(d) the end of double taxation of profits has delivered increased prosperity to everyday Australians who own shares either directly, or through indirect means such as superannuation; and
(e) dividend imputation has encouraged increased share ownership levels throughout the Australian community;
(3) endorses and lends ongoing support to dividend imputation; and
(4) rejects calls to tamper with or discard dividend imputation and reintroduce any double taxation of dividends.
The SPEAKER: Is the motion seconded?
Mr Laundy: I second the motion and reserve my right to speak.
Mr TONY SMITH: Twenty-eight years ago, share ownership was not the domain of the broad population because the tax system conspired against it with punitive double taxation of company profits and personal income. Back then, a dividend paid to a shareholder on the top marginal tax rate was effectively taxed at nearly 80c in the dollar. Not only did these tax settings discourage share ownership for everyday mums and dads, they encouraged all the wrong things in the corporate world. Debt-fuelled inflation of share prices was rewarded over productive investment and the generation and distribution of profits to shareholders. For shareholders, the only viable way to realise profit was through selling the shares after growth in the stock price—rather than receiving a share of the earnings through a dividend.
Twenty-eight years on, things could not be more different. The reason for that is that 28 years ago this parliament passed critical and revolutionary tax reform legislation. Then Treasurer Paul Keating introduced legislation to end the double taxation of dividend income. It began operation on 1 July 1987 and when it did it fundamentally altered the incentives for shareholders and for company boards and management. Australia led the world. The overriding disincentive to pay dividends was turned on its head with shareholders no longer burdened by double taxation. A shareholder with a marginal tax rate above the company tax rate now only paid the difference rather than the aggregate. That system has been maintained by every government since. Indeed in the year 2000 it was extended by then Treasurer Peter Costello to refund excess imputation credits for the benefit of low-income earners and charities. It has been a reform that has, together with the privatisation of government assets, boosted direct share ownership in this country. Critically, it has also altered the corporate landscape and, in our view, underpinned the strength of the Australian economy, anchoring it in so many ways.
There have been some calls to tamper with dividend imputation—indeed some calls to abolish it altogether. Those calls have argued that the dividend imputation system is not attractive to foreign shareholders. In other words, the argument is that we should do away with dividend imputation or tamper with it in order to get a lower company tax rate. The truth is that there would be no prospect of lowering corporate and income tax rates enough to leave Australian shareholders in anything other than a higher tax position.
This motion lends support to the current system and rejects out of hand any of the calls to tamper with it or indeed to do away with it. We are having a debate in this country about tax and that is a good thing. But the purpose is to put a magnifying glass on the failures within the system, not the standout successes. The purpose is to deliver lower, simpler, fairer taxes—not to reintroduce double taxation of dividends. If that were to be done, someone on the top tax rate today would, instead of paying the difference between it and the company tax rate, be paying an effective tax rate of nearly 63c in the dollar. For those people who advocate change, their future is in fact the failed past of 28 years ago.
Along with my colleague, I put forward this motion to send the message that that is not where we want to go. If we were to go back to that place, we would be recreating a failed system. We would be putting all the incentives in the wrong places. It would be the financial equivalent of being ignorant enough and arrogant enough to think we could destroy one of the Seven Wonders of the World and create something better. I commend this motion to the House. I know it has strong support amongst members on both sides.