18 June 2018

Treasury costings of Labor's retiree tax revenue

A detailed Treasury costing of Labor’s retiree tax proposal has revealed a $10 billion black hole in Labor’s expected budget revenue from denying tax refunds for dividend imputation credits over the medium term. This includes a shortfall of around $1 billion over the current budget and forward estimates.

Treasury’s costing is the product of a thorough assessment of Labor’s proposal, including likely behavioural impacts of individuals rearranging their affairs to avoid the new tax, and follows consultations with external stakeholders, as well as analysis of relevant available data.

The costing also takes account of the changes Labor made to their new retirees tax within weeks of announcing it, after it became clear they had failed to consider the impact on pensioners. Despite their changes, Labor’s retiree tax still hits pensioners.

Treasury’s costing of Labor’s Retiree Tax proposal confirms concerns raised at the time Labor announced their proposal that they had over-estimated the revenue they expected to collect, first they claimed $59 billion, then $55.7 billion. It’s now $45.8 billion. This is not the first time Labor have done this. In Government they did it all the time.

This latest Labor black hole is another chapter in Labor’s sorry history of overstating revenue measures, including their infamous Mining Tax that damaged the economy, yet failed to raise the revenue they claimed it would.

The problem with Labor and tax is not just that they keep wanting to put taxes up without any regard for the damage it does, but that they always spend the money before the money comes in. This is what happened with the Mining Tax and they now want to head down the same path with their Retiree Tax.

Labor’s Retiree Tax is far and away Labor’s biggest revenue measure over the forward estimates. It will hit retirees and small business owners to the tune of almost $5 billion per year. But Labor wanted even more.

What other taxes will Labor now try and jack up to make up the shortfall?

Treasury advice also confirms that the revenue estimates over the medium term are particularly unreliable for this proposal. Yet Labor will seek to bank these unrealistic estimates and will bake into the budget long term spending commitments.

This is how Labor ran up the debt and deficit when they were last in Government. That is why, with Labor, too much tax is never enough. Labor’s higher taxes can never keep up with their higher and uncontrolled spending. Labor can never live within their means.

The proven black hole in Labor’s Retiree Tax revenue not only underscores why Labor cannot be trusted to manage the nation’s finances, but it also undermines any claim they make that even their higher taxes pay for their spending promises.

Labor are always promising to spend more money. But you cannot believe their promises because they cannot be trusted to manage our finances. Labor are unbelievable.

The Government requested the costing and is releasing it in the interest of the public debate because yet again Labor chose not to release the detailed costing of their proposal by the independent Parliamentary Budget Office (PBO). Labor’s costing request would have included what assumptions the PBO was asked to make and what caveats the PBO provided on its revenue estimates.  Labor should similarly release the PBO’s work.

The Treasury costing also confirms Labor is hitting those who rely on franking credit refunds the most, while wealthier retirees who have the means to change their investment approach, will do so, and avoid paying Labor’s extra tax.

Treasury considers that affected individuals would change their investment decisions to minimise their tax liability and take advantage of new investment strategies that emerge in response to the proposal.

Treasury considers that those individuals with large franking credit refunds are “more likely than those with small refunds” to make this shift away from investing in franked dividend paying shares.

Just as they threw the book at pensioners, Labor have deliberately designed this cruel tax to hit retirees with small nest eggs who don’t have the option of changing their investment behaviour to provide for their retirement.

These aren’t millionaires and multinationals. They are grandads and grandmothers simply seeking to support their own retirements. They are in Labor’s firing line while those with more means dodge the tax hit.

From the very start Labor, and Shadow Treasurer Chris Bowen, have botched this policy. Labor failed to think the policy through when they released it, they had to change it on the run and under pressure within a fortnight and now their numbers just don’t add up.

You only have to look at Labor’s track record.  Under the entire period of the Rudd-Gillard-Rudd Government estimated revenue was nowhere near what was achieved.  They continued to overestimate revenue year after year, Budget after Budget, and they kept spending the non-existent money.  That’s how you got the deficits, that’s how you got the debt.

Not only is this a cruel tax on retirees who have worked hard to save for retirement, but it shows the incompetence of Labor and its leadership.

This is just another poorly designed, lazy and cruel Labor tax grab, dreamt up because they can’t manage their spending.

Attachment - Treasury costing [PDF 450KB]