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Paul Keating's long-term plans for super and imputation

It is 30 years tomorrow since the introduction of the Superannuation Guarantee which entrenched retirement saving into the plans of the majority of Australians. The $3.4 trillion pool is expected to increase to $10 trillion by 2040, or around 200% of GDP.

In 2013, we published three articles by former Treasurer and Prime Minister, Paul Keating, considered the principal architect of compulsory super. It is a valuable record of Keating's thoughts, and we have selected highlights from the articles plus two recent interviews.

We're living longer and so should our superannuation

7 February 2013

Our retirement income system is built on three pillars:

  • the means and asset tested age pension
  • compulsory superannuation
  • tax-assisted voluntary superannuation.

The big leap forward came with occupational superannuation which morphed into compulsory superannuation with the introduction of the Superannuation Guarantee Charge (SGC) in 1991 and its extension to universality in 1992. That change was a defining one for Australia because few democracies can encourage their workforce to save at least 9% of their wages and even more on top of that voluntarily. But Australia did.

But it is now clear that the current system does not provide enough because people are living longer now than when my Government created the scheme for them. We built something that took people from age 55 to 75, but these days, if you reach 60, you have a reasonable likelihood of getting to 85. And the numbers continue to change materially with every decade that passes.

So, we have two groups in retirement – a 60 to 80 group and an 80 to 100 group. The 60 to 80 group is all about retirement living and lifestyle, which I think the current superannuation system adequately caters for. But the 80 to 100 (which is technically, the period of life beyond the previous life expectancy) is more about maintenance and disability and less about lifestyle.

I don’t believe the current system caters for this. The policy promise of a good retirement cannot be fulfilled with such longevity, and so, the promise has to change.

While I believe that private enterprise has been the appropriate outlet to provide for products and services for our country’s compulsory superannuation system (and I have never been in favour of government mega-funds of the European variety), I do think deferred annuity structures are a different kettle of fish.

A government-administered, universal, compulsory deferred annuity scheme would be a fully-funded scheme, with the capital provided by the annuitant from a portion of their lump sum superannuation benefit. This would mean that if there was any shortfall in the actual assets set aside and the liability due to the annuitant, the government would fund the gap.  However, careful asset management with a long term horizon should ensure that any such shortfall should, over time, be insignificant.

I am still of the view that the compulsory superannuation component should increase further beyond the 12% level. If the compulsory superannuation charge was increased from 12% to 15%, it would provide more options to adequately provide for the final phase in life, rather than relying on the age pension.

Where did SMSFs come from, and where are they going?

15 February 2013

When we laid the foundations for the current superannuation system in the 1991 Budget, I never expected Self Managed Super Funds (SMSFs) to become the largest segment of super. They were almost an afterthought added to the legislation as a replacement for defined benefit schemes.

Employer contributions to superannuation rose from 4% of salaries in 1992-93 to 9% by 2002-2003. I wanted to reduce the future reliance on the age pension, and over time, give ordinary people a better retirement. Back in the 1980s, only wealthy people were in the stock market, but I felt mums and dads should be able to share in the bounty of the wealth of the nation. Owning a home was fine but they needed more. And through superannuation funds, everyone is now in it, and it’s been good for both investors and the nation.

The wealth would address the growing economic problem of an ageing workforce, and realign the mix between capital and labour through labour contribution to real capital growth. Very few countries have developed an adequate retirement income system with no ‘false promise’ in such a universal way, leaving the age pension – an income and asset tested pension – as an anti-destitution payment, which ceases when the recipient dies.

So the SGC was not introduced as a welfare measure to supplement the incomes of the low paid. It was principally designed for Middle Australia, those earning $65,000 to $130,000 a year, or one to two times average weekly ordinary time earnings (AWOTE). This is not to say that those on 50% or 75% of AWOTE should not benefit equitably from the superannuation provisions. They should. But for Middle Australia, the SGC and salary sacrifice was and is the way forward.

At an SGC of 12% and tax arrangements as now, someone on one to two times AWOTE plus adequate salary sacrifice limits should be able to secure a replacement rate in retirement income of around 70% over a 35 year working life.

I mention this to provide context commentary on the rapid growth of SMSFs. As a general statement, I believe people’s expectations as to rates of fund returns are too high. The Australian superannuation system is both large in world terms and large in absolute terms. It is simply too large in aggregate to consistently return high single or double digit returns.

