OPINION | It was no surprise that Labor’s newly announced policy on dividend imputation tax credits sparked a flurry of sensational media headlines.
History tells us that any tax change affecting retirees or superannuation leads to much confusion and angst. Indeed, the brouhaha over the Turnbull Government’s super changes in the 2016 federal budget has only just subsided, even though the changes affect less than 4 per cent of retirees.
The complexity of the tax arrangements for retirement income and superannuation is a big part of the problem. In this case, specifically, very few people seem to understand how dividend imputation works and the potential for the public to be misinformed is enormous.
The same can be said about the changes to negative gearing that Labor has recommended. Research by Essential Media, recently commissioned by the Australian Institute of Superannuation Trustees, suggests there is a limited understanding of what negative gearing is or how it works, even among property investors who negatively gear.
A deeper debate
Clearly, there is a need for both sides of politics to focus on communicating more simply and clearly with the general public about any potential tax changes. There is also a need for debate within the super industry to go deeper than the usual commentary about the need to stop tinkering.
While AIST acknowledges the need to keep tax changes in super to a minimum, we also recognise the need to consider the bigger picture – the sustainability and fairness of our retirement income system.
Increasingly, economists and other commentators are raising concerns about the long-term consequences – particularly for young taxpayers – of providing generous tax benefits for older, wealthier Australians. Some have gone so far as to label the decision by the Howard and Costello Government to make super payouts completely tax-free for the over-60s as one of the worst taxation policy decisions ever made.
Against this background, AIST believes Labor’s dividend tax credit policy deserves serious consideration by policymakers. This includes consideration of whether the policy could be fine-tuned to ensure low income pensioners are not unfairly affected.
We also think it is time to reconsider Australia’s negative gearing and capital gains tax policy. Negative gearing affects the adequacy of Australia’s retirement income systems in number of ways:
- Fuelling house price growth and reducing home ownership.
- Encouraging households to borrow, thus potentially leading to more people entering retirement with
- Distorting the decision-making process involved in investing in property versus making voluntary super contributions.
- Reducing tax revenue, adding pressure on the Commonwealth budget.
The annual cost to the federal budget of negative gearing on residential property is estimated at more than
$4 billion. Taken together with the tax expenditure of the CGT discount for investor-owned properties, the total tax expenditure for property investment is more than $12 billion a year.
While this is considerably less than the estimated $37 billion in annual tax expenditure on superannuation, super
tax concessions are distributed across the entire working population of more than 12 million Australians, as
well as a growing proportion of self-funded and part-pensioner retirees. In contrast, the effects of tax concessions related to property are limited to about 2.5 million property investors.
And unlike superannuation – where investments are spread across a diverse range of assets, including much-needed infrastructure – the majority of tax expenditure on negative gearing is unproductive.
Australia’s retirement income system must be fair to all and must be sustainable.