Townsville self-funded retiree Rex Grattidge will lose 25 per cent of his annual income if a Shorten Labor government introduces its proposed overhaul of franking credits on share portfolios.
The implications for Labor’s planned tax changes in Queensland–- which has one of the highest percentages of self-funded retirees in the country – could become a political headache for Opposition Leader Bill Shorten, who is aiming to use the northern state as the foundation to help him win The Lodge in the federal election which is expected in May.
Self-funded retirees, who are outraged over the proposed scrapping of cash refunds of franking credits, will front federal parliamentary inquiry hearings in Queensland this week, starting in Townsville on Tuesday.
If it becomes law, Mr Grattidge, whose current annual income is $30,000, is worried he and his wife Sally will have to sell shares to keep afloat.
“It’s bad because I will lose a quarter of my income and other people will lose about a third of their income,” he told The Australian Financial Review.
“How would it affect you if you lost a third of your income? You wouldn’t have the money to buy the things you normally would.”
Mr Grattidge, who describes himself as a “low-income, non-pensioner” and will address the economics committee hearing in Townsville, said he would consider voting for Labor this election if it removed the policy.
He was so worried about the proposal he tried to talk to Mr Shorten when the Labor leader was on his nine-day bus tour through Queensland last week.
“I tried to talk to Bill Shorten but he wouldn’t talk to me. He was in Townsville [last Friday]. I shook his hand and said I wanted to talk to him and he said ‘no, I’ve got a plane to catch’,'” Mr Grattidge said.
“This whole sad mess could so easily be resolved, if Bill had stopped to listen. All that needs to be done is for the dividends on shares with franking credits be paid to Australian residents with a tax file number, at the higher rate, unfranked.”
Brisbane pensioner Arthur Smith, who will address the parliamentary hearing on the Gold Coast on Thursday, is a former teacher turned owner of a kitchen-manufacturing business which is now run by his three daughters.
Mr Smith said he had been paying corporate tax while running a profitable business and feels that to now lose cash refunds from Labor’s franking credit policy is not fair.
“It’s going to cost me about $12,000 per year if Shorten gets his way. They’ve had my money for a long time, when I ploughed back [tax] into the company for my small business. And when I get it back at a time when I’m not earning a high income, they want to keep the lot, and I just don’t think that’s right,” he said.
The controversial policy will remove a cash refund if a person has franking credits of a value greater than the amount of income tax that person owes in a given year. The main people affected by the policy will be shareholders who have non-taxable incomes, of which retirees will make up a large portion.
Submissions to the standing committee on economics say it will disproportionately hit retirees, especially those with self-managed superannuation funds who are not on government pensions.
“For older retirees, any change would result in additional complexity and uncertainty. There will be no fairness unless grandfathering provisions are included with any changes,” one submission said.
Treasurer Josh Frydenberg said Labor’s plans to scrap refundable franking credits would remove an important source of income for lower-income households, especially retired Australians.
But shadow treasurer Chris Bowen has derided opposition to the franking credits issue as “somewhat shrill”, saying the Coalition’s scare campaign on the imputations issue had failed to have an impact at a string of byelections last year, including Longman in south-east Queensland which includes the retiree-heavy Bribie Island.
“Australian people, including many who will not be able to access refundable credits under Labor’s policy, both respect a political party that has the courage to put its policies out long before an election and also know what some of the tax concessions that favour higher wealth individuals simply can’t go on,” Mr Bowen said last week.
He said $5.9 billion was spent on refunding dividend imputation credits in 2014-15 – less than was spent on public schools ($5.2 billion) in the same year.
The Australia Institute senior research fellow David Richardson agreed, saying higher income earners were the biggest beneficiary of franking credits.
He said most other OECD countries do not give taxpayers credit or concessions when they receive dividend income, saying dividend imputation could be scrapped altogether. They backed Labor’s move on franking credits as a start.
“Franking credits go disproportionately to the rich both as shareholders and as beneficiaries of self-managed super funds,” he said.