Dissecting political scare campaigns – know your facts!

Image Source: The Conversation

By Rebecca Copeland & Jonathon Poulson | @beccopeland @jonoriley97

Scare campaigns are negative advertisements that frequently portray false or misleading information about the policies or candidates of opposing parties.

Instead of publicising ads about their own policies, political parties hope to sway the public’s vote through fear of the opponent.

Scare campaigns are one of the most effective types of political campaigns, but often run the risk of being inflammatory and insincere in the public eye.

This election, the most recent subject for a scare campaign was Labor’s “retiree tax”—a policy that will change the Imputation (franking credit) system—which we will explain later.

The United Australia Party have also been a huge contributor of crass advertising and scare campaigns, having budgeted $60 million of their election funds towards it.

Their most recently targeted platform is YouTube, with this ad found on the homepage.

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Image Source: YouTube

The Liberals have also used scare tactics to undermine Labor’s new franking credit policy, calling it a retiree tax that will “hurt retirees and low-income earners by abolishing tax refunds for share dividends.”

This isn’t quite true.

What are franking credits anyway?

To explain the complex issues surrounding franking credits, or the so-called “retiree tax”, we have devised the following example.

Company A has made a profit of $100, and instead of investing that profit back into the company, they give all the profits to the shareholders.

Let’s say Bob Smith is the sole shareholder of Company A, which means he gets $100. But that profit needs to be taxed first.

Companies get taxed 30%, so, the Australian Taxation Office (ATO) takes $30, and Bob gets $70.

This is where franking credits come in.

Bob is still working and earns above the $18,200 tax-free threshold. This means his income is being taxed. Let’s say that his income tax rate is 19%.

Bob doesn’t want his profit taxed again because the company already paid tax on it.

So, to stop the ATO taxing the same money twice, Bob is just taxed 19%, and the remaining tax (11%) is given back to Bob as a credit.

Bob can choose to cash out his $11 credit, leaving him with $81.

Companies get taxed 30%. If someone pays no tax because they’re below the tax-free threshold, they are entitled to a refund for all of their credits.

This is where the “retiree tax” comes in.

Almost half of the wealthiest 10 per cent of Australians over 65 report an income below the tax-free threshold and therefore pay no tax.

This is because their wealth doesn’t come from taxable income: it comes from superannuation.

So, retirees who have self-managed superannuation funds (SMSF) can get a full refund of the tax the company paid on their profits because super isn’t counted as income.

In other words, if Bob was a self-funded retiree, he could claim his $70 profit, plus choose to cash out a $30 franking credit, leaving him with the full $100 profit.

This is what Labor wants to change.

Labor says that self-funded retiree Bob should get $70, not $100. He won’t get taxed again, he just can’t get the $30 back that the company paid in tax.

Labor has also announced a Pensioner Guarantee, which means pensioners and allowance recipients can still claim cash refunds.

So pensioner Bob can get $100.

If there is an SMSF with at least one pensioner or allowance recipient before 28 March 2018, they will also be exempt from the changes.

This is what the Liberal Party has turned into a scare campaign.

Assistant Treasurer Stuart Robert said in a speech to the Alliance for a Fairer Retirement System that “Any changes [to the franking system] will overwhelmingly hit low and middle-income earners, with 84 per cent of the individuals impacted on taxable incomes of less than $37,000…”

Mr Robert’s claim only referred to refunds claimed by individuals, but Labor’s policy applies to both individuals and superannuation funds.

According to Treasury documents released to the ABC, $5.9 billion of franking credits were refunded to shareholders in 2014-15.

Almost half of the refunds claimed went to SMSFs, and more than two-thirds of those refunds went to SMSFs with balances of more than $1 million per member.

An estimated $6 billion in tax refunds have been gifted to eligible Australians, an amount Bill Shorten says is unsustainable.

However, Labor has also launched their fair share of scare campaigns, with an anti-liberal ad currently airing against the Nicolle Flint, Liberal MP for Boothby.

The ad enforces the message that Flint “likes Dutton, likes cutting” as she is known to have supported Peter Dutton in the 2018 leadership spill that ousted Malcolm Turnbull.

The closer to we get to Election Day, the more the election tightens.

It is crucial to fact-check advertising campaigns and to be aware of the ways political parties can manipulate the policies of opposing parties.

Make your vote count this Saturday.

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