SABRA LANE, HOST: The Federal Labor Party wants to axe a cash refund given to some investors which will raise billions of dollars for the Government, in fact, it'll raise $59 billion over the medium-term according to the Opposition and it's mainly self-managed super funds that will lose the concession. Put simply, it works like this. When receiving a company dividend, shareholders can also receive franking credits. These credits can reduce the shareholder's tax bill, and make sure the company's profits aren't taxed twice. It's known as dividend imputation. The Hawke-Keating Government introduced the scheme in 1987 but the Howard Government changed it to allow shareholders not paying any tax to convert their excess credits into a cash refund via the tax office. Labor says if it wins the next election, it will axe these cash refunds, for some investors. To explain why he's going to do it if he's elected the next Treasurer, I'm joined by Labor's Treasury spokesman, Chris Bowen.
Mr Bowen, good morning and welcome to the program.
CHRIS BOWEN, SHADOW TREASURER: Thanks for having me on Sabra, good morning.
LANE: Why are you doing this, and how much will it save the Government?
BOWEN: Well we're doing it because it's an unsustainable concession. As you said, Labor under Paul Keating introduced dividend imputation in 1987. And between 1987 and 2000 it worked well. John Howard and Peter Costello changed the system to enable people to get a cash refund even though they haven't paid tax. Now, that was perhaps sustainable at the time, when the Budget was in surplus and the mining boom was on, but of course it locked in permanent expenditure based on temporary revenue. And it has blown out. It now costs around $6 billion a year, and is projected to grow to $8 billion a year in expenditure. Now that is more than the Commonwealth spends on public schools or child care, Sabra. So we don't think it's sustainable in this Budget environment. We think it's necessary. We understand it's controversial, we understand the Government will engage in a scare campaign, all those things. But this is a necessary reform and in keeping with our boldness and frankly, our courage in dealing with things like negative gearing, capital gains tax and family trusts, this is a reform whose time has come.
LANE: Okay. How many people will it effect, and, how will you minimise backlash?
BOWEN: Well, as I said, I fully expect a scare campaign from the Government. I fully expect self-managed super, in particular, to be unhappy about this. Some people have managed their affairs to maximise their refunds. I accept that. But what we're doing is giving plenty of notice that an incoming Shorten Labor Government will reform this system. Now two-thirds of the refunds accrue to tax-free superannuation. Around 90 per cent of those go to self-managed super. And more than half of the cash refunds go to self-managed super with balances of more than $2.5 million, and 82 per cent goes to balances of more than $1 million. So this is a well-targeted measure. As I said, I understand that people who will no longer receive their refunds will be unhappy, but importantly nobody will be receiving a tax bill. It's not like we'll be taxing people for the first time, or somebody will start paying tax. But some people who have managed their affairs to get a tax refund out of dividend imputation, will no longer receive it.
LANE: It's been a concession that taxpayers have been legally entitled to make...
LANE: ... Would you describe it as 'taxpayer funded largesse'?
BOWEN: Well look, I've made the point previously that the Howard Government engaged in a lot of decisions which other people would describe as 'largesse'. And I don't mind describing it as largesse because in the circumstances of the mining boom, they locked in permanent expenditure. And that's a big problem with the Budget. It's one of the reasons our Budget's been under pressure. Whether it be the generous capital gains tax discount, non-means tested private health insurance rebate, or this measure, changing dividend imputation. They made a lot of decisions based on the assumption that the mining boom would continue forever. It’s a big problem with our Budget. It’s one of the reason our Budget’s been under pressure. Whether it be the generous capital gains tax discount or non means tested private health insurance rebate, or this measure changing dividend imputation. There are a lot of decisions based on the assumption that the mining boom would continue forever. Now one of the iron laws of economics as you know is that booms don’t continue forever. Governments now have to look at some of those decisions made by the Howard/Costello Government and draw them back in.
LANE: Now this would be applied to self managed super schemes but not APRA managed schemes?
BOWEN: Well no, that’s just a statement of fact as to who will be affected. About 90% of the cash refunds in superannuation go to SMSFs, about 10% go to APRA regulated schemes and they would primarily affect high balances in those APRA regulated schemes.
LANE: Is it about Budget repair or will you reinvest some of these proceeds back into the super scheme to reduce the gender gap on superannuation, particularly with women for example, who retire on significantly less than men?
BOWEN: Well of course I’ve previously indicated that dealing with the gender gap in retirement incomes is a very important national priority, and we’ll have more to say about that and I have in the past commented on that as several of our colleagues have.
LANE: Watch this space?
BOWEN: But what we do is make difficult decisions, like we have done on other matters, we have a plan to have a very strong fiscal bottom line that we will take to the next election and it enables us to invest in important decisions of which we will make further announcements, several of which in the very near future
LANE: Did you get Paul Keating’s approval for this?
BOWEN: Well I don’t think it’s about approval but I have discussed it with Paul, and he has said to me as the architect of the original system that it’s very important for Australia’s future, and though it’s not for me to comment on his views, he’s made it very clear that he’s comfortable with these changes.
LANE: Why are you announcing the policy now? Has Labor got its eye on the Batman election happening this weekend?
BOWEN: No Sabra, we’ve got a track record of announcing our policies very early. I mean we announced our negative gearing two years ago, we had high income super more than three years ago.
LANE: This policy has also been a Green proposed idea in years gone by, so I’m just curious as to why its being announced right now.
BOWEN: Well Sabra, why announce it today? Yesterday? You can go through those entrails. We are announcing a series of policies. One thing we cannot be accused of is a small target strategy. That has been the case now for more than three years. We are out there promoting our policies, we are providing policy leadership. In some places the Government has followed, and in other places the Government has engaged in a scare campaign. Now I am up for the debate either way. If the Government chooses to adopt some of our policies, I welcome that. If they choose to engage in their normal shrill and ridiculous scare campaign, I’ll punch back on that as we have on all our other policies.
LANE: This idea, the Government did actually seek input on the idea when it released a discussion paper back in 2015, so you never know.
BOWEN: That’s true. Well it was flagged, as you said, in the Government’s discussion paper, of their aborted tax white paper reform program. That this was a matter worthy of consideration. And of course importantly Sabra, David Murray in his financial systems inquiry said that this was a very significant fiscal drag, a fiscal risk into the Budget going forward. He identified the same issues that we’ve identified, that over time this will continue to grow. It’s not affordable. Somebody has to have the courage to deal with it. We in the Labor Party as the alterative Government have the courage before an election to seek a mandate to do it.
LANE: Shadow Treasurer Chris Bowen, thank you for joining the program this morning.
BOWEN: Thank you Sabra, it’s been a pleasure.