I am certain expectations as to returns and the search for yield have done two things:

  • managers have adopted a higher risk profile in portfolios, and
  • lower returns than expected have soured expectations, encouraging more people to take the initiative and manage their own assets, including taking on the trustee role when setting up an SMSF.

I believe returns expectations are inflated and those expectations lead to incentives to drive higher fees for managers, but at much higher risks, as was the case between 2002 and 2011. We only have to look at asset allocations. At December 2011, total Australian super assets were weighted:

  • 50% to equities
  • 18% to fixed income
  • 24% to cash and term deposits
  • and the rest across other asset classes including property.

By contrast, the average weighting of OECD country pension assets was:

  • 18% to equities
  • 55% to fixed income
  • 11% to cash and term deposits
  • and the rest to other asset classes including property.

So, Australia is 2.5 times more heavily weighted into equities and relatively underweight in other asset classes. We are disproportionately weighted into the most volatile and unstable asset class.

The question is – how does this weighting work to deliver the key objective of the system? 60% of total superannuation assets are held by investors over the age of 50. A large proportion of these assets should be moving towards less risky, more stable asset classes, protecting capital ahead of the retirement phase. When we reach the point where outflows are increasingly matching inflows, the weighting to equities needs to be rectified.

How many SMSF investors are competent in matters of asset allocation and general investment savvy? This becomes a real problem for the SMSF system and its deliverability as it occupies an increasingly higher proportion of overall system assets.

For systemic prudential reasons, investment in stable asset classes, such as government bonds or higher rated corporate bonds, could be desirable for SMSFs. That is, perhaps some form of minimum investment will be required which is mandated to mitigate downside risks. As the system reaches the tipping point, where inflows are increasingly being matched by outflows, it will need to be monitored for capital adequacy risk.

Dividend imputation and superannuation are worth fighting for

22 February 2013

Before I became Treasurer, company income in Australia was taxed twice: once at the company rate, at the time 46%, and then the dividends were taxed at the top personal rate of 60%. On $100 of company income, this left only $21 in the hands of the taxpayer!

In 1985, I changed the system completely and removed the double taxation of company income by introducing full dividend imputation. This meant that company income would only be taxed once. And this concession was reserved for Australian taxpayers.

People should understand that for Australian taxpayers, the company tax is broadly a withholding tax. The government collects it at the 30% rate on company income – and temporarily hangs onto it – before returning it to shareholders (including local superannuation funds) in the form of imputed credits.

In other words, when a company issues its dividends on a fully franked basis, it hands back the company tax paid earlier and staples it to the dividend.

This is my point. If the company tax rate is reduced from 30%, the principal beneficiaries will be foreigners, those who do not qualify for imputation credits. A reduction in the 30% rate, to say 25%, will diminish the value of dividends paid to superannuation funds and self-funded retirees. Such a move would effectively increase the rates of tax applying to superannuation.

Dividend imputation revolutionised capital formation in Australia. The Treasury was uncomfortable with it because of its cost to revenue, and about every seven years it promotes a debate to remove it.

Superannuation is about de-risking the future. In the system I set up, people were encouraged to salary sacrifice in later life, when mortgages had been paid off and they had discretionary income. Under that policy, people could salary sacrifice up to $100,000 a year when over 50 years of age. I believe the current limit of only $25,000 is too low, certainly for those over 50.

This is where long term vision is important. While the government and the Treasury would see an increase in permissible voluntary contributions as a cost to the Budget in revenue forgone due to reduced tax revenues today, such increased limits would provide the government with certainty in the later years by reducing its future funding obligations. This was one of the original intentions when the foundations for the current superannuation system were laid over 20 years ago.

Interview with Leigh Sales following the release of the Retirement Income Review

23 November 2020

LS: What would you say to an Australian who said to you, “I get what you're saying about needing money for my retirement, but I need money right now because I've got rent to pay, I’ve got kids and it's my money. Why shouldn't I have it now if I want it and let later worry about later?”

PK: The Report gave the answer. It said for every $10,000 allowed out in the early release programme for someone in their 30s, it costs them $100,000 later. It’s a tenfold increase leaving it in because of the compounding. So, we're talking about a half a percent, on 1 July it goes from 9.5% to 10%, the half a percent is eight dollars a week, two cups of coffee. For two cups of coffee, people are supposed to walk away from their future.

