Category: Newspaper/Blog Articles/Hansard

Chris Bowen’s half-truths on franking credits

The Australian

31 January 2019

Robert Gottliebsen, Business Columnist

Suddenly cracks are appearing in the veneer that supports the ALP’s proposed retirement and pensioner tax. Under pressure on talkback radio, shadow treasurer Chris Bowen took an incredible risk. He conveyed a half-truth, gambling that his interviewer, Melbourne 3AW drive host Tom Elliott had not done his research and would not catch him out. Bowen’s judgment was right, and Elliott did not pick up the half-truth.

But the tense drama took on a surprise twist. Assistant treasurer, Stuart Robert was listening to Bowen in a car and, after the interview, rang Elliott to tell his listeners how Bowen had misled them.

Bowen had told Elliott’s audience that pensioners would receive their cash franking credit entitlement. It’s true that Australian pensioners with individual shareholdings will received their cash franking credit entitlement, but those on a part pension who have their shares in a self-managed fund will only receive the cash franking credit entitlement if they registered for the pension before March 28, 2018. If they registered after March 28, they lose their cash franking credits and so suffer the RPT.

Now that Elliott knows the truth Bowen and Bill Shorten are going to have to come up with a new set of lines that justify what to ordinary Australians is indefensible: levying a tax not on the basis of whether a person (albeit one with a self-managed fund) is entitled to be a pensioner, but rather when they registered for the pension.

And remember we are talking about cutting income from people who are on the government pension and who are not rich. Moreover, a big proportion are widows.

I am glad I am not an ALP candidate in the upcoming election trying to defend that action

But Bowen and his leader Bill Shorten face a further risk.

What if Tom Elliott, or any other talk show host, spend the time to really look at how the retirement and pensioners tax actually works? Elliott will discover that for the first time in Australia’s peacetime history the ALP plans to discriminate between people with the same assets and income.

Chris Bowen has declared a policy that all Australians — apart from those in SMSF who register for the pension before March 28 — should not receive cash franking credits. If he had implemented that policy and fixed the pension anomaly then, while I and many others would oppose the removal of cash franking credits, Bowen would be treating everyone the same. That’s a pillar of the Australian taxation system.

But Bowen and Shorten are attempting to smash that pillar, creating the most dangerous taxation precedent imaginable: blatant discrimination. .

Incredible as it might seem, the ALP has declared that if Australians have no taxable income but saved their money through an industry superannuation fund, or certain retail funds, then they are entitled to receive their cash franking credit refund entitlement “in full”.

That’s a total reversal of the base ALP policy.

The ALP clampdown only applies to those who have saved via self-managed funds. Those people will not receive a cent of their franking cash refund entitlement.

Remember we are dealing with people in exactly the same financial situation as those who receive their franking credits in full.

As I have written before, this blatant discrimination is the most outrageous tax proposal by a major party since Harold Holt in November 1960, when he proposed withdrawing tax deductibility for interest.

Shorten and Bowen defend their discrimination by saying that because the industry and big retail funds happened to have members who were salary earners and paid tax, those salary earners’ tax payments can be credited to the retirees so they can receive their corporate tax cash refunds.

That’s an insult to the intelligence of ordinary Australians. To mix up the taxes paid by one Australian with the tax status of an entirely separate person breaks all the rules.

It’s a complete nonsense.

So, if the retirement and pensioner tax is to be fair it must apply to everyone in the same tax income/asset bracket and cannot exclude those in retail and industry funds. All must have their cash franking credit refunds blocked.

The people affected by this are not the rich but ordinary salt of the earth Australians struggling to self-fund their retirement or lessen their reliance on the pension. To be fair to Tom Elliott, he really cornered the shadow treasurer on this issue. Elliott emphasised the fact that people have had their retirement plans in place for 20 years on the basis of cash franking credits. Elliott put so much social unfairness pressure on Bowen that he used a deliberate half-truth to help his position.

When Bill Shorten backed the cash franking credit ban, he thought the ALP was attacking the rich. Chris Bowen still maintains this is what will happen. I don’t agree.

There is no doubt that those with large amounts in superannuation used cash franking credits in past years, but Scott Morrison blocked that with a change in the superannuation tax system tax. That leaves the million plus Australians who are not rich, led by many of Australia’s widows, as the targets. The best way for Bowen to get out his mess is to look at the total franking system. A short fix is to impose a limit of if say $15,000 on access to cash franking credits. The problem is that would mean that nothing like $55 billion would be raised.

Correction | In an earlier version of the above commentary I did not distinguish between those pensioners who hold their shares in individual names and those pensioners who hold their shares via a self managed fund. This created the wrong conclusion that those pensioners who hold shares in individual names could miss out in their franking credit entitlement. That is incorrect.

The news gets worse for investors facing Labor’s franking credits crush

The Australian

28 January 2019

James Kirby, Wealth Editor

Investors scrambling to avoid the Opposition’s looming clampdown on franked dividends are facing an uphill battle as property trusts — regularly cited as a safe alternative for income investors — are due to hit a wall of trouble in the months ahead.

