Federal Labor Party discussion

[Smurf1976]

From the business point of view, fine, the consumer is still double taxed.

As a technicality the consumer pays two taxes but they don't pay the same tax twice.

They pay excise, and they pay GST on the total price including excise, so there is indeed GST applied to excise.

Any individual tax is only once however. There's no excise on excise or GST on GST.

For the franking credits argument, I'll simply say that apart from blatant rorts etc, the only ones who'd actually lose in a big way if the present arrangement were removed are low income earners. Given they must've been in better circumstances at some point in order to have acquired investments, it's effectively an idea to apply a special tax only to the self-funded unemployed, widows, disabled and others who've had a major fall in life.

As a concept I see that as pretty hard to defend. A tax that you only pay if you fall on hard times and you're self funded (not claiming welfare). Meanwhile we hand out money just like to all sorts of people who've made comparatively no effort to avoid it.

 

[SirRumpole]

As a technicality the consumer pays two taxes but they don't pay the same tax twice.

They pay excise, and they pay GST on the total price including excise, so there is indeed GST applied to excise.

Any individual tax is only once however. There's no excise on excise or GST on GST.

For the franking credits argument, I'll simply say that apart from blatant rorts etc, the only ones who'd actually lose in a big way if the present arrangement were removed are low income earners. Given they must've been in better circumstances at some point in order to have acquired investments, it's effectively an idea to apply a special tax only to the self-funded unemployed, widows, disabled and others who've had a major fall in life.

As a concept I see that as pretty hard to defend. A tax that you only pay if you fall on hard times and you're self funded (not claiming welfare). Meanwhile we hand out money just like to all sorts of people who've made comparatively no effort to avoid it.

A means test could be applied to franking credits. You get them if your TOTAL (not assessable) income is below a threshold, after that they fade out. I just don't get how retirees whose super is tax free get a full refund while workers pay tax at their marginal rate.

 

[Value Collector]

I just don't get how retirees whose super is tax free get a full refund while workers pay tax at their marginal rate.

They get a full refund because their super is tax free. If you don’t want them to get a refund raise the tax.

Let me give you two examples and then ask if you are ok with the situation.

Retiree 1 - has a CBA term deposit and earns $100k bank interest inside his super, because super in the pension phase is tax free he gets to keep the entire $100k.

Retiree 2 - owns CBA bank shares, and he earns $100k in company earnings, CBA deducts $30k and pays company tax from his earnings, then hands him a $70k dividend with $30k franking credit.

Both investors assets have earned $100k, but retiree 2 has only received $70k because $30k has been paid in tax.

Retiree 2 requires a $30k refund just to bring him back to the same tax free level at $100k in earnings retiree 1 got, otherwise retiree 2 will be unfairly taxed at 30% when other retirees with investments outside company structures get the 0% tax that is meant to be applied.

As I said though if you want the retirees to pay tax, just raise the tax rate on super and both 1 and 2 will pay equal amounts from their $100k in tax.

for example if you tax super at 10%, Retiree one will have to hand over $10k bringing him down to $90K, and retire 2 will only be able to claim $20k of his franking credits bringing him up to $90K, so this way you can change the tax rate to what ever you like and both investors pay the same tax, without messing with the franking credit system.

 

[Smurf1976]

A means test could be applied to franking credits. You get them if your TOTAL (not assessable) income is below a threshold, after that they fade out. I just don't get how retirees whose super is tax free get a full refund while workers pay tax at their marginal rate.

Fundamentally, the argument against franking credits is essentially an argument to abolish the lowest Income Tax brackets for those receiving franked dividends. Outside of superannuation that's the practical effect.

If it had been proposed to take it away from middle and higher income earners, or simply to abolish it completely for everyone, then there'd be a fair argument about social equity and governments needing to raise revenue somehow and so on.

To propose only taking something away from those who've already fallen is decidedly "un-Australian" however, it's the sort of argument that many find unacceptable regardless of the impact or lack of it on them personally.

