Shorten franking policy must be fair to retirees

The Australian

Robert Gottliebsen, Business Columnist

24 December 2018

On the day before Christmas this letter goes to Bill Shorten, who according to the
opinion polls is the 2019 prime minister-in-waiting, plus his would-be treasurer Chris
Bowen and Ged Kearney, who is the member for the northern Melbourne seat
formerly known as Batman that has been renamed Cooper.

Bill Shorten is deservedly way ahead in opinion polls, firstly because he has held his
party together for five years when his opponents split and secondly because he and
Chris Bowen announced key policies way ahead of time.

In office, like the Coalition, the ALP will have policies that create disagreement.
That’s part of our democracy.

But in 2019, the community wants stability so once again we can respect the office of
prime minister.

We have had nine years of chaos. Australia wants policies where, even if we disagree,
there is community fairness.

I put Ged Kearney on this Christmas list because in November she took time to
understand that one of my readers — an ex-teacher — was a victim of the proposed
retirement and pensioners tax (RPT) that removes cash franking credits from selected
people. I really appreciated that.

There are hundreds of thousands of battling victims of RPT, but the letter I have
chosen to highlight comes from Bundaberg’s Boo and Lizzie Nitschie, who are not battlers. They both worked hard to be independent of government pensions. Boo is good at picking shares, but his superannuation fund will lose its franking credits unless he shifts the management of his money to the ALP’s mates in industry superannuation funds or selected non-industry funds.

For doing the “right thing” and replacing himself as manager, he will be rewarded by
receiving his cash franking credits entitlements in full.

Taxing on the basis of who manages a person’s money is simply not fair. Some of
Boo’s mates are on government pensions and will get their cash franking credits
entitlement. But others were not entitled to register for the government pension by
March 28 so while they will be pensioners, they will not get franking credits. Taxing
legitimate government pensioners in such an indiscriminate way is again simply not

Boo’s letter defends franking credits and in my view he is right. But Chris Bowen and
Bill Shorten are entitled to have a different view and policies. But if they are to have
respect in the commodity, they must be fair in the way they implement those policies.

The Christmas before the election is a time for Bill, Chris and Ged to recognise the
unfairness of the way they are implementing their policy. And they might even
discover there are better ways to handle imputation credit entitlements. But that’s a
separate issue.

Over to you Boo (and thanks for the compliment):

Dear Mr Gottliebsen,
Thank you for your continuing efforts to expose the inequities of federal Labor’s
policy to abolish the refund of excess franking credits.

My wife and I retired from the work force several years ago.

I would like to tell you why we think this policy is so unjust. Twenty years ago, we
could see that access to the age pension was going to become increasingly
problematic, so we made the decision to fund our own retirement.

We reduced our lifestyle somewhat, living on one income and investing the other in
the Australian sharemarket.
Shorten franking policy must be fair to retirees…

We chose to invest in equities because I had some knowledge of the sharemarket but
would be a “babe in the woods” in the property market. As shareholders, we own a
share of the companies we invest in. It follows that we also own a share of any profit
or loss the companies may make. We pay others to manage these companies. These
managers determine how much of the profits (typically 60-80 per cent) they will
distribute to us as dividends. But first they must pay 30 per cent of our profits to the
tax office as company tax and the remaining 70 per cent is available to pay us our
dividends along with a credit for the 30 per cent tax that have paid on our profits.

My wife and I currently each received about $35,000 in (grossed up) fully franked
dividends per annum consisting of $24,500 in actual dividends and $10,500 in
franking credits. As this is our only source of income, we each have a tax liability of
approximately $3500.

The balance of the franking credits ($7000 each) is refunded to us when we lodge our
tax returns. Obviously, the value of the shareholding underlying this number of
dividends precludes us from any entitlement to the age pension.

If the refund of excess franking credits is abolished, we will both pay tax of $10,500
on our $35,000 taxable investment income. If we were still earning personal income
(pre-retirement) of $35,000 each per annum our tax liability would be $3500 each —
the difference in tax liabilities ($7000) is not a retirement tax. It is a retirement
SUPER TAX! And Mr Shorten still goes on about fairness.

Imagine the outcry of every wage-earner had to pay a minimum of 30 per cent tax on
every dollar they earned regardless of their actual income (and sorry no tax return for

Yours sincerely,
Boo (Selwyn) Nitschie
Bundaberg, Qld

Robert Gottliebsen, Business Columnist