And of course the other thing the Libs are up to is in the Report. I'll just read this to you. “If the SG rate remained at 9.5% and people made more efficient use of their retirement savings, many would have higher replacement rates than they would have under the SG at 12%.” And what they mean by that is accessing home equity. So, the idea is this. You can do better than 9.5 but you got to eat your house by reverse mortgaging your house.

LS: People now tend to live off their investments and when they die they have their house and they have most of their super which they then pass on to their kids. Doesn't it bake in inequality because if you are rich then you've got an asset to pass on your kids but if you're poor and you actually have to run down your savings, then your kids get nothing.

PK: Well, you can’t blame the system, poor people have all sorts of choices. But the idea that a Report endorsed by the Government is putting about is that you don't pay more than 9.5% but you should start reverse mortgaging your house. In other words, give the kids nothing, eat the house, and then you don’t have to go above 9.5%. Now, just remember this. There's been no increase in real wages for eight years now. There's been a 10% improvement in labor productivity and the legislation for the super is passed. People have earned the superannuation, they've earned that 2.5%, the employers are going to pay it. And today the stock market was 6,500 on the index because the wage share of GDP is falling and the profit share is rocketing. So that's why.

Conference run by Industry Super Australia

4 August 2020

“It is a breach of the preservation rules to just let anyone take out their money willy-nilly. There has been no scrutiny whatsoever ... The whole point of superannuation was a great public bargain with the community: defer consumption for your working life and you will get a very low rate of tax.”

Keating argued that much of the money was probably spent on discretionary items such as cars, boats and motorcycles, and the long-term savings of young Australians are now compromised. As others have argued, the people who needed money could have been protected by the right fiscal policy:

“Every dollar which came out of young peoples' super balances could have been funded by one press of the computer button at the Reserve Bank.”


Hon Paul Keating was Treasurer of Australia between 1983 and 1991 and Prime Minister between 1991 and 1996. This article is general information.


March 21, 2023

I have been going on about aged pensions for years...everyone to get pension if they have paid tax, Medicare levy. Get rid of Assets and income test.. this will save billions administering it, cut out the loopholes and fraud.
Why should people get full aged pension if they have never worked, paid tax, paid in black money.
A dumb system..
Change it now.
It was Mr Keating and Mr Hawke who introduced it back around 1985.

March 21, 2023

"Why should people get full aged pension if they have never worked, paid tax, paid in black money."

Because we are a humane, compassionate democracy and we look after those genuinely less fortunate?! And they vote too! As for the "paid in black money", anyone who has ever paid a tradie cash is complicit in this! Further a fair proportion of "tax payers" actually pay no net tax, after give backs like family tax benefit etc, but I guess your suggestion would reduce the pension bill. Political suicide though!

July 02, 2022

not everyone gets 9% as I believe it is capped for high income earners.
I've been a full time employee in the Victorian public healthcare system, but only receive approx 6% in Super.

Geoff R
July 02, 2022

>it is capped for high income earners.

yes it is funny how I often read that Super is "rigged in favour of the rich" and yet not only do high income earners get their employer contributions capped, they also pay double the contribution tax (30% instead of 15%) if their income exceeds $250k.

July 02, 2022

I note that Paul Keating specifically excludes home ownership as an essential pillar of retirement policy. Why?

Clearly the quality of a retirees life is to a major extent driven by the sustainability of their retirement savings. The sustainability of retirement savings is greatly determined by whether they own their residence or whether they rent their residence.

Under the Commonwealth pension rules a residence is not a asset that is included for an entitlement to that pension. So the retirement system as it exists suggests that home ownership is an essential part of retirement policy. But is it fair?

Whilst I do not want the Superannuation system constantly tinkered with, I do believe that it is time for a proper review and assessment of its performance. Let's openly and dispassionately consider if it can it be made better? Or is it just fine the way it is?

Today and for the foreseeable future (next twenty years) the facts are that the majority of retirees will still rely on a full or part Commonwealth pension when they retire. Is that a measure of success or is it a measure of failure?

