Stopping refunds of franking credits doesn’t target wealthy, Alliance claims

The Alliance for a Fairer Retirement System claims that Labor’s franking credit policy doesn’t target the wealthy, pointing to the number of people receiving franking credit refunds and taxable income figures, while their own analysis tells a different story.

The Alliance – which was formed in response to Labor’s franking credit policy, and whose members include the Australian Shareholders’ Association, National Seniors Australia and the SMSF Association – says that Labor’s policy impacts more lower income-earners than the wealthy, though without detailing the amount of the impact.

“The Labor Party’s refundable franking credits proposal does not target the wealthy,” said Professor Deborah Ralston, a spokesperson for the Alliance.

“The vast majority of individuals affected, who receive a refund of less than $5,000 a year, would not be considered wealthy by most Australians.”

“Similarly, the majority of affected self-managed superannuation funds (SMSFs) receive a refund of less than $10,000 a year. Most of those funds have two members, so the average refund per member is less than $5,000 per person.”

This focuses on the number of people receiving franking credit refunds instead of where the bulk of the refunds go. A recent presentation by Ralston, using PBO data, showed that 30% of all SMSF refunds of franking credits go to funds in the top two deciles for fund balances – funds with well over $1 million in assets.

While 260,000 SMSF members in funds with under $1.5 million in assets claimed an average of $4,377 in franking credit refunds, 120,000 members in funds with over $1.5 million claimed an average of $28,060, according to the same presentation.

This is similar to the conclusion reached by Professor Elizabeth Savage at the University of Technology Sydney, who found that the “largest average benefits are paid to the wealthiest group”.

The presentation by Ralston also says that of the 1,132,000 individuals receiving franking credit refunds, over 50% have incomes under $18,000 and 95% have incomes under $65,000. Though these are taxable income figures, and many superannuation pension payments are not included in taxable income.

Ralston said that the average annual earnings for adult in Australians in full-time work was $83,454 in November 2018, which is roughly the same as the income a retiree with less than the $1.6 million Transfer Balance Cap yielding 5% would receive – $80,000.

“The franking credit refund relating to a diversified portfolio of that size (including 30% allocation to Australian shares) would be just over $10,000.”

Though this doesn’t account for income tax – the retiree may pay no tax on their $80,000 of income, whereas a person receiving $83,454 in salary and wages would pay over $20,000 in income tax.

“We need to think very carefully before we reshape the Australian superannuation and retirement income systems, key aspects of which have had bipartisan support since 2000 or earlier,” Ralston said.

“Retirees and those approaching retirement have made plans over many years to enable them to achieve a secure and dignified retirement under the current structure.”

“Any proposals that risk causing major upheaval for over a million people deserve careful considered study within an overall review of the Australian superannuation, taxation and retirement income systems. Key principles of such a review would include fairness, adequacy, certainty and sustainability.”

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