Anthony Albanese’s government warned latest proposal could be seen as a ‘tax hike by stealth’
The finance ministry has admitted that the crackdown on postage credits proposed by the Albanian government could be seen as a sneaky tax increase in a particularly sensitive area for Labour, which is already battling allegations of breaching election promises.
The government introduced a bill to parliament last month that aims to limit companies’ ability to distribute postage credits to shareholders as part of an off-market share buyback or capital increase.
Franking credits prevent shareholders from being taxed twice. They offset the amount of tax a stock investor pays because the dividends they receive come from profits, which are already taxed at the corporate rate of 30 percent.
The new measures, which will raise $600 million, received overwhelmingly negative feedback from the public, labeling them as a tax increase or “reducing” postage credits, according to documents released to the opposition under freedom of information.
In talking points for Treasury officials appearing before the Senate estimates for the October post-budget hearings, the department admitted that “there were significant concerns expressed by the public” in about 2,000 submissions.
“There were concerns about the retroactive effect, the policy objective and the potential for the legislation as drafted to capture legitimate business practices,” the documents said.
“Treasury is considering the issues raised.”
Treasury went on to say that shareholders benefiting from off-market credits could argue that the new policy is “basically a tax increase or a reduction in dividend allocation.”
Dealing with Labor’s proposals off-market share buybacks in the same way as on-market buy-backs, which would bring the budget $550 million per year.
On-market buybacks are when a company buys its shares through an exchange, such as the ASX, while off-market buybacks are when a company offers to buy back shares directly from the shareholder.
Labor’s proposals would most affect those living on investment income, often over the age of 75, pension funds and charities.
Anthony Albanese’s government (pictured with partner Jodie Haydon) has been accused of breaching yet another election pledge with major changes to postage appropriations to be announced shortly
With Labor already criticizing the proposed tax increase on pensions, the opposition has seized on the new measures, which the former coalition government proposed but backed out of, as yet another broken promise.
Shadow Treasurer Angus Taylor said Prime Minister Anthony Albanese and Treasurer Jim Chalmers pledged to keep their hands off franking credits in order to take office.
“The Prime Minister and Treasurer went to the election promising Australians not to touch postage credits, yet they added two tax bills to Australian shareholders in 10 months,” Taylor said.
“This is just another tax on super. Another tax on Australians’ retirement savings. And another broken tax promise.
“Whether it’s franking credits or pensions, Labor has no control over spending and so it goes after Australians’ hard-earned dollars to pay for its pet projects.”
The Albanian government has labeled the new measures as “integrity” measures that close loopholes mainly exploited by large companies and institutional investors.
“We have considered all matters raised, including the sheer volume of campaign responses,” said assistant treasurer Stephen Jones.
“The vast majority of investors will remain completely unaffected and continue to receive their prepaid distributions.”
Aussies over 75, Australian super funds and companies and charities appear to benefit most from postage credits
Labor would have reason to be nervous, as any tinkering with postage credits would raise the unwelcome specter of the Election 2019.
Under then leader Bill Shorten, Labor had little chance of defeating the coalition led by the third prime minister in six years, Scott Morrison.
It turned out to be a shocking defeat, however, with Mr Shorten himself largely blaming the fears aroused among retired ‘mum and dad’ investors by Labour’s more to end credit franking.
Before the May 2022 elections, Mr Albanese vowed there would be no pension changes.
But late last month he announced that from July 1, 2025 after the next federal poll, his Labor government would prevent Australians from making contributions with more than $3 million in super money and pay a favorable rate of just 15 percent.