Labor’s attack on the cash refund for excess dividend imputation takes a brutal hammer to the retirement income of many Australians, particularly those with an SMSF. However, the debate about tax policies in Australia has taken its typical turn of stating extreme positions, rather than debating merit and possible compromise.
The hit to dividend imputation would have come as a surprise to many retirees. Few of us in the superannuation space saw this coming. Though, if we are honest, it should not have been such a surprise. Australia is the only developed nation that allows not just dividend imputation, but also a cash refund where the tax rate of the individual or superannuation fund is lower. In fact, many developed nations don’t even allow dividend imputation.
The debate so far has seen pitchforks at both ends of the spectrum. To Labor, the current system is a further example of the corruption of the tax system by the wealthy. On the other side, it is merely an attempt to avoid double taxation.
Both sides argue the high ground on tax equity. A hard and somewhat nebulous idea that tax laws should not impose an excessive burden on the poor and that tax should be spread in a way that the wealthy pay more.
Labor argues its policy is about tax equity, and it has portrayed the cash refund as a means for the very wealthy to avoid tax. The other side argues, also on equity grounds, that many of those who benefit are pensioners and self-funded retirees who need every cent they can get and that this is just another example of big government reaching its hand into their pockets.
There is a degree of truth in both sides, but what is lacking is nuance and a clear head. Yes, there are some very wealthy people who can arrange for their income to be diverted in a way to maximise wealth and minimise taxation. But there are also tens of thousands of retirees on relatively low incomes who also benefit.
The debate we are not having is, can the policy be tweaked in such a way that those self-funded retirees who deserve to benefit from this policy be kept safe, while also ensuring it is not abused by the very wealthy?
It could be possible. At the risk of saying things off the top of my head rather than deep thought, some options spring to mind, such as:
Let’s put down the pitchforks and have a reasoned debate.
Reece Agland, principal, Reece Agland & Associates.
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