1 February 2019
Judith Sloan, Contributing Economics Editor
I hadn’t heard the term “listicle” until I was reading about the downsizing of digital media outfit Buzzfeed. Evidently it just loves a listicle — an article based entirely on a list. Mind you, the topics of these lists sound pretty childish and fatuous.
So let me put together a serious list based on the serious policy errors Labor’s Treasury spokesman Chris Bowen has made by proposing to cancel cash refunds for excess franking credits.
- Paying too much attention to advice from the former treasurer and prime minister Paul Keating is a big mistake. Keating’s view of the world is that if he didn’t introduce it, it must be wrong.
- It was always an oversight that cash refunds for franking credits were not offered to those on low incomes who pay no or little tax.
- There are plenty of examples of refunds being paid to people and businesses who pay no net tax. After all, close to half the population pay no net tax, yet many of them receive a tax refund after the close of the financial year. Is Bowen going to get rid of this arrangement?
- And let’s think about trade unions, charities and not-for-profits. They don’t pay any tax but Bowen is proposing that cash refunds for these entities be retained. Some trade unions have net assets of more than $100 million and have substantial stockmarket investments.
- Why would Bowen think that exempting recipients of the Age Pension who registered before March 28 last year from the cancellation of cash refunds makes any sense? If you have signed up to the Age Pension after this date, it’s just bad luck and you will be treated differently from your mate down the street in the same income and asset position.
- Bowen is mistaken that this policy hits the rich. The rich, particularly after the government implemented the $1.6m superannuation tax-free cap, will be able to use the tax they pay to claim the franking credits, either in full or part.
- It is those retirees who just miss out on the Age Pension who will be badly hit, because they will simply lose the cash refunds without any compensation. And there are one million of them.
- Would Bowen tell one of his unionised mates that it’s fine to have their pay cut by $3000 or $5000 or $7000 each year because “the age of entitlement is over”?
- Older women, many of them widows, will be the worst-affected group.
- By the way, Bowen should declare that he is not a licensed financial planner when he tells retirees that they have overinvested in franked Australian shares and they should diversify into overseas equities and unfranked Australian shares (many of which don’t pay dividends).
- Bowen is undermining the case for increasing the superannuation guarantee charge (from 9.5 per cent to 12 per cent) because individuals and couples who save more in superannuation and go over the asset/income thresholds of the Age Pension will actually be worse off.
- There is no fiscal difference between a government offering tax deductions/rebates and paying cash refunds, and Bowen should know this in terms of the budget bottom line. It would be more honest for him to propose ditching the whole dividend imputation system, if that’s his view.
- The notion that the elimination of cash refunds will “save” $11.4 billion over the forward estimates should be treated with a grain of salt. Watch retirees rearrange their affairs to qualify for the Age Pension, which will offset the savings.