Low  income shareholders will have the highest marginal tax rate in the OECD

Dear ,

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 relying on share dividends for most or all of their income.

Our latest Fact Bite 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 franked 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 pa will pay approximately the same tax as a wage earner with an income of $61,000 pa.
• 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 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.

For further information contact Graham Young  on 0411 104 801.