Australian investors have traditionally depended on fully-franked blue chip shares, especially banks, to underpin investment income. But the Labor Party’s controversial plan, which scraps cash refunds to retirees who hold franked shares, is forcing many shareholders to seek new sources of income.

Advisers and brokers are constantly recommending property trusts (also known as A-REITs) since they are income-focused trusts where the dividends are taxed at the shareholder level. As a result there is no franking credit to be lost in this area.

But the news keeps getting worse for property companies — especially retail focused trusts, which represent roughly half the entire sector’s market capitalisation.

A potent combination of online retailing, fading consumer sentiment and falling house prices is creating ever more difficult conditions.

The headwinds are most intense among big names names such as Scentre, Westfield and Vicinity, where the questions run to the very future of shopping centres as we know them.

The Vicinity group stunned the market recently with an announcement it had voluntarily cut its own valuations for properties in its portfolio: the group, which owns the flagship Chadstone centre in Melbourne, is being dragged lower by clear difficulties in its less glamorous regional centres. Property analysts now expect further valuation cuts across the A-REIT sector with a focus on the shopping centre giants.

Sentiment in the property trusts is also being hit by rounds of increasingly negative forecasts for the housing market. The latest came this week from the CoreLogic group, which is now suggesting top-to-bottom price falls in Sydney and Melbourne of 20 per cent (from previous estimations of 15 per cent).

Though lower house prices are not an immediate worry for the A-REIT sector (which is less than 10 per cent residential), the potential negative effect on consumer sentiment is a real danger.

Shopping centres have always depended on department stores and large retail chains as anchor tenants. However, current difficulties faced by retailers as diverse as David Jones and Kmart mean that centre operators face increasingly difficult discussions when re-leasing negotiations emerge.

Growth projections for the wider real estate sector are already falling behind general industrial stocks, with industry-wide earnings per share growth for A-REITs expected to be about 4.8 per cent, against 5.4 per cent for industrial stocks.

For investors, the reality of moving out of bank stocks paying higher dividends — even before franking is taken into account — means the numbers involved in any switching of stock portfolios may simply not stack up.

Leading banks such as Westpac and NAB are currently offering forward dividend yields of 7.2 per cent and 8 per cent respectively. For many investors this will translate to a post franking dividend rate of 8 per cent to 10 per cent — this is an exceptional level of income return.

Meanwhile unfranked A-REITs are showing modest forecast dividend yields levels in the order of 6 per cent for groups such as Scentre and even lower at highly priced stocks such as Bunnings Warehouse Property Trust (4.8 per cent).

Finding a way to protect yourself from the looming changes in franking credits is not going to be easy. Certainly, rolling over investments into A-REITs at this time in the cycle would appear to be a risk rarely worth the effort.

Chris Bowen and the ALP want to trash two fundamental pillars of our tax policy

The Australian

25 January 2019

Robert Gottliebsen, Business Columnist

Let me explain simply the nub of where Chris Bowen and I differ over the so-called retirement and pensioners’ tax. I think once most Australians, including many ALP supporters, understand the fundamental pillars that underpin my view, they will be on my side rather than that of the Treasurer in waiting.

But first I want to express my appreciation to Chris Bowen for his willingness to debate the issue and I urge my readers to read every word he has written.

I might be old fashioned, but I believe passionately in two pillars of Australian taxation policy: The first pillar is that people in the same financial position (i.e. have the same assets and income) should be treated the same. Since federation all political parties have endorsed this anti-discrimination policy. Until now.

Secondly, where there are longstanding retirement rules under which people arrange their future when they cease working, there should be extensive grandfathering when fundamental changes are proposed. I am afraid both sides of politics have strayed from this pillar, but I can’t recall any group of politicians being so ruthless in their treatment of battling retirees and grandparents as Bill Shorten’s ALP.

Let me set out in the clearest possible terms how Bill Shorten and Chris Bowen are dismantling the first and second pillars. I believe they have been extremely poorly advised so I will put forward some ideas help them adjust their policy to conform with the above two pillars which I believe help unite our society.

Until now, both parties had an agreed policy whereby shareholders in a company would not be double taxed on company profits. Accordingly, when you receive a dividend from a company that dividend forms part of your taxable income. But you receive a credit for the tax already paid by the company (it’s called a franking credit) so there is no double taxation. If you are a retiree and have no other taxable income, of course you receive the corporate tax refund in cash.

If Chris Bowen had declared that all non-earning retirees can no longer receive the cashback refund or, where there were exemptions, then those exemptions applied to all people in that classification, I would have declared that his retirement and pensioners’ tax complied with the first pillar.

Instead, Shorten and Bowen discriminated between people with the same assets and income thus trashing the first pillar for the first time in our history.

Bill Shorten and Chris Bowen declared that if you had no taxable income but saved your money through an industry or certain retail funds then you would receive your cash refund entitlement “in full”. I repeat “in full”.

