Tax raid in store on super earnings?

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Worthless interest rates on cash in the bank, plummeting superannuation balances and dividend catastrophes on many stocks that were previously gold plated – that’s the nightmare for many retirees and pre-retirees. Is there more bad news in store? Perhaps.

While many analysts are highlighting the often baffling, secretive and excessive fees charged by some superannuation funds, Rice Warner founder and executive director Michael Rice points out another area that he says the federal government may harness to repay the massive debt created by COVID-19.

Superannuation will no longer be as sacred as it was in the past, he says in a report, referring to the tax advantages delivered by the current super system and regularly criticised by economists such as The Australia Institute’s Matt Grudnoff as concessions that help the rich get richer and do nothing to dent the number of older Australians living in poverty.

“When it comes to super tax concessions and excess franking credits, we’re handing out the most to those who already have the most,” he told YourLifeChoices. “Super tax concessions are worth $41 billion per year. The richest 20 per cent of retirees, who are not on an Age Pension or part pension, get 60 per cent of super tax concessions. The bottom half, those most likely to need help in retirement, get just 11 per cent of super tax concessions.”

Mr Warner says all Australians will need to pay their share of taxes to help repay “our bloated national debt” but that superannuation is a “relatively soft target” and that associated tax concessions are likely to be reviewed by the government.

He warns that while our ‘elephantine’ system works well in aggregate, accumulation and pension earnings could be taxed at the same rate to raise revenue, predicting that would increase taxes from the superannuation funds collectively by “close to 50 per cent” as well as simplifying the system by removing the need for a pension transfer balance. Super earnings incur a 15 per cent tax while earnings in the pension phase are tax free

“Before the government does make a tax grab, it should look at the existing inequities in the system,” he says. “The top 100 SMSFs collectively hold about $8.7 billion. Many appear to be run as businesses – according to the ATO (Australian Tax Office), one even has a loan of $168 million against property holdings.

“Taxing the wealthy first always makes good political sense.”

Mr Warner says superannuation should pay its share of the burden, but adds: “Let’s hope anychanges are well targeted, don’t make the system even more complicated, and still allow the system to do its job, which is to provide better retirement outcomes.”

Mercer’s David Knox says there are two ways the government could tackle the debt – through increased taxation of super and reduced benefits. He predicts the federal government will opt for “a bit of both” in respect of the retirement system and older people, generally.

The retirement specialist says the government may increase the tax on the investment income for pensioners and that it may make the Age Pension harder to get.

“We must also realise that investment returns are likely to be lower in the future, compared to recent years,” he says in Investment Magazine.

“Hence, in my view, for all these reasons we need to encourage greater self-sufficiency in retirement, rather than less. However, we also need to make the total system much simpler.”

The government’s Retirement Income Review is set to report on 24 July.

What is your view on increased taxation on super pension earnings?

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Written by Janelle Ward

112 Comments

Total Comments: 112
  1. 0
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    Just looking at tax on super is not fair and may even be counter productive in the longer term. The whole tax system should be examined for fairness and equity for all. While the current super rules advantage the wealthy, so do most other forms of taxation, State and Federal alike. In addition, the more wealth you have, the more able you are to pay for professional advice that enables you to minimise or avoid taxes. Reference overseas tax havens – our previous PM Malcolm Turnbull and his wife have most of their millions overseas and only pay tax on the little that they bring into Australia. Progressive taxes like the GST are more effective than regressive taxes like stamp duty in that they target the wealthy who consume most. However don’t expect too much from the current LNP government, as their benefactors are the wealthy and must be protected at all costs.

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      Agree Buggsy, but GST is a regressive tax because the poor pay 10% on almost their whole income because they must spend it, whereas the wealthy pay it on a small fraction of their income because they can and do save it in tax effective vehicles.

      Much of the conspicuous consumption apparently done by wealthy people is paid for by companies, trust funds, etc often as debt which is tax effective – meaning ripping off tax payers legally.

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      It doesn’t matter who pays more or less. Increase Medicare by 1.0%, increase the GST by 1.0% Everyone has to pay…We’re all in this health crisis together.

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      No, we are NOT all in this together, Arvo. Some are laughing all the way to the bank. Others are really struggling. Some have lost their jobs. Others have total security. Pensioners who have secure incomes, and health care card holders, got handouts. Self-funded retirees who may have suffered huge loss and have no security got nothing. We are definitely NOT all in this together.

  2. 0
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    Superannuation was meant to be a source of income in retirement.

    Successive governments from Howard onwards have made it a tax shelter for the very well off. I have no problem with removing those elements, and returning the super system to its intended purpose.

