MUNGO MACCALLUM. Batman conquered

So far so good.

To the surprise of many – including, one suspects, Bill Shorten himself – the Batman by-election is done and dusted and it appeared that the confected furore over the great dividend imputation refund had little, if anything, to do with it.

And the same applies to South Australia – sure, the well-known Liberal nonentity Stephen Marshall finally got across the line, but after 16 years and a redistribution that practically gifted him a majority, he could hardly fail. In fact he went surprisingly close to doing so; it appears that Shorten’s great gamble was either ignored, or more probably  the enormity of it has not really sunk in.

But one way or another it will, and whether the punters buy Shorten’s plans for a giant war chest that will solve all his fiscal problems or Scott Morrison’s dismissal of a brutal tax grab which will steal from pensioners may well determine the next election.

Like many of Labor’s initiatives in opposition, the move is a courageous one, and as such the shadow treasurer Chris Bowen believes it will succeed: when the government’s fire and fury sputters way, imputation refunds will be seen as part of the mainstream debate, and Morrison and indeed Malcolm Turnbull will once again be exposed as frauds and wolf-criers.

But this time it may be more difficult, because this time there really will be losers, and quite a few of them. Of course there will also be winners – lots of winners. But  the history of Australian politics shows that while winners seldom offer the politicians any thanks, the losers can be massively vindictive. Thus there will there have to be a lot of tweaking, a lot of spin to land the massive prize.

It should not be so; the current regime was not long established and was even then regarded as something of a rort, albeit a very profitable one for the lucky few. In the old days – well, about 30 years ago – the taxing of a dividends was straightforward enough. Firms collected their revenue and did what they could to legally minimise their tax. They then paid company tax at the normal rate and what was left, the profit, was distributed to, among other needs, the shareholders.

These took their dividends and paid tax on them on their own final assessment. But then the Labor government decided that this was a form of couple taxation, so a portion of the tax paid by the companies was to be returned to the shareholders, so some of the personal tax for which they were liable was to be deducted.

But then came the killer – awash with surplus money, the Howard-Costello decided that even if the personal tax rate, through various manipulations, could be reduced to zero, the deductions would keep flowing – a benefit denied to other taxpayers whose PAYE deductions could not be pushed into negative territory.

The lurk was wildly popular, increasing ten fold in the first few years, which is why Shorten is so keen to snaffle some of it. Most economists agree that it cannot and should not go on; they would like the whole imputation system scraped as an economic boondoggle. But for those who have wangled it, it has become an entitlement, as sacred as the right to massacre school children in America.

And they mean to hang on to it – or if they don’t, they can be persuaded by the shock jocks. And the denizens of the hard right, many of whom no doubt avail themselves of the rort themselves, have no intention of clarifying a rather complicated issue. Class warfare, politics of envy, snatch the money and run. It’s us against them.

For the libertarians it is simple enough: taxation is theft – not some taxation, but all of it. Tax is stealing money from the individual to the state, which makes it unconscionable, and for the real free-enterpriser it is a positive duty to avoid and evade it.

Even our excitable Treasurer, Scott Morrison, would probably not go that far – well, not quite. But he has made it clear that any proposition on tax put forward by Bill Shorten, no matter now mild, logical or desirable, is a crime against the public and must be resisted as such.

It could be argued that he said exactly the same against reform of negative gearing and capital gains tax concessions and became something of an embarrassment when it emerged that his own department said that in fact the ideas would not only do little or no damage to the economy, but would remove notable distortions from it. This experience will not deter Morrison and Malcolm Turnbull, gearing up for his latest burst of hyperbole in the last session of parliament before the budget.

And the initial frenzy of outrage, principally and predictably from the comfortable elitists of The Australian, has provided a fitting overture. This has been relatively simple to orchestrate because the whole subject of taxing investments, and especially superannuation, is so fiendishly confused as to make it incomprehensible to the normal voter.

And the voter, being essentially a conservative type, is not about to risk his or her hard earned cash without a rolled gold guarantee of s lavish return. But of course this is precisely what Shorten will be promising: personal tax cuts on a substantial and sustainable basis, as well as a bandwagon load of goodies, and, if anyone really cares or believes it, a real reduction in the national deficit and an accelerated return to surplus.

So the question will be whether Shorten  maintains sufficient credibility to deliver the gain, accepting that this is not a zero-sum game – there will be some pain, The Australian will always be able to locate a pensioner who has missed out,  and preferably not one of the asset-rich sitting on acouple of million in tax free superannuation while diddling a few thousand bucks on the imputation scam.

This has already been tried last week, with a notable lack of success, particularly in Batman.  It may be a long way to go, but Shorten is entitled to be cautiously optimistic. So far so good.

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4 Responses to MUNGO MACCALLUM. Batman conquered

  1. Ben Morris says:

    The normal hide and cry has gone up when a politician decides to tackle a tax rort, ‘what about the poor or the pensioners’ when it is the rich who are being asked to pay their fair share of tax. An activity which they strenuous try to avoid. It is time honesty was introduced into the tax reform discussion and anyone including the media when talking about a tax rort, go and check the Australian Taxation Office website to look at the legislation, the tax rulings and the group involved in the particular tax under examination. To listen to some ‘the poor and pensioners’ are influenced by every tax reform measure. Part of the reason that the government has been unable to gain any traction on the company tax changes is that the ‘poor and pensioners’ are definitely not involved in that tax.

    Self-funded retirees are a group of superannuants who have received tax minimisation benefits from the government to achieve their special status and are not the general run of pensioners in fact some may be part of that group of older members of the Liberal Party who supposedly deserted the party’s polling booths at the last election because of some pension changes that the Liberal Party was planning and could be the reason why Malcolm is being quiet.

    The average voter switches off as soon as dividend imputation is mention as they are unfamiliar with that area of the tax system. It does not affect them.

  2. Jon Stanford says:

    I don’t think we need to get rid of dividend imputation. The big argument in favour of imputation is that it avoids double taxation — theoretically, a company’s profit should not be taxed first in the hands of the company and then again in the hands of the individual shareholder. But if the shareholder, for whatever reason, pays no tax, then this argument disappears. It is difficult to see why individuals should receive a cash credit for company tax paid if they pay no tax themselves. Certainly, most taxes create systemic and unavoidable distortions — this proposal could be made fairer by using some of the revenue to increase the aged pension. In a situation where Australia has a long term structural budget deficit caused by the Howard government’s persistent handouts of jollies during the resources boom, we need to think about how to correct it. Inevitably, this requires some contribution from the revenue side of the budget. Addressing negative gearing is one way to do this, this imputation proposal is another. The Coalition has been singularly unsuccessful in tackling this issue through reductions in outlays — Abbott and Hockey tried and one is now sulking on the backbench while the other is condemned to cosy up to The Donald. Also, additional spending is now clearly required in areas such as health and education and training. The Prime Minister had the chance to increase the GST but walked away from it. So what does the government suggest instead of Labor’s proposals?

  3. James Lewis says:

    In May, 2015, Tony Abbott said, in support of the budgeted changes to age pension asset and taper rates, “The Howard government’s “very generous changes” were made “in the unique circumstances of those days” “.

    Morrison said they were “effectively reversing a measure put in place by the Howard government in 2007”.

    This is what Labor proposes doing. The difference?

  4. Barry Reynolds says:

    There is an easy solution to this, do away with dividend imputation altogether and let the recipients pay any tax due. If it is seen as double taxation, so be it. Suck it up princess.

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