Further to my post yesterday there’s a report in today’s newspaper that Labor’s policy on dividend imputation could be implemented with exemptions to anyone over 65 – pensioners – with minimal impact to the bottom line. For mine this is looking more and more like good – and just – policy.
To be clear, what we’re talking about is tax refunds being given to people who haven’t paid tax. In very simple terms the current policy allows for people with a taxable income at level where little or no tax is applied to claim the difference on their share portfolio when tax has already been paid by the business. For example, if a company has paid their 30% company tax when they issue dividends then someone on a 15% tax rate can claim a refund for the 15% differential. For those with zero taxable income – for example, superannuation payments – then they can claim the full 30% refund, even though they haven’t paid a cent of tax. Obviously this adds up to a lot – billions of dollars, in fact.
This is a ridiculously generous policy that benefits a lot of wealthy and clever Australians, and does nothing for the economy. It’s overly generous when you consider that retirees already get their super payments tax free. In terms of the world, we are an outlier in this regard – most countries have much more sensible policies, as we did ourselves until Costello changed it (as a salve for another policy initiative that ultimately wasn’t passed). It used to be that the recipients of these dividends would get a pass on tax, rather than a refund – that’s what it should return to.
All commentary about double tax is tabloid nonsense, unfortunately some of it coming from the mouths of ministers who know better, and should be more responsible. It isn’t double tax, and in any case we are taxed double whenever we pay for something inclusive of GST. It doesn’t bear scrutiny.
As I said yesterday, I think it’s time for us to get bold on policy initiative. Times have changed and we are stuck with a bureaucratic, inefficient, out of date and unfair tax system. I support initiatives on negative gearing similar to what Labor has proposed on the basis that the current policy is inflationary, and more importantly, the benefit is to the few rather than the many. I don’t see the point in giving a tax-break to those who invest in current property. That’s a circular jerk, and there is no incentive to develop new properties, which is what we need. If we restrict the benefit to those who invest in new property only then it will have a direct bearing on the market. This is what policy should be about – not hand-outs, but shaping the economic landscape for the common good, and using incentives to encourage it.
There are a couple of other areas that need to be looked at. Stamp duty is iniquitous and as Ken Henry suggested, might be better replaced by a land tax, which would be much fairer. And I am in favour of a user pays model when it comes to car registration, which is a state issue. As it stands everyone pays the same amount of registration whether they travel a 100 kilometres a year or a hundred thousand. That’s unfair, but it also has an impact on livability. Theoretically registration fees go towards the upkeep and maintenance of roads and traffic infrastructure, and it’s only fair that those who travel most should pay more. The other aspect very relevant to our times, is that a user pays system of registration will likely take drivers off the road and into public transport. That’s good for the environment, good for traffic movement, and ultimately good for the bottom line because we can’t keep building new freeways, or adding new lanes to existing.
With all these things there has to be another, smarter way. Look again, go further.