Earn $500k a year? No worries you get these franking credits and they're worth $ and we're looking after you there, you'll be keeping those.

Lose your job? Ah, well we'll take those franking credits off you too. Now you're stuffed eh? Oh well, sucks to be you.

For Labor to come after those on lower incomes, whilst retaining the same thing for those on higher incomes, is just too far from supposed core values hence the reaction. Some other party that makes no pretence of looking after the lower half could probably get away with it but not Labor.

Superannuation's a different situation and I do agree some reforms could be made there. My comments are referring to investments outside of super and the context that someone finds themselves reliant on that. Bearing in mind they've already paid tax when they earned that money, there's tax on capital gains and so on - versus someone who spent the lot then claims welfare who's imposing a far greater cost to government.

 

[SirRumpole]

Fundamentally, the argument against franking credits is essentially an argument to abolish the lowest Income Tax brackets for those receiving franked dividends. Outside of superannuation that's the practical effect.

If it had been proposed to take it away from middle and higher income earners, or simply to abolish it completely for everyone, then there'd be a fair argument about social equity and governments needing to raise revenue somehow and so on.

To propose only taking something away from those who've already fallen is decidedly "un-Australian" however, it's the sort of argument that many find unacceptable regardless of the impact or lack of it on them personally.

Earn $500k a year? No worries you get these franking credits and they're worth $ and we're looking after you there, you'll be keeping those.

Lose your job? Ah, well we'll take those franking credits off you too. Now you're stuffed eh? Oh well, sucks to be you.

For Labor to come after those on lower incomes, whilst retaining the same thing for those on higher incomes, is just too far from supposed core values hence the reaction. Some other party that makes no pretence of looking after the lower half could probably get away with it but not Labor.

Superannuation's a different situation and I do agree some reforms could be made there. My comments are referring to investments outside of super and the context that someone finds themselves reliant on that. Bearing in mind they've already paid tax when they earned that money, there's tax on capital gains and so on - versus someone who spent the lot then claims welfare who's imposing a far greater cost to government.

Yes, well the revenue options seem rather limited then in the biggest debt and deficit situation we've ever faced. Can't reduce negative gearing because those with multiple houses will complain. Cant put a tax on super because retires on over $100k tax free super will complain they can't take overseas trips any more, can't tax resource exports because the big companies will stop investing (yeah right), our company tax is already too high so we can't put that up, so looks like it 's a case of cutting spending in health or education and just importing high wage skills or keep borrowing and kick the can down the road for the next generation.

The country is stuffed, but we all want to keep our perks. So be it.

BTW, good point about people blowing their super and going on the pension, what should be done about that ?

 

[Value Collector]

A means test could be applied to franking credits

Yes, well the revenue options seem rather limited then in the biggest debt and deficit situation we've ever faced. Can't reduce negative gearing because those with multiple houses will complain. Cant put a tax on super because retires on over $100k tax free super will complain they can't take overseas trips any more, can't tax resource exports because the big companies will stop investing (yeah right), our company tax is already too high so we can't put that up, so looks like it 's a case of cutting spending in health or education and just importing high wage skills or keep borrowing and kick the can down the road for the next generation.

The country is stuffed, but we all want to keep our perks. So be it.

BTW, good point about people blowing their super and going on the pension, what should be done about that ?

I just did the numbers.

If you took the franking credit system away, and didn’t replace it with another system like other countries have such as a lower tax rate for dividends.

Then my tax rate would go to 63%, instead of the 47% I am currently on.

While people earning under $21,000 who currently have a tax rate of 0%, would have their tax rate rise to 30%, (how ever their friends with rental properties, term deposits or any other investment would still enjoy the 0% rate)

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But, if you kept the franking system but just abolished refunds, I would stay they same and still only be taxed at 47%

Those low income guys though would have to suck it up and pay 30% though.

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The main issue people seem to have is as I pointed out caused by the 0% pension phase super tax rate, but as I pointed out that actually has nothing to do with franking.

