A new analysis on Labor’s proposed crackdown on share portfolio franking credits has found women will be disproportionately affected by the change, including elderly voters and widows.
RMIT University professor of economics Sinclair Davidson used Tax Office taxation statistics for the 2015-16 financial year to measure the impact of Labor’s plans – a move designed to raise an estimated $55.7 billion over a decade.
Franking credits for company tax paid would still be available for shareholders to avoid double taxation and Labor softened the policy last year to introduce a new guarantee to protect more than 300,000 low-income full and part pensioners.
Professor Davidson, an adjunct fellow at the Institute of Public Affairs and Australian Taxpayers’ Alliance academic fellow, found 6.1 per cent of taxpayers earned excess franking credits in the period, below Labor’s estimate of 8 per cent.
Of the total group receiving cash refunds, 56 per cent were women, of which 68 per cent were over the age of 60. Some 47 per cent were either single or widowed.
Self-funded retirees and self-managed superannuation funds, who currently pay no or little tax and benefit from the refundability of franking credits for tax paid by companies they own shares in, would be hit hardest by the crackdown.
“So a whole lot of (widowed) elderly women are about to face a marginal 30 per cent tax rate under a new Labor government, and will lose a portion of their current income,” Professor Davidson writes in an opinion piece for The Australian Financial Review.
“The numbers go down once I account for the pension guarantee that Labor has proposed – but not by much.
“We are being invited to believe that this tax-grab on the elderly won’t have any flow-on effects to their children and loved ones.”
He argues the controversial policy, currently being considered by Parliament’s standing committee on economics, will see many people sell down their share portfolios to qualify for the pension, with the proceeds likely to go towards home renovations, suggesting Labor will raise less revenue than expected.
Dividend imputation was introduced by former Labor treasurer Paul Keating in 1987 to eradicate double taxation. It entitles a shareholder to a tax credit on a dividend that is equivalent to the tax already paid by a company.
The Howard government made the system more generous in 2000, giving a cash refund where a shareholder had an imputation credit higher than their personal tax liability.
Treasurer Josh Frydenberg argues that Labor’s plans to scrap franking credits would remove an important source of income for lower-income households, especially retired Australians.
Shadow treasurer Chris Bowen said Labor remained committed to the plan on Tuesday.
“We’re the only country in the world that does it and we spent a lot of money on it,” he said.
“We spend roughly the same amount on this as we do on public schools at the Commonwealth level and it’s unsustainable. It’s getting more expensive.”