Opposition Leader Bill Shorten announced yesterday that imputation credits resulting in a cash refund would be abolished by July 2019 if he becomes prime minister.
Imputation credits are a tax refund owing to shareholders of companies where up to 30% tax has already been paid by the company.
If you pay less tax than the company tax rate then you can claim a refund.
The resultant change could reduce investors’ cash flow by many thousands of dollars and turn them against the sharemarket.
Worse still, self-funded retirees could see their incomes cut by $5000-$10,000 a year on average for a self-managed super fund member.
Self-funded retirees are simply hard-working Australians, many of whom have paid tax all their lives, saved diligently and done all the right things to release themselves from the burden of the age pension for the benefits of other taxpayers and those more vulnerable.
But in past years access to the age pension has been restricted, a pension transfer balance cap of $1.6 million has been introduced and now imputation credits may be abolished under a Labor government, further eroding their incomes.
The reason I called Mr Shorten a goose is because he described self-funded retirees as receiving a “tidy little arrangement” and was further quoted in his speech as suggesting “every dollar that slips through these loopholes is a dollar that cannot be invested in the Australian people and their potential”.
Well, Mr Shorten, let me remind you that the average SMSF – 200,000 or more of whom will be affected by this change – has around $1 million invested and is not enjoying a lavish lifestyle.
In fact, as interest rates are so low and dividends across the market average about 3.25%, they’ll be lucky to be pulling out $35,000-$60,000pa at best.
That’s only just above the poverty line – hardly the lavish lifestyle of the rich and famous as described by our potential prime minister.
As imputation credits could account for between 0.5% and 1.5% of a retiree’s income, this could range from $5000 to $15,000 a year as a conservative estimate.
On an income of, say, $45,000pa, we’re potentially talking about a 20%-30% pay cut for retirees, who would be lucky to get 2.5% in a term deposit.
As retirees eat into their lump sums they’ll almost certainly have to place additional pressure on the age pension system and potentially have to return to work.
So, too, retirees will be looking for riskier asset classes such as unlisted property trusts to glean a higher yield and maintain their standard of living.
So don’t be a goose, Mr Shorten, and suggest that our hard-working retirees should take another pay cut, because they deserve much better treatment than this.