Australia should have the best services, not the best tax loopholes - Transcript, 5AA Mornings





SUBJECTS: Franking credits, Labor’s Tradie Pay Guarantee. 

LEON BYNER: Let's bring in the Shadow Assistant Treasurer, Andrew Leigh. Andrew, thanks for coming on. What do you say to what Gottliebsen had to say?

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Australia is unusual in the world - in fact, unique in the world - in having a system of refundable franking credits. It's not the way franking credits worked when Paul Keating introduced it in 1987. It was changed in 2001. So there’s a group of taxpayers - 8 per cent of taxpayers - who don't pay the Tax Office, they get paid by the Tax Office. And at a time when we want to invest in solving the crisis in aged care, to put more money into schools and invest in reducing those hospital waiting lists and extend early childhood the three year olds, we have to look at tax concessions like this one. You have to ask yourself: if this is such a great tax arrangement, why are we the only country in the world doing it this way? More than half the benefits go to people with more than two and a half million dollars in their superannuation account. I don't deny that they worked hard and saved hard, but the question is whether they should be getting a cheque from the government at a time when the government says it can't afford to put in place enough home care packages for our older Australians.

BYNER: What of the claims by Robert Gottliebsen that the people it will hit the most are those who can't afford it?

LEIGH: We've got our pensioner guarantee in place, which ensures that no one on the pension is affected by our policy. The pension covers, as you know Leon, the poorest two thirds of retirees. So in order to not be eligible for the pension, you have to have aside from your home more than $800,000 in assets if you are a couple. We've ensured that this is not applied to charities and the arrangement that Rob talks about with industry superannuation funds is simply answered - those funds pay tax. Anyone who is paying tax can use franking credits to reduce their tax bill. But what you can't do under Labor's policy is put yourself in a situation where the Tax Office is cutting you a cheque. We don't do this with any other tax concession. It’s a very unusual arrangement put in place when the rivers of gold from the mining boom were flowing under John Howard and Peter Costello. But it’s a different circumstance these days. The budget is in deficit, we've got to invest in older Australians and our schools and our hospitals. This is how Labor chooses to do it.

BYNER: So the question then is, you're not - Gottliebsen makes a very clear statement that if you're in an industry fund, you don't mean you don't have the tax or the impost, but if you're not you do. You're saying ‘oh well, the industry funds pay tax’. I want to ask you a question-

LEIGH: For industry or retail, let’s be clear - there's no differentiation between them. 

BYNER: Yes. If you get a franked dividend, doesn't that mean by definition that on that dividend, the tax has been paid on your behalf?

LEIGH: Well, imagine a situation Leon, if everyone were self-funded retirees getting franking credits. We would raise all the money through company tax revenue and then we'd give it all back. Effectively the tax rate and every company in the land - Qantas, Telstra, BHP and the rest - would be zero. Now if you think that's an absurd situation, you've got to ask yourself whether it would be right to have this unique tax loophole in Australia. As I said,  not everybody who receives it is a multi-millionaire, but more than half the dollars are going-

BYNER: I've got a question. If you get, if you get a franked dividend doesn't it mean the tax has been paid on your behalf?

LEIGH: Well, it depends on how you think of it. One way to think of our company tax is as a withholding tax. Another way of thinking about it is that we are taxing the profits of the firm and we want to avoid double taxation. But when you've got refundability, it avoids single taxation. Suddenly, that company tax isn't paid by anyone and it turns into a situation in which we effectively have the company tax arrangements of tax havens like the Caymans and the Bahamas. We've got to continue raising money through company taxes. I don't meet many people on my street stalls that say ‘well, wouldn't it be great if the Commonwealth Bank and NAB and ANZ the rest were paying zero tax’. But that's effectively what happens when you tax at the company level and refund entirely at the individual level.

BYNER: Can I put to you, and this is a concept that's been put to me many times, and that is that when you do your super you plan long term and if these sorts of arrangements keep changing, the goalposts keep moving, you often scratch your head and think Is there not a better way to do things where I avoid all this nonsense. Because if you play by the rules and then suddenly somebody changes them and they're not grandfathered  - there's no grandfathering in this proposal, as I understand it - then many people are saying, and they are saying it, this isn't fair. 

LEIGH: Superannuation will continue to receive generous tax concessions. No one will pay more tax under our proposal. No one will lose anything from their superannuation contributions. No one will lose a cent from their pension. No one will lose a cent from their share dividends. We're simply saying the Tax Office will stop acting as an ATM. They will no longer be dispersing money to people who haven't paid any tax. And that simple principle I think it's one that the 92 per cent of taxpayers who don't benefit from franking credits would appreciate. They want to see more investment in our public schools. There’s $14 billion dollars that the Coalition ripped out of public schools that Labor will put back in. We're going to tackle the crisis in apprenticeships in Australia. We've got to boost the number of students going to university. We've got a big ambitious infrastructure agenda to build the roads and the rail that Australia needs. And you simply can't do all of those important investments, Leon, and have these massive tax breaks. I don’t want Australia to be a country with the biggest tax loopholes in the world. I want us to be the country with the best services in the world, the best quality of life.

BYNER: You call it a loophole, but it was created by government. So when it's created by government, it's hardly a loophole, is it?

LEIGH: That’s how I think of loopholes, Leon. They’re tax arrangements which are not justifiable in terms of the integrity of the whole system. Again, no other country in the world has this, so that makes it an unusual arrangement for Australia. We didn't have it in the early days of dividend imputation under the Hawke and Keating Governments. It's not a necessary part of imputation. It was something that was done when the rivers of gold were flowing strongly in the early 2000s. But that's all dried up these days. I’m in Townsville right now and there’s a lot of reconstruction work being done here. Labor has a priority of protecting subbies through a tradie litigation fund to tackle dodgy phoenix directors. But in order to invest in things like that, in order to back our subbies, we've got to make sure we've got the resources available to government.

BYNER: I want to talk about this because you're telling us that a Shorten Government will protect subcontractors working on government projects from being left unpaid when dodgy businesses go bust through implementation of the trades pay guarantee?

LEIGH: That's right. Cashflow is the lifeblood of the construction sector, as you know Leon, but one of the problems is that more than half our subbies say they don't get paid on time. What we're saying is that under a Shorten Labor Government, there would be a system of cascading trusts for the Commonwealth infrastructure projects where if you do the work on time, you get paid on time. It’s a pretty simple principle. Every and pay-as-you-go worker expects that. But subbies haver been ripped off for too long. We’ll also create this litigation fund I mentioned before, $7 million for-

BYNER: Who’ll pay that? Who’ll pay this?

LEIGH: That will be raised by closing loopholes, such as the one I mentioned around franking credits, and getting tough on tax havens. Right now you can claim a tax deduction for flying to the Bahamas to check on your tax dodging. We’ll end that and that will add money to the bottom line, it will allow us to go after the worst of the dodgy phoenix directors and make sure that subbies get paid.

BYNER: Andrew, thank you for joining us. That's the Shadow Assistant Treasurer, putting Labor's side of the argument on this business of franking credits.


Authorised by Noah Carroll ALP Canberra.

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.