Labor’s ‘reckless’ franking credits plan slammed for ‘punishing’ retirees

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The group says self-funded retirees will be in the bullseye of Labor should refundable tax credits be scrapped. Source: Getty.

You can tell there is a federal election looming as political parties have begun taking aim at their rivals’ policies, with Labor’s so-called retiree tax copping flack from all angles.

Treasurer Josh Frydenberg took aim at the ALP this week over the party’s planned move to remove tax refunds on imputation credits, after party leader Bill Shorten vowed to get rid of them if he finds himself in The Lodge after the next general election.

“What reckless spending promises will Labor be forced to renege on as a result of their growing budget black hole?” Frydenberg said. “What will it take for Labor to admit they got this wrong and drop its unfair and economically reckless tax?”

He then backed his argument up by releasing a statement that included comment from former OECD director Professor Adrian Blundell-Wignall, who said the retiree tax would “punish those who looked after themselves for retirement”.

“It will be imposed retrospectively, making a mockery of the policies that were the basis of lifetime saving and asset allocation decisions,” Blundell-Wignall said. “A real no-no of pension policy thinking in the OECD. It undermines the principle of choice based on a level playing field.”

It’s not just the two major parties who are getting involved either as Advance Australia also took a swipe at the Opposition, summoning a ‘grey army’ to battle the planned tax.

Advance Australia – who deny being aligned with any particular political party – want self-funded retirees to band together against Shorten’s proposed tax, claiming that more than 80 per cent of those who stand to be affected have annual incomes of less than $37,000.

“Retirees set to be hit by the retiree tax aren’t the wealthy elite, but your average hard-working self-funded retiree,” Gerard Benedet, National Director for Advance Australia, said.

“84 per cent of Aussies set to be impacted are on taxable incomes below $37,000. The rug is being pulled out from underneath Australian retirees’ feet – and it’s simply not fair.”

Advance Australia also said that Labor’s proposal, if passed into law, would punish those Australians who have “done the right thing” and saved for retirement.

“It’s a slippery slope,” Benedet added. “This so-called ‘retiree tax’ targets self-funded retirees first, but it’s only a matter of time before the legislation extends to pensioners and their hard-earned money too. Clearly Bill Shorten doesn’t have an interest in managing the budget, instead choosing to target self-funded retirees by double-dipping into their life savings to make up for his proposed budget deficits.”

In November last year, the Morrison government warned that as many as 800,000 retired Aussies could be set to lose out financially if cash refunds for excess franking credits are axed, stripping them of an additional income stream that a large number of senior Aussies rely on to boost their finances in retirement.

Following his appointment as Treasurer, Josh Frydenberg also invited concerned senior Australians to write to the Standing Committee on Economics about any concerns they may have about the proposed policy.

Margaret Menzies wrote: “I am concerned about Labours threat to Franking Credits. These are important to us to fund our retirement. I feel this is most unfair. We do not wish to live on the age pension.”

Peter and Evelyn Turner said: “It is unbelievable that Labour would even consider penalising those with a SMSF by removing the rebate of the dividend imputation. We have saved all our working lives and are fully self supporting. Our income is supplemented by the refund of the dividend imputation. Should this labour policy be implemented, it is conceivable that many more current independent retirees will end up accessing the government pension.”

Franking Credits also known as Imputation Credits are a type of tax credit that allows Australian Companies to pass on tax paid at the company level to shareholders. The benefits are these franking credits can be used to reduce income tax paid on dividends or potentially be received as a tax refund.

The leader of the opposition has vowed to introduce legislation, should he replace Scott Morrison as prime minister next year, that will scale back the tax credits allowed under dividend imputation rules. He announced the plans in March 2018, however, following backlash from the public and criticism from then-Prime Minister Malcolm Turnbull, he later announced an exception for around 270,000 pensioners, along with people in receipt of other welfare payments, from his proposed changes.

However, Shadow Treasurer Chris Bowen previously said the move will help to make the “tax system fairer”, as well as repairing the country’s budget.

“Australia is the only OECD country with a fully refundable dividend imputation credit system,” Bowen said, when the plan was announced. “A concession which has grown at a rapid rate and now costs the budget more than $5 billion dollars a year.

“This change only affects a small number of shareholders who have no tax liability and use imputation credits to receive a cash refund. While those people will no longer receive a cash refund, they will not be paying additional tax.”

Are you a self-funded retiree? What are your thoughts on Bill Shorten’s ‘retiree tax’?

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