CANBERRA -- The Federal Opposition has begun to make good on its pledge to tackle inequality, announcing plans on Sunday, if elected, to make it harder for wealthy individuals to "park their money" to minimise tax at the same time as clawing back an estimated $17 billion over a decade, or $4 billion over four years.
The expected announcement at the New South Wales Labor conference to crack down on the legal practice of artificial income-splitting to avoid paying tax through discretionary trusts brings the budget savings under Labor's tax reform to just under $50 billion dollars over the medium term, although to realise this it would take several terms of government.
According to advance speech notes, seen by HuffPost Australia, Labor Leader Bill Shorten will on Sunday tackle a "two-class tax system" by announcing a minimum tax rate of 30 percent on discretionary trust distributions to adult beneficiaries.
"Every year in Australia, there are high-income earners who use discretionary trusts to park their money in a lower tax bracket," Shorten is expected to say.
"And the rest of the community are left to subsidise this.
"That's not fair on Australians who'll never be able to afford this option."
"Our system should not be subsidising those who are already wealthy -- and our budget cannot afford to."
Earlier this month a research paper by the Australia Institute found billions of dollars of tax revenue is being lost due to wealthy Australians using family trusts, perhaps $3.5 billion a year. Tackling this issue has long been sought by welfare groups and was outlined by Australia's main welfare body, the Australian Council of Social Service (ACOSS) in an interview last week with HuffPost Australia.
Tackling Trusts Plan
Not abolishing trusts;
Imposing limits on income splitting;
Not affected: deceased estates, disability trusts, farms or charitable trusts
It comes a week after Shorten declared that tackling rising inequality will be a "defining mission" of a future Labor government.
He had flagged further, perhaps sweeping, tax reform and Sunday's announcement adds to Labor's $32 billion 2016 election promise to abolish negative gearing on existing homes.
"This is about trusts serving their true purpose, so distributions are taxed fairly," Shorten is expected to say on Sunday.
"It's about delivering a level playing field -- so high-income earners can't opt-out of paying income tax.
"This is about one, clear, fair system. One set of rules, for all Australians.
"Tradies and retail workers and mechanics and cleaners don't get to choose how much tax they pay -- and neither should anyone else".
Inequality up: OECD, Grattan, ALP, ANU experts, Melb experts, RBA.— Andrew Leigh (@ALeighMP) July 26, 2017
Inequality down: Scott Morrison. That's all.https://t.co/5ECJQrB1rB
Treasurer Scott Morrison has been attacking Shorten over his new push to tackle inequality, accusing the Labor Leader of lying and "cheap rhetoric about an unfair Australia" in order to bring in bigger taxes.
"We're not going to engage in this populist approach of Bill Shorten who is chasing votes like an ambulance chasing politicians when it comes to exploiting people's frustrations and fears," the Treasurer said last week.
"I'm simply saying, Bill, we're not going to cop you bringing Australia down, we are not going to allow you to spin another lie so you can give Australians bigger taxes."
Labor is not moving to abolish trusts and the policy does not apply to deceased estates, disability trusts, farms or charitable trusts. Asset protections for small businesses will remain.
But the federal opposition will, if elected, impose limits on income splitting. Shorten will argue while artificial income splitting is completely legal, "that doesn't mean it is fair".
"We will apply a minimum tax rate of 30 percent on discretionary trust distributions to beneficiaries over 18 years of age," he is expected to say.
"This makes our tax system fairer, it makes our budget stronger -- and it's the right thing to do."
Labor expects the measure will deliver an extra $4.1 billion over four years and $17.2 billion over ten years.
Shorten will say Labor is building on tax reform started by then Liberal Treasurer John Howard in the 1980s and 1990s. Howard taxed trust distributions to minors at the top marginal tax rate. Labor is extending this principle to adult beneficiaries at 30 percent.Suggest a correction