‘Nodding donkeys’ and ‘wishy washy’ responses: An analyst’s searing critique of the politics of Bill Shorten’s tax plan

All ready for the next board meeting. Mark Kolbe / Getty Images

It’s surprising when you write it down, but here it is: Bill Shorten has made Australian politics interesting again.

His plan, announced today to kill off cash rebates to retirees under the regime that allows for tax credits on dividend payments, will deliver a big improvement to the budget bottom line. Shorten is unapologetically punishing retirees to set up for campaign promises while returning the budget to surplus.

How he plans to use the savings will define the battle lines of the next election. The policy gulf between the Coalition and Labor has widened dramatically.

One of the best takes we’ve seen on this is an even-handed, frank, and at times amusing assessment from Richard Morrow of Bailieu Holst in his Morning Morrow note today. It takes aim at both sides of politics in some comments I’m sure will have many people nodding their heads in despairing agreement.

From the note (emphasis added):

The best part of this policy is that he is planning to fleece a class of voter who would not be expected to vote for his team. Shorten is also treading down a path pioneered by the PM and his acolytes about raiding the $2.5 trillion superannuation honey pot. … in seeking to reshape the financial assets of retired or retiring Australians, Shorten is attacking the basis of valuation of many high-dividend paying companies and attacking many financial structures and strategies for Australian corporations.

If the proposal gets up, we should see a big round of financial engineering and re-engineering. Given the Government’s depressingly poor showing in opinion polls, it is highly likely a Shorten government will win and this raid on retirement savings will take place. It is probably also fair to say, however, that the Government is hardly any better in terms of wishing to raid the superannuation savings and investment pot. It’s just that Shorten has moved first. Interestingly, the timing gives Turnbull (and Morrison, O’Dwyer, Cormann, etc) a chance to scotch the idea and plant a flag in the ground to stop further meddling with lifetime savings of elderly Australians. I don’t think that’s going to happen. We are more likely to see some wishy washy response from team Turnbull which will do little to dampen the fears of elderly Australians about the safety of their incomes.

He then turned his attention to ASX boards. One impact of Shorten’s plan is that it removes some incentives for directors to stir demand from savers by consistently paying out high dividends. Instead of redistributing profits maybe — just maybe — they can reinvest in the company.

“Longer term, we might see boards of these companies get a bit more aggressive and start to invest capital in their businesses instead of paying dividends, taking us down a more US path in terms of company management,” Morrow wrote. But: “Then again, the nodding donkeys on these boards are probably happier to cash the cheque every month and perform no worse than their competition, if you can call it that.”

Morrow finished by pointing out that Shorten’s plan will strip money out of the consumption economy and that the political stakes seem now to have raised dramatically.

One further thought is that much of the money that Shorten wishes to clawback is today recycled through the economy through spending on cost of living. Shorten’s plan actually attacks the economy. Most new taxes do. It will be interesting to see how the government responds. The government’s future could depend on it. Superannuants have not forgotten or forgiven the government for last year’s debacle on capping retirement savings and restricting contributions into super. Shorten’s move provides an opportunity for Team Turnbull to rebuild trust and gain redemption for doing something incredibly stupid. We shall see.

Sure will.