Get set for another superannuation debate that sheds more heat than light, but if it’s going over your head, that’s probably because you are among the vast majority of Australians who have never received a cash cheque for your unused franking credits, or even knew they existed. Just focus on one concept: negative tax. That’s right, some lucky superannuants are enjoying a negative tax rate. Imagine! That’s not a tax refund at all, as the treasurer, Scott Morrison, would have us believe, because those superannuants are not paying any tax on the earnings in the first place.

Labor’s policy, announced by Bill Shorten yesterday, would save the budget $5.6 billion in its first year. Fully half of that would come from no longer handing taxpayer cheques to the wealthiest 10 per cent of self-managed super funds, those with balances in excess of $2.4 million.

For most people, having such an exorbitant amount of superannuation tucked away is a fantasy – a complete other world – and one hopes that well-paid policymakers and news executives remain sharply aware of the fact.

When the ABC’s 7.30 finds a bloke in Brisbane who lives off $56,000 a year in dividend income, assuming a typical 5 per cent yield, that means he has a share portfolio worth more than a million dollars. Good luck to him – but let’s not pretend he’s battling.

The prime minister is being misleading when he says Labor’s policy is “an attack targeted on people on lower and middle-incomes. It is taking money from people who have worked and saved all their lives and are battling.”

While some low-income people will be affected by Labor’s policy, overwhelmingly it will impact the wealthy, who are living off significant accumulated assets, deliberately structured so that they pay no tax and receive the maximum refund of franking credits.

As The Australian’s Adam Creighton pointed out [$] this morning: “A retired couple living in a $2m house, with $3.2m in super, are classified as ‘low income’. They have no income tax liability. They could also have an investment property and still wouldn’t have a tax liability because of the bizarre ‘senior and pensioners’ tax offset’, which lifts their effective tax-free threshold to about $58,000.”

It was the Grattan Institute, in its 2015 report “Super Tax Targetting”, which helped kickstart a debate about how fiscally unsustainable our superannuation concessions had become. The report included this paragraph:

Once in the benefits phase and aged 60, any earnings on funds in a superannuation account are tax-free. The effective tax rate on superannuation fund earnings in the benefits phase is negative [emphasis added] since funds pay no tax on earnings but receive full refunds on any unused dividend imputation credits. The tax-free status of earnings for retirees dates back to the era when superannuation benefits withdrawn were taxable. Exempting earnings for account-based pensions avoided the double taxation of benefits. However, since tax on benefits was removed in 2007, this rationale for exempting earnings for retirees no longer applies.

So, although Labor’s Simon Crean may have supported Peter Costello’s introduction of refunding unused franking credits in 2000, as The Australian pointed out, that was when retirees were paying tax on their superannation benefits. Now they’re not, so the refundability makes no sense.

Grattan Institute fellow Brendan Coates, a co-author of the institute’s original report, says abolishing the tax on super withdrawals in the benefits phase remains the “original sin” of Australia’s super regime, and the first-best policy option would be to tax super fund earnings in the benefit phase at 15 per cent, just the same as they are taxed in the accumulation phase. Labor’s policy, to abolish franking credit refundability, is a piecemeal, second-best option, he says, but a “step in the direction”. He has written this op-ed in The Conversation.

The nub of the problem the Grattan Institute report identified is that the very rich are using superannuation concessions in a way they were never intended to be used – not to build up retirement savings, but to accumulate wealth tax-free, and pass it on to their kids. In a Reveille blog post today, former ACTU assistant secretary Tim Lyons, a super fund director, puts it this way: “In one sense the current imputation cash refund system is like ‘Reverse Death Duty’ – we are all subsidising large inheritances.”

Lyons says it’s a recurrence of the kind of behaviour seen most notoriously in the early 1980s, when John Howard was treasurer and moved to crack down on tax avoidance. “It’s not bottom of the harbour, in terms of illegality, but in terms of fiscal effect on the Commonwealth, it’s about the same: there’s missing billions.”

Ever since Mark Latham proposed to remove public funding from a “hit list” of ultra-rich, exclusive private schools, Labor has been spooked whenever claims of class warfare are wheeled out. Bill Shorten is showing signs that, far from being rattled by claims of class war, he is preparing to wage one.

since this morning

The Age reports that the former Melbourne councillor Tessa Sullivan, who first accused Lord Mayor Robert Doyle of sexual harassment, feels “vindicated” at the findings of the investigation by Dr Ian Freckelton, QC. ABC Melbourne’s Jon Faine this morning revealed that there were further complaints pending against Doyle. The National Australia Bank board was made aware of an alleged fraud ring operating within the bank in Western Sydney months before the bank reported it to the corporate watchdog, the banking royal commission has heard. The AFR’s Chanticleer writes [$] that the bank’s failure to address problems of mis-sold home loans has been “laid bare”. The Age reports that the Turnbull government has refused to take a position in the Fair Work Commission’s annual wage review on whether the minimum wage should rise but has warned the commission that an increase could pose “employment risks” for the young, low skilled and long-term jobless. The Opposition has called for an above-inflation boost for the country’s lowest-paid workers. in case you missed it

The AFR’s Karen Maley writes [$] that commissioner Kenneth Hayne has “certainly demonstrated excellent instincts in choosing to begin the banking royal commission by looking at the seedy underside of the country’s $1.6 trillion home loan market”. The AFR’s Phillip Coorey writes [$]: “The sacking of Rex Tillerson will not impede the Turnbull government’s access to Donald Trump because the US President barely listened to his Secretary of State anyway, government sources say.” by Miriam Cosic Art Meaning and play run deep at the ‘Museum of Water’ The Perth Festival event encourages reflection on a precious resource by Karen Hitchcock The Medicine What the hell was I afraid of? Dissecting the complex power structures we all inhabit