Todays Australia has over $3 trillion in superannuation assets. More and more of those assets are being directed offshore and into economies which are greatly challenged by high Government debt, QE induced low interest rates, ageing populations and geo political problems.
Superannuation is flowing offshore because we are generating too much savings that cannot
be invested in Australia under current investment management or stated long term policy objectives.

Whilst we all can see under investment in health care, aged care, disability, clean energy, infrastructure etc etc etc, we cannot seem to come up with a solution that directs long term savings into long term Australian assets. Those assets that will benefit future generations and help todays workers in retirement.

The size of the superannuation pool is not the sole measure of success. Whilst it is for individuals in account based system, it is a false measure for society as a whole. This is particularly the case when there is no focus on a desirable national outcome set inside a long term plan for the nation.

The current evolving disaster in energy supply is a case in point. Australia has the capital to solve our problem but there is no connection between that capital with a desired outcome. There is no discussion for the creation of a series of infrastructure bonds designed for Australian superannuation funds. There may be other solutions but who is having the discussion?

After 30 years we now have enough information to determine the success of Australia's superannuation system. That determination should not be made by politicians and certainly not by the architects of the system. I appreciate that they have a view but it is clearly a biased view for they will never unemotionally consider the facts or admits to mistakes.

I am not critical of Paul Keating's vision and his push for a long term solution that attempted to address the retirement needs of the population. However, let's get real and properly consider the actual outcomes that have been created. In my view and based on my observations above - we can do better.

July 02, 2022

"own their residence", "Commonwealth pension rules", "assets are being directed offshore", "infrastructure bonds":

Positive real interest rates / yields would fix a number of ills (large home prices, attractive local investments) but that requires the rest of the world to have 'em also. The Age Pension could be fixed by Kiwi-isation.

Geoff R
July 01, 2022

>The Age Pension could be fixed by Kiwi-isation

that would certainly be a step in the right direction with a universal pension once you attain a certain age - no assets or income tests.

no more over-investing in your house or going on extravagant cruises just to reduce your assessible assets. There would be less red tape and with fewer questions maybe Centrelink phones would be answered in a reasonable time frame.

unfortunately I can't see it happening due to all the cries of "the rich don't need it".

July 03, 2022

'cries of "the rich don't need it"':

Perhaps some numerate will arise and explain clearly to those who did not pay tax, how the rich, who paid for all their Aussie Age Pensions, would repay the Kiwi-ised Age Pension in taxes - and some.

Geoff R
July 02, 2022

> the facts are that the majority of retirees will still rely on a full or part Commonwealth pension when they retire. Is that a measure of success or is it a measure of failure?

It is a measure of *failure* and an indication that the super guarantee rate is way too low. I think 17% or 18% would be nearer the mark to get most people able to support themselves in retirement. And if you are going to allow people to raid their Super (as recently happened) then treat that as a loan with a repayment scheme similar to HECS debts so that you pay back a few extra percent out of your pay once you reach certain thresholds, until you have paid back your early withdrawal.

John (the first one)
June 30, 2022

Correcting some "autocorrect" typing mistakes

Surely a more transparent approach would be for the company to pay the dividend and then seek shareholders to reinvest. That way if the company is good they get more funds but If not the there will be no new funds
A higher company tax rate with raising of additional capital could achieve the same result

July 02, 2022

The companies that pay dividends all have reinvestment plans John.Some you tick the box and you are enrolled with all dividends reinvested,or as many shares as you want to have the dividends reinvested.The companies that don't have automatic plans then you get the dividend in cash,and choose what price you want pay for the shares at any time during that year.Automatic reinvestment the price is the weighted average over a period of days after the shares have gone XD and dropped. Profits are withheld , the payout ratio.I don't have an annual report to hand but Macbank pays out around 60% of profits.Really testing me here, I think around 30% of shareholders use the DRP,that could be way out though . People like me live off dividends and also reinvest excess income into DRPs. CBA and some other companies adjust payout ratios so the dividend income is stable and rising.CBA would pay out 70 to 75%.The highest I remember was around 95% so dividends didn't fall that year.Again these are numbers from memory, they might be near enough,they might not. The benefits of the automatic DRP is Wesfarmers turned $1000 into $669,000,if you bought on the day they listed ,up to 30/6/21.The company web site will give you the dividend history. CBA turned roughly $2150 into $221,000.from1991 to early February this year. The star prize goes to Westfield,they turned £ 500 in 1960 to around $430 million when they agreed to the takeover and split into Scentre group and URW.Most of the time I owned Westfield they didn't have a DRP so you had to buy on market.I only recall 2 capital raisings.Nominal and real £500 in 1960 was probably around average annual income.

