The Labor Party has claimed its plan to scrap franking credit refunds to certain people is not a departure from its support for self-funded retirees, but is about closing a tax loophole unique to Australia.
Addressing an Institute of Public Accountants post-budget breakfast in Canberra today, opposition assistant treasury spokesman Andrew Leigh said the original franking credit arrangements introduced in 1987 were designed to support self-funded retirees, but were altered by a subsequent coalition government, creating a zero-tax environment.
“The changes put in place by [then-treasurer] Paul Keating in 1987 were to avoid the double taxation of dividends, but the changes put in place by [then-prime minister] John Howard in 2000 avoided the single taxation of dividends,” Leigh noted.
He used the example that if all listed companies in Australia were owned by shareholders who received cash refunds for franking credits, all company tax would be refunded as personal tax cuts and the effective tax rate on every company would be zero.
“If you think this would be an odd state of affairs, then you must also think it is odd that we are the only country in the world that provides these kinds of tax refunds,” he said.
“Good tax reform has to do with closing loopholes, so we have set out a plan to look at tax loopholes that are unusual and unique to Australia,” he said, adding franking credit refunds were being paid primarily to those with high asset balances.
“At the moment, this tax concession is going disproportionately to those with very high superannuation balances, with more than half the money going to people with more than $2.4 million in super accounts,” he said, further noting it was not a ‘scorched earth policy’ and exempted pensioners, those on government allowances and those in accumulation phase within their superannuation.
“We have the choice of putting this decision in the too-hard basket or taking on some of these tax loopholes. Is it really fair for Australia to continue with this cane toad of a tax concession which only exists here, was introduced for other purposes and is eating away at our ability to fund essential public services?”