    Superannuation was not intended to preserve inheritances for retirees children and grandchildren. I have no problem with regulatory changes that force wealthy retirees to sell down capital to afford the lifestyle they want, rather than expecting tax payers to cough up compensation when their portfolios turn to junk. Uncle John and Uncle Peter were seriously generous to these people and allowed them to accumulate the assets. Time to give some back instead of always taking and then crying poor – while sitting on millions.

    Age pensioners with little bits of super have done least well and unless they were able to own a home, have done very poorly while the others have prospered. Either there should be more limits on how much people can have in the bank before they demand pension concessions, or everyone should get a pension and the well off pay tax. I am offended when people with very large sums in super can get a pension and concessions so they don’t have to spend down the capital in their lifetimes, while age pensioners have to budget carefully to have a basic survival life.

    Home ownership is often the only barrier to abject poverty for millions of women who never had access to superannuation for long enough to make much difference. Governments mess with home ownership by pensioners at their peril.

    • 0
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      And people on this site have repeatedly said that they treat it as an inheritance for their offspring and not funding their retirement.

    • 0
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      Why does everyone assume that if someone has savings they put aside to leave to their kids, it must be ‘super’. Most of my generation had very little super. I had NONE. But now I have to sacrifice my savings while people who didn’t bother to save get handouts.

      Personally I’ve never seen anyone claim their employer funded super should be preserved to pass to their offspring, but definitely people should be allowed to choose to preserve their personal savings for their offspring. If the choice to enjoy lavish holidays, nice cars and clothes, and restaurant dinners entitles people to a pension, so should the choice to put money aside to leave to children and grandchildren.

    • 0
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      Sceptic that is not true. The ones gifting it to kids well before pension age do so to access the Old Age Pension and all it’s concessions. I can’t blame them either. Savers are excessively punished under our current system.

      In fact the defined benefit income streams that have been highly taxed and still have taxes on the employer portion require handing over all the superannuation lump sum to buy the income stream.

      Aged pensioners don’t realise how lucky they are to get a fortnightly income they didn’t have to buy.

      Taxes don’t fund much of anything Federal. States may need taxes or to sell bonds but the Federal Government in spending within Australia can borrow from itself by way of the RBA.

      There aren’t very many really rich people and nobody gets at their money anyway.

      This is a desperate plea from fund managers out of the money unfortunately. They should just take the income cuts like the rest of us have to.

      I agree with Youngagain. And lets not forget better houses every 15 years or so and private schools and expensive sport for some kids. People squander money like there is no tomorrow and then expect savers to give them more. It’s not right.

  3. 0
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    There is only 1 solution & 1 only.
    A universal pension paid to ALL from 65 or 67 years of age. Only qualification is age. Less rorting the system. The only contact with Centrelink will be initial application. Savings will be in the billions as no more asset or income testing.
    All income will then incur tax as per normal. Superfunds will no longer pay 15% or zero tax as all income generated will be combined with all other income & taxed at the appropriate rates. Discontinue franking credits, negative gearing & trust funds.
    Review the tax laws to make it extremely difficult & costly to dodge paying tax & make companies & the rich pay their fair share as the tax system now allows these companies & rich pay nothing in tax.
    A fairer system for all.

    • 0
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      Yes Karl it is a much fairer system for all but it is a solution our current government will not agree to because they save so much money by cheating on paying the current aged pensioners the amount they should be receiving.

    • 0
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      Karl I too have advocated such an appoach for more than 10 years now. Sadly I have yet to hear of any politican calling for it as they realise their good times would come to an end as ALL income would become taxable.

    • 0
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      Yes Karl I agree with everything your saying the only problem is if this dishonest mob get control of the senate the pension age will be 70. And you can bet on one thing if we go into a recession which more than likely we are already in some say it started before this pandemic hit franking credits and negative gearing are gone .

    • 0
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      Ollie, I agree with Karl also, but get it straight. LABOR introduced both the income and the assets test. And Labor threatened to wipe out self-funded retirees unfairly and cruelly. And asked if they would reverse the unfair assets test changes, Labor said a clear NO. Don’t make this political.

      And BTW. Labor has had effective control of government for 122 years, via their agreements with the Greens and minor parties.

    • 0
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      Youngagain, It doesn’t matter who did what in the past. We have to move forward & the government of the day has to take responsibility for what happens moving forward. No point in blaming what governments did or didn’t do no matter what side of politics they came from. Today’s needs are different to yesterdays & Tomorrows will be different to the present. The current government has a great opportunity to make changes that will benefit not just today’s issues but set firm foundations for our future generations long after we have become compost.