July 03, 2022

OOPs.Westfield should probably be $340 million,a bit of loose change left in the jeans and destroyed in the washing machine.They gave shareholders a book in 2000 for the 40 year anniversary,a very good book.By 2000 the original £500 had grown to around $3.5 million and a compounding rate of 26 or 27% pa for the 40 years.There was a cash payout in the take over and a third shareholding,I forget the name, I think the grandchildren were running it.It was burning cash rapidly so after perhaps a year or so it was liquidated and shareholders got a further small cash payout.
Other books given to shareholders,Leighton's sent out The Wal King years.Under his tenure $1000 grew to $100,000.The base may have been $10K,that book was sent out a while back now.Leightons morphed into Cimic,Hochtief ( hokteef,a German company) owned around 51% of Leighton,they ran into trouble and a Spanish company became ( or was) a major shareholder in Hochtief,they seemed to want it all and after one or two goes with buybacks they cleaned up Cimic at $22 a share earlier this year.
One that stands out that I missed was Caltex ( now Ampol).I owned them and shareholders were told dividends would stop 2002 ish.Refineries needed modernising,sulphur content in fuel had to be reduced.Panic,crash, I think the price went from around $4 down to 90 cents.I thought long and hard,what an overreaction.I got the order just about ready,then the dreaded I'll wait a week and see if I can get them cheaper.Silly me .
Chevron were the major shareholder in Caltex,forced sellers I think in 2016 ish.That freed up franking credits to be used and 2? Caltex buybacks to return money to shareholders.The name change from Caltex to Ampol,and me trying to work where does Caltex woolworths fit into all of this.Where did the 4 ct fuel discount go for 50% or so of Caltex/WOW outlets.The fun goes on forever but trying to keep up with it ? You just let them get on with it
Caltex never had a DRP so you had to buy those on market.

June 29, 2022

"The indices for cash, listed property and industrial shares show that, over the last 41 years, cash would have returned you approximately 14 times your money, property 72 times your money and industrial shares 168 times your money.":

Using the best cash interest rate available, not the RBA overnight cash rate (the worst cash rate), produces a different result.

Investing in best cash with interest reinvested produces a similar outcome to investing in ASX200 with dividends and franking credits reinvested (XJOA).

Additionally, the volatility of the cash fund is a tiny fraction of that of the ASX200 fund.

Retail Deposit and Investment Rates – F4

Not so good when central banks create the lowest interest rates in history but may be vindicated when they respond to inflation they created.

SMSF Trustee
June 30, 2022


Huh? No way can cash be regarded as providing a competitive long term return compared with shares..please provide your data sources to justify that claim.

June 30, 2022

"Huh?": Compare the pair - using numbers from references already supplied.

SMSF Trustee
June 30, 2022

Dudley, there is an accepted industry cash benchmark called, these days, the S&P/ASX Australian Bank Bill Index that dates back to the mid-1980's when it was first developed by DBSM. You can access its history for the last 10 years from here
But as a retired industry professional I've got the complete series monthly. It is calculated doing what you suggest - as a total return index, assuming that interest is reinvested back into the asset class.

And over no long term period, up to yesterday (30 June 2022) does cash come anywhere near the local share market (accumulation/total return index as well) for annualised total return. And that's excluding any tax considerations, such as income tax or super earnings tax on cash interest or franking credits, which swing the comparison further in the favour of shares.

Since Dec 1989 the comparison is: cash 4.9%, shares 8.6%
Last 25 years (ie since 1997): cash 3.9%, shares 8.0%

This all accords with general understanding that the equity risk premium is around the 3.5-4.0% mark.

I'm sorry, but I just can't agree with your statement about cash being competitive with shares over the long term. Sure, there are shorter term periods when monetary policy is tight and interest rates are above normal when that might be the case, but it's just not true in the long term.

June 30, 2022

Cash is trashed by experts but shares do a little better for more time than cash but suffer from crashing back to similar performance to cash. Cash does not have such pronounced down draughts.

