The Labor Party’s election promises will be funded by a reduction in the income of self-funded retirees despite many of them falling short of being considered wealthy, according to the Alliance for a Fairer Retirement System (AFRS).
Costings released by the Labor Party late last week indicate it will make $154 billion in savings over a decade due to tax changes, including reductions in negative gearing, changes to capital gains tax, and a ban on franking credit refunds which will contribute around $58 billion, or around a third of the projected savings.
Continuing its push against the ban on franking credits proposed by the Labor Party, AFRS spokesperson Professor Deborah Ralston said there was still a debate around who should be considered as wealthy and many recipients who are self-funded retirees, SMSF trustees or low-income shareholders fall outside that definition.
“The vast majority of individuals affected [by the proposal], who receive a refund of less than $5,000 a year, would not be considered wealthy by most Australians,” Ralston said.
“Similarly, the majority of affected SMSFs receive a refund of less than $10,000 a year. Most of those funds have two members, so the average refund per member is less than $5,000 per person. Most of these members are not wealthy and the prospect of losing up to 30 per cent of their retirement income is devastating,” she added.
Ralston pointed out a retiree who had a maximum of $1.6 million invested in a pension fund earning 5 per cent each year would only generate around $83,500 in income, which was the equivalent of the average annual earnings for full-time adults in Australia. This means they would only receive around $10,000 in franking credit refunds from a diversified portfolio with a 30 per cent allocation to Australian shares.
She also highlighted many retirees have not been able to benefit from the SG and the median superannuation balance for those over 65 was modest, and for those over 70 the median balance, in 2014-15, was zero.
On the other hand, Ralston noted, ATO statistics show around 60 per cent of taxpayers over 65 received an average of $4000 of franking credits each year, which could be lost by those on lower incomes who are ineligible for an age pension.
“We need to think very carefully before we reshape the Australian superannuation and retirement income systems, key aspects of which have had bipartisan support since 2000 or earlier. Retirees and those approaching retirement have made plans over many years to enable them to achieve a secure and dignified retirement under the current structure,” she said.
“Any proposals that risk causing major upheaval for over a million people deserve careful considered study within an overall review of the Australian superannuation, taxation and retirement income systems. Key principles of such a review would include fairness, adequacy, certainty and sustainability.”