Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
DEBORAH KNIGHT: Good to have your company, Deborah Knight in for Steve Price. Now you would have seen the headlines today. More than one million shareholders including self-funded retirees who pay little or no tax would lose cash refunds for excess dividend imputation credits. It is a crackdown by Labor. It is convoluted. But it would effectively mean they claim that you would reap an estimated $59 billion in revenue over the next decade. And it was only last week that Shadow Treasurer Chris Bowen said Labor again had its sights set on loopholes enjoyed by the so-called super wealthy. Well today, he and Opposition Leader Bill Shorten announced that the cash refunds will be abolished from the first of July 2019, if Labor of course wins the next Federal election. And it has set the hounds from the Government. They are criticising this in droves. Scott Morrison, the Treasurer is calling it a brutal and cruel blow for retirees and pensioners. And my next guest Finance Minister Mathias Cormann is calling it a $59 billion tax hike. Good evening to you. Thank you for joining us, Minister.
MATHIAS CORMANN: Good evening Deborah.
DEBORAH KNIGHT: So tell us why this is going to be such a dreadful tax hike for Australian voters.
MATHIAS CORMANN: Whatever way Bill Shorten wants to dress this up with yet more class war rhetoric and highly technical language to try and confuse people, this is a $59 billion income tax hike at the expense of in particular self-funded retirees. More than a million retirees including pensioners will end up paying more tax. The reason for that is because self-funded retirees and Australians saving for their retirement are invested in Australian companies through shares. What Bill Shorten is suggesting is that those Australians who currently get an income tax refund on the basis that their personal income tax rate is lower than the tax already paid by the company in which they are part-owner, Bill Shorten is suggesting that that tax refund should no longer be provided. He wants to confiscate that money for Canberra in order to feed his reckless spending.
DEBORAH KNIGHT: Well the Government is always saying that we need to find savings in the Budget. We need to find ways to rein in spending. Surely this is a first step into achieving that?
MATHIAS CORMANN: Not at all. Firstly a saving is a spending reduction. This is a revenue increase. What Bill Shorten is proposing to do here is to put his hand into the pockets of self funded retirees across Australia, into the pockets of pensioners, who are invested in Australian shares. He is saying to them that he wants them to pay more tax than they are currently paying.
DEBORAH KNIGHT: So Labor is saying that this is basically getting rid of a loophole enjoyed by the so-called wealthy. How many Australians will actually be affected by this?
MATHIAS CORMANN: That is completely dishonest. When Bill Shorten says that this is a loophole, he is actually misleading people. This is a deliberate design feature in our tax system to avoid double taxation. Ninety-seven per cent of the people who benefit from this income tax refund are on incomes of less than $87,000 a year. People on an income of less than $87,000 a year they are not high income earners. They are low and middle income earners. It stands to reason, the reason why this income tax refund is structured the way it is is because it applies to people who are below the thirty per cent marginal tax rate in their own personal circumstances. This whole system was set up with bipartisan support in the late 1990s. Labor at the time, supported it strongly, saying it was consistent with their own policy, which they took to the previous election at the time. They said it was a continuation, a logical extension of what Paul Keating had done in the late 1980s- this is, to ensure that people do not pay tax twice on the same level of income. If you are a self funded retiree who is invested in shares, you are a part-owner of a company. That company pays thirty per cent tax on their profits. If your own personal income tax rate is less than thirty per cent, or indeed for many low income earners or people in the retirement phase, it is zero, then you are paying more tax through the earnings on your shares then you should be paying. That is why there is an income tax refund. Bill Shorten is proposing to confiscate that income tax refund for the purposes of additional spending promises that he has made. We do not think it is appropriate to use Australia’s retirement savings that way. Australians should be encouraged to work hard, to save for their retirement, to put themselves in a position where they can look after their own needs in their retirement or complement their income from a part pension through additional savings of their own. This is going to be a major disincentive for Australians doing that. We think that is wrong.
DEBORAH KNIGHT: Now work on the policy that has been undertaken by the Parliamentary Budget Office found that 92 per cent of taxpayers do not receive these cash refunds, so 92 per cent are unaffected. Meaning that 1.2 million taxpayers will be affected along with 200,000 self managed super fund users, who they pay little or no tax. Why is that?
MATHIAS CORMANN: He is selectively quoting the data is my first point. The second point is, if you are an Australian over 65 and you are on the pension and have some of your savings invested in shares, or if you are a self-funded retiree on an income below $37,000, then you are going to have to pay less tax or no tax on your income. If you are earning less than $18,200 a year, you pay zero per cent tax. That is the way our tax system operates. If you are getting your earnings out of your superannuation up to a certain level, you pay zero per cent tax. After a certain level, that goes up to 15 per cent, still less than the 30 per cent that a company would pay. In recognition of that there is a refund, a tax refund, an income tax refund that is provided to Australians in that circumstance. I repeat, 97 per cent, just over a million Australians who receive franking credit refunds, who receive these income tax refunds, have an annual income below $87,000. These are supposedly the very people that Labor says that they are championing. What is more, more than half of all individuals receiving those income tax refunds, these refunded franking credits are earning less than the $18,200 tax free threshold. So if somebody earns less than $18,200, they pay zero per cent tax. But yet on the earnings of their shares they have paid 30 per cent tax. That is why they are getting a refund.
DEBORAH KNIGHT: Why is it though that the measure, the cost of the measure has blown out by so much? Because, when it was originally brought in it was estimated to cost $500 million a year, now it is up to $5 billion. Why has there been this massive blowout?
MATHIAS CORMANN: I would not call it a blow out. I would call it the system working as intended. When this was first introduced it was 20 years ago, since then the economy has grown, business has grown, more Australians are invested in shares, more Australians are … interrupted
DEBORAH KNIGHT: So you are happy with the fact that it is costing the economy that much?
MATHIAS CORMANN: It is not costing the economy that much at all. This is where Bill Shorten is actively seeking to mislead people through his shifty class warfare rhetoric and also through the shifty use of technical language. This is not the Government’s money. This is money that belongs to those Australians who have saved it. The reason they are getting a refund is because they have effectively paid too much tax. They have paid more tax to the Government then they were required to pay. This is money that belongs to them. What Bill Shorten is saying “no, no, no, I am going to take that money, thank you very much”. It is not his money. It is not the Government’s money. It is the taxpayer’s money. This is just the normal system at work. This is just the latest of many tax grabs. Every Australian now knows whether they are a worker, a saver, a homeowner, a small business, a professional, if Bill Shorten becomes Prime Minister next year, he will go after them with his high taxing agenda. They will pay more tax, it will be bad for the economy, bad for jobs and bad for wages.
DEBORAH KNIGHT: We have seen reaction that has been pretty strong on this as well, lots of people including the veteran fund manager Jeff Wilson has come out in your corner blasting Labor for moving the goalposts, that is what he says on retirees and warning that investors might pile into property instead. Are you concerned about the impact this could have potentially on things like housing prices?
MATHIAS CORMANN: One hundred per cent. This is an ill thought out tax grab by a Labor leader who is desperate for more cash to spend on ever increasing spending promises. It will create distortions in the market. If you make it unattractive because of unfair tax treatment for Australians to invest in shares, for Australians saving for their retirement or in the retirement phase to be invested in shares, then more Australians will invest more in other asset classes including property. If you have more investment going into property, that will have an impact on property prices in the way that that gentleman was suggesting.
DEBORAH KNIGHT: Alright, it is good to get your insight directly from it and thank you so much for joining us this evening.
MATHIAS CORMANN: Always good to talk to you Deborah.