By contrast, if you are in exactly the same financial situation, again with no taxable income, but saved outside of superannuation or saved via some retail funds or most self-managed funds then you would not receive a cent of your cash refund entitlement. I repeat not a cent. There are more than a million Australians being discriminated against this way — probably more women than men.

There was an exemption for pensioners but again there was blatant discrimination — if you did not register by a set date you got hit by the tax. Never in our history has any set of politicians ever engaged in such blatant and unfair discrimination.

The ALP shadow ministers have minders who insulate them from the pleading letters/emails from salt-of-the-earth older Australians who have been hit hard while their retired friends in the same financial position are totally unaffected.

By contrast I have no minders to shield me. I am human and I let the letters/emails from wonderful people create anger and I described the industry funds as ALP mates. That was not fair. They have won the superannuation wars fair and square and not on a mates basis.

Shorten and Bowen defend their blatant discrimination by saying that because the industry and big retail funds happened to have members who were salary earners and paid tax, those salary earners’ tax payments can be credited to the retirees so they can receive their corporate tax cash refunds. That’s an insult to the intelligence of ordinary Australians. To mix up the taxes paid by one member of a fund with the tax status of an entirely separate person breaks all the rules. It’s a complete nonsense.

So, if the retirement and pensioner tax is to be fair it must apply to everyone in the same tax income/asset bracket and cannot exclude those in retail and industry funds. All must have their cash franking credit refunds blocked

Of course, we all know that if everyone was subject to the retirement and pensioner tax it would spark a riot among grandparents and retirees and would enrage their children.

So, if we are making the tax comply with the first pillar outlined above and apply it to all people equally, then we must grandfather it to comply with pillar two.

I would suggest that everyone be given a $15,000 limit on their cash franking credits. Make it a fixed sum so it will be reduced by inflation over the years. If Chris Bowen is right that there is a pool of rich people out there who will pay most of the tax, then this will not greatly affect his revenue. But while I can’t prove it, I think he is wrong. I believe the vast bulk of the $55 billion in projected revenue will be raised from battlers. If I am right then fair grandfathering would decimate the income projections.

The ALP is set to win a May election by one of the biggest margins in our history. So, Chris Bowen will claim that he has a mandate. But the Australian population is justifiably so angry with the Coalition that they want to teach it a lesson. In my view, a May election will be about venting voter anger against the Liberals and not the policies of either party. But under the accepted practice, Chris Bowen is entitled to claim a mandate.

So, after the election the retirement and pensioners tax will become law. We are going to be stuck with a precedent that promotes taxation discrimination. Who knows what politicians will do next time. With some justification, I don’t believe Bill Shorten fully understood this when he originally endorsed the policy.

Unfortunately, the ALP has made promises that spend the money. But there is a way out. The real issue is the level of franking credit benefit. Cut the total franking credits benefit (not just those credits received in cash) from 100 per cent of tax paid to say 95 or 90 per cent and end the illegal use of franking credits by international investors.

While many will oppose this, the measure conforms with my two pillars and does not create an incredibly dangerous and divisive precedent that shatters salt of the earth Australians.

Franking credit refunds ‘distort economic system’

The Australian

24 January 2019

Michael Roddan

The chief economist for the government’s 2014 Financial System Inquiry has called for dividend franking credits to be overhauled, hitting out at the “significant economic distortion” created by excess credit refunds for investors who pay no tax.

Kevin Davis, a professor of finance at University of Melbourne who was a panel member on David Murray’s landmark financial system review, said dividend imputation was designed to prevent double taxation of corporate profits.

“It wasn’t meant to lead to zero taxation of corporate income which occurs when dividends are paid to investors on zero marginal tax rates and rebates paid,” Mr Davis told The Australian.

“That has created a significant economic distortion, and while removing the rebate may be painful for those who have structured their investments to maximise gains from this tax arbitrage, such a change is warranted,” he said.

The government has repeatedly attacked Labor’s proposal to end cash rebates for excess franking credits for shareholders who pay little or no income tax, which is expected to increase government revenue by $56 billion over a decade.

The cost to the budget of the scheme has dramatically increased since it was introduced by the Howard government, when the measure cost just $500 million a year. Since then, many investors and self-managed superannuation fund operators have shifted all their assets into equities to take advantage of the franking credit rebate.

According to research by University of Sydney senior lecturer Andrew Ainsworth, small retail “mum and dad” shareholders are most likely to “aggressively” buy and sell shares around dividend payment dates to receive franking credit refunds.

Dr Ainsworth, a former Reserve Bank analyst who specialises in researching dividends and the imputation tax system, has urged a parliamentary committee examining Labor’s planned franking credit ban to investigate short-term trading on the sharemarket.

Retail investors who engaged in short-term trading may be harming the federal budget by claiming refunds in breach of the so-called 45-day rule, Dr Ainsworth said.

Introduced in 1997, the rule requires shareholders to hold stock for 45 days around the ex-dividend day in an attempt to limit short-term trading. However, there is little evidence the laws are enforced.

