Labor’s policy to stop refunds of excess franking credits won’t just impact SMSFs, but also some APRA-regulated super funds – to the tune of $3.75 billion according to the Treasurer.
Soon after Labor announced its policy to stop refunds of franking credits from 1 July 2019 it announced a change to the policy – the policy would not apply to Age Pensioners, or to SMSFs which had member who was receiving an Age Pension prior to 28 March 2018, which Labor refers to as its ‘Pensioner Guarantee’.
Treasurer Morrison says Labor’s proposal does not exempt pensioners whose APRA-regulated super funds are affected.
“These pensioners will be hit even if they were on the pension before 28 March 2018,” said Mr Morrison.
It is anticipated that most large APRA regulated super funds will not be impacted by Labor’s policy as the franking credits can be offset against the earnings of other members.
The Treasurer said in a statement: “Australian Taxation Office data shows that most APRA-regulated funds (2,013 of 2,603 funds) received franking credit refunds in 2015-16 worth over $300 million.”
“This means that Labor’s policy would deny around 2.6 million member accounts around $300 million in retirement savings each and every year.”
It should be noted that this 2,603 figure appears to include both large APRA-regulated super funds (such as industry and retail funds, some of which have tens of thousands of members) and small APRA funds (which have a maximum of four members). According to APRA, as at December 2017 there were 2,079 small APRA funds.
The Treasurer did not elaborate on how much of the $300 million in franking credit refunds related to small-APRA funds. The analysis does not appear to have been released publicly.
Treasurer Morrison then extrapolates the $300 million figure over the next ten years, compounded by the average APRA super fund return over the previous ten years, to arrive at the $3.75 billion cost to retirement savings. Labor’s policy is costed to save the Budget $55.7 billion over 10 years.
Labor Shadow Treasurer Chris Bowen questioned the reliability of the analysis.
“The Treasurer has had a bad run relying on dodgy analysis and modelling for his silly scare campaigns, so it’s particularly amusing to see he’s now commissioning his analysis and modelling ‘in-house’ – that is, not from Treasury, but from his own office.”
Mr Bowen said Labor was up front in saying, when the policy was announced, that “just” 10% of franking credit refunds go to APRA-regulated funds and aggregating small and large APRA funds, as the Treasurer has done, is “absolutely meaningless”.
“The overwhelming majority of members of retail and industry funds are completely unaffected by Labor’s reforms,” said Mr Bowen.
Treasurer Morrison said: “Rather than patting himself on the back for ripping billions out of the retirement savings of pensioners and retirees, Chris Bowen should put his hand up, admit his proposal stinks and drop it.”
“Labor’s proposal is an old fashioned Labor tax sledgehammer targeted at pensioners and retirees to grab as much tax as possible because they can’t live within their means and control their spending. It’s a tax on low and middle income Australians and their future retirement nest eggs.”
Originally published as: Labor imputation credit policy to cost APRA fund members $3.75 billion