Labor’s unpopular franking credits policy has a new enemy.
An alliance has been formed to fight for the financial rights of Australian retirees, and it has joined the Coalition in attacking Labor’s plan to deny franking credit refunds.
Speaking at the Alliance for a Fairer Retirement System Inaugural Summit in Sydney this week, Assistant Treasurer Stuart Robert labelled as unfair the policy to withhold from shareholders dividend tax paid on their behalf by companies.
Investment funds, shareholder and stockbroking associations, and financial advice organisations, along with seniors’ groups and advocates, have joined in the chorus against Labor’s unpopular proposal.
“The removal or adjustment of dividend imputation would be enormously detrimental to the Australian financial system,” said Wilson Asset Management chairman Geoff Wilson, adding that his company had received almost 2000 complaints from those who would potentially be affected by Labor’s move to deny some people their full tax refund.
Australian National University Associate Professor Geoff Warren calculates that cumulative retirement savings could fall by eight to nine per cent on average – for those affected.
Meanwhile, the Assistant Treasurer said “the critical point is that more than 45 per cent of the 900,000 people affected are 65 years or older”.
“Any changes will overwhelmingly hit low and middle-income earners, with 84 per cent of the individuals impacted on taxable incomes of less than $37,000, and 96 per cent of the individuals impacted on taxable incomes below $87,000.”
Of the 3.8 million Australians aged 65 and over, the policy stands to affect just on 10 per cent of them.
In the YourLifeChoices 2018 Retirement Matters Survey, we learnt that more than 34 per cent of the 5203 participants owned shares outside of super.
Those with an income of $37,000 – which may include the Age Pension – still own shares potentially worth hundreds of thousands. Labor’s plan would be to remove the way by which shareholders can reduce their taxable income. Once the franking credits are removed, those declarable incomes would actually be much higher.
“Bob Hawke and Paul Keating created dividend imputation in 1987 to allow investors to reduce the income tax they pay, when the companies they own shares in pay them a dividend,” wrote Opposition Leader Bill Shorten.
“When this first came in, it cost Australian taxpayers about $500 million a year. Within the next few years, it's going to cost $8 billion a year. Every year. $8 billion is more than the Commonwealth spends on public schools or childcare. It's three times what we spend on the Australian Federal Police.
“I refuse to believe cash bonuses for a small fraction of shareholders are more important than a great education for our kids. I can't accept that preserving a tax loophole is three times more important than national security.”
The Coalition’s rhetoric of franking credits refund policy being a ‘retiree tax’, implies that all retirees will be affected and that it will hit poor retirees hardest.
The numbers show that this is not necessarily the case.
“Under Labor's plan, no Australian will lose a cent from their super contributions, no one will lose a cent from their pension and no one will lose a cent from their share dividends. Not a single cent,” states Mr Shorten.
“We're keeping dividend imputation, so you'll still be able to reduce your income tax. But the days of getting a cash refund for income tax that was never paid in the first place will be over.
“This is a tax concession that overwhelmingly benefits the top end of town. Fifty per cent of the cash refunds go to self-managed superannuation funds with balances of more than $2.4 million.
Veteran journalist and finance commentator Robert Gottliebsen says introducing the policy may send us down a slippery slope.
“By all means let’s have a debate about dividend imputation; there are certainly two sides to every argument,” said Mr Gottliebsen.
“However, this intended policy completely undermines the values around equity and fairness that Australians hold dear. For example, three different retirees with the same retirement savings in three different vehicles – an industry super fund, an SMSF and a self-funded retiree – would be taxed at different rates. This is the thin edge of the wedge. Once this is accepted it could occur in all sorts of policy.”
The organisations that form the Alliance include:
- The Australian Shareholders’ Association
- Australian Listed Investment Companies Association
- National Seniors Australia
- SMSF Association
- Self-managed Independent Superannuation Funds Association
- Stockbrokers & Financial Advisers Association
- Association of Independent Retirees
- Australian Investors Association
- Association of Financial Advisers
- WA Self Funded Retirees Inc
- Gold Coast Retirees Inc
The Alliance’s spokesperson is Professor Deborah Ralston.
Why not take part in our Friday Flash Poll and let us know if you'll be affected by Labor’s plan to deny franking credit refunds?
Do you think maintaining this tax loophole is fair? Do you understand how franking credits work? Do the potential savings to the economy outweigh the benefits for the number of those affected?