Retirees will pay for the Paid Parental Leave scheme

A big chunk of Tony Abbott’s parental leave scheme will be paid for by retirees and those saving to retire.

The slug to retirees has been engineered by the Coalition backroom and joins the Reserve Bank’s lower interest rate drive in the inter-generational attack game, which the older generation is losing.

That fact that very few media outlets picked up the fact that retirees and those saving for retirement would pay a slice of the parental leave bill shows that the inter-generational game is not widely understood.

But it explains why Shadow Treasurer Joe Hockey was correct in saying the scheme was revenue neutral and laughed off the latest ALP claims saying it was not funded. Like the bulk of the media, the ALP did not understand what Abbott, Hockey and Co. had done.

Let me explain how the funding plan works. First there are a series of offsets where the new plan replaces the old schemes and cuts out double dipping. These are genuine savings.

Then Abbott and Hockey impose a 1.5 per cent levy on taxable company incomes of $5 million or more, which will affect about 3200 companies who represent the bulk of company tax raised.

But the levy will be offset by a 1.5 per cent fall in company tax so profit-wise there is no effect on large corporations (and small companies win because they do not pay the levy).

But then comes Tony and Joe’s sleight of hand attack on retirees. Many big corporate taxpayers, like banks, pay around three quarters of their profits out in dividends and there is constant pressure from retirees for companies to payout more, especially now interest rates on bank deposits have been reduced. Most dividends (but not all) are fully franked because they come out of tax paid profits.

So a superannuation fund obtains a franking credit equal to the tax paid by the company. Those franking credits are currently calculated at a tax rate of 30 cents in the dollar. When the Abbott-Hockey plan is introduced the franking credits will be calculated on the basis of 28.5 cent in the dollar. They are worth less and so the retirees and those saving to pay for retirement cop the bill because Abbott and Hockey have simply swapped a tax for a levy aiming to lower the franking credit.

It is a clear attack on the older generation to benefit the up and coming generation.

Now most of you know my approximate age so you will realise that I am biased because I am one of those that the Coalition are attacking. And you can also argue that I should be happy to fund the next generation and to improve the overall productivity of the nation’s work force.

But those struggling retirees and those saving to retire will be horrified that not only are the older generation helping those with mortgages via lower interest rates but they are now seeing their franking credits reduced to help the younger generation.

The sad thing is that neither the bulk of the media nor the ALP understood what Abbott and Hockey were doing. The retirees will understand very quickly what the Coalition is doing. But Tony and Joe know it is unlikely to change their vote.