Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
FRAN KELLY: Well, as we have been hearing this morning a new front has opened in Labor’s push to crackdown on tax loopholes, which benefit higher income Australians. Under a Shorten Labor Government, more than one million shareholders would lose their cash refunds for what is known as excess dividend imputation credits, saving the Budget up to $59 billion over a decade. Shadow Treasurer Chris Bowen says while he is bracing for a scare campaign against the proposed change, he insists no one under Labor’s plan will end up paying any more in tax.
CHRIS BOWEN [EXCERPT]: 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 is not like we will be taxing people for the first time or somebody will start paying tax. But some people who have managed through their affairs to get a tax refund out of dividend imputation will no longer receive it.
FRAN KELLY: That is the Shadow Treasurer Chris Bowen speaking on AM this morning. Well the Finance Minister Mathias Cormann joins us in our Parliament House studios now. Mathias Cormann welcome back to Breakfast.
MATHIAS CORMANN: Good morning Fran. Good to be back.
FRAN KELLY: Nobody will pay any more tax under this plan, but almost $60 billion will be added to the Budget over ten years. Do you wish you had thought of this?
MATHIAS CORMANN: That is just completely wrong. That is a $59 billion tax hike…interrupted.
FRAN KELLY: No it is not.
MATHIAS CORMANN: It is wrong. It is a $59 billion tax hike. Whatever way you look at this, this is an increase in tax. Labor can come forward with this proposal but they should not try and dress it up as something it is not. It adds $59 billion to the tax revenue of the Commonwealth if implemented. What it shows every Australian yet again is that if Bill Shorten became Prime Minister of Australia next year, no Australian will be safe from his high taxing agenda. Whether you are a worker, a saver, a home owner, an investor, a professional, a small business owner, whoever you are, Bill Shorten will come after you with more than $200 billion in higher taxes so far and counting to fund his reckless spending spree…interrupted.
FRAN KELLY: Let us be clear here about our terms though. Bill Shorten says everyone will be still be able to use imputation credits to reduce your tax. So no one will be paying more tax, they just will not be getting a cash refund. I think a lot of Australians are surprised to hear that people are eligible for a cash refund, a cash cheque from the Tax Office.
MATHIAS CORMANN: This is just shifty Bill at his worst trying to play firstly on his political rhetoric, using the language of class warfare and the politics of envy, while shamelessly targeting pensioners and self-funded retirees on lower incomes with what is a massive tax grab. Let us just remind ourselves what this is all about. The dividend imputation system is designed to avoid double taxation. Now shareholders in a company are part owners of that company and the reason there is dividend imputation is to ensure that the part owners of the company do not end up paying tax twice effectively and end up paying more tax than they should. If you are on a low income and you have got a low marginal tax rate, if it was not for this policy, which was introduced with bipartisan support by the Howard Government in the late 90’s, if you are on a low income, you will actually end up as a part owner of the company paying more tax than you should and the refund is a reflection of that….interrupted.
FRAN KELLY: But you are talking about people on lower incomes, let us look at what the Parliamentary Budget Office has shown in its analysis. Half of the total cash refunds that are currently there under this scheme already go to the wealthiest ten per cent of self-managed superannuation funds, that is people with balances over $2.4 million. The top one per cent of self-managed funds, the top one per cent, get an average cash refund every year of $83,000. Why is that fair?
MATHIAS CORMANN: Have a look at the specifics and where the $59 billion is going to come from. Bill Shorten always runs the language of wanting to go after those Australians who have worked hard, saved hard and done what they could to ensure they can look after their own needs in retirement. That is his track record, hitting them with higher tax. More than a million Australians who are self-funded retirees, many of them on pensions or part pensions will end up paying more tax…interrupted.
FRAN KELLY: Do you know what percentage of them on pensions and part pensions will?
MATHIAS CORMANN: We will review all of the detail, but what can I tell you is that many of the more than a million retirees that are hit by this tax grab, this latest Shorten tax grab will be either on a full or part pension. This is the point, any pensioner or any self-funded retiree on a relatively modest income, who has invested in some shares, either directly or through their super fund will end up paying more tax under this policy…interrupted.
FRAN KELLY: Not all of them, not all of them, because it wipes out your tax liability first right?
MATHIAS CORMANN: Any pensioner who directly owns some shares will pay more tax. Any self-funded retiree who owns shares through their self-managed super fund will pay more tax…interrupted.
FRAN KELLY: They will not pay more tax because of this. They will not pay any tax, but they will not get a cash cheque back.
MATHIAS CORMANN: They will pay more tax in their capacity as a part owner of the company that no longer…interrupted.