SMSF Trustee
June 30, 2022

Dudley, indeed cash doesn't ever have sharp falls in (nominal) capital value. Which is why its perfect for short term investment goals when you've saved up the money you need and can't risk not having that amount when the time comes to spend it.
But for growing wealth over 10, 20, 30 years cash will not do. 4% less return per annum over those time periods is a huge price to pay for never having a volatile time. So your 1st comment about reinvesting interest in cash being similar to shares was simply wrong.

June 30, 2022

"growing wealth over 10, 20, 30 years cash will not do": Nor will shares - if starting from no investable wealth.

Starting working employee's or (especially) owner's savings brings in investable wealth - more than investing brings in for most of people's working lives. Then people retire. Then they don't want share crashes and do want cash. So shares only produce more return for that period near to and shortly after retirement and shares are a lottery with winners and losers.

Cash investments work well for prodigious earner-savers as they accumulate more capital earlier and don't suffer crashes.

+4% does not look so good when a crash wipes out the accumulated difference.

SMSF Trustee
July 03, 2022

Dudley, you will never pass investment 1.01 with that understanding of things!

Workers starting out in super have 30-40 years of investing ahead of them. Over that time period there is a 3.5-4.0% per year average difference between what they'll earn on shares and on cash. They are much better off being heavily invested in shares from the start. If there's a crash in the early years, then their contributions just buy into that weaker market. They are not taking money out.

Yes, sure, contributions are the main thing that builds wealth, but investing them all in cash will leave the amount to retire on much lower than investing heavily into shares and other growth assets like property and higher yielding bonds.

Sequencing risk is a well known factor and individuals who've got certain amounts of capital in super and know how many years to retirement might need to consider taking money out of shares ahead of time. Especially after a boom period like we had up until a few months ago. Personally, I have a target dollar amount for the growth assets part of my portfolio and during late 2021 I was taking profits out of shares as that amount was exceeded. That amount is now safely sitting in short term bonds and cash. I might reinvest some but the idea is that this is now in my capital stable portion.

Methinks that you are projecting your own worry about short term market crashes as a strategy for everyone. I cannot support your view that cash is just as good as shares for returns. And I urge anyone reading your views to do their own research and seek professional advice.

July 03, 2022

if that was the case, nobody would ever start a business or invest in anything.
what a great world that would be...

Peter Thornhill
June 29, 2022

I've just responded to the Keating article with this.

So Paul Keating, "We are disproportionately weighted into the most volatile and unstable asset class." If you were commenting on our political leaders I would agree wholeheartedly.
Shares are not unstable, they are the backbone of this nation. Their volatility is merely a function of their extraordinary liquidity. Every hedge fund, day trader, short seller, etc, and their dogs, have access to shares via the stock market so don't shoot the messenger just because of their speculative behaviour.
More importantly, why doesn't the industry tell people the opportunity cost they will pay by adding cash, bonds and property to drag the end result down.
The indices for cash, listed property and industrial shares show that, over the last 41 years, cash would have returned you approximately 14 times your money, property 72 times your money and industrial shares 168 times your money.
Every potential investor should be alerted to the huge cost they will pay over the long term by an industry trying to protect them from their ignorance. It should be compulsory for every super fund to provide an industrial index performance comparison when reporting to their clients each year. Get the lead out of the saddlebags!

June 30, 2022

While I agree with most of it and have no intention of checking the information or indices it is the correct way to go.
Ignorance,yes,but possibly too strong.They have a whole industry spending a fortune on advertising to give them the wrong advice,in my opinion.The herd instinct also leads them down the wrong path.
In March 2009 during the GFC 5 or 6 of us having a chat at lunch time.5 around the age of 30,and me early mid 50s.The usual chat and no financial knowledge in the young people.
I've heard you know a bit about money and have strange ideas Kevin,what do you think.Pointless explaining I said,you aren't going to do it.Tell us.
Most of your life will be spent in the super system.You work 50 years in that. 10% of that is the 5 years wages you will contribute.I think at your retirement in real terms after all taxes fees etc you will have 5 years wages in super in future wages.At worst 4 years wages,perhaps 7 years wages at best.Spend $30K and buy 1,000 shares in CBA.Reinvest the dividends for 30 years and you will probably have more than your super in the value of those shares.You will be 60 or early 60s then.
Double everything twice over those 30 years and it will be low growth.4,000 shares in CBA,at a price of $120 each. 5000 shares in CBA at $200 each could be quite reasonable.Nobody can predict the future,you can sell those shares anytime you like.
6 people walked out of that room,5 around the age of 30,and a silly old bugger that was as mad as a hatter.
Throw in the 100 reasons of what about this,why does nobody else do that.Look over there,would this not be a better idea,here's a hypothetical etc etc. 2039 will arrive,without me,it would be nice to see how it turned out.
In 2039 the people that are 30 then will be saying how easy it was in 2009.All those 60 to 65 year old people had it much easier and a far better chance than they did.
Just my opinion,I could be wrong,I can't predict the future .I can only know what history taught me.