    • 0
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      I would agree, Karl Marx, except that Labor seeks minority party support to block everything the government does that might move us forward.

  4. 0
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    Super was designed to give capital and income in retirement and basically fall to zero at the time of death. It was not designed to pass on as an inheritance

    • 0
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      But it is exactly used for that purpose, tams. We should all pay in as a percentage of income and no extra, no early releases allowed and accessed on a monthly basis after age 65 (not 67 as that is just not right), no lump sums and at the end of life the fund expires and the longer you live the more you are getting out of it. That way the super funds are sustainable with lower contributions. Other countries are doing it that way but it would not be popular in Australia – but neither are ever changing rules.

    • 0
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      Nothing makes me angrier than hearing seniors talk about ‘leaving something for the kids’, while they live in penury, struggling to make ends meet. I personally know of one couple doing this, the 2 kids boast they don’t need to work, or save to buy a house because they’ll share their parent’s inheritance. Both parents are in ill health, yet the kids still rarely visit.

    • 0
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      Yes O&W – I am surrounded by them, for some reason it is not enough to leave them the principal home. They need a few extras to leave behind and some even buy concession stamps for the kids to use! What a hoot. No wonder we are becoming a divided society and maybe an inheritance tax is called for. Not flavour of the month either.

    • 0
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      Actually those concession stamps are a good idea but not from their value. I find that because they have no value on them I don’t have to worry about if the postage has gone up like you do with normal stamps. I rarely use stamps but find them great as I can still use them and not risk a fine because I didn’t put enough postage on my letter.

    • 0
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      Nothing makes me angrier than greedy people claiming spendthrifts should be given $1 mil of taxpayer money to fund retirement, but people who saved should get nothing. Why should the taxpayer subsidize a lavish lifestyle for spendthrifts but not help a saver ensure their grandkids get a good start in life?

    • 0
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      I have no issues with seniors “‘leaving something for the kids’, while they live in penury, struggling to make ends meet”, until they complain about it. And then I am firmly in the camp of taking responsibility for your circumstances and appropriate action to improve them so life is less of a struggle.

    • 0
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      The problem with that, Farside, is that stinking unfair system denies people the right to make choices. Case in point: a hard worker (X) who lived frugally, saving to ensure he could meet anticipated health challenges and care needs in later life retires with $1 mil between himself and his wife. He also wants to leave a little to his grandchildren to them fund their education and get a good start in life. His less responsible brother (Y) retires with $400,000 after earlier retirement to take a few cruises around the world.

      X, at age 67, takes on the task of caring for his aging parents. Y buys a luxury caravan and tours Australia. Three years later, the parents die and leave X more than Y, believing (correctly) that X incurred a financial burden caring for them. But staying home meant X built his savings by $50,000. Now he and his wife want to take their turn to travel. But Y, having reduced his wealth further, challenges the ‘unfair’ will, and wins because he is poorer, takes yet another world cruise, and claims a generous part pension. X meanwhile has to manage on his savings and gets NOTHING either from the estate or from the government.

      Now, what choice does X have other than to give up his desire to preserve savings for health and care needs and his grandchildren and live on his savings? NONE. And because he is unfairly denied that choice, while Y is unfairly over-indulged, HE HAS EVERY DAMNED RIGHT TO COMPLAIN. The system stinks, and anyone who says the victims of this unfairness shouldn’t complain is being very unreasonable and unfair.

      Most SFRs WANT to take responsibility for their circumstances, and do so. It’s pensioners who DON’T take responsibility for their circumstances – instead leaning on taxpayers – and then they attack the SFRs who are taking responsibility. (And please don’t interpret this as an attack on pensioners who GENUINELY couldn’t save for their retirement. But vast numbers had more than ample opportunity and now bleed the taxpayer because they CHOSE to be irresponsible. Meanwhile they make nasty proclamations about SFRs who chose to be responsible and are suffering unfairly for that choice.)

    • 0
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      I sympathise with your example Youngagain but life is not abour fair. Policy is not made for individual cases and people like Y will game the system but then X should not be jealous of Y, especially if he looks down on Y’s actions.

      In your example, X has to take his bumps … X made fully informed choices to not take money from his parents for their care and to delay his travel knowing the circumstances and nature of Y. At the end of the day X is still financially comfortable living off his savings and wealthier than Y so it no surprise the courts may uphold Y’s appeal but they are not going to make it so Y is better off than X. Fwiw, in the not too distant future one of brothers are X and Z, while other brother Y will inherit a house and cash leaving scraps for X and myself. We accept that is going to be the outcome as he is the most precarious financial circumstance despite being a dropkick and not taking responsibility for himself.

