In the early 1980s, Paul Keating set out to reinvent the Australian economy. He floated the Australian dollar, liberated banking and finance from its regulatory shackles, and — most significantly — introduced a universal superannuation scheme. The results were astounding growth in the value of the national economy and in the personal wealth of ordinary Australians. Keating’s revolution was based on his insight that, by encouraging every citizen to save for retirement, a huge pool of investment capital would be created that would help enrich the nation. But the fulfillment of his vision was denied by his political opponents after the Australian people voted Keating out in 1996.
Even if you are like me a rusted-on Liberal voter, you will, after reading this book, take your hat off to Keating's genius which perceived a complex mix of politics, economics, market initiatives, and social policy as an interactive combination that formed an organic whole.
Keating was instrumental in floating the dollar in 1983, then in 1987 he introduced franking credits - also known as dividend imputation credits, and in 1992 he introduced the compulsory employer superannuation contribution scheme. Australia was a "Banana Republic" no more!
The floating of the dollar hurt me personally, as I had insisted that my then Saudi masters pay me in Australian dollars which suddenly dropped some twenty percent to eventually stabilise at around 77 US cents.
However, I - and millions of others who had invested in the Australian sharemarket to provide for our own retirement - benefitted hugely from Paul Keating's introduction of dividend imputation. Before 1987, dividends had been taxed twice: first at the corporate tax level and second at the income tax level. The government was basically double-dipping. Keating's reform allowed the corporate tax already paid on those dividends to be offset against an individual taxpayer's other taxes.
But things were to get even better: in 2001, the Howard government extended the system to shareholders who were not actually paying any tax, which meant that even if you were paying no tax ... you'd get that tax credit paid out to you - basically a cheque from the government.
The employer compulsory super never affected me as I had become self-employed shortly after my return to Australia in 1985; however, we were allowed to set up our own self-managed superannuation funds in which income was taxed at the much lower flat rate of fifteen percent.
Even the most mathematically-challenged person can see that paying 15% tax on dividend income which has already been tax at corporate level at 30% results in a huge tax refund. But wait, there's more: when you turn 65 and start your pension, all earnings are TAX-FREE and the full amount of the corporate tax of 30% becomes refundable!
Paul Keating has done it for me. No more unfinished business!
