Opinion: Many of the recent policy changes impacting superannuation and retirement planning – including the ALP plan to stop refunding imputation credits – have been a complicated and confusing attempt to wind back tax concessions, and a fair share of the blame for this can be apportioned to the actions of Peter Costello when he was Treasurer.
Labor leader Bill Shorten last week announced the policy of stopping refunds of dividend imputation credits from 1 July 2019, assuming the ALP wins the next Federal Election and the measures makes it way through the Parliament.
Labor says the policy targets the wealthy, but as refunds of imputation credits are dependant on low taxable income it also catches people on lower incomes, including people drawing tax-free pensions from superannuation.
Australia has progressive tax brackets – the higher the income the higher the tax rate. But this was distorted by the change Treasurer Peter Costello announced in the 2007/08 Budget – shortly ahead of the GFC – to not tax most superannuation pension payments for people over age 60.
This costly, but popular with the people who benefit, measure has been the driver behind many of the controversial changes to superannuation in the decade since Costello made the change, as politicians try to fix the resulting Budget issues. But because it would be too politically unpopular to tax superannuation pensions over age 60 politicians have come up with other ways to limit and tax these pensions. The 2016/17 Budget superannuation changes, especially the $1.6 million Transfer Balance Cap and reductions in the non-concessional contributions cap, are some of these responses. Making indirect changes has increased the complexity of the measures – changes that would be simple at the individual level are complicated to implement and administer at the fund level.
Refunding excess dividend imputation credits was another, earlier, tax change made under the Howard-Costello government.
Labor’s policy is simply another in the line of flawed policy measures to wind back tax concessions without directly tackling the issue. If superannuation pensions were included in the taxable income of individuals than refunding imputation credits would be much less of an issue, and be fairer – another of the stated policy goals. People on lower incomes would still receive a refund of credits where they didn’t earn enough to offset the credits, and people on higher incomes would pay any extra tax on top of what was already paid by the companies.
Unfortunately this is unlikely to be the last complicated and flawed tax policy resulting from the decision in 2007 to not tax superannuation pensions.