There is also already limits to it, because there is a limit to how much assets you can put into your pension phase account.

There is also limits to how much you can contribute to super over the years.

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Also, I believe “these wealthy retirees” are actually doing society a favour, by building up enough super to earn a large tax free income, they might enjoy a 0% tax rate, but atleast they aren’t draining the government coffers either.

They also do still pay taxes like GST, Fuel excise, alcohol tax, customs fees and airport taxes etc etc.

 

[SirRumpole]

They also do still pay taxes like GST, Fuel excise, alcohol tax, customs fees and aurport taxes etc etc.

Big deal, so does everyone else.

At least abolishing refunds would be a start. A means test could be applied.

 

[Value Collector]

Big deal, so does everyone else.

At least abolishing refunds would be a start. A means test could be applied.

But why would abolishing refunds be better than just raising the tax rate on every one?

Do you understand the examples I have been giving?

Why would you be ok with someone earning $100k tax free from a rental property, but not ok with some one earning $100k that got it paid as $70k in dividends then having their franking credits refunded so that they end up with their full $100k back.


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Do you understand that -

1. Earning $100k from a rental property and being allowed to keep it tax free.

Is exactly the same as

2. Earning $100k in company and paying $30k tax, then getting a $70k dividend and $30k refund.

In Both examples $100k was earned and zero tax was paid, the shareholder just had $30k of their money held by the government for a few months before it was paid back.

 

[SirRumpole]

But why would abolishing refunds be better than just raising the tax rate on every one?

Do you understand the examples I have been giving?

Why would you be ok with someone earning $100k tax free from a rental property, but not ok with some one earning $100k that got it paid as $70k in dividends then having their franking credits refunded so that they end up with their full $100k back.


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Do you understand that -

1. Earning $100k from a rental property and being allowed to keep it tax free.

Is exactly the same as

2. Earning $100k in company, as a $70k dividend and $30k refund.

In Both examples $100k was earned and zero tax was paid, the shareholder just had $30k of their money held by the government for a few months before it was paid back.

Who earns $100k tax free from rental properties?

 

[SirRumpole]

Who earns $100k tax free from rental properties?

You want to tax them as well, fine by me.

 

[Value Collector]

Who earns $100k tax free from rental properties?

Lots of people, Probably the same amount of people that earn $100k in dividends.

All it would take is 5 houses or a small block of units, or a decent industrial warehouse or a few shops etc.

But that’s not the point the point is are you happy with other investors earning $100k tax free?

And if you aren’t, why only target franking credits?

 

[Value Collector]

You want to tax them as well, fine by me.

The point I am trying to explain is that you can tax everyone fairly without messing with the franking credit system.

The franking credit system isn’t the problem, it’s a scape goat, that weak politicians want to use to try and unfairly raise taxes because they think it’s easier to get that under the radar rather than a broad based tax increase on super.

They want to take advantage of

1. Peoples ignorance on how the system actually works and why it’s important.

2. Peoples prejudice against those who are wealthy.

And sneak in a tax rise, even though the results are totally uneven.

 

[SirRumpole]

Lots of people, Probably the same amount of people that earn $100k in dividends.

All it would take is 5 houses or a small block of units, or a decent industrial warehouse or a few shops etc.

But that’s not the point the point is are you happy with other investors earning $100k tax free?

No im not happy with anyone earning $100k tax free. So if keeping the precious dividend imputation and taxing all income at the same rate is more efficient, fine.

 

[Value Collector]

No im not happy with anyone earning $100k tax free. So if keeping the precious dividend imputation and taxing all income at the same rate is more efficient, fine.

So install some sort of tax bracket system to super earning then, other you are over taxing certain assets classes and allowing others to be tax free.

 

[SirRumpole]

So install some sort of tax bracket system to super earning then, other you are over taxing certain assets classes and allowing others to be tax free.

And do away with the Stage 3 tax cuts for high income earners ?

