Ideas@TheCentre brings you ammunition for conversations around the table. 3 short articles from CIS researchers emailed every Friday on the issues of the week.
The furore over dividend franking credit refunds is bringing out the worst in our politicians. The Coalition is running a parliamentary inquiry that has turned into an endless circus parade of victims; and Labor is camouflaging a revenue grab with false claims to principle.
Bill Shorten says the principle of franking credit refunds is a “crazy” one — never mind that it was praised by Labor in opposition when first put into practice in 2000, and subsequently preserved by Labor in office.
The principle Shorten claims as the right one is that a taxpayer should not receive a tax refund if they have no tax liability in the first place. This may have superficial appeal but does not withstand closer scrutiny, as outlined in our policy paper Dividend Franking Credit Refunds: principle vs revenue, published this week.
Refunds are an integral part of the imputation system and rest on the same principle, which is far from crazy. The purpose of imputation is to avoid double taxation. It does so by ensuring that franked dividends are taxed at the recipient’s marginal rate after taking into account the company tax already paid on the associated profits.
The role of company tax in this system is that of a prepayment of the shareholder’s tax. If the prepayment is not enough to satisfy the shareholder’s tax liability, the shareholder owes more; if it is more than enough, the shareholder is owed a refund. The latter outcome is most apparent in the case of a pension-paying self-managed super fund on a zero tax rate, but it also arises in other situations where the shareholder is on a low tax rate.
Whether the franking credits are a credit against other tax payable, or a refund, is immaterial to their essential purpose of giving effect to a full imputation system.
The Coalition seems unwilling — or unable — to make this principle-based case. A circus parade of victims may have more political traction, but the tax system should be designed around sound principles consistently applied.
Chris Bowen must know that, but can’t see past the claimed $5 billion a year in extra revenue snatched from a group he thinks he can get away with portraying as ‘undeserving’.
Once again, politics in Canberra has triumphed over good policy — with young Australians the latest casualty.
To pass its superannuation reform package through the Senate, the government on Thursday abandoned an important component of the reforms that would have helped young people in a practical way.
For too long, an opt-out system has resulted in the automatic deduction of life insurance premiums from young workers’ super accounts — often without their knowledge.
And because super is compulsory, many of them have accrued multiple low-balance super accounts from working different jobs; accounts that are eroded over time by insurance premiums, as well as administration fees.
Of course, part of the problem lies with young people finding it difficult to care about their super so far out from retirement.
If they took a greater interest, they might realise they could save a lot of money; by consolidating their super accounts, for example, or by cancelling their insurance cover if they don’t need it.
This neglect comes at a serious cost to young workers — potentially thousands of dollars in lost income over a lifetime. Obviously, you wouldn’t allow a stranger to take a $100 note from your wallet every year without your active consent. So why are insurance fees any different?
And unfortunately, this apathy is precisely why super funds can get away with deducting fees from super accounts, with few consequences.
But given young people are forced to sign up to superannuation, it is unconscionable to then sign them up for other things they never asked for. Any add-ons to superannuation — such as life insurance — should be opt-in only.
This is why the government’s super reforms included the introduction of an opt-in system for insurance that could have saved Australians up to $3 billion each year in insurance premiums.
If anything, these changes didn’t go far enough, as the opt-in rules would have only applied to workers under 25, with new accounts, and those with low-balance or inactive accounts.
Nonetheless, the government couldn’t persuade the Senate to support most of these changes, although the Senate did pass the government’s other super reforms to crack down on administration fees and inactive accounts.
And while the government plans to re-introduce the insurance reforms as a separate bill, it appears unlikely to succeed through Parliament.
Sadly, this latest cop-out on sensible policy is evidence that politics matters more than the wellbeing of young Australians.
Prominent intellectual and speaker Jordan Peterson’s current Australian tour could well be the first time many millennials have heard a message of personal responsibility.
For most of their lives, millennials have been coddled by the narrative of having rights without responsibility. For many millennials, individual accountability was obsolete in western culture, until people like Peterson revived the discussion in a new way for a new generation.
As an unintended consequence of the cultural change in the 1960s, there has been an overemphasis on group identity and intersectionality in our culture.
The most important aspect about an individual has become their group identity — characteristics such as race, gender, cultural background, and sexuality, take primacy over the individual.
This has led to people being classified as belonging to either an oppressor or a victim group. Being a white person meant that you had to forever reimburse the sins of western imperialism and slavery. Because you share the characteristics of those who did wrong in the past, you must pay in the present.
Meanwhile, being a minority victim group meant that you can ‘never be guilty’ or be responsible for any suffering in your own life. If you belong to a victim group, your problems were caused by the oppressors.
Peterson’s message directly counters this narrative. For the first time, many young people are being told they have control over their life. You are not responsible for the sins of your ancestors. Nor are you a victim because of the trials of your ancestors.
Take control of what you can. Start small, slowly build competence, and your life will drastically improve. This is how you build a meaningful life.
As Peterson says in his book, 12 Rules for Life, “We must each adopt as much responsibility as possible for individual life, society and the world”.
We must bring personal responsibility back onto the table.
Leonard Hong is a student at the University of Auckland and a research intern at The Centre for Independent Studies.