Another week, another tax grab

It was entirely predictable that the Shorten government-in-waiting would eventually get around to cancelling the refundable status of dividend franking credits. After all, they have big spending promises to pay for, and they can grab this tax bucket in the belief that only the Liberal voting base will suffer.

At least Shorten and Bowen deserve credit for revealing their intentions before the election and not waiting until after it. But that is where the credit should stop: as a tax policy, it is misguided.

Full refundability is consistent with the logic of the dividend imputation system, which is that the final tax on a dividend — including the 30% company tax — is the taxpayer’s marginal rate and there is no double taxation.

In the case of a pension-paying superannuation fund, for example, the marginal rate is zero, and to reach that position (leaving aside any other taxable income) there has to be a refund of the tax pre-paid by the company.

This is not to suggest that the dividend imputation system should be off-limits in any broad tax reform. There is a debate to be had about trading off imputation for a company tax cut larger than the government is proposing. But shutting down refundability isn’t reform; it’s a piecemeal revenue grab.

Unlike many policies today, refundability was carefully thought through; it was initially proposed in the 1998 white paper that introduced the GST, and subsequently endorsed by the Ralph Review of Business Taxation before being set into legislation. The fact that it was not part of the original 1980s (Labor) design of the imputation system might give Bowen a debating point, but is neither here nor there.

The Opposition’s announcement is the latest in a stream of soak-the-rich (meaning those on more than $87,000 and all self-funded retirees) policies, which Bowen claims are needed to undo the Howard era ‘largesse’. But the only largesse is in Labor’s own spending plans.