Franking credits are being “rorted on an industrial scale”, says economist Chris Richardson, who adds that Labor’s franking credits policy won’t fix the system, and suggests that superannuation reform might instead be the answer.
“I think the tax benefit should be there, but it is being rorted – and rorted on an industrial scale,” Mr Richardson told 7.30.
“It’s a tax benefit that’s most valuable if you have lots of Australian shares and you have a low rate of tax.
“Now, that is a basic description of the superannuation system in Australia – lots of Australian shares, low rate of tax.”
Mr Richardson says Labor’s solution to the franking credit conundrum may not be fair for all.
“Given the way they’re doing it, they’re fixing one fairness problem [which] is costing more money than it should. They’re genuinely fixing that,” he said.
“But they are creating some new fairness problems for some retirees at the same time.
“There are still a bunch of people who I think will be unfairly treated.”
The policy Labor is taking to the federal election will mean that those on a full Age Pension or part-pension will still be able to receive the franking credit cash refunds.
But households with one member still working could see those refunds removed. Once both members retire, however, they would then be re-eligible for the refunds.
Some retirees are warning Labor that they will send them a message and change their vote at the next election.
“It would sway the way I vote because if they’re going to affect my future, then I need to very carefully consider who I vote for,” said one swinging voter who resides in a Labor electorate.
Shadow Treasurer Chris Bowen is not swayed and says Labor’s policy won’t change.
“The policy we’ve announced is the policy we are taking to the election,” he told 7.30.
“All reform worth doing is controversial, and I understand that people will look at our policies and will make judgements, but we have announced the policy, [and] we are standing by it.
“We know this is the right thing to do. We know this money is important for investing in schools and hospitals, returning the budget to balance.
“We can no longer be the only country in the world that provides tax refunds to shareholders who have not paid the income tax to start with. If you pay tax, we will refund it, but if you don’t pay tax there is nothing to refund.”
However, Mr Richardson claims the franking credits scheme should remain but that changes to superannuation could make the whole system fairer.
“Superannuation funds make out like bandits around this stuff. And particularly so, the sort of family superannuation funds,” he said.
“It costs too much.
“I think the best way to fix it would actually be proper reform of the superannuation system.”
Will Labor’s franking credits policy change the way you vote in the next election? Do you think superannuation could be reformed and that franking credits should remain?