Labor on franking credits

There is an article on the AFR that puts a dollar figure on the ALP’s policy to pocket tax refunds and not repay them in full.

According to the ANU modelling, the loss of the refunds was like reducing superannuation balances by 8 to 9 per cent. For a person with $500,000 in their super balance and access to imputation credits of 1.37 per cent a year, this can add up to a reduction of about $44,000. For someone with $1 million in their super, it can be as much as $95,000.

The analysis also found providing franking credits over the course of a person’s retirement cost taxpayers $30,000 for someone with a $100,000 balance and $80,000 for those retiring with a $500,000 balance.

That is a lot of money.  The ALP are rolling out the usual excuses:

“The pensioner guarantee means that those receiving the full or part pension (or other qualifying payments) will receive their franking credits,” Mr Bowen said.

“More than half of all cash refunds going to self-managed superannuation funds are to those with balances of more than $2.4 million. Given the vast majority of retirees with superannuation savings are in super funds with tax liabilities, most retirees won’t see much of a change to their retirement incomes under Labor’s policy.”

Given that the ALP will ripping nearly 10% out retirement balances maybe more people will be on the pension or part-pension and so get their tax refund after all. Then there is the class envy – some people have super balances of over $2.4 million. Sure they do. Some politicians, for example, have effective balances much higher than that and don’t have to worry about franking credits at all. But the examples are for people with super balances of just $100,000 (almost half the annual pay of a backbencher) and $500,000.

Then Chris Bowen had this brain fade:

Responding to the claim of “home bias”, Mr Bowen said the policy would help de-risk the retirement savings pool by encouraging people to diversify their portfolio.

In English that translates to “Don’t buy Australian”. Good advice, perhaps, but not what a federal politician should be advocating.

Update: Paper here.

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28 Responses to Labor on franking credits

  1. Bruce in WA

    FMD. For this alone, these bloodsucking leeches need to be nuked into oblivion.

  2. MichelLasouris

    [Off topic – take it to the open thread. Sinc]

  3. tgs

    Make super voluntary amd watch the fees plummet anf service standards skyrocket.

  4. tgs

    Jeez, I have fat fingers this morning.

  5. Then there is the class envy – some people have super balances of over $2.4 million. Sure they do. Some politicians, for example, have effective balances much higher than that and don’t have to worry about franking credits at all.

    Why is that? Do they have some special rules or exemption? Or are you talking about the defined benefit corruptocrats?

  6. Tel

    According to the ANU modelling, the loss of the refunds was like reducing superannuation balances by 8 to 9 per cent.

    If the people running the funds are complete morons who enjoy watching their money drain away.

    In English that translates to “Don’t buy Australian”. Good advice, perhaps, but not what a federal politician should be advocating.

    Yeah, exactly they just move the money offshore, or buy some other asset, or do the thing where you sell before the dividend gets paid and buy back after (generally making a capital gain). In other words, the whole thing is an exercise in wasting everyone’s time, but there you go that’s Canberra. When they get into power they will just change it all, so why worry?

  7. Flyingduk

    All your super will be stolen at the next GFC anyway.

  8. Robber Baron

    My bet is that your super will be taxed out of existence unless you invest in union run government owned infrastructure projects. Loss-making ones no doubt.

  9. Alex Davidson

    It never ceases to amaze me how the massive plunder engaged in by the government on behalf of those who have failed to provide for their own retirement receives so little criticism. ‘Self-funded retirees’ has become a pejorative, while those receiving the loot are treated sympathetically and with respect.

    Australia sorely needs leaders who are prepared to explain to the public that theft and envy is not the pathway to a peaceful and prosperous society.

  10. Bruce of Newcastle

    The analysis also found providing franking credits over the course of a person’s retirement cost taxpayers $30,000 for someone with a $100,000 balance and $80,000 for those retiring with a $500,000 balance.

    Lies.

    It doesn’t cost taxpayers anything. Franking credits are tax that has already been paid by a company. Therefore returning the excess that should not be paid, because the shareholder’s taxable income is below the company tax rate, is just foregoing double taxation that should never have been paid in the first place.

    Why am I not surprised to read lies in the AFR?

  11. a happy little debunker

    In the meantime, they will rip my franking credit away, even though I now earn less than 15 large per annum.

    Labor – punishing the poor because they can!

  12. Rossini

    To avoid the labor govt taking my franking credit refund what actions can I take

  13. Pedro the Ignorant

    The vultures are hovering around the fat bloated carcass of superannuation and retirement funds.

    They (the uniparty) can hardly wait until they can rip into the juicy cash rich corpse.

    I reckon there is a battalion of “advisors” in Canberra swotting all the financial regulations they can find to uncover any and all loopholes that enable them to steal our money.

    Then call it “fiscal responsibility”.

  14. Rohan

    Robber Baron
    #2823753, posted on September 25, 2018 at 10:28 am
    My bet is that your super will be taxed out of existence unless you invest in union run government owned infrastructure projects. Loss-making ones no doubt.

