The Labor Party’s proposal to stop cash refunds of excess franking credits would impact on low and middle-income earners rather than just SMSFs as intended, according to the federal government.
Assistant Treasurer Stuart Robert told the Alliance for a Fairer Retirement System Fairer Retirement Summit in Sydney today that as someone who once ran an SMSF, he knows how an SMSF can deal with the policy.
However, someone on a low income of about $17,000 who received $20,000 in fully franked dividends will have fewer opportunities to deal with the policy and will face the prospect of losing their refunded franking credits.
“The number of mostly elderly women I run into on the Gold Coast who say to me it’s the same thing every single time,” Robert said.
“[They say] ‘my accountant gets me a tax return each year and I don’t know what it’s for. And now I do and they want to take it off me’.”
Quoting Treasury figures, he said 900,000 Australians face losing refunded franking credits, with more than 45 per cent of this cohort 65 or older.
He also said 96 per cent of individuals affected are on a taxable income below $87,000.
Robert also criticised Labor’s move to provide a grandfathered date for SMSFs shortly after announcing the policy, where SMSFs with at least one age pensioner before 28 March will be exempt from the changes.
“What happens if you become a pensioner on 29 March or heaven forbid on 1 April or any date from that date until now? You will be hit,” he said.
“Labor’s policy is now creating two classes of pensioners: people who got old and claimed the pension prior to 28 March and those who decided to age after 28 March. Somehow I don’t think the poor people after 28 March had much of a choice.”
He also cited Citi research and said the policy will reduce demand for Australian shares relative to other investments.
“The major banks’ valuation, which is 20 to 30 per cent of the cap value of the ASX (Australian Securities Exchange), could be impacted by as much as 5 to 10 per cent. Labor’s retiree tax is a pretty cruel strike against SMSFs,” he said.