Labor’s plan to abolish refunds of unused imputation credits has ignited a political firestorm. But the claims and counter-claims about who will be affected by the policy have obscured, rather than illuminated, the real story.
Labor claims most of those hit by the change are wealthy retirees who are not paying their fair of tax. Scott Morrison counters that abolishing refunds of unused imputation credits will mainly hurt low-income earners. So, who’s right?
Part of the confusion stems that the fact that data on what retirees earn, what they own and what tax they pay is highly fragmented. Personal income tax returns provide only a patchy picture of the earnings and wealth of retirees. Superannuation payouts have been tax-free since 2006: they don’t even have to be declared on personal income tax returns. And drawdowns of savings other than superannuation to fund retirement — whether shares, bank deposits or investment property — are not declared as income.
ABS surveys tell us which retirees own shares and what other assets they own, but not whether they receive imputation credits or claim other deductions, or precisely how much income tax they pay. Meanwhile data on self-managed super funds — which will pay most of the extra tax — is not connected to members’ personal income tax returns or retirees’ other assets.
Picking up these various threads and weaving them into a coherent story about who would pay more tax under Labor’s reforms is no easy task. But here goes.
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