The majority of cash refunds for excess franking credits claimed by self-managed super fund owners flow to savers with more than $2.4 million in their accounts, according to a detailed analysis of Labor’s proposal by the independent Parliamentary Budget Office.
The release of the modelling, commissioned by Labor MP Matt Thistlethwaite, came as angry shareholders yesterday vented their frustration at a parliamentary inquiry into the opposition’s proposal in Sydney.
A little-used provision in committee legislation allowed members of the public to deliver three minute “community statements” to the House of Representatives economics committee, where a steady flow of retirees and SMSF owners — all of whom were met with applause — slammed Labor’s proposal to ban franking credit refunds for shareholders who aren’t receiving the full or part pension.
“What became clear for the hearings is that so many people who’ll be hurt by Labor’s plan don’t know it, and those who do are furious,” said Liberal MP Tim Wilson, chair of the committee.
One retiree, Alistair Daley, told the committee he would lose $18,000 a year in earnings from his SMSF, which was 100 per cent invested in full-franked Australian shares. Another said Labor’s proposal would force him and his wife to shop at German grocery chain Aldi, rather than at stores that keep profits in Australia.
The PBO analysis, based on official ATO data from the 2015 financial year, found 53 per cent of excess franking credits claimed by SMSFs were to funds with more than $2.44m in assets. Funds with more than $1m claimed 82 per cent of the franking credits, worth $2.1 billion a year. The PBO found SMSF owners with more than $2m in savings held 72 per cent of the value of all Australian shares in the $700 billion SMSF sector.
The analysis also revealed 92 per cent of taxpayers don’t receive any cash refunds. The SMSF Association has previously said one million Australians would be affected by Labor’s proposal.
Labor’s plan, which unwinds the government’s decision in 2000 that introduced cash refunds for excess dividend imputation tax credits, is expected to save the budget $10.7bn over four years and $56bn over the next decade. The policy cost just $500m a year when it was introduced.
“The reality of Labor’s policy is it hurts those on lower taxable incomes,” Treasurer Josh Frydenberg said. “About 84 per cent of those affected have a taxable income of less than $37,000, and 96 per cent have a taxable income of less than $87,000.”
Measures of taxable income can ignore that the largest source of income for most retirees is tax-free superannuation.
Veteran fund manager Geoff Wilson, an outspoken critic of Labor’s proposal, yesterday organised a protest against the measure, handing out placards to retirees that read “don’t tax us twice” and “stop the stealth tax on superannuation”.
Mr Thistlethwaite said “a line-up of representatives of vested interests” were arguing for the world’s only fully-refundable imputation system. “Little to no evidence was provided to substantiate their arguments,” he said.
Centre for Independent Studies senior fellow Robert Carling told the inquiry yesterday said there were “more efficient and fairer ways” to raise revenue than “than arbitrarily curtailing the imputation system”.
“Refundability was introduced in 2000 based on sound principles and has not subsequently been challenged on grounds of principle. As long as the imputation system remains in place, refundability is a logical part of it. Any move to abolish it would put revenue-raising ahead of policy principle,” Mr Carling said.
Michael Roddan - is a business reporter covering banking, insurance, superannuation, financial services and regulation.
21 November 2018