“I believe it is important to know if the 45-day holding period rule is enforced, and how,” Dr Ainsworth said. “If this rule is not adequately enforced then rectifying this would be a more equitable way to address the impact of franking credits on the federal budget than the proposed policy under consideration by the committee.

“A focus on short-term trading and the impact it has on the federal budget is worthy of investigation. I would argue that this should receive attention ahead of policy changes that target long-term investors.”

Labor is under pressure to overhaul its franking credit ban following a series of public hearings where angry retirees and shareholders lined up to slam the opposition’s proposal. The House of Representatives economics committee will be holding a further series of hearings across marginal Queensland electorates later this month.

Dr Ainsworth’s research has found that individual investors increase share buying “aggressively” before dividend payment dates and ramp up selling after payment dates in order to take advantage of the imputation tax credit.

The franking credits allow investors to lower their personal tax liabilities. Shareholders who can’t access the 50 per cent capital gains tax discount, which applies to assets held for more than a year, will prefer buying stocks to gain the dividends rather than expecting stock prices to go up over the long term.

Dr Ainsworth has also found this type of trading had a “material price impact” on shares after the dividend payment date, suggesting the dividend imputation system was leading to distortions in the market pricing of shares.

According to an analysis of the proposal by the independent Parliamentary Budget Office, 53 per cent of excess franking credits claimed by self-managed super funds were to funds with more than $2.44m in assets. Funds with more than $1m claimed 82 per cent of the franking credits, worth $2.1bn a year.

Grattan Institute senior fellow Danielle Wood said it was a “far from perfect” proposal, but endorsed it as a way to improve the health of the budget amid an ageing population.

Labor franking credits policy creates superannuation class divide, says Robert Millner

The Australian

Eli Greenblat

24 January 2019

Billionaire investor Robert Millner has raised concerns that Labor’s policy to rip up the franking credit system on dividends could create two different classes of investors.

Mr Millner also expressed concern that Labor’s changes also hand an advantage to union-controlled industry funds, which will mostly maintain the rich flow of franking refunds.

Speaking to The Australian on Thursday after the $3 billion listed investment company Milton Corporation, which he chairs, issued its half-year profit results, Mr Millner said the proposed ALP policy could also encourage investors to shift out of Australian equities and place their money into riskier assets such as property and overseas shares.

“It doesn’t apply to everybody, but it does apply to a certain few,’’ Mr Millner said.

“It might make franked dividends less attractive for some people, and if people think they aren’t going to get those refunds, those people have relied on those refunds might put their capital to work somewhere else.

“If they do decide to exit equities, do they put it into property? Or do they go overseas?”

Current ALP policy is to close down a concession that gives cash refunds for excess dividend imputation credits. Most industry funds and some retail funds could still harvest franking credits because of the dominance in these funds of workers still in accumulation phase, rather than pension phase of their policies. Franking credits wouldn’t offset the whole tax liability for accounts in accumulation phase, effectively making industry funds exempt.

Opponents of the ALP scheme, led by the government, have accused shadow Treasurer Chris Bowen of allowing this loophole, which greatly protects industry funds – many of which are run by trade unions.

Mr Millner said this created an unfair advantage for one group of investors, and gave more power to the unions.

“Why should they have the benefit and no one else?” he asked.

“I think what will happen, if we do get a change of government, is that we could get a divide in the community.

“Obviously the unions are speaking out on what they would like to be doing, but not everybody likes to be in the union.’’

Mr Millner’s family is worth more than $1 billion, accrued over more than 100 years of association with its publicly listed family business, Washington H. Soul Pattinson, valued at more than $6.15bn, and its controlling stake in Brickworks, which is Australia’s biggest brick maker and valued at more than $2.4bn.

In Milton’s half-year review for shareholders, Mr Millner also argued the ALP policy on refundability of franking credits was inequitable and could ramp up the cost of capital in Australia.

“Milton notes and remains vigilant about the policy proposal from the ALP to end the refundability of franking credits to a certain group of investors,” he wrote.

“We believe the policy to be inequitable, likely to reduce the attractiveness of equity investments and increase the cost of capital for all Australians. Milton will continue to advocate on behalf of shareholders and encourage concerned shareholders to highlight the issue by contacting their local political representatives.’’

Over the last two weeks leading investment funds such as BKI Investment, Mirrabooka, Amcil and Australian Foundation Investment Co have criticised the ALP policy and acted to protect their own shareholders by dumping more than $120 million worth of shares in blue-chip miners BHP and Rio Tinto to pay for special dividends. They have rushed out these dividends to beat any ALP policy applicable from July 1, assuming the ALP win the upcoming election.

Mr Bowen has previously argued that Australia’s dividend imputation system was introduced by former ALP Treasurer and Prime Minister Paul Keating to eliminate double taxation on dividends from company profits.

But under Coalition Prime Minister John Howard and Treasurer Peter Costello, a concession was created that allowed some individuals and superannuation funds to receive a cash refund from the ATO if their imputation credits exceeded the tax they owed.

