Labor has announced that all Age Pensioners, and some SMSFs, will be exempted from the recently released policy of stopping refunds of excess dividend franking credits, a meaningful change to the policy only two weeks after it was revealed.
Labor had announced that, should they win the next Federal Election and pass the required legislation, excess dividend franking credits would not be refundable from 1 July 2019. This was aimed at the wealthy, but also captures people on low taxable incomes – such as pensioners or retirees drawing tax-free amounts from superannuation. The Coalition had taken to calling the policy ‘Labor’s retiree tax’.
The ALP has now said that both full and part Age Pensioners will be excluded from this change. Labor has dubbed this the ‘Pensioner Guarantee’.
“The Pensioner Guarantee will protect pensioners who may otherwise be affected by this important reform,” said a statement by Shadow Treasurer Chris Bowen.
“The Pensioner Guarantee means pensioners and allowance recipients will be protected from the abolition of cash refunds for excess dividend imputation [franking] credits when the policy commences in July 2019.”
SMSFs with at least one age pensioner or allowance recipient member prior to 28 March 2018 will also be exempt from the changes to franking credits.
“This means that every pensioner will still be able to benefit from cash refunds,” Bowen said.
Minister for Finance Mathias Cormann called this a “bungled backflip” and in another interview said:” Bill Shorten either does not understand what he is doing or he is lying to the Australian people.”
“He is saying that every pensioner will be exempted from his tax attack now through his changes of the dividend imputation policy. That is not true,” Cormann said.
“…if you are self-managed super fund with at least one pensioner after 29 March, you will be hit. If you are a self-managed super fund with at least one pensioner coming into the pension phase as of Thursday, Labor will come after you and will try to pursue you for your savings.”
Shadow Treasurer Chris Bowen said that Labor expected a scare campaign. Shortly after the original policy was announced Bill Shorten is quoted as saying: “We will make sure that pensioners are OK, full stop.”
According to the latest Newspoll only one-third of voters support Labor’s dividend franking policy. The latest Guardian Essential poll finds 32% are supportive of Labor’s policy, 30% oppose it and 37% didn’t express a view. 65% of those who receive refunds of franking credits oppose the policy. Though this poll was likely taken before speculation grew that Labor would fully exempt age pensioners.
According to Labor – which has not released the Parliamentary Budget Office costings of either the original policy or this change – the exemption for age pensioners will cost $700 million over the forward estimates and $3.3 billion over 10 years. This reduces the savings to $10.7 billion and $55.7 billion, respectively. Labor intends to use some of this revenue for the Australian Investment Guarantee.
SMSF Association says Labor’s policy “still falling short”
The SMSF Association says the changed policy is a step in the right direction but still unfairly disadvantages over one million people, including many SMSF members.
SMSF Association CEO John Maroney said that while it was right that Age Pensioners be exempted, the Association still has “serious reservations” about the effectiveness and fairness of Labor’s policy.
“The amended policy excludes similar protection to self-funded retirees, many of whom draw their retirement income from retirement savings built over the lifetime in an SMSF to avoid relying on government support,” Maroney said.
“The refunding of excess company tax paid via refundable franking credits has been a long-standing feature of superannuation that SMSF members have built their retirement strategies around.”
“Under Labor’s proposal, the only SMSFs exempt are those that currently have at least one member receiving the Age Pension. And in the future, there will be no protection for SMSF retirees who may need part government support to supplement their superannuation income, creating an unfair, two-tiered and complex treatment of SMSF members who access the Age Pension in retirement.”
Maroney said the Pensioner Guarantee exacerbates the effect of Labor’s policy on SMSF members, potentially leaving them worse off under the changes than people who have less savings, but receive refundable franking credits and a part pension.
The SMSF Association is urging the ALP to reconsider the entire policy, because of its “deleterious effects” on future retirement incomes.
National Seniors Australia also welcomed the change to the “misguided” original policy, but wants more done to protect self-funded retirees.
“We’re glad the ALP has listened to the concerns we’ve voiced on behalf of our members,” said National Seniors Chief Advocate Ian Henschke.
“We said the policy had unintended consequences and now the people who can least afford to lose income will be protected. But we believe it needs to go further.”
“The almost 240,000 pensioners now immune from the change represent about 20 per cent of those affected. What about the other 80 per cent, who are self-funded retirees?”
“What’s happened over the past couple of weeks shows that you can’t ignore people’s concerns and that it’s possible to adjust a policy to make it fairer.
“Let’s hope this leads to a proper debate about how we can have a fair and sustainable retirement system in a rapidly ageing Australia.”
Originally published as: Labor exempts pensioners from plan to stop refunding imputation credits