  5. 0
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    Spare a thought for those in the middle, instead of dividing Australians into the rich who are rolling in money and the poor who are struggling on the pension. I was brought up to believe that government assistance was temporary safety net if you lost your job or needed a hand to get back on your feet, not a permanent way of life – except for the pension. We have worked all our lives, never taken anything from the government, brought up four kids at the same time .We had a decent super when we we retired but the GFC flattened that and it has never gotten back anywhere near to its original level. So money is not abundant and although we could get a part pension, we are managing okay, so why take it from someone who is really struggling , for example? It may become inevitable in the future but I am doing my damnedest to avoid that. But I can see things ahead which will ruin that , such as targeting tax concessions or inheritance tax or death duties. The desire to leave something to your kids is pretty strong in most of us but no doubt, we “rich” will be targeted.

    • 0
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      I’m in the same situation but I was a widow raising three kids and money was very tight. So I worked two jobs and ran a business and saved in super.

      I have no sympathy for the majority of those who squandered their incomes for decades.

      I regret not having claimed the part pension as I was angry others got $750 and savers missed out even though those on the aged pension may be wealthier by far.

      The FIRE industry will kill itself off if it keeps up. Nobody in their right mind would delay gratification now to save extra into super. People can see how savers are being exploited and spendthrifts rewarded.

  6. 0
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    “Mr Warner says all Australians will need to pay their share of taxes to help repay “our bloated national debt” but that superannuation is a “relatively soft target” “

    I recall a comment from the RBA, some weeks ago, that they were printing more money for use during the coronavirus employment upsets, this extra money was to be used for JobSeeker and JobKeeper as well as the stimulous payments etc.

    All I have heard from government lately is how much more money they have spent etc. and our current treasurer now says that money was ‘borrowed’ and will need to be repaid so the $60 million mistake with payments for JobKeeper cannot be used for anything else but repaying the loan.

    So instead of hitting ordinary Australians with yet another lot of tax why doesn’t the government instruct the Australian Tax Office to make the multi-nationals in this country pay a fair amount of tax on the profits earned within Australia and stop them from claiming their debts owed in another country off their tax paid in Australia.

    We are very tired of being ripped off by the coalition governments over the years and the above article sounds to me a warning about yet another rip off that is coming shortly.

    • 0
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      Garbage Autumn.

    • 0
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      Why should self funded retirees help the government when the government has not helped them at all during this Covid-19 crisis? That amounts to them paying twice for something they never got in the first place.

    • 0
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      Why should self funded retirees help the government when the government has not helped them at all during this Covid-19 crisis? That amounts to them paying twice for something they never got in the first place.

    • 0
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      Because greed and envy rules, RW. And anyone who saved and planned for their future is fair game. Universal poverty is the goal.

    • 0
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      Exactly right. There is no need for Government to tax people to pay Sovereign money back. This ” economist” obviously doesn’t understand modern money creation.

      Taxes are used to control inflation. As we are entering a deflationary recession increasing taxes will simply turn it into a depression. This is exactly what cause The Great Depression to get so bad. The Australian Institute should read some historical economics in stead ob neo-liberal theory in my opinion.

    • 0
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      Rae, the Australia Institute is definitely not in the neo-liberal camp and would be horrified to learn that is the take away. It’s Chief Economist RIchard Denniss is strongly Keynesian in outlook and outspoken against austerity measures, frequently commenting how these prolonged the Great Depression in the absence of stimulus.
      https://www.tai.org.au/content/black-holes-and-keynesians

  7. 0
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    The more money the government takes from super and investment earnings, the more people will end up on the age pension, so it would be counterproductive.

    • 0
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      Not necessarily Fedup, it is easy to make blanket statements that it would be “counter-productive” without any substantiation. For instance if franking credits were abolished the $6 billion in extra revenue would pay for about 260000 in pensions for couples. How many SFR receive franking credits, I do not know, but if it is anywhere near 260000 it could be cost neutral. We need proper economic modelling (aka SWAG (scientific wild arse guesses) not unsubstantiated statements.

    • 0
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      If franking credits were abolished, Eddy, investors would change their strategies and there would NOT be $6 billion saved at all. You can’t base savings on past behaviour that changes when changes are made. That’s why the country is in a mess – because nobody can think forward.

    • 0
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      Imputation should stop. Corporations should not be paying provisional tax for shareholders at all. Other countries don’t use imputation as it distorts company decision making. Companies are best investing and growing rather than being cash cows for shareholders.

      Real investors are better off with capital gain as in Australia for some weird reason it is 50% discounted. Now fixing that would be a great idea. It might stop the stupid speculation that’s going on particularly in the property market.