“Because of this change, Australia is the only OECD country with a fully refundable dividend imputation credit system – a concession which has grown at a rapid rate and now costs the budget more than $5 billion dollars a year,” Mr Bowen said.

“Failing to reform this unfair revenue leakage puts a greater tax burden on low and middle income working Australians. A Shorten Labor Government will close down the concession created by Howard and Costello, and return to the arrangement first introduced by Hawke and Keating – so that imputation credits can be used to reduce tax, but not for cash refunds.”

Closing down this concession will save the budget $11.4 billion over the forward estimates from 2018-19, and improve the budget bottom line by $59 billion over the medium term, Mr Bowen has argued.

Brickworks joins special dividend rush to beat Labor franking credit change

The Australian

Eli Greenblat

24 January 2019

The trickle of listed investment companies paying special dividends to shareholders to beat Labor’s franking credit changes is threatening to become a flood.

Following in the footsteps of companies like Australian Foundation Investment Co, the $1.1 billion Brickworks Investment Company issued a surprise dividend on Wednesday morning and vowing to pay another one later this year.

Brickworks Investment, which is part of the Washington H. Soul Pattinson investment empire, has also dumped $15 million in shares of BHP to capture the value of franked dividends on offer from the mining company, although it then bought back some shares in the company.

It is the latest listed equities fund to re-engineer its share portfolio in the face of the looming changes to dividend franking proposed by the ALP, as its investment managers scramble to protect the value of dividends for their mostly elderly, retired shareholders.

In the last week the nation’s biggest listed investment company Australian Foundation Investment Co dumped $120 million worth of shares in BHP and Rio Tinto and paid an unscheduled dividend to beat the stripping of cash refunds for excess dividend imputation credits by an incoming ALP government.

It has been joined by other investment companies Mirrabooka and Amcil that have put dividends into the hands of its shareholders to ensure the franking credits are passed on before their value is greatly diminished by the ALP scheme.

Brickworks Investment, which has a portfolio of blue chip stocks worth more than $1.1 billion, unveiled a fully franked interim dividend of 3.625 cents per share, as well as a special dividend of 1.5 cents per share, both payable on February 28.

Brickworks Investment also intends to pay another special dividend of at least 1 cent per share at the end of the financial year as it shifts $16.75 million of imputation credits on its books to beat any ALP policy that could come into effect if the party wins the federal election.

“In recent months we have been overwhelmed by the level of angst in the investment community regarding Labor’s proposal to eliminate cash refunds of excess franking credits,Brickworks Investment said as it posted a 104 per cent rise in December half profit to $47.09 million.

Brickworks Investment portfolio manager Tom Millner told The Australian the special dividends were directly linked to the threat to franking credits by the ALP. He said his shareholders were greatly concerned about the policy.

“It is a big concern,” he said.

“We don’t exactly know how much of our shareholder base it effects, but we are paying a fully franked 1.5 cents per share dividend and this shows we are concerned about it. And there is more to come because we have this concern,Mr Millner said.

He described the ALP policy as a poor one.

‘’They (the ALP) are not listening. Maybe the voters will tell them no one likes it. It will affect a lot of people nationally and it’s not a good policy, simple as that.”

A Shorten Labor Government has vowed to make the tax system fairer by closing down a concession that gives cash refunds for excess dividend imputation credits. Closing down this concession will save the budget $11.4bn over the forward estimates from 2018-19, and improve the budget bottom line by $59bn over the medium term, shadow Treasurer Chris Bowen has claimed.

But even the threat of the policy has been enough to force the hand of investment managers who have begun to sell down shares and pull the trigger on special dividends to ensure the value of franking credits are protected and handed over to shareholders.

AFIC chief executive Mark Freeman, who is also the CEO of Amcil and Mirrabooka,

revealed this week the fund had sold down almost half its stake in Rio Tinto and 3 per cent of its holding in BHP to pass on the franking credits to its shareholders as soon as possible.

He told The Australian that the feedback from his 130,000 shareholders, who were mostly elderly retirees, that the ALP proposed changes to franking credits would hurt them financially.

“This is going to hurt a lot of people who are saying ‘I’m not rich, I’m not wealthy and why am I being forced to go on a higher tax bracket through this?’’

Turning to its financial performance for the December half, Brickworks Investment said its strong rise in net profit was attributable to higher dividends received from companies such as New Hope, AGL, Woodside Petroleum, BHP and Sydney Airport. It also harvested $24 million in special dividend income from BHP, Wesfarmers, Telstra, IAG and Woolworths.

It said it believed the markets were now rolling off the top of the cycle as evidenced by falling share prices, especially high growth stocks, falling commodity prices, tighter credit conditions, sliding real estate values and flat domestic interest rates.

Brickworks Investment co-portfolio manager Will Culbert said the decline in domestic markets over the last six months provided the investor with some good investment opportunities.

