Craig Laundy (Reid, Liberal Party) Share this | Hansard source

I support this motion and congratulate the member for Casey for having put it forward. The member for Casey has raised some excellent points and has gone back through the history of dividend imputation. This was a Keating-Hawke reform and it was visionary. What is often missed about this reform is that it worked hand in hand with the launch of superannuation. Superannuation, which is today sitting at $1.9 trillion, enabled a huge number of people to own shares for the first time. The Australian Foundation Investment Company, in its submission to the tax white paper process currently underway, shows that as of 2012 22 per cent of households with incomes below $50,000 owned shares.

I have two frustrations with most of the discussions about taxation that take place in this chamber. The first is that they take place in a silo, not looking at the flow-on effects and the impact on the economy. The second is that they focus on lines in the budget, on the cost to the budget, without looking at any benefits that may result. The member for Casey pointed out very well the double taxation impact—79c in the dollar versus 30c. There is no rort here, as has mischievously been reported. A company makes a profit, pays its 30 per cent tax, and then any shareholders to whom that profit is distributed pay top-up tax. The effective rate of that top-up tax, for someone on the marginal rate of 49c in the dollar, is 27 per cent. It is simply single taxation that fits in with the marginal tax rate.

Following on from what the member for Casey said, I want to discuss the impact that tampering with imputation would have on small and family businesses. We look at those line items in the budget and we look at the potential imposts, but we never consider what alternative behaviour may result. That is where the conversations on tax in this place always fall over. What would happen? As the member for Casey so well pointed out, dividend imputation enables small- and family-sized business to reinvest in their own business through retained earnings—rather than taking on bank debt—knowing full well that, when they do issue dividends in the future, should they so desire, they will effectively be paying the one top marginal tax rate.

But what do they do with those retained earnings when they invest back in the business? They do two things. They drive further and increased profitability in that business, which is a win for the taxpayer through increased company and top-up tax in the future. More importantly, they employ more people—which is a win for the local economy as well as a win through that future employee's PAYE tax revenue. So dividend imputation is win-win-win—all the way through.

What would happen if dividend imputation were not there? Businesses would restructure themselves. You would move from having a private company to having a sole trader or a partnership. Growth would be inhibited—businesses would have to take on bank debt to grow further—and there would be single taxation at whatever marginal tax rate applied. Alternatively, if you did stay in the company format, you would, instead of paying tax at 79c in the dollar, just increase your wage, decreasing your business profitability and the tax applied to it. In a perfect world, you would probably make your business profitability zero so that you paid no company tax. You would just pay your marginal tax rate of 49c in the dollar on your wage earnings. This is where analysis of tax in this place so often falls over. It just considers lines in a budget paper. It never looks at how businesses will behave as a result of the environment we set as regulators and what the flow-on impacts will be through increased profitability for, and increased tax receipts from, the taxpayer and through increased employment in the local economy. As a federal member, I can tell you how important that is. Further, when we set the regime, we need to recognise that certainty is the key to sustainability.

The member for Casey is on the money with this motion. I know that I have come at it from a different angle than he did, but I think it is just so important that both sides get behind dividend imputation and keep it in place. It was a Hawke-Keating reform and it was a great reform.

Debate adjourned.

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