The Labor Party should reconsider its proposal to remove franking credit refunds to certain individuals as the policy is inequitable and the timeline for implementation will be rushed if it wins office, according to an alliance of consumer, advisory and industry groups.
Following the release of the final report from the House of Representatives Standing Committee on Economics inquiry into the proposal, the Alliance for a Fairer Retirement System has called on Labor to reconsider its position, claiming it targets those who have sought to be self-funded in retirement.
The committee made two recommendations, the first against the removal of refundable franking credits to certain investors, and the second that any policy that could reduce retirees’ income by up to a third should be considered as part of wider package of wholesale tax reform.
The alliance stated if Labor went ahead with the proposal, which opposition treasury spokesman Chris Bowen said would begin from 1 July 2019, it would be implementing a proposal that was “deeply flawed, has a rushed timeline and will unfairly hit people of modest incomes who have retired already”.
Alliance chair Professor Deborah Ralston welcomed the release of the report and its recommendations, claiming the Labor proposal runs counter to policies around supporting self-funded retirement while being inconsistently applied across the superannuation sector.
“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 said.
She said the inquiry’s report showed the proposal was regressive and people on high taxable incomes would still be able to use refunds to offset tax liabilities, while those with low incomes would, effectively, be paying tax on their Australian shares at a 30 per cent 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,” she added.
“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 (Australian Prudential Regulation Authority)-regulated industry and retail superannuation fund members and those receiving a part or full age pension.”
The report provided compelling evidence why Labor, if elected, should rethink its proposal, she said.
“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.”
The final report from the House of Representatives committee inquiry was released on 5 April and was split along party lines. The six Liberal members of the committee supported its findings and the three Labor members of the committee released a dissenting report, which challenged the validity of the inquiry and whether its chair abused parliamentary procedure during the course of the inquiry.
The Alliance for a Fairer Retirement System is made up of the following organisations:
- Association of Financial Advisers,
- Association of Independent Retirees,
- Australian Investors Association,
- Australian Listed Investment Companies Association,
- Australian Shareholders’ Association,
- Gold Coast Retirees,
- National Seniors Australia,
- Self-managed Independent Superannuation Funds Association,
- SMSF Association,
- Stockbrokers & Financial Advisers Association, and
- WA Self Funded Retirees.