June 29, 2022

For Australian tax payers, the imputation system means that it doesn't matter one bit what the company tax rate is. Consider a personal tax rate of 30% and two company tax rates, one company tax rate of 10% and the other at 99%. The company earns $100 in profit, and pays company tax - this amounts to $10 (at the 10% tax rate) and $99 (at the 99% rate rate). In the long term, every company will pay all of its profits out in dividends, although this may be several hundred years before this happens.
For the purposes of this illustration, assume that the company then pays whatever remains of its profit ($90 or $1 respectively). The individual then includes the company dividend (and imputation credit) in their personal tax return, and the total ($100) is included in the individual taxable income, and taxed (in our example at 30% = $30. BUT, the imputation tax that the company has paid, reduces the individual tax bill. In the case where the company tax is 10%, $10 comes off the personal tax payable (meaning that the individual has to pay $20), and in the case of the 99% company tax rate, the individual has a liability for $30, but a credit of $99, meaning that the individual gets a refund of $69.
But in both cases, the government's total tax take is $30. In the 10% company tax rate, this is made up of $10 from the company and $20 from the individual, and in the case of the 99% company tax rate, $99 paid by the company less the refund paid to the individual of $69. In both cases, the net government tax is $30

So, why does the government want to reduce the company tax rate. The only shareholders that will ultimately benefit are overseas shareholders, and I say, the more overseas people pay Australian tax, the less I have to pay, so higher tax paid by overseas shareholders is a good thing.

Where is the advantage to the government - simple - if the newspaper has a headline "Government reduces tax", then that results in votes for the government. People don't ask the question "is this reducing MY tax?" If they did, then they would not care what the company tax rate was.

Indeed, there is an argument that says we should INCREASE the company tax rate. Why? - to get the overseas shareholders to pay more Australian tax, but perhaps more importantly, it will lead to overseas shareholders wanting to sell their Australian shares, which will mean more Australian companies would have a greater proportion of Australian shareholders.

John (a different John)
June 29, 2022

Hi John
I largely agree with you. However if a company decided to retain the earnings and not pay dividends, it would have more money to reinvest if the company tax rate was lower.

John(the first one)
June 30, 2022

Surely a more transparent approach would be for the company to pay the dividend and then seek shareholders to reinvest. That way of the company is good they get more funds but If not the there will be no new funds
A higher company tax rate with roasting of additional capital could achieve the same result

Alex Bridges
June 30, 2022

This is a very parochial argument. The fact is Australia is a capital-importing nation and is mostly reliant on overseas investment. Putting the company tax rate up from its already relatively high (by developed economies' standards) rate of 30% would be a bad move that would make Australians poorer.

A very big flaw in a dividend imputation system is that it encourages the payment of dividends rather than the retention of cash for re-investment/expansion by the company.

July 03, 2022

"A very big flaw in a dividend imputation system is that it encourages the payment of dividends rather than the retention of cash for re-investment/expansion by the company.":

A very big flaw in the company tax system is that it encourages payment of taxes rather than the retention of gross profits for re-investment/expansion by the company.

Dividends + franking (tax) credits can be invested - after tax.

Geoff R
July 02, 2022

>Indeed, there is an argument that says we should INCREASE the company tax rate.

I agree. It should be pegged to the top marginal rate + medicare. So currently 47%, but by doing that they could eventually decrease the top rate (and hence the company tax rate) to perhaps 39%.

July 03, 2022

it's effectively 48.5% because high income earners are forced into private health insurance otherwise there's an extra medicare levy surcharge.
ridiculously high personal income tax in this country. nobody is very wealthy by just earning over 180K per annum


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