Scott Morrison has no concern for the reputation of Treasury as an apolitical economic agency, preferring to use it instead as a Liberal Party advertising agency.

Treasury has confirmed today that the costing was produced on the basis of policy specifications provided to Treasury by the Treasurers office.

Despite the Treasurers claims of an external review this morning, Treasury has also confirmed there was no external review of the policy despite suggestions to the contrary in todays report in The Australian. Correspondence between the Shadow Treasurer and Treasury Secretary is attached.

Three months ago,Mr Morrison confirmed that the Turnbull Government had no plans to reform dividend imputation saying the government has never entertained it.

Despite this, we discover today that the Treasurers office has directed finite Treasury resources to consider this policy and discuss with external experts on it.

This is next level politicisation of the Australian Treasury.

Labor is deeply concerned that the release of "Treasurymodelling" not only undermines the perception of Treasury as an apolitical economic agency, but the exercise itself seeks to deliberately undermine the quality of costings provided by the independent Parliamentary Budget Office, a costing agency of equal standing under the Charter of Budget Honesty.

Labor's policy to reform dividend imputation was fully costed by the independent Parliamentary Budget Office and the costing took account of a broad range of potentialbehavioural responses.

The Parliamentary Budget Officer,Ms Jenny Wilkinson, went to a fair bit of detail in talking through the sorts of behavioural responses during the recent Senate estimates.

Senator McALLISTER: Sorry to jump around but, in terms of behavioural change, you did contemplate the possibility that self-managed super funds might sell down Australian shares to avoid the policy.

Ms Wilkinson: We considered a number of different ways in which individuals may adjust their behaviour.we considered all of those and also that individuals could change their asset allocation as a consequence of this policy

Senator McALLISTER: So the approach you took was relatively conservative. I think you said the impact of these behavioural assumptions was substantial.

Ms Wilkinson: That's right



ATTACHMENT:

Excerpts from Jenny Wilkinsons Senate estimates:

Senator McALLISTER: Sorry to jump around but, in terms of behavioural change, you did contemplate the possibility that self-managed super funds might sell down Australian shares to avoid the policy.

Ms Wilkinson: We considered a number of different ways in which individuals may adjust their behaviour. We considered that somebody who's got a very large balance may chooseso somebody who is above the transfer balance capto adjust their portfolio in terms of whether their assets are supporting their pension phase or their accumulation phase, so they could actually make a readjustment within their existing portfolio. We considered that some members of a self-managed super fund may choose to try and get additional members into their self-managed super fund in order to the defray some of those costs. We considered that some members of a self-managed super fund may choose to take the share part of their portfolio and move it into an APRA fund, for example. We considered all of those and also that individuals could change their asset allocation as a consequence of this policy, noting that, of course, if you're investing for the long-term, you're also going to want to have a reasonably diversified share portfolio in order to support your retirement.

Senator McALLISTER: So the approach you took was relatively conservative. I think you said the impact of these behavioural assumptions was substantial.

Ms Wilkinson: That's right and, just to be clear, when you're making judgements about what are the likely behavioural responses, we need to just apply our best professional judgement to what the net impact of all of these changes may be, and including, for example, the fact that, if a set of individuals who are impacted choose to sell their Australian shares, somebody else has to purchase those shares. Typically, the people who will purchase those shares are probably going to be people who are paying higher tax, because that's part of the way in which they can make use of the franking credits, or they could be people who are overseas. So you have to look at the net impact on the tax that would be raised, rather than the direct impact for individuals.

The other thing is, when we're thinking about this, we try and make ajudgement about all of the different ways in which an individual might respond, and then we need to make an assessment of: how, on average, would the average person who is being impacted respond? At the end of the day that's what's going to impact on the fiscal implications of the proposal.

Senator McALLISTER: I think you've talked about your overall philosophy, but it really is an exercise in applying the best judgement: looking at all of the dynamics, including behavioural dynamics in response to known policy changes, and making your best judgement about how much revenue will be raised under these new policy conditions.

Ms Wilkinson: Correct.

Senator McALLISTER: In the costing you provided for Senator Leyonhjelm, and indeed more generally in your costings, you talk about uncertainty. All costings, whether they're done by PBO, Treasury or Finance, have some degree of uncertainty associated with them, don't they?

Ms Wilkinson: Absolutely. Any projectionany budget projection, fiscal projection or economic projectionhas uncertainty associated with it.

Senator McALLISTER: You make that point very directly in the costing for Senator Leyonhjelm. If Treasury had costed this, there would also be uncertainty with the numbers.

Ms Wilkinson: Absolutely. We put out a paper last year to try to clarify some of the public discussion around uncertainty in costings. This is an information paper, and it outlines that different costings have different sources of uncertainty. There's sometimes uncertainty in the base-level data. There's sometimes uncertainty as to what the take-up rate of a particular policy proposal would be. There's sometimes uncertainty around the behavioural responses. There are lots of different sources of uncertainty that have to be taken into account in any costing exercise, regardless of who undertakes the costing.

MONDAY, 18 JUNE 2018