 

[sptrawler]

If the removal of franking credits had been transparent and proposed in a honest and fair way, it would have been accepted by most as just one of those things that happen.
But the way it was proposed was deceitful and dishonest, the proposal was to take the franking credits off low income earners and self managed retirees, yet industry super funds and retail super funds were'nt going to lose them.
That IMO is descriminatory and morally corrupt.
Whether a low income earner gets the franking credit, or a billionaire gets the ffanking credit, the ATO loses it either way, so if they want to remove it, remove it from everyone IMO.
The easiest and fairest way to increase the tax revenue, is to increase the gst, then everyone wears it.
ATM the only ones who are carrying the majority of the pain are those with loans, the banks are increasing profits but the Govt is losing income.
Back of on interest rates and crank up gst IMO, then the Govt gets the dough.

 

[SirRumpole]

Whether a low income earner gets the franking credit, or a billionaire gets the ffanking credit, the ATO loses it either way, so if they want to remove it, remove it from everyone IMO.

Indeed.

The easiest and fairest way to increase the tax revenue, is to increase the gst, then everyone wears it.

Not fair at all, everyone does wear it but the lowest income earners wear it the most.

Pretty easy and fair is to put an export tax on gas and coal that is linked to domestic prices.

If exporters want to reduce their export tax then they charge domestic consumers less.

No reason why we should pay world prices for stuff we own.

 

[wayneL]

...so looks like it 's a case of cutting spending in health or education and just importing high wage skills or keep borrowing and kick the can down the road for the next generation.

The country is stuffed, but we all want to keep our perks. So be it.

They could reduce spending on pork barrelling and other such nonsense. They won't, and that's the reason we're stuffed..

And FFS, the perks in Australia isn't in trying to level taxation across different asset classes.

Sheesh!

 

[sptrawler]

Indeed.


Not fair at all, everyone does wear it but the lowest income earners wear it the most.

That is a bit of a backflip from you Rumpy, it was only a couple of posts back that you were promoting penalizing the lowest income earners with franking credits. Just saying?


GST is still the fairest and most broad based way of increasing Govt revenue, it is also the one easiest and fairest to compensate those on welfare, for example if GST is raised 5% welfare could also be increased at the same time.
The lowest earners are always hurt the most when costs are increased, they have no one to pass the increased cost on to, that is an unfortunate part of being at the bottom of the food chain.
Don't you think the RBA increasing interest rates, isn't hurting the low income earner most? They have increased debt costs and increased rent costs to name a couple of obvious ones.
The thing is the increased cost isn't being collected by the Govt, as much as it is being collected by the banks and the Govt gets a small share of it.
IMO far better for the Govt to slow down consumer spending, by increasing the GST and then using that money to improve services and targeted support.

 

[Value Collector]

Indeed.


Not fair at all, everyone does wear it but the lowest income earners wear it the most.

Pretty easy and fair is to put an export tax on gas and coal that is linked to domestic prices.

If exporters want to reduce their export tax then they charge domestic consumers less.

No reason why we should pay world prices for stuff we own.

I agree, I think the GST hits lower incomes harder than it does guys like me because it is basically a consumption tax, so the people that have to consume all of their earnings pay a larger portion of their earnings towards it.

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I really do think the current system is fair, I don’t think we should raise the taxes above 47%, and abolishing franking credits would make it 63%. (Actually is good make it even higher where a company receives dividends from another company it would be 77% tax by the time the investor pays his tax)

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I guess we as a society need to ask ourselves

1. how much should the lowest tax rate be? And what levels of income should that apply?

And

2. How much should the highest tax rate be? and what level of income should that kick in?

I find it hard to justify a tax rate higher than 50%, but as I said I would accept some higher taxation on super

But super tax still has to be low because we want people to contribute to it so they aren’t a burden later, and also if some one does save enough to be a self funded retiree, then I think the fact that they aren’t a burden on society deserves a bit of a tax break.

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Australia’s pension benefits are equal to owning assets of about $400,000. So we have to encourage people to save $400,000 over their life into super, starting them off with higher taxes will be counter productive.