyce will probably retain their seats which both have held since 2013.

These percentages would also see the current Prime Minister Scott Morrison, Treasurer Josh Frydenberg, Minister for Health Greg Hunt, Minister for Human Services Alan Tudge and Minister for Agriculture and Water Resources David Littleproud probably retaining their seats but as members of the Opposition benches. With Attorney-General Christian Porter fighting to keep his seat on those same benches and Minister for Home Affairs Peter Dutton losing the seat of Dickson which he has held since 2001.

It would seem that most destructive and disruptive Liberal MP for Warringah Tony Abbott is also likely to retain his seat.

The overall makeup of the House of Representatives will possibly look like this:

https://www.theaustralian.com.au/national-affairs/newspoll

New South Wales State of Play February 2019: widespread drought

The bad news just never ends.

All of New South Wales is drought affected to varying degrees in February 2019, incliuding the Northern Rivers region.

https://edis.dpi.nsw.gov.au/

The lies Liberals tell on the subject of aged care

The Australian, 7 February 2019:

Aged Care Minister Ken Wyatt was handed a departmental briefing report showing the “winners and losers” from the Coalition’s $2 billion savings drive in the aged-care sector shortly after Scott Morrison announced a royal commission and denied funding cuts.

Documents obtained by The Australian under Freedom of Information laws show the proportion of “losers” almost tripled to 53 per cent following the budget savings revealed in late 2015.

In the three-year period to 2018, aged-care services that had been classified as “winners” almost halved to 47 per cent, according to the brief sent to Mr Wyatt.

A series of “hot issue briefs, question time briefs and general briefs” sent to Mr Wyatt last year acknowledged the budget hit to the Aged Care Funding Instrument — which is the basic taxpayer care subsidy paid to all nursing homes — together with “increasing cost pressures will be putting pressure on the sector”.

Mr Wyatt was also made aware of reports of “cut backs to staffing”. At a press conference announcing the royal commission into aged care in September, the Prime Minister was questioned about two cuts to the ACFI in the 2015 mid-year economic update and the 2016 budget but denied any had been made.

“No, no, the Labor Party said that. I don’t accept that,” he said. Two days later, a question time brief prepared for Mr Wyatt offered advice on what to say if asked about funding cuts to ACFI.

The ministerial brief also contains a breakdown of funding changes by domain, revealing that average annual taxpayer subsidies per resident increased by just $400 between 2016-17 and 2017-18 despite the growing frailty and complexity of Australians as they enter residential aged care older than ever before.

For the first time, funding for the two areas that provide extra boosts for nursing home residents with significant behavioural problems and complex healthcare requirements went backwards by $300 a person.

The peak body for aged-care providers, ahead of the April 2 budget, has urged the Coalition to include an additional payment of almost $700 million each year.

“This estimate reflects a range of factors, including the value of foregone indexation (through ACFI),” Leading Age Services Australia (LASA) says in its pre-budget submission, seen by The Australian. “This is approximately a 5.2 per cent increase in residential care funding in 2019-20, noting that this is difficult to calculate as forward estimates for residential and home care are no longer separately reported.” LASA said it considered the money to be a “down payment” and a notably larger funding boost might be needed following the findings of the royal ­commission.” The commission, which is due to release its interim report in Oct­ober and the final version by the end of April 2020, has already highlighted the widespread industry practice of “doping” nursing home residents, which doctors, nurses and consumer groups attribute to overworked staff. [my yellow highlighting]

Liberals taking yet another leaf out of Donald Trump's election campaign play book

During the 2016 US presidential election campaign the Internet was littered with pressure groups which were not who they said they were and whose aims were not those they publicly stated.

Donald Trump and/or his supporters appeared to be behind many of these groups.

It seems the Liberal Party is also forming these faux pressure groups ahead of the 2019 federal election campaign in Australia.......

The Sydney Morning Herald, 7 February 2019:

A lobby group masquerading as a grassroots organisation of disgruntled retirees is actually a network of professional lobbyists involved in the trucking industry and the Liberal Party, with a history of campaigning against Labor government policies.

Defenders of Self-Funded Retirees says it was formed by "hard-working Australians who reject Labor's proposal to impose double taxation and to demonise us". 

However, the association is managed by Liberal Party member and ACT Senate candidate Robert Gunning, along with a number of Mr Gunning's friends from the trucking lobby.

The network is one of a number of interest groups set up after Labor announced its plan to abolish refundable franking credits, and has contributed heavily to Liberal MP Tim Wilson's controversial parliamentary inquiry into Labor's policy.

It also campaigned against Labor in the Longman byelection and aims to marshal an army of volunteers for the looming federal election, in which the dividend imputation policy is set to be a major battleground.

Company records show Defenders of Self-Funded Retirees Ltd is owned by Canberra-based lobbyist Andrew Higginson, Mr Gunning's Gold Coast friend Robert "Bob" Harrison and a man called John Richard Evans.

