A Parliamentary Committee will inquire into implications of removing refundable franking credits
The House of Representatives has set up an inquiry into the implications of stopping refunding of franking credits – a Labor policy.
The House of Representatives Standing Committee on Economics will inquire into the “implications of removing refundable franking credits”.
In March Labor announced a policy of stopping the refundability of franking credits, from 1 July 2019. Two weeks later the policy was changed to exempt Age Pensioners and some SMSFs.
Though the Terms of Reference of the inquiry make no direct reference to Labor’s policy, it does appear to be the target. The majority of the Committee members are from the Liberal party.
Liberal MP Tim Wilson, who is Chair of the Committee, said that “the ability for investors, including individuals and superannuation funds, to claim their full credits is an established feature of our tax system and is core to the financial security of retirees”.
“The ability for investors, including individuals and superannuation funds, to claim their full credits is an established feature of our tax system and is core to the financial security of retirees,” he said.
“The committee is examining what impacts the removal of refundable franking credits would have, particularly on retirees who have made long term retirement saving decisions based on their ability to claim refunds on their franking credits and whether it will compromise their financial security.”
Shadow Treasurer Chris Bowen accused Treasurer Frydenberg of “attempting to politicise parliamentary committees and the Treasury” with the inquiry.
“The Liberal Party has so run out of policy ideas that it’s using and abusing parliamentary fora to examine opposition policy NOT government policy,” said a statement by Mr Bowen.
“The new Treasurer has taken the unprecedented step of making a ministerial reference to a parliamentary committee solely focusing on opposition policy.”
“No doubt the new Treasurer intends Treasury to make a public submission on Labor’s policy to reform dividend imputation – Mr Gaetjens was in charge of co-ordinating the Government attack on Labor’s policy, now he is charge of signing off on a supposedly impartial submission on Labor’s policy.”
The Labor policy has been criticised, including by a group called the Alliance for a Fairer Retirement System which was formed to oppose it. The Alliance has as members the SMSF Association and National Seniors Australia, among others.
SMSF Association welcomes inquiry into Labor’s “flawed policy”
The SMSF Association welcomes the inquiry, and says that Labor’s policy would “overturn a principle that took effect on 1 July 2000 and on which many SMSFs in retirement phase have used to build their investment and income strategies”.
Association CEO John Maroney said the organisation was “resolutely opposed” to Labor’s “flawed policy” and planned to make a detail submission.
“It’s our stated belief that this proposal will affect more than one million Australians either saving for or in retirement and other purposes, with our calculations showing it will cut about $5000 of income from the median SMSF retiree earning about $50,000 a year in pension income,” he said.
“The notion that this proposal will only affect the wealthy is simply wrong. An analysis of ATO and Treasury data shows it is those on modest incomes who will be most affected, refuting Labor’s argument that the proposal will only target the wealthiest 10% of SMSFs.”
Maroney said the likely result of implementing the policy would be to “undermine confidence in the system” and “substantially damage” the lifestyles of retirees who had “prudently saved and are carefully drawing down on their retirement savings”.
Terms of Reference, public submissions
The Parliamentary inquiry will consider:
- “analysis of who receives refundable franking credits, the opportunities it provides to offer alternative savings and investment vehicles to low and middle income earners, and the impact it has on lowering tax bills
- consideration of how refundable franking credits support tax principles, particularly implications for tax neutrality, removal of double taxation and fairness
- if refundable franking credits are removed; who it would impact and how and the implications from expected behavioural change by investors, including for
- increased dependence on the pension
- stress and complexity it will cause for Australians, including older Australians to adjust their investments
- if there are carve outs applied, what this might mean for additional complexity, uncertainty and fairness
- reduced incentives to save and distortions to which asset classes are invested in and funds are used, and
- the reliability of providing a sustainable revenue base over the longer term.”
The Committee is accepting submission on the topic from members of the public.The inquiry does not currently have a reporting date.