In the half it sold down shares in Flight Centre, IOOF and Perpetual and new positions in the portfolio included Coles Group, Platinum Asset Management, Magellan Financial Group, Stockland and Pact Group.

Dear Bill: Don’t let Chris Bowen blow it on franking credits

The Australian

Robert Gottliebsen

22 January 2019

Today I feel the need to write an open letter to opposition leader Bill Shorten:

Dear Bill, your treasurer-in-waiting Chris Bowen has allowed himself to be advised by a group of people who did not understand how franking credits work in 2019, relying instead on old, outdated tax data.

They led him to devise what is arguably the worst taxation measure proposed in Australia since Harold Holt announced plans to drop tax deductibility for interest payments in November 1960.

Most ALP people now know that Chris has made a mistake.

I suspect he also knows, but can’t bring himself to admit the error. So he’s now descending into emotion — a sure sign of a person in trouble.

If the Coalition is stupid enough to call a May House of Representative election, you will be prime minister with a huge majority. Most people agree that the Coalition’s three prime minister stint is a national disgrace and accordingly a vast number of Australians want to punish them. It would not matter what your policies were (or theirs), those angry Australians will put you in the lodge.

I don’t think the Coalition is smart enough to manoeuvre the parliament so that the House of Representatives election in held in November. But on the off chance that they’ll hold out for a November poll, Australians will, of course, vent their fury by decimating the Coalition Senate membership. But then the November election will then be about issues.

Except in situations of extreme voter anger, I don’t think any party in the developed world could be elected after a campaign based on the ALP’s retirement and pensioner tax (RPT). And as I will explain below, Bowen’s negative gearing plan is not in the same category as RPT.

I want good government for Australia and it’s important for the nation that both parties are able to govern. Part of the job of being prime minister is recognising when a minister has made an honest mistake and then helping that minister in the rectification process. Accordingly, Bill, that makes Chris’ mistake a test for you and not just your treasurer-in-waiting.

Paul Keating introduced dividend franking to avoid double taxation on company profits. It was brilliant policy. The idea was that wherever you earned a business profit, as a sole trader or as a large public company, there would be a similar rate of taxation.

When he introduced the policy, it’s true that franking credits had to be offset against earned or other investment income.

But over time we introduced a retirement system where low income/ asset people would still receive the pension. And, up to a limit, pensions from superannuation funds would be tax free. The cash franking credits became an integral part of that system and abolishing them requires major changes to the retirement system.

Not only did Chris not propose the required retired retirement system changes, but he’s dividing retirees with exactly the same assets and income into two baskets — those who receive cash franking credits and those that do not. The retirees who are to receive cash franking credits have their assets invested with industry funds and some big retail funds. The rest miss out.

Taxing people on the basis of who manages their money is without precedent in the developed world. I don’t think there is an Australian, including yourself, who would agree with such a policy. The fact that the big superannuation funds have non-retired members whom the retirees can sponge on to get their cash franking credits will cut no ice with anyone.

I don’t think leaders in the industry fund movement, including the likes of the likes of Greg Combet, Steve Bracks and Ian Silk, will want their funds carrying the long term tarnish of money obtained so unfairly. It always comes back to bite you and they are already winning fair and square.

And on the same theme, pensioners who were pensioners on a certain date will obtain cash franking credits but those that come after miss out and are therefore subject to RPT. It’s just wrong.

If the ALP is unhappy about franking credits and needs to raise money, then there are two clear courses: stop the racket that enables international shareholders to illegally obtain franking credits (I can’t imagine why the Coalition has not done this) or simply reduce the franking credits benefit to everyone (Australians might receive, say 95 per cent of their franking credit entitlement).

While I’d probably oppose such a measure, I’d have to recognise that it was introduced fairly and that everyone was treated equally.

Now the flow-on of the ALP’s RPT plans are emerging. As Eli Greenblat revealed yesterday, our largest investment company, Australian Foundation Investment Co, as a non-favoured manager is reducing its holdings in BHP and Rio Tinto in anticipation of an ALP government and Chris Bowen is emotionally telling Australians to invest overseas. It’s a sure sign of a shadow minister who has become rattled by his own mistake. And he keeps saying he is attacking the rich. But only rich people who are stupid will be affected.

At the moment Bowen is also under pressure for his negative gearing policy. Had the ALP won the last election and Chris introduced that policy we would not be in the current mess. The problem now is that, partly in reaction to the negative gearing policy not being introduced, we have slashed lending. The severity of the bank lending clamps is a disaster. Putting the old Bowen plan on top of it now would be catastrophic. You must first normalise the banks and property finance, then you can look at the Bowen negative gearing plan. It is in a totally different category to RPT.

Footnote: The $235 million Amcil listed investment fund has joined Australian Foundation in being forced to in dump shares in BHP and pay an unscheduled divided in fear of the actions of a Shorten government.

Retail funds dominate in 50 worst-performing super investments

The Australian

Anthony Klan, Journalist

19 January 2019

Every one of the 50 worst-performing balanced superannuation investments over seven years has been operated by retail funds such as ANZ, Westpac and IOOF, with just one product offered by the for-profit sector making it on to the list of the top 135 performers.