  8. 0
    0

    You can’t take what you don’t have.
    I used mine in pre OAP age retirement and Reinvested In Ownership of Gov Buildings/Major Companies here and around the World.
    If they go Bankrupt we are all STUFFED.

    • 0
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      Yes it was so good governments could use our tax dollars to build assets to flog off.

      Just another reason to not increase taxes. The bloody private sector should be building itself not using taxpayers to fund it.

    • 0
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      The Assets I’m talking about are Rented, Not ever Government Owned.
      This is the New Normal to Ownership.

    • 0
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      Yes Chris. Selling taxpayer bought buildings to then go rent at commercial prices is something you could do if you had an unlimited pot of other people’s money to spend and no responsibility personally.

    • 0
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      These are and Before Privately Owned by Australian Real Estate Investment Trust (A-REIT) and a property fund manager with overseas interests as well.(The Group I’m invested in, some Super Funds are doing the same except I’m doing it Directly).No Super Fees.
      Instead of Governments/Larger Corporations Purchasing/Owning Buildings, Maintaining/Fit out it is Cheaper/Cost Effective to lease.(The New Normal) No need to rebuild progressively over time when the Building is no longer Fit For Purpose, just relocate and lease fit for purpose.
      No need for Mega Dollars as your a part of a Group, similar to Super Funds which have small and large Participants. Except No Tax Subsidies like Super and this one no Franking Credits. It is a Individual’s Choice and Purpose.

  9. 0
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    There is a “Mr Warner” quoted in the article yet the only reference to him is the founder and executive director of Rice Warner, Michael Rice. Who is “Mr Warner”?

    • 0
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      An economist who doesn’t understand modern money creation and failed to read any historical economics it would seem.

  10. 0
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    “What is your view on increased taxation on super pension earnings?”

    Any government that wants to take more from compulsory super will cop the backlash that Labor did when they went after franking credits. I might point out that this article is a hypothesis based on nothing that has been said or written by any political party in Australia. Another academic prepared to play games with other peoples money.

    • 0
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      Yep. And YLC reporting it as if it was already Government policy!

    • 0
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      Dear Horace, do you really think that the Labor Party lost the recent election because of it’s franking credit policy. Please do not delude yourself. I would suggest that most Australian voters, including the over 50s who never receive them and, in most cases do not really understand what they are, do not care two hoots about franking credits. I suggest elections are won and lost on public perceptions about the party leaders, not specific policies. In the case of franking credits the relatively few numbers that would have been adversely affected, most of whom would most likely have voted for the Coalition anyway, would hardly affect the final result. Changes to superannuation, whether good or bad are unlikely to be an election winner or loser in any election. The young do not care and most of the oldies are unaffected.
      The two party preferred at the 2019 election was approximately LNP 51.5% and ALP 48.5%. Without meaning any disrespect to their recent leaders, if the ALP can overcome their preference for rusted on ideologues, like Mr Shorten and Mr Albanese, and pick an youthful urbane leader they are a better chance to be successful in 2022,

    • 0
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      No Eddy, there were many factors involved, franking credits were only a part but quite important in the scheme of things because Bowen, when challenged on them, uttered the famous comment; “Well if they don’t like our policies they don’t have to vote for us!” Yes, Shorten was too smug by half and I believe he came undone when he refused to explain the costing of the proposed 50% carbon reduction policy with the stupid response of how doing nothing would cost more. Sadly, there are still people around who won’t believe that Labor lost the last election.

    • 0
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      One thing that really gets my goat is misguided people who claim that their view can sway peoples voting intentions. Some people seem to think that ALPs franking credits policy cost them the election. I would suggest that the differing debating styles of Mr Morrison and Mr Shorten, and the electorates perceptions of these leaders, was more important than any individual policy position. Having been around, and a little more political, in 1993 I understand that there is no such thing as a certainty in politics. In 1993 I suggest it was the youthful enthusiasm of Mr Keating, with a big smile and lots of teeth, which prevailed against the dry economic debating style of Mr Hewson despite all the polls predicting an alternative result.

    • 0
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      Personality and debating skill means a lot in politics, Eddy, but hundreds of thousands not only voted against the ALP because of their franking credits policy, but lobbies for others to vote against them. Hence the rallies all over the country. The fact is that the policy was terrible and it threatened grossly unfair hurt on a lot of people, and to pretend that people won’t react to that is to be tunnel visioned or totally blind. I am one of hundreds I know who had resolved never to vote LNP again after the assets test change, yet I voted LNP because of the franking credit policy – and for no other reason. Unless there are lots of liars in my circle, I was in good company..

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