Labor’s franking credit policy to raise $58.2 billion over ten years: costings

Labor’s policy to stop refunds of excess franking credits is expected to raise more than $58 billion over the next ten years, if it is legislated.

Labor has released its policy costings, revealing that the franking credit policy is estimated to raise $58.197 billion out to 2029/30. Over the next four years it is estimated to raise $14.197 billion, including a cost of $103 million in 2019/20.

Labor’s policy is to stop refunds of franking credits for individuals and superannuation funds, with exemptions for most Age Pensioners and similar payment recipients.

Labor’s policy costing document says: “A Shorten Labor Government will reform dividend imputation so people who pay no income tax no longer get a cash refund simply for owning shares, in order to fund better schools and hospitals. Under Labor’s plans pensioners will be protected through a Pensioner Guarantee”.

Labor superannuation changes to raise over $5 billion

Labor’s costings of its superannuation policies show the changes will raise a net of $5.141 billion over the next four years.

A total of $5.798 billion will be raised by three measures:

  • “Superannuation reforms”: $5.419 billion
  • Closing the First Home Super Saver Scheme to new entrants: $373 million
  • Stopping direct borrowing by super funds: $ 6 million

There is also $657 million spent over four years on “boosting women’s superannuation”.

Over ten years, changes to ‘superannuation concessions’ – which excludes some policies – is expected to raise raise $29.751 billion.

Labor says that “95% of superannuants won’t be affected by our changes to superannuation concessions”.

The Coalition is expected to release its policy costings closer to the election.

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5 thoughts on “Labor’s franking credit policy to raise $58.2 billion over ten years: costings”

  1. Lorraine Cobcroft

    And how much will removing franking refunds to low income earners COST in increased pensions, reduced investment in Australian business growth (thus reducing jobs), reduced private health insurance, reduced savings to pay for aged care, reduced spending by retirees…. No estimates there! Just untruthful claims that the changes hit the ‘top end of town’ and a wild claim that funds are getting $2.5 mil back in cash (WHICH IS SIMPLY IMPOSSIBLE!) Clearly, if Labor thinks it’s recouping $2.5 mil from a fund, it’s costings are total garbage, because a fund with enough shares to get $2.5 mil in credits is paying tax and would LOSE NOTHING under Labor’s policy. When will Labor start telling the truth – that it will push hundreds of thousands of retirees onto pensions, costing much, much more than their small refunds? That it targets people with marginal savings putting them just above the pension threshold, NOT the ‘top end of town’ (who escape it completely unless they are gaming the tax system, in which case that should be addressed honestly and responsibly)

    1. It is not impossible to get $2.5m in cash refund. You are aware that the tax in accumulation mode is 15% and full franking is 30%. Once all tax is paid there is a 15% cash payout. Assuming 100% franking rate, $2.5m would require a share portfolio of around $16.6m – SMSFs of this size probably do exist, certainly there have been policies in the past that would allow such large SMSFs to exist.

  2. How many people will leave their SMSF?
    How many people will stop investing in Australian companies?
    Hoe many people will transfer their investments to overseas companies?
    What will hap-pen to the Australian share market?
    The SMSF population does pay tax, companies pay tax for the SMSF population, SMSF people pay GST on their share investments, SMSF people will become pensioners by selling some shares and them become exempt. These risks have not been taken into account by a one armed party that cannot see beyond the need to tax grab.
    Why have industry funds not been counted in this tax grab?
    Do industry funds pay tax or are they classed as non profit making concerns?

    1. Some industry funds, and retail funds, may be impacted by this policy. Many, but not all, industry or retail funds do pay tax (are in a net tax payable position). The Financial Services Council found there were 50 large APRA-regulated super funds that received refunds of franking credits in 2015/16.

    2. Sheila,

      I am not sure how an SMSF pays GST on the shares unless you are talking about GST on trading costs. Industry funds and retail funds (large APRA funds) will be treated exactly the same as an SMSF. The changes may affect the large APRA funds but as they are pooled funds they can offset the franking credit against the tax they pay for those in accumulation mode.

      If a superannuate is over 60 then a company does not pay tax for that superannuate as all tax payed is refunded.

      The problem is not so much with the franking system, the problem is with the zero tax paid by superannuates over 60, a ridiculous idea from Peter Costello that was recognized (even back them) as grossly over generous, people couldn’t believe their luck! The coalition recently recognized this and thus bought in the ridiculously complex caps system. No party is game to really fix the problem and to tax over 60 superannuates, even though they know that the current situation is unsustainable. There is no logical reason why they should not pay tax and the 60 year old threshold is completely arbitrary. And yes, I am over 60, in pension mode, with no chance of ever getting a government pension, so yes I am significantly affected but I am also able to think rationally about the issue.

      The costings for these policies having been determined by the Parliamentary Budget office, I am sure they are aware of the issues you mention.

      The Super system was designed to provide income in retirement and thus to sell down the assets over time which is why the minimum withdrawal rate increases with age. It was not designed to accumulated wealth in order to transfer it to the next generation.

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