In revelations that categorically bring to an end the fierce three-decade dispute between retail and industry funds over which is superior, secretive and highly detailed industry data obtained by The Weekend Australian shows that regardless of the investment timeframe or level of risk involved, retail funds are unquestionably consistently at the bottom and industry funds are consistently at the top.

Despite every worker being forced to divert a portion of every pay packet into compulsory super since it was introduced in 1992 — and the key choice most people face being whether to invest in an industry fund or a retail fund — no list of worst- performing super investments has ever been made public, with analyst companies refusing to release them.

Retail and industry funds account for more than $1.28 trillion of the nation’s retirement savings and the revelations back renewed calls from federal minister Kelly O’Dwyer this week for the creation of a Future Fund-style national retirement fund to keep the nation’s super savings out of the hands of the “many rent seekers and ticket clippers” in the sector.

The highly detailed data from SuperRatings, considered the most comprehensive and accurate in the nation and used by the Productivity Commission in preparing last week’s report into the $2.8tn sector, lists 278 “balanced” super options offered by the nation’s retail and industry funds.

Over the seven years to March 2018, of all funds in “accumulation” phase, where the member is still working, the 50 worst-performing were all operated by retail funds and all but one of the 17 worst performers were managed by Westpac’s BT or ANZ’s OnePath.

OnePath Managed Growth was the worst-performing balanced option over the seven- year period, delivering an annual average return of 5.17 per cent.

Of the top 135 performers, just one was a retail fund, the Vanguard Growth Index Fund, which came in at 28th place.

Seven years is considered the best timeframe for comparisons because it is the longest period for which reliable data is available, however the results are similar over one, three and five years, and whether “growth”, “cash” or other types of options are examined.

The data looks at balanced options, determined as those with between 60 and 76 per cent of investments in “growth” assets such as shares, and the remainder in defensive assets, such as cash.

Because there is no industry standard, some options in the list may call themselves “growth”, however they are all balanced based on SuperRatings’ criteria.

There are many more industry funds in the list because retail funds were far less likely to disclose their performance.

According to experts, retail funds were likely to report only their best performers, so the actual performance of that sector is likely to be worse than indicated.

The Productivity Commission declined to name any funds in its reports on super, despite saying the Australian Prudential Regulation Authority should improve its “inconsistent” super data to help investors compare.

Retail funds have for many years argued APRA data showing their poor performance can’t be used to judge them because it looks at only the overall performance of “funds”, which usually operate numerous different investment options.

This SuperRatings data specifically examines those individual options, negating that argument.

Age Pension liability ‘will fall faster than projected’

The Australian

Michael Roddan, Reporter

28 December 2018

Confidential Treasury modelling of the nation’s reliance on the Age Pension has found
the amount of money spent on welfare for retirees will fall faster than previously
expected as bigger superannuation nest eggs push Australians into self-funded

The unreleased projections of the share of GDP Australia spends on the Age Pension
is “consistent” with a fall of 2.7 per cent last year to 2.5 per cent in 2038. This is
significantly lower than previous estimates of the cost of providing the pension.

The government’s 2015 Intergenerational Report had the cost of the Age Pension
holding steady at about 3 per cent of GDP. In 2002, the Age Pension cost 2.9 per cent
of GDP and was forecast to rise to 4.6 per cent by 2042.

Documents obtained by The Australian under Freedom of Information laws reveal
Treasury noted projections by actuarial firm Rice Warner were consistent with its
revised, but not publicly released, modelling using the new Treasury system MARIA
(Model of Australian Retirement Incomes and Assets).

“Rice Warner projections are consistent with Treasury’s medium-term Age Pension
expenditure profile and longer-term projections from MARIA … though Treasury’s
projections have not been released yet,” notes an email from Treasury’s modelling
division in the tax analysis group.

The paper released in May by Rice Warner chief executive Michael Rice found the
share of the population eligible to receive the Age Pension would decline from about
69 per cent last year to 57 per cent in 2038.

This was because the superannuation system was delivering larger nest eggs for
savers, putting them outside the Age Pension assets test.

The revelations that Treasury is also expecting a falling Age Pension burden comes
after the government recently scrapped a planned move to lift the retirement age to 70.

The documents obtained by The Australian showed Treasury officials considered it
would be “good to flag” the comparison between the Rice Warner report and the
department’s MARIA modelling with former minister for revenue and financial
services Kelly O’Dwyer.

While the most recent Intergenerational Report forecast “relatively stable” Age
Pension reliance, at about 3 per cent of GDP, Treasury said the lower estimates gained
from its MARIA modelling were “not unexpected” as they reflected “updated data,
modelling and policy changes” since the 2015 Intergenerational Report.
However, Treasury has not released the assumptions underpinning its MARIA
modelling, which would allow third parties, such as the independent Parliamentary Budget Office, to check the government’s projections.