FRAN KELLY: But they are getting the cash cheque because they are not paying tax, isn’t that right
MATHIAS CORMANN: Again I think you are refusing to accept that dividend imputation is there to avoid double taxation. What Bill Shorten is doing is bringing back double taxation for those Australians who are self-funded retirees, who are part pensioners, who have worked hard, saved hard all their life and put their money away and invested some of it in shares. In recognition of the fact that they have a low marginal tax rate or zero tax rate on the back of low income, they receive a refund of tax previously paid in the company that they part own. That is an appropriate policy that was, as I say introduced with bipartisan support in the late 90s. Indeed Labor took it to the election in 1998, somebody reminded me over the last 24 hours. This is just classic Shorten. He wants to spend money he has not got. He is going after one tax grab after the other. So far more than $200 billion worth of tax increases based on what he has publically admitted himself and targeting workers, targeting homeowners, targeting savers, investors, professionals, small business, you name it, wherever you look. Increasing the tax burden in the economy will lead to less investment, less effort, lower growth, fewer jobs and lower wages. Our plan in contrast, is all about strengthening growth , attracting more investment, generating stronger growth, more jobs and high wages. That is going to be the choice for the Australian people at the next election.
FRAN KELLY: You call it classic Shorten, but actually Bill Shorten or Chris Bowen did not invent this. David Murray who once ran the Commonwealth Bank and who ran the Financial Systems Inquiry for your Government back in 2014 singled this out, this tax rebate as being “a significant fiscal drag on the Budget”. It has grown over time, when John Howard brought it in, it was $550 million a year worth it, now it is a $11 and a half billion over the forward estimates.
MATHIAS CORMANN: It is a function of the number of Australians who are invested in Australian companies who are more profitable today than what they were then. This is operating as it was intended, avoiding double taxation. Bill Shorten wants to bring back double taxation and he wants to bring back double taxation in particular for self-funded retirees and lower income Australians who have worked hard and saved hard all their life and who have made an effort to ensure they can look after their own needs in retirement or complement their part pension with additional savings.
FRAN KELLY: All sorts of changes have to be made in the pursuit of a fair and balanced Budget obviously and I am sure you would agree with that. You would agree with Penny Wong, who we spoke to earlier that Budgets are all about choices. Here is a choice that Labor is making that in Government that they would do this and they would not put an increased Medicare levy in from July next year to help pay for the NDIS. They would presumably pay for the NDIS through revenue like this.
MATHIAS CORMANN: What we know is that Labor has made choices to increase the tax burden in the economy by more than $200 billion so far…interrupted.
FRAN KELLY: But you are increasing the tax burden with the increase of the Medicare Levy.
MATHIAS CORMANN: If I may finish, the tax burden under the Coalition and this is not disputed, will be lower under the Coalition than under Labor because we have imposed a 23.9 per cent tax as a share of GDP cap on ourselves, which means that our Budget revenue projections have an inbuilt assumption of future income tax cuts in them. Labor have already indicated that they will not be constrained, they will not be restrained by the 23.9 per cent cap. So far, their announced tax increases so far, take them well past 25 per cent tax as a share of GDP, which would damage the economy, which would cost jobs, which will hurt everyday Australians, which will make it harder for working families around Australia to get ahead. Taxes under the Coalition into the future will be lower than they would be under Labor based on the stated policy positions of both parties.
FRAN KELLY: Mathias Cormann can I just ask you finally, the banking Royal Commission kicks off today, hearing from its first witnesses. The banks are already preparing their staff for some fairly ugly evidence coming forward. The banks of course, some of our biggest companies in this country, they will benefit from the company tax cut that the Turnbull Government wants to introduce. Is this Royal Commission and the witnesses, the testimony from Australians who feel they have been ripped off and harmed by the banks or the insurers or the financial advisors, is it going to make it even harder for you to convince the Crossbench, that these big companies, these big corporations deserve a tax break.
MATHIAS CORMANN: Firstly, when it comes to banks we have imposed the major bank levy on the banks in the last Budget. There was quite a bit of public argument about that. When it comes to the business tax rate, we need to ensure that businesses in Australia including big businesses are not disadvantaged compared to the businesses they compete with all around the world, who have the benefit of materially lower business tax rates. Australia now has the equal highest business tax rate in the world. Big business as well as employing many Australians directly, they purchase goods and services from the many small and medium sized businesses around Australia. If we want our economy to be as strong as possible, if we want Australians today and in the future to have the best possible opportunity to get a new and well paid job, a secure job and to be able to get better wages into the future, we need to ensure that all businesses around Australia, employing nine out of 10 working Australians in the private sector, have the best possible opportunity to be successful and profitable in the future. These are the businesses that create those new jobs, that provide career opportunities and that have to pay for the higher wages that we want to see delivered in the economy.
FRAN KELLY: Mathias Cormann thank you very much for joining us.
MATHIAS CORMANN: Always good to talk to you.