    Can anyone name one that at least breaks even or comes in on budget? Just one in the last decade would do.

  15. Siltstone

    A competent LNP could gain 4 to 5% increase in vote share by a no-holds-barred scare campaign against ALP thieves. Wont happen however because “competent” and “LNP” don’t go together, plus the LNP secretly want to carry out the same theft as the ALP anyway.

  16. John Bayley

    Leaving self-funded retirees aside for a moment, do keep in mind that these proposed measures have the potential to also impact heavily on small businesses operating through a company structure.
    In other words, a situation where he runs the business while she is a stay at home mum. Business pays a dividend to her as a shareholder and she gets to recover franking credits due to her low to nil marginal personal tax rate.
    In line with Labor’s earlier proposal – one we’ve not heard about lately but I don’t believe it’s actually been abandoned by the ALP – to tax trusts as companies, with no refund of the proposed 30% tax to low income earners – this is designed to not only penalise low income self-employed people, but ultimately to ‘encourage’ them to move to an employed position, where they can be lovingly looked after by a union.
    Corruption, Australian-style.
    Where, oh where, is the media?

  17. John Bayley

    @ Siltstone:
    Never forget that it was the ‘We don’t have a revenue problem, we have a spending problem’ LNP Treasurer, Mr Morriswan, who opened the door to additional taxation of super, after solemnly promising not to.
    Labor is cancer, but the Liberals are barely better than a brain tumour.

  18. MichelLasouris

    Let’s see…is Bowen B1 and Bourke B2? Or is it the other way around? I know Albanese is the Fat Controller, but is Shorton ,Noddy? Please advise……

  19. yackman

    “Read” the paper at the link and found it very hard to follow (my fault) and difficult to reconcile the numbers quoted from the AFR. For a fund in full pension phase with a capital base of say $500,000 earning say 5% gross = $25,000 pa of which 30% is Franking Credit = $7,500 p.a. Say the draw down requirement is 5% (around age 70), total income will reduce from $25,000 + $25,000 = $50,000 pa to $42,500 pa.
    My figures take no account of other Govt benefits.
    That is a big hit to lifestyle.
    Hybrids could suffer a big hit in price if one is not in a position to hold to maturity.
    As others have commented the rot started with ScoMo and they may not fight it because they secretly like the idea.

  20. mh

    I know there are multiple points being made about Labor and franking credits, but I will just add my 2 cents worth.

    Franking credits are there to cover the double taxation on company profits. Refunding franking credits happens when an entity has no tax payable; this is not covering the double taxation because there was no double taxation. Franking credits have been targeted as an investment strategy because if you are eligible to receive them as a refund you are receiving back tax paid at the company rate despite you as an investor paying no tax. Net income tax collected by the Federal government becomes zero.

  21. Dan Dare

    mh, franked dividends are paid from funds retained from profitable years after company tax was paid.

  22. JohnA

    John Bayley #2823912, posted on September 25, 2018, at 1:16 pm

    Leaving self-funded retirees aside for a moment, do keep in mind that these proposed measures have the potential to also impact heavily on small businesses operating through a company structure.

    this is designed to not only penalise low income self-employed people, but ultimately to ‘encourage’ them to move to an employed position, where they can be lovingly looked after by a union.
    Corruption, Australian-style.
    Where, oh where, is the media?

    Last I looked, the Australian Journalists Association was a union, right?

    Does that answer your question?

  23. Dan Dare

    Apologies mh, I misread your post

  24. John Bayley

    @mh

    The system of refunding franking credits was put in place so as to tax income at the marginal tax rate of the final recipient. In other words, a logical and consistent way of doing so.

    Now, dividends constitute ‘income’, as opposed to capital gains, where a share has been sold. A CGT payable on such disposal will also be levied at the final recipient’s marginal rate, minus any applicable discount. Again a consistent and logical system.

    This is no different to a low income taxpayer, or a SMSF in pension stage, both being subject to zero income tax rate, not being taxed on bank interest received from a term deposit.

    You are correct that the government in such a case receives no revenue, but that same outcome applies to those term deposits described above. Following the Labor ‘logic’ those TDs should then be subject to 30% tax no matter what the recipient’s marginal tax position is, just because they are held in a SMSF where the fund’s beneficiary does not qualify for any Centrelink age pension.

    So it may not be double taxation, but it is most definitely not consistent, ‘fair’ or easy to administer. Especially so in the small business situations I described in my earlier post above.

  25. mh

    Thanks John, I will digest when l have time.

  26. Youngster

    A self managed super fund with $2.4 million doesn’t mean that there is one person with that much available to fund their retirement. There could be four or six people sharing that pot – $600,000 doesn’t really guarantee a wealthy retirement…

  27. H B Bear

    With the passage of every year, compulsory superannuation looks worse and worse as a public policy. Unless you are a ticket clipper.

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