by Joe Kelly.
Labor MPs believe turmoil in the Coalition is masking widespread dismay and anger among older voters over the plan to introduce what critics call a “retiree tax”.
“It’s quite polarised,” a Labor MP said yesterday. “You get reaction from self-funded retirees who say, ‘we pay the household expenses out of that cash refund and we’ve looked after ourselves for years’. There’s a little bit of that”.
A special Newspoll conducted for The Australian bears out Labor’s internal concerns over how the policy has been received. Support for the $55.7 billion plan to scrap the refundable tax credits on shares has fallen three percentage points since March, while almost half of those surveyed, 48 per cent, were opposed.
An age breakdown reveals the over-65 bracket is most strongly opposed to the ALP’s plan, with 62 per cent of voters in that demographic registering their disapproval of the Labor policy.
Under the commitment, only pensioners and other recipients of government allowances (such as the carer payment or parenting payment) will still receive the cash refunds after Bill Shorten modified the plan earlier this year, following a backlash led by retiree groups. But the policy tweaks won’t help John and Jan Bain, who today officially join the nation’s grey army of 1.1 million self-funded retirees. Mrs Bain, 74, will today work her last shift as a physiotherapist in their home town of Bunbury, 170km south of Perth, while husband John, 72, left his job as a livestock agent 14 years ago after a stroke, then relied on sound money advice to maintain the couple’s finances on the long road back to good health.
“It’s still a fairly slippery slope that we are walking on moneywise, but I think that’s true for a lot of self-funded retirees,” Mr Bain said yesterday. “The rules have got so bloody complicated.”
Once aligned to the Liberal Party, Mr Bain describes himself as a “drifting” rather than a swinging voter these days. He said he was appalled by the recent chaos in the Coalition and was unsure who to vote for at next year’s election, but felt he could not support Labor’s cuts to the refundable tax credits on shares because it would punish “middle Australia”.
“We think that if this gets in it will end up costing us somewhere between $10,000 and $12,000 a year, somewhere around there,” Mr Bain said. “We have got a very good financial adviser … but we are not rich.”
Only 46 per cent of Labor voters agree with the plan, while approval drops to just 15 per cent among Coalition supporters. Total support is running at 30 per cent, down from 33 per cent in March when the last Newspoll on the issue was conducted.
Opposition to the policy has also dropped from 50 per cent to 48 per cent while the number of voters undecided on the shake-up has lifted from 17 to 22 per cent. Among Coalition voters, opposition is running at 71 per cent compared with 33 per cent for Labor supporters.
The refunding of franking credits was a system implemented in the Howard government’s 2001 budget, allowing super funds and individuals to receive cash payments if their dividend imputation credits exceeded their total tax liabilities. Estimates suggest about 33 per cent of cash refunds go to individuals, 60 per cent to self-managed super funds and about 7 per cent to APRA-regulated funds.
The Labor policy was framed as a way to close down a “tax loophole that mainly benefits millionaires”. Opposition Treasury spokesman Chris Bowen warned that the cost of refunding the dividend imputation credits had become unsustainable.
The cost of the concession has ballooned from about $550 million when the measure was introduced by former Liberal treasurer Peter Costello — when the budget was in surplus — to more than $5bn a year. Labor’s policy would raise $55.7bn over a decade from July next year if Mr Shorten wins the next election.
The self-managed super fund sector and seniors groups have warned the Labor policy will bring about a number of unintended consequences while continuing to benefit the wealthy who have enough tax liabilities to exhaust the full value of their franking credits.
Dividend imputation was introduced in Australia in 1987 to avoid double taxation of company dividends. It provides a tax credit to shareholders for tax already paid by the company on their behalf. In a submission to the parliamentary standing committee on economics, which is conducting an inquiry into the removal of refundable franking credits, Michael Rice, the chief executive of actuarial firm Rice Warner, warned that there would be behavioural changes arising from the Labor policy.
“The main groups affected would be retirees on modest incomes holding equities directly and many SMSFs which have assets predominantly in pension accounts,” Mr Rice said.
He suggested these groups would shift their assets out of Australian equities, attain higher yields in other assets such as overseas-listed shares or infrastructure trusts or move their assets into unfranked Australian equities.
He suggested that some self-funded retirees would increase drawdowns from their superannuation to preserve their current levels of income, resulting in more people receiving the age pension earlier in life — an outcome that would impose additional costs on the government.
One consequence could see more people closing their SMSF and moving their assets into an APRA-regulated fund where their franking credits could be offset against other taxable income within the fund.