This weekend, voters in Wentworth go to the ballot box. The choice is clear. If elected, the Liberal Party’s candidate Dave Sharma will be part of a team that has delivered more than a million jobs, lower taxes for households and businesses, and an economy growing faster than any G7 nation.
The alternative, be it independent, Labor or Greens, will put our economic momentum at risk and see Bill Shorten one step closer to the Lodge. Make no mistake — higher taxes will follow, hurting every family and small business while being particularly punishing on retirees.
In Wentworth there are more than 8000 individuals who will be adversely affected by Labor’s retiree tax, as they presently receive refundable franking credits. These individuals, as well as many others in Wentworth who have self-managed super funds, will lose the value of their franking credits under Labor’s plan.
On average, Australia-wide, under Labor’s retiree tax individuals with excess franking credits lose $2200 a year and self-managed super funds lose $12,000 a year. This is a blatant cash grab from those who have taken responsibility to grow their nest egg and provide for their own retirement.
Labor’s policy is economically and philosophically flawed.
According to Australian Taxation Office data, more than 900,000 individuals, 200,000 self-managed super funds and 2000 super funds will be hit by Labor’s policy.
It’s no irony that Labor’s friends in the union movement, who don’t pay tax to start with, have been specifically exempted from the impacts of this policy as they get to keep their cash payments from their excess franking credits. Labor’s policy has been a shemozzle from the start with its initial announcement targeting pensioners and slugging Australians by its own estimate for $59 billion.
Responding to the outcry, Labor brought the equivalent of a glass of water to put out a house fire and revised the policy to exempt just some pensioners.
Not surprisingly, this has done little to quell community concern, and those who go on to the pension in the future and receive refundable franking credits through their self-managed super fund will still be hit by Labor’s policy.
Despite the rhetoric, the reality of Labor’s policy is that it hurts those on lower taxable incomes. About 84 per cent of those affected nationally have a taxable income of less than $37,000, and 96 per cent of those affected have a taxable income of less than $87,000.
Indeed, the benefits for low-income earners from the full refundability of franking credits is why Simon Crean, opposition Treasury spokesman at the time the original policy was introduced in 2000, said: “We have no difficulties supporting the proposal” as “it improves the current taxation situation faced by low-income investors, especially retired Australians”.
Now the Labor Party, desperate for revenue to fund its reckless spending promises, has reneged on its longstanding commitment.
The Opposition Leader likes to talk about fairness, but how fair is it that somebody with a high income of $200,000 a year and who is receiving a $7000 dividend on their shares enjoys the full benefit of their $3000 franking credit, while a low-income earner under the tax-free threshold or a retiree in the pension phase of their self-managed super fund who receives the same dividend can’t use their franking credits at all?
Another adverse consequence of Labor’s policy is that more people will need to rely on the Age Pension as they lose their income from refundable franking credits.
The incentive to save for one’s retirement also would be diminished and retirees will readjust their financial plans so that they sell down assets to qualify for the Age Pension.
In the words of one respondent to the Wilson Asset Management survey: “Why bother working hard and saving for retirement. I might as well spend and enjoy life and go on the pension.”
As a result of Labor’s tax grab, retirees also will be less prepared to invest in Australian companies that provide franking credits.
This will reduce the capital-raising ability of our companies, adversely affecting their ability to grow and invest. It also will put downward pressure on Australian share prices.
Indeed, Australians will be more inclined to send their savings overseas as asset allocations are increasingly weighted to foreign companies and other asset classes.
Like all Australians, the people of Wentworth deserve a government that encourages personal responsibility, rewards hard work and allows them to keep more of what they earn.
Labor’s retiree tax goes against every one of these values.
This weekend when voters go to the ballot box in Wentworth, they will know that only our party, the Liberal Party, and its candidate, Dave Sharma, can be counted on to protect their savings.
Josh Frydenberg is federal Treasurer.