MEDIA RELEASE: Refundable franking credits report should prompt Opposition rethink
Alliance for a Fairer Retirement System Media Release
08 April 2019
A parliamentary committee recommendation not to remove refundable franking credits should prompt the Labor Party to revisit this proposal if it wins office after the next federal election, says the Alliance for a Fairer Retirement System.
The House of Representatives Standing Committee on Economics, which handed down its Report on the Inquiry into the Implications of Removing Refundable Franking Credits last week, also recommended that any proposal that could reduce Australian retirees’ income by up to one third “should only be considered as part of an equitable package for wholesale tax reform”.
Alliance Chair Professor Deborah Ralston says: “We welcome the release of the report, agreeing with its conclusions that Labor’s proposal is inequitable, deeply flawed, has a rushed timeline, and will unfairly hit people of modest incomes who have retired already.
“As the Alliance has consistently argued, Labor’s proposal will reduce the incentive for many people who save throughout their lives to be self-funded in retirement – defeating a key goal of our superannuation system which is to reduce pressure on Government expenditure over the long-term.”
Ralston says a widely held misconception about this proposal is that it’s a tax on the wealthy. “But the reality is it’s not the wealthy who will be most affected.
“In addition to the 900,000 individual Australians who the report says will be affected by this proposal, the Parliamentary Budget Office estimates there are also 200,000 SMSFs with about 358,000 members, and more than two million members of APRA-regulated superannuation funds where a high proportion of members are in pension phase.
“Over half of the individuals concerned have taxable incomes of less $18,000 and on average receive $5000 or less in franking credit refunds. Although the top 10% of SMSFs could be described as wealthy, three quarters of SMSFs are average Australians who receive refunds of $15,000 or less per fund; that is less than $7500 per member on average.
“It seems unnecessary to inflict this policy on 1.2 million people because of concerns about the 64,000 people with balances exceeding $2.5 million in SMSFs. The proposal is also very unlikely to touch the 420 APRA fund members who have balances exceeding $5 million. As a wealth tax it misses the mark.”
Ralston says the policy is also regressive. As the report highlights, those on high taxable incomes can still use refunds to offset tax liabilities, while low income individuals will, in effect, be paying tax on their Australian shares at a 30% marginal rate.
“Ironically, a self- funded retiree couple or members of an SMSF with $855,000 in Australian shares will have a lower income than a retiree couple on the full Age Pension with $300,000 in Australian shares.
“Quite clearly, this proposal discriminates against self-funded retirees and those in SMSFs with no Centrelink benefits before 28 March 2018 in favour of APRA-regulated industry and retail superannuation fund members and those receiving a part or full Age Pension.”
Ralston says the report provides compelling evidence why Labor, if elected, should rethink this proposal. “The overwhelming evidence shows it will hurt many people who could not be described as wealthy, and, at the same time, introduces inequity into the tax system by discriminating against those who have an SMSF compared with members of APRA-regulated funds.”