Malcolm Turnbull has lashed opposition leader Bill Shorten over plans to scrap the cash refund on franking, or imputation, credits, saying that almost two million people will be impacted by the change.
The prime minister met with a group of retirees and pensioners today to discuss the changes, which Labor revealed as a key policy last week. Turnbull said he talked to one couple in their 80s who would be down $3,500 a year under the change, which will see people who pay no tax barred from seeking cash refunds on the franking credits attached to their Australian company shares.
“That is a lot of money to them,” Turnbull said “They have managed their affairs frugally and have saved over many years so they can be financially independent and have a dignified retirement … They’re on a very low income [and Bill Shorten] wants to take that away from them.
“Do you know what they said they’d have to do? Cancel their private health insurance.”
Shorten has sold the policy as a way of removing an unfair perk for wealthy investors who he said received up to $2.5 million a year each in franking credit cash refunds. He argued that the refunds cost the government, and thus taxpayers, $6 billion a year and would soon rise to $8 billion, with the money better spent on offering tax breaks for workers on less than $87,000 a year.
But Turnbull said today that government calculations showed that the policy would impact 230,000 people on the Age Pension, 200,000 people with self-managed super funds, and that overall, close to two million people would lose money under the policy. He said the retirees and pensioners he met on the New South Wales’ central coast had estimated the removal of the credit refunds would reduce their incomes by 15-20 per cent.
“It’s a shocking attack on people who have worked hard all their lives, have done the right thing and saved, put money into super,” Turnbull said at a press conference after the meeting with retirees. “Bill Shorten has gone after the Australians who built this country, who should be respected and honoured and supported.”
Under the system that’s existed for the past 30 years, companies that pay Australia’s 30 per cent company tax are given credits by the government for that tax, which they pass on to shareholders as an imputation or franking credit on dividends. The system was designed to prevent the double-taxation of company dividends, because the company has already paid 30 per cent on its income to the taxman.
Shareholders who pay tax can use the credits to offset tax they may owe on other income, but shareholders who don’t pay tax – such as pensioners and self-funded retirees who live off their super income – are able to obtain a cash refund on the credits. That ability to get a cash refund was introduce in 2000 in order to encourage Aussies to invest in Australian company shares, and some people count on the money as part of their retirement income.
Despite his proposal to remove the cash refunds, Shorten has insisted that Labor would unveil plans to improve the lives of pensioners closer to the next federal election. He has, however, so far ruled out an exemption for pensioners from the change on refunds.