Andrew Leigh

E&OE TRANSCRIPT

RADIO INTERVIEW

6PR PERTH LIVE

TUESDAY, 13 MARCH 2018 

SUBJECT: Dividend imputation reform.

GARETH PARKER: Labor’s Shadow Assistant Treasurer is Andrew Leigh, he joins me on the line. Good morning, Andrew.

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: G’day, Gareth. How are you?

PARKER: I’m well. What’s this about?

LEIGH: The change is to remove an unsustainable tax concession that was implemented in 2000. As you know, dividend imputation goes back to Paul Keating’s decision in 1987 to ensure that company profits weren’t taxed twice. So you’ve got a credit for the taxes that the company had already paid. But there was no cash refund that was part of that system and no other advanced country has cash refunds for imputation. What happened in the year 2000 was with a structural budget surplus of about 1 to 2 per cent of GDP, John Howard and Peter Costello decided to create a system in which cash refunds went to people where their tax liability was zero. So you actually have the ATO cutting tax cheques to tax payers – something quite unusual and something that only affects a small fraction of tax payers.

PARKER: But the tax has already been paid, hasn’t it? That’s the reality. The tax has already been paid on the profits by the company and for some time it has been a strategy of people - some self-funded superannuants, also some pensioners too – which means they get a cash flow from this feature of the tax system.

LEIGH: It’s certainly true that people have structured their affairs so as to take advantage of this. I think that’s part of the reason why when it was introduced  it cost the budget half a billion dollars a year. Now it costs the budget about $5 billion a year, ten times more, and it’s projected to soon go to $8 billion. That’s more than the Commonwealth Government spends on public schools. So it’s a huge amount of money which is going through this unique Australian tax concession. Like I said, no other advanced country does things this way and for good reason.

PARKER: Alright. Here’s what the Treasurer Scott Morrison has said about your plans this morning.

SCOTT MORRISON, TREASURER: This is a brutal and cruel blow for retirees, for pensioners – even by the Labor Party’s own admission, they are admitting that pensioners will be hit by stealing the tax refund of retirees and pensioners and low income earners. They can dress it up aby way they chose, but that is the brutal reality of what the Labor Party have decided to do today.

PARKER: Andrew Leigh, what to you say to that?

LEIGH: You only need to go to the Government’s own tax discussion paper in 2015 where they said ‘There are some revenue concerns with the refundability of imputation credits’. You can look at Deloitte’s submission to the tax discussion paper, saying ‘The refundability of imputation credits should be addressed’. You can look at John Hewson’s recent comment that in economic terms, cash refunds don't make sense. It wasn't part of the original structure of dividend imputation. If the question is ‘do we fund our schools properly or do we continue with cash refunds which overwhelmingly go to richest group of Australians?’ -  then my money is on schools.

PARKER: Okay so the Federal Treasurer, Scott Morrison is not wrong about what he says but Labor's position is effectively we don't think that these refunds should be paid, we are going to take money out of some people’s pockets because we think that the revenue could be better directed to other priorities. 

LEIGH: The question, Gareth, is how you balance the budget. What the Government would like to do instead is to have the Government continue with these cash handouts to some of the most affluent Australians but then to take the energy supplement away from some of the poorest Australians. So, budgets are a question of priorities, Scott Morrison's priority is to continue a tax concession to some of the most affluent Australians - 

PARKER: It will affect pensioners as well though, right? You do acknowledge that that is a reality.

LEIGH: There might be some part-pensioners but certainly all the analysis we've seen suggests this is going to some of the most affluent Australians. This is not just a top ten per cent benefit but largely going to the top one per cent. It's doing so in a way that is not boosting growth. I'm really worried that when we look at recent economic growth numbers that the economy has basically stalled. Yet this tax concession isn't doing anything to accelerate economic activity. Labor wants to make sure that our tax system is working as the engine of the economy. That's why we've announced these important reforms and we'll continue to announce critical reforms to boost growth.

PARKER: Andrew Leigh I just want to read you a part of this email I have already received this morning from Paul, a listener to the program. He says, "I can't believe the nerve of the Opposition Leader. Not only have the existing superannuation rules been diluted by the Coalition against those that have spent the last twenty years planning for their retirement under what they thought was a firm set of policies. We now have the Opposition proposing further dilution. My whole strategy is based around accessing those refunded imputation credits, noting that the tax has already been paid by the companies, yet before I hit super access age in a few years, the whole strategy is potentially fraught. It will seriously make pre-retirees think about abandoning the superannuation system altogether, cashing out what is an unknown and seemingly subject to the changes of whims of government. Simply access a Government pension at a greater cost to taxpayers."

LEIGH: We have at the moment gross debt exceeding half a trillion dollars. We have the Government posting a deficit this year estimated to be eight times bigger than it was - 

PARKER: But Paul's point is that if you keep fiddling with the rules then people will just lose confidence in the superannuation system. He's right about that isn't it?

LEIGH: But Gareth, I think you have to look at how you manage to bring the budget back into surplus. And the question as to whether it's appropriate to raise taxes on low and middle income Australians. Let's not forget that Scott Morrison would increase the taxes for people on $70,000 by about $350 a year. You look at some of these tax concessions which the experts say aren't doing it anything for growth, which no other advanced country has, and which were put in place at a time in which the rivers of gold from the mining boom mark one were flowing. And you ask yourself: is this the right way to go for the nation? We need to make these decisions in the national interest – so we're able to invest in schools and hospitals and infrastructure. If we don't make these hard decisions – which Labor is willing to tackle and Scott Morrison runs a mile from – then we're going to simply continue with unsustainable and inequitable tax concessions undermining our ability to invest in growth for the future.

PARKER: Thanks, Andrew.

LEIGH: Thank you, Gareth.

ENDS