ALP franking credit policy is taxation theft

Posted on May 16, 2019 by in Publications · Tags:

While Labor talks about hitting the “big end of town” they are actually hitting the very small end of town with their franking credits proposal. It will hit any low-income earners who rely for most or all of their income on share dividends.

Our latest report reveals that the proposal will give Australia the highest marginal tax rate (30%) on low income earners in the OECD. Download the report by clicking here.

Summary

Labor’s franking credits policy abolishes the tax free threshold for a certain class of low income earners and sets the minimum tax rate at 30% with no threshold. This is discriminatory and unjust and undermines Australia’s progressive taxation system.

Major findings are:

  • The policy affects anyone earning below $37,000 who owns Australian shares and receives dividend income.
  • Labor’s policy will disproportionately affect low income Australians who have any sort of share portfolio. They may be caring for a spouse or child, suffering illness or disability, be temporarily unemployed, studying or a multitude of other things and so be unable to earn income to offset the franking credit.
  • It establishes a flat tax rate of 30% for share investors from $0 to $37,000 without a tax free threshold.
  • This is the highest rate of marginal tax for low income earners in the OECD.
  • A share investor receiving only grossed-up dividends of $37,000 will pay approximately the same tax as a wage earner with an income of $61,000.
  • Share investors are differentially affected, depending on what percentage of their income is derived from shares. In one case we highlight the share investor pays tax equivalent to 4 times the other person, despite their income being equal. This means tax is being levied on the basis of how you earn income, not how much income you earn.
  • The current policy is not a “gift” or a “rort” to shareholders, but Labor’s policy would be a gift – to the tax office – and a proposed rort – by a new government.
  • It undermines Australia’s progressive tax system. Transfers under our tax and welfare systems are one of the reasons why inequality in Australia has been contained.

The full report is available here.