Because of the fall in the reliance on the Age Pension, Rice Warner suggested using
the savings to fund increased rental assistance for age pensioners.

Michael Roddan, Reporter

Newspoll analysis: Morrison struggles to regain grey vote

The Australian

Geoff Chambers, Canberra Bureau Chief and Joe Kelly Political Reporter

27 December 2018

Older Australians have delivered an early blow to Scott Morrison’s pitch to win back
their support before next year’s federal election, with 45 per cent of voters aged 50
and older declaring they are dissatisfied with the Prime Minister’s performance.

Despite achieving an initial boost in support from older voters, who had never strongly
endorsed Malcolm Turnbull as prime minister, Mr Morrison suffered a decline in
satisfaction ratings in the latest quarterly Newspoll analysis.

Josh Frydenberg is trying to fight a rearguard action on Labor’s “retiree tax” and
negative gearing policies, but the government’s efforts did not result in a polling boost
before the summer break.

The inability of the federal government to lock in the votes of baby boomers — who
have become disillusioned with both major parties, prompting some to shift their
support to minor parties — will be the most concerning revelation for Liberal and Nationals strategists in the latest Newspoll data.

The quarterly analysis, covering late October to this month and conducted exclusively
for The Australian, shows that almost one in two voters older than 50 would vote for
the Coalition or Pauline Hanson’s One Nation, with only 37 per cent locking in behind

The shift of support to One Nation, which had a 9 per cent primary vote among those
50 and older, compared with 1.8 per cent immediately before the 2016 election, could
put at risk the Liberal National Party’s hold on seats in the battleground state of
Queensland. This would toughen Mr Morrison’s job of clawing back Labor’s lead in
the polls before the likely May election.

Bill Shorten also faces a damning report card from older Australians, with only 31 per
cent satisfied with his performance and 59 per cent issuing a negative appraisal of his
tenure as Opposition Leader. However, this is Mr Shorten’s best satisfaction rating
from voters aged 50 and older in the past 12 months.

On the primary vote, the Coalition edges Labor 40 to 37 in the 50 and older voter

Off the back of early childhood and education policies aimed at younger families, Mr
Shorten’s Labor continues to dominate the 18-34 and 35-49 age categories, amassing a
sizeable lead in the primary vote over the Coalition.

There has been a significant spike in dissatisfaction with Mr Morrison in the 35-49 age
segment, with 48 per cent saying they were unhappy with his performance, up from 42
per cent in the August-to-October analysis.

The same voter group rated 50 per cent dissatisfied and only 36 per cent satisfied with Mr Shorten’s job as Opposition Leader.

On gender breakdown, 43 per cent of men declared they were satisfied with Mr
Morrison’s performance as Prime Minister, compared with 39 per cent of women.

There were 46 per cent of men and 44 per cent women who were dissatisfied with his

Mr Shorten continues to struggle with female voters, 49 per cent of whom are
dissatisfied with his performance compared with 34 per cent who are satisfied. Fiftytwo
per cent of male voters rated Mr Shorten’s performance as dissatisfactory, while
38 per cent were satisfied with him.

Asked to compare the two leaders directly, Mr Morrison holds a large lead over Mr
Shorten on the question of who would be the better prime minister among those aged
50 and over, 50 per cent to 32 per cent, and a narrow lead, 42-36, with 35-to-49-yearolds.

Men and women both rate Mr Morrison the better prime minister. Mr Morrison had a
10-point lead with women, 43-33, and an eight-point lead with men, 45-37.

After losing support from older Australians over superannuation changes, the Coalition has attempted to heap pressure on Mr Shorten over what it describes as a
“retiree tax”, a major revenue-raising measure announced by Labor to scrap the
refundable tax credits on shares.

The system of cash refunds, implemented in the 2001 budget, allows super funds and
individuals to receive payments from the Australian Taxation Office if their dividend
imputation credits exceed their total tax liabilities. Labor’s plan to scrap the refunds
would raise $55.7 billion over a decade from next July but was initially estimated to
raise $59bn before Mr Shorten was forced to carve out pensioners from the crackdown
following a backlash from seniors groups.

Mr Shorten’s so-called pensioner guarantee means that government pensioners and
allowance recipients will be protected from the abolition of cash refunds for excess
dividend imputation credits if he wins the next election.

The biggest target of the Labor policy is self-funded retirees. Estimates suggest that
about 33 per cent of cash refunds go to individuals, 60 per cent to self-managed super
funds and about 7 per cent to APRA-regulated funds.

The Coalition has tried to garner support off the back of its campaign against the
dividend imputations reform, targeting key electorates with older voters.

Another major revenue-raiser that has unsettled older voters is Labor’s negative
gearing policy, which will see Mr Shorten limit the concession to new housing stock if
he wins office — a move estimated to raise $20bn over the decade.

The plan to halve the capital gains discount is also thought to raise about $13bn over
the same period, with the measures fuelling concerns they will exacerbate an already
softening housing market.

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