The tax debate has erupted into a policy showdown with competing Labor and Government positions on how best to use some $60 billion over 10 years.
The Government is marshalling half a million pensioners and self-funded retirees to attack Labor’s plan to end a multi-billion dollar tax refund measure.
“Labor has deliberately hit 230,000 pensioners,” Treasurer Scott Morrison told ABC radio today.
The Government is also pleading the case for 200,000 retirees with self-managed superannuation funds it says will be hurt by Labor’s policy.
Opposition Leader Bill Shorten told the Nine network today the measure was unsustainable.
“John Howard introduced this idea in 2000 when the Government had a lot of money. We don’t have a lot of money any more,” he said.
“And I’ve got to choose hospitals and schools and aged-care facilities over paying people money, refunds for income they haven’t paid.”
And he conceded: “I can confirm that about 10 per cent of pensioners, and there’s two-and-a-half million pensioners, will have a minor impact.”
At issue is the current operation of a 30-year-old concession on dividends.
In 1987, the Labor government introduced dividend imputation — franking — to prevent company profits being taxed twice. The profits were taxed at source and it was considered unfair for the after-tax profits to be taxed again as income when shareholders received dividends.
In 2000, the Coalition government, with Labor support, allowed people who paid little or no tax to get a cash refund from the ATO on franked dividends.
A succession of recent reviews of the tax system have warned the growth in the refunds is draining revenue.
A 2015 Government review said: “There are some revenue concerns with the refundability of imputation credits.”
The measure had a relatively low cost to government revenue when introduced nearly 20 years ago, but now will soon cost between $6 billion and $8 billion a year.
Labor says savings from its reforms would add $59 billion to the Budget over 10 years, which could be used to ease the deficit and to fund education and health programs.
Treasurer Scott Morrison said “a fundamental principle of fairness” was at stake.
“Why is it fair for you and I to be able to hold shares in companies that have franked dividends and we can get the full value of those franked dividends to reduce our tax, but a pensioner, someone on a low income, a self-funded retiree, should not get the full value of that?” he said. “That’s just basically unfair.”
Labor’s Jenny Macklin compared the Government’s current concern for pensioners with its past treatment.
Ms Macklin, shadow minister for families, said the Coalition’s 2014 Budget removed $1 billion worth of pensioner concessions and ended the $900 seniors’ supplement to self-funded retirees receiving the Commonwealth Seniors Health Card.
The 2015 Budget reduced the pension to around 370,000 recipients, said Ms Macklin.
Mr Morrison wants to axe the Energy Supplement to two million Australians, including around 400,000 pensioners. This would cut $14.10 a fortnight from a single age pension or $365 a year.