The House of Representatives standing committee on economics yesterday announced an inquiry into the implications of removing refundable franking credits, a signature tax move proposed by the federal opposition in March.
The inquiry may also look at expected behavioural change by investors, including increased dependence on the pension; and if there are carve outs applied, what this might mean for additional complexity to the system.
“The ability for investors, including individuals and superannuation funds, to claim their full credits is an established feature of our tax system and is core to the financial security of retirees,” said chair of the committee Tim Wilson.
“There has been legitimate community concern about proposals to remove cash refunds for their full allocation of credits for individuals and superannuation funds, and that it amounts to a tax on the savings of retirees.”
Fit for purpose?
Technical experts in superannuation have been particularly frustrated by Labor’s claims that this policy targets a “loophole” being exploited by the wealthy.
“It seems to me that this measure could actually allow the rich to accumulate more in super,” said manager for technical services and education at AMP-owned SuperConcepts Peter Burgess at the time the policy was announced.
“Transferring some of their pension balance to the accumulation phase may allow them to use all of their franking credits. The effect will be more retained in super for longer, as they can draw down super from accumulation phase when they need it rather than being forced to take the minimum pension each year.”
Similarly, bodies like the SMSF Association (SMSFA), which represents SMSF investors and professionals, estimate Labor’s policy will slash the retirement savings of Australians with conservative superannuation savings.
“It’s our stated belief that this proposal will affect more than 1 million Australians either saving for or in retirement and other purposes, with our calculations showing it will cut about $5,000 of income from the median SMSF retiree earning about $50,000 a year in pension income,” said chief executive of SMSFA John Maroney.
“The notion that this proposal will only affect the wealthy is simply wrong. An analysis of ATO and Treasury data shows it is those on modest incomes who will be most affected, refuting Labor’s argument that the proposal will only target the wealthiest 10 per cent of SMSFs.”
Professionals working with SMSF trustees, like director at Heffron SMSF Solutions Meg Heffron, have found taxpayers are growing increasingly frustrated by proposals that will chip away at their superannuation savings.
Last month, Ms Heffron hit out at policies – like Labor’s plan for franking credits – which capture taxpayers who have always invested “by the book”.
“They understandably ask ‘why did I bother saving’ sometimes,” Ms Heffron said.