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Retirees’ franking credits now safe as unfair policy ditched

LBA franking credits

The sharemarket opened this week knowing that full franking credits will be part of the shareholder landscape for the foreseeable future. This is very good news for long-term investors.

By Robert Gottliebsen


Anthony Albanese has vowed that the ALP will not make changes to franking credits should Labor win office and it is highly unlikely that the Coalition will give the ALP an opening by changing the franking credits policy.

Paradoxically, given the huge government deficit, the level of franking credits would now normally be the subject of community debate, but the issue has been taken off the table because the ALP in 2018 announced a set of badly conceived franking credit policies that understandably were rejected by voters.

The Australian and I were deeply involved in revealing the unfairness of the ALP franking credits policy — and therefore, as it happened, contributed to the election of Scott Morrison as prime minister.

I will never forget in March 2018, without warning, being phoned by a very senior ALP shadow minister (not shadow treasurer Chris Bowen) and asked my opinion on stopping franking credits being paid in cash “to the rich”.

I said I didn’t know whether the ALP plan would work but I told the shadow minister if he really wanted to reduce the franking bill it would be far better and fairer to lower the overall level of franking credits so everyone shared the pain.

Had that “off the cuff” advice been taken, I think it highly likely Bill Shorten would now be prime minister. However, soon after that conversation the ALP franking credits scheme was announced, unaltered.

To this day I believe that when the ALP shadow cabinet approved Bowen’s proposal they thought they were attacking “the rich”, not realising the rich would contribute only a small part of the $6bn set to be raised. In fact, they were attacking the “retired poor”.

The ALP plan was complex and in those early months after the announcement neither the ALP caucus, the Coalition government nor I undertook the close analytical work that was required to isolate the victims.

There were six by-elections in July 2018 — four months after the policy was announced — and the ALP won five and Malcolm Turnbull’s seat of Wentworth went to independent Kerryn Phelps. As a result, the ALP believed it had established a franking credit mandate and the 2019 election was in the bag, because it had what appeared to be an invincible lead over the Coalition government.

Then came a remarkable conference in Sydney on October 30, 2018, led by a multitude of retirement bodies plus groups like Probus, Rotary and others. Assistant treasurer Stuart Robert and Coalition MP Tim Wilson were there.


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The keynote address was given by the then president of the Self-Managed Super Fund Association, Deborah Ralston, who showed that up to 1.4 million people were in Bowen’s firing line and there were at least 1.1 million who would be hit hard.

These people were not rich. Most were battlers trying to self-fund their retirement or retrieve their past franking credits after selling their small business. The average impost of $4000 would be a big blow.

At the time, Graham Richardson said there was no way retirees could organise to fight. He could have added that the word “franking” was a turn-off word because few understood how it worked.

I suspect Bowen had the same view. But on October 30 in that room there were 11 remarkable organisations with the databases and contacts to reach almost every one of those 1.4 million people.

Late in the conference I helped brand the ALP franking attack “the retirement and pensioners’ tax” (a select group of pensioners were hit) and vowed to the audience to do my best to ensure that my readers understood how the tax would work.

In January 2019, Bowen counted that I had written about 15 commentaries. That was half time. The final total was about double that because there were so many crazy aspects to “the retirement and pensioners’ tax”.

Until 2018 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 you have a taxable income the franking credit reduces tax payable.

The ALP plan was that if you had no other income then you could not receive your cash franking credits entitlement.

It was aimed to rip money off poorer people who had no income outside franked dividends (most rich people have other income so were not affected).

But it got worse. If a person retired with no other income and people pooled their savings with workers in large superannuation funds (led by industry and big retail funds), then the tax paid by the workers could be used to deliver the retirees their cash franking credits.

But where retirees’ savings were not pooled into funds that had lots of current employees, then those retirees had their income reduced by the removal of franking credits.

Since federation, Australians have been taxed equally on the basis of their relative income and assets. The ALP was breaking with its history and taxing lower-income people on the basis of the organisations to which they belong. The fact that in many cases these ALP tax havens were industry superannuation funds that were seen by many as mates of the ALP made it worse.

And to make sure Centrelink pensioners did not miss out on a carefully targeted clip on the ear, those in some super funds who did not register for the pension before March 2018 would not get cash franking credits.

And so it went on.

Tradition has it that governments lose elections and, after the Abbott-Turnbull morass, that was set to happen. But in 2019 the opposition lost the election.

Along the way Shorten must have realised the franking credit policy was a terrible mistake, but he could not bring himself to admit error.

Morrison’s recent Australia Post disaster may be an illustration of the same phenomena on the Coalition side.


This article appeared in the Summer 2021 edition of Life Begins At… Click here to read or here to subscribe and never miss an issue!


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Life Begins At

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