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Real 'victims' of Labor's dividend tax policy are not average Joannes

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23.11.2018

As the federal election draws closer and a change of government looks ever more likely, the knives are out for Labor’s tax policies.

This week the theme has been throwing shade on Labor’s policy to change the tax regime for share ownership, with a Coalition-led parliamentary inquiry kicking off its public hearings, a protest organised by leading fund manager Geoff Wilson and a number of media reports.

The knives are out for Labor's tax policies in the lead up to the election.Credit:Shutterstock

Many punters wouldn’t even have heard of “dividend imputation”, let alone be affected by it, yet there’s a concerted campaign to paint Labor’s planned reforms as a hammer blow for “ordinary Australians” and “lower-end retirees”.

Retirees literally lined up to tell the parliamentary inquiry the tax plan was “unfair”, while Wilson even described it as “criminal” for the way it would hurt “older Australians and women”.

Don’t be fooled.

The opposition to this policy is mostly vested interests doing what vested interests do. The focus on average Joannes snared by Labor’s wicked tax grab is just the opponents playing a good PR game – find an outlier likely to evoke sympathy and make her the face of the issue.

But analysis released this week by the Parliamentary Budget Office makes it abundantly clear who is really affected by Labor’s proposal – and let’s be clear, it’s a well-heeled constituency. (Of course, everyone thinks they’re average, even when the data says otherwise).

Labor’s policy is to retain the structure of the franking credit system but remove the cash refund of excess franking credits. Let me explain how it works.

Companies pay corporate tax on their profits, generally at a rate of 30 per cent. But if they return those profits to Australian shareholders in the form of dividends, the income becomes taxable at the shareholder’s marginal rate.

It's not sustainable to have situation where most people over the age of 65 pay no tax, especially if they're objectively wealthy.

If someone owns shares in their own name and they’re in, say, the 37 per cent tax bracket, they would get a credit of 30c in the dollar for the tax the company has already paid and would then have to pay an additional 7c in the dollar.

If someone were in a lower tax bracket than 30 per cent, they would get any excess tax refunded so they’re only paying their marginal rate. For example, someone........

© Brisbane Times