The parliamentary inquiry into the impact of removing franking credit refunds for some individuals has recommended against the move but the final report was split along party lines, featuring a dissenting report from the Labor members of the inquiry committee.
The House of Representatives Standing Committee on Economics, chaired by Liberal Party Member of Parliament (MP) Tim Wilson, presented the report which plainly stated “the committee recommends against the removal of refundable franking credits”, adding that it also recommends “any policy that could reduce Australian retirees’ income by up to a third should only be considered as part of an equitable package for wholesale tax reform”.
The inquiry committee, which was made up of six Liberal Party MPs, three Labor Party MPs and one Greens MP, made the recommendation after conducting 19 public hearings around Australia and receiving 1777 written submissions.
In making the recommendation, Wilson wrote in the foreword of the report that the committee “has considered the case for removing refundable franking credits for individuals and SMSFs and is of the view the policy is inequitable and deeply flawed”.
“The abolition of refundable franking credits will force many people, who have saved throughout their lives to be independent in retirement onto the age pension. This undermines any objective that it may raise revenue and reduce dependence on taxpayers resulting from an ageing population,” Wilson said.
The report also rejected the suggestion that abolishing refundable imputation credits would only affect those with high levels of wealth stating this was an unfair characterisation of the 900,000 Australians who may be affected by the change, and that 96 per cent of people receiving franking credit refunds had taxable incomes of less than $87,000.
“In particular, abolishing refundable franking credits will unfairly hit people of modest incomes who have already retired, and who are unlikely to be able to return to the workforce to make up the income they will lose,” Wilson said in the foreword.
In addition he highlighted that the proposed change did not consider the introduction of the transfer balance cap in the 2017/18 financial year which applied a 15 per cent tax rate on income earned on superannuation pensions above $1.6 million.
Wilson said funds with pension phase balances above $1.6 million would still be able to use franking credits to offset tax liabilities but those under $1.6 million will not and the change would introduce an effective 30 per cent tax rate on the income of funds below $1.6 million compared to a maximum 15 per cent for those above $1.6 million.
“Such a policy discriminates against retirees in SMSFs, in favour of members of APRA (Australian Prudential Regulation Authority)-regulated industry and retail superannuation funds, and those eligible to receive a part or full Aged Pension before 28 March 2018,” he explained.
The dissenting report from the Labor Party members of the inquiry committee rejected the position presented in the report claiming the proposed change would prevent people claiming a tax refund where they paid no tax, and the policy reversed a move introduced in 2000 which undermined the pension system.
The report also challenged the basis for the establishment of the inquiry and accused Wilson of abuses of parliamentary procedure, and recommended he disclose all emails and letters critical of the inquiry.