LABOR has buckled to pressure in the political row over its $59 billion revenue grab on dividend payments, staging a sudden retreat to exempt all Australians on the age pension from a policy it unveiled just two weeks ago.
Bill Shorten will vow to exclude 306,000 pensioners from his original plan in a bid to calm the storm over the impact on retirees who stand to lose tax refunds worth thousands of dollars a year.
The dramatic backdown comes after sharp criticism of the Opposition Leader for announcing the original policy without allowing for the harm to older Australians on low incomes, which has raised doubts about his political judgement. The revised policy, cleared by the Labor shadow cabinet on Monday afternoon, offers a complete exemption for 277,000 Australians on the full or part pension as well as another 29,000 people on allowances such as war widows’ pensions.
The move spares a large group of voters who receive relatively little in cash refunds for the franking credits they can claim on their dividends earnings, which means Labor sacrifices only a small slice of the revenue to appease a key group of voters.
The new policy collects $55.7 billion instead of $59 billion over 10 years and after excluding the pensioners puts the financial burden on 893,000 individuals and self-managed superannuation funds.
The gain to commonwealth revenue will be $5.2 billion in the first full year of the policy, only $400 million lower than the $5.6 billion forecast for the original plan.
Labor believes the blanket exemption is a simpler way to satisfy pensioners compared to the alternative of putting a cap on the refund they can claim for their franking credits, an idea floated last week by Industry Super Australia.
One Labor source said the adjustment excluded one quarter of the individuals caught by the first policy while keeping 94 per cent of the revenue.
The backdown, signalled by Fairfax Media last week, keeps the original goal of targeting about 200,000 self managed super funds for much of the revenue.
Treasurer Scott Morrison prepared for the backdown on Monday by calling the Labor policy a “dog’s breakfast” because it was being revised in a rush and would still hit retirees.
Mr Morrison warned there would be no fairness to a policy where an older Australian may keep a tax refund if he or she was on the pension but someone else might lose it if he or she had a small amount of additional money and did not qualify for the pension.
The pension asset test dictates that single people with assets worth $556,500 and couples with $837,000 in addition to their own home will lose the pension, meaning they would also lose cash refunds for their franking credits under Labor’s policy.
Shadow treasurer Chris Bowen estimated during the last fortnight that the policy would reduce cash refunds to about 400,000 self-funded retirees and 200,000 self-managed superannuation funds.
The policy also affects another 300,000 taxpayers including those aged under 65 with low incomes but significant share portfolios, such as partners who do not work.
Labor’s surprise revision only applies to current and future pensioners with individual shareholdings, which means those with trusts or other arrangements may still be included.
Knowing that some people on the pension also have self managed super funds, Labor has “grandfathered” the arrangements to exempt any SMSF with at least one pensioner or allowance recipient before March 28.
The Wednesday deadline seeks to avoid a rush of changes in which pensioners set up SMSFs or some SMSFs sign up at least one pensioner to gain an exemption.
The chief executive of the Council on the Ageing, Ian Yates, told Fairfax Media he had spoken to Labor for two weeks to get a fairer outcome for pensioners.
“A purist policy would include pensioners but that’s not the real world – and it’s not where the money is anyway,” Mr Yates said.
“If you’re a full or part pensioner you’re not rich.”
Under the original policy, Labor aimed to collect $5.6 billion a year from 1.1 million taxpayers, or about $5000 each on average.
Fairfax Media revealed findings from Industry Super Australia last week showing the bulk of the revenue from Australians aged over 65 came from the top decile by household wealth, which meant Labor could exclude nine out of 10 older Australians by sacrificing roughly $400 million in annual revenue.
The revised policy collects $5.2 billion a year from 893,000 taxpayers, or about $5800 on average.
Sydney Morning Herald