Mr Gunning is a lifelong trucking industry lobbyist who headed the Australian Livestock and Rural Transporters Association and the Livestock and Bulk Carriers Association. He has said his proudest achievement was the abolition of Labor's Road Safety Remuneration Tribunal…..

Mr Gunning quit the LBCA to contest the 2016 election for the Liberals against Andrew Leigh in the Canberra seat of Fenner, one of the safest Labor electorates in the country. His role in Defenders of Self-Funded Retirees was revealed because his name appears beside the posts on the group's Facebook page.

Morrison & Co off to the Australian High Court to defend the indefensible - Centrelink's robo-debt

The Guardian, 6 February 2019:

Centrelink has now wiped, reduced or written off 70,000 “robo-debts”, new figures show, as the government’s automated welfare compliance system scheme faces a landmark court challenge.

Victoria Legal Aid on Wednesday announced a challenge to the way Centrelink evaluates whether a person owes a welfare debt under the $3.7bn system. It will argue the “crude calculations” created using tax office information are insufficient to assess a person’s earnings and, therefore, are unlawful….

Victoria Legal Aid’s court challenge was also welcomed by the Australian Council of Social Service chief executive Cassandra Goldie, who said the scheme was a “devastating abuse of government power…..

Alternative Law Journal. Emeritus Professor of Law (Syd Uni) Terry Carney, Robo-debt illegality: The seven veils of failed guarantees of the rule of law?, 17 December 2018:

The government's on-line-compliance (robo-debt) initiative unlawfully and unethically seeks to place an onus on supposed debtors to ‘disprove’ a data-match debt or face the prospects of the amount being placed in the hands of debt collectors. It is unlawful because Centrelink, not the supposed debtor, bears the legal onus of ‘proving’ the existence and size of any debt not accepted by the supposed debtor. And it is unethical because the alleged debts are either very greatly inflated or even non-existent (as found by the Ombudsman), and because the might of government is used to frighten people into paying up – a practice rightly characterised as a form of extortion. How could government, accountability avenues, and civil society have enabled such a state of illegality to go publicly unidentified for almost 18 months and still be unremedied at the date of writing?

This article suggests the answer to that question lies in serious structural deficiencies and oversights in the design and operation of accountability and remedial avenues at seven different levels:

1. In a lack of standards to prevent rushed government design and introduction of machine learning (‘smart’) systems of decision-making;

2. In a lack of diligence by accountability agencies such as the Ombudsman or Audit Office;

3. In a lack of ethical standards of administration or compliance by Centrelink with model litigant protocols;

4. In a lack of transparency of the first of two possible tiers of Administrative Appeals Tribunal review (AAT1), resulting in a lack of protections against gaming of review by way of agency non-acquiescence or strategic non-contestation;

5. In a lack of guarantees of independence and funding security to enable first line Legal Aid or community legal centre/welfare rights bodies (CLC/WRC) to test or call out illegality in the face of thwarting of challenges by Centrelink settling of potential test cases;

6. In a lack of sufficient pro-bono professional or civil society capacity to mount ‘second line’ test case litigation or other systemic advocacy; and

7. In tolerance, especially in some media quarters, of a ‘culture’ of political and public devaluing of the significance of breaches of the rule of law and rights of vulnerable welfare clients.

It is argued that a multifaceted set of initiatives are required if such breaches of legal and ethical standards are to be avoided in the future.

Why is it clear that robo-debt is unlawful?

The pivot for this article is not so much that Centrelink lacks legal authority for raising virtually all debts based on a robo-debt ‘reverse onus’ methodology rather than use its own information gathering powers – for this remains essentially uncontested. Rather it is extraordinary that this went unpublicised and uncorrected for over two years. So first a few words about the illegality as it affects working age payments such as Newstart (NSA) and Youth allowance (YA).

Robo-debt is unlawful because Centrelink is always responsible for ‘establishing’ the existence and size of supposed social security debts. This is because the legislation provides that a debt arises only if another section creates a debt, such as one based on the difference between the amount paid and the amount to which a person is entitled. And because Centrelink bears a ‘practical onus’ to establish this. If Centrelink cannot prove up a debt from its own enquiries or information supplied to it, the status quo (no debt/lawful receipt of payments) applies. This has been the law since 1984 when the full Federal Court decided McDonald. Unless the alleged debtor is one of the rare employees who had only a single job paid at a constant fortnightly pay rate, Centrelink fails to discharge this onus when its robo-debt software generates a debt by apportioning total earnings reported to the Australian Taxation Office (ATO) from particular jobs to calculate average earnings. Robo-debt treats fluctuating earnings as if that income was earned evenly at the same rate in each and every fortnight. Mathematically this is wrong because an average for a fluctuating variable never speaks to its constituent parts. And it is the actual income for constituent fortnights that as a matter of law is crucial for calculating the rate of a working age payment such as NSA or YA.

Read the full article here.