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Thursday, 4 April 2019
Page: 14966

Mr TIM WILSON (Goldstein) (18:38): I seek leave to table reports of the Standing Committee on Economics and to make a short address.

Leave granted.

Mr TIM WILSON: On behalf of the Standing Committee on Economics, I present the following reports together with the minutes of proceedings: Review of the Reserve Bank of Australia annual report 2018 (First report); Report on the inquiry into impediments to business investment, incorporating a dissenting report; and Report on the inquiry into the implications of removing refundable franking credits, incorporating a dissenting report.

Reports made parliamentary papers in accordance with standing order 39(e).

Mr Frydenberg: Very important.

Mr TIM WILSON: A very important topic, thank you, Treasurer.

My mother, Pat, is 97 years old. She's housebound, frail and suffers dementia. My father's a bit younger—he's 92 years old. He's a semiretired medical practitioner, but he doesn't earn enough to contribute to the family budget.

…   …   …

In the 2017 financial year my mother's net return was $27,000, of which $7,500 was franking credits. Without the refund from franking credits their income would reduce to only $19,000 per annum.

Those are the words of Mr Hughes, who, from our first hearing in Sydney, set the tone of this inquiry.

On 19 September 2018, the Treasurer, the Hon. Josh Frydenberg, referred to the committee an inquiry into the removal of refundable franking credits. The Treasurer asked the committee to inquire into and report on the implications of removing refundable franking credits and, in particular, the stress and complexity it will cause Australians, including older Australians who will be impacted in their retirement. I'm proud that, despite the noise around this inquiry at every point and the attempts by many people to shut it down, the focus of this inquiry has remained where it belongs: to give voice to the people who are affected by this policy.

Despite the calls by the shadow Treasurer in January of this year that this inquiry was an abuse, this is clearly not the view of many Australians. The public response to this inquiry was extraordinary. The committee held a series of 19 public hearings across the continent to allow Australians to have a say in light of a policy proposed to be introduced on 1 July 2019. These hearings were incredibly well attended. At many other public hearings we might be lucky to have a handful of members of the public. At these hearings the number often exceeded 300 people and was sometimes nearly 500. A total of 1,770 submissions were published and many more documents were received, and we simply ran out of time and the resources to be able to process them all for publication. I want to thank every single person who contributed to this inquiry for their courage. It takes a lot of courage to go on the public record and tell your private story about your own private circumstances and your own private financial affairs. But the reality is the people who did had to.

While the participation in the inquiry was high, worryingly, the evidence suggests that many people at risk of being impacted from a policy change are unaware of the proposal that could result in them losing a third of their income. The risk is particularly concerning when many retirees in Australia live outside of capital cities and are at a vulnerable stage of their life—people like Ms Paull, who, at the Upper Coomera hearings, said:

My husband and I are both in our 70s and we're self-funded retirees. I belong to that era when females had to resign from the workplace when they married.

   …   …

My annual income is so low that I do not pay tax on my dividends, and I receive the full franking credit as a cash refund.

I remember asking, as the chair: 'Does that mean that you earn less than the tax-free threshold of $18,200?' The answer was yes. She continued:

My husband is 78 years old and is in remission from cancer, and has recently developed heart issues. So those out-of-pocket health expenses are now running in the thousands. If we lose a third of my income, which will be approximately $6,000 a year, under Labor's proposal to deny cash rebates for franking credits to low-income and retired shareholders—which I am—we'll have to seriously consider giving up hospital health insurance …

While the public discussions surround the abolition of refundable franking credits have focused primarily on retirees, the committee heard evidence of others who need certainty in their lives and are at risk. These include mothers who have taken a break from employment to have children, those earning below the tax-free threshold and people with a disability with ageing parents who have income from shares to maintain independent living.

Sometimes people spoke for those who couldn't. In Chatswood, Ms Truelove represented her mother and said:

I'm just going to talk about my mother. I have a mother who is 101 years old. She still lives independently, and one of the reasons why is she can't afford to do otherwise. My mother was brought up on a farm; we have a family farm that was in my father's family. They first settled there in about 1870. My brother has been running the farm. Unfortunately, through drought, a fire that burnt 90 per cent of the farm and some mismanagement, there was a huge debt of $1.3 million on the farm. It was in my brother's name, which meant that the land got sold and the debt was paid. But the debt still stands in my brother's name as an asset to my mother, so she cannot get the pension. She is very talented in terms of what she does with her money. She learnt to invest in shares. Up until a few years ago, she bought and sold a few shares, and she has lived on around $120,000 worth of assets that she's bought and sold.

Her income last year was $6,600. Her franking credits were $1,900—I did her tax for her. That is about to be taken away, should the Labor Party get into power. That money pays for her private health fund. She rents an apartment that costs her $100 a week.

It's simply despicable that such a fiercely proud family would be pushed down the financial stairs by this policy. They are attacking Australians' sacrifice, they are attacking their security and they are attacking their dignity.

It's against this evidence that the committee has completed the inquiry. The committee has considered the case for removing refundable franking credits and is of the view that the policy is inequitable and deeply flawed. Franking credits play an important role in Australia's tax dividend imputation system. Franking credits are attached to an imputed tax to the individual, to stop double taxation. They are stated on an individual's tax assessment notice as withheld tax and are used to assess an individual's taxable income at the end of the financial year and for access to other benefits, such as healthcare cards. Franking credits are only received when tax is paid, and their abolition for refundability while still being considered as part of a taxable income is poor tax policy and discriminates between taxpayers.

Those who have made their voice heard put worrying stories to the inquiry, and I've already read some. Many affected retirees spoke of anxiety from the fear of losing a third of their income. There is Karen's story of exhausting and soul-destroying stress, and we heard regularly about people for whom the simple existence of breaking apart the bipartisan consensus is causing anxiety and stress. Others raised concerns that abolishing refundable franking credits would compound the legacy of the gender pay gap. There was Margaret's story of historic sexism and how too many people making decisions for us are totally unaware of our history and our lives.

Then there were the straight stories of financial hardship. There was Michael's story of medical challenges and how the removal of refundable franking credits would cause him considerable hardship. In particular, abolishing refundable franking credits would unfairly hit people of modest incomes who have already retired and who are unlikely to be able to return to the workforce to make up the income they will lose. In her submission, Barbara from South Australia said: 'I have been a Labor voter most of my life; however, I could not vote for a Labor Party proposing these changes. Almost 10 years ago I took time off work for the South Australian government and an accident almost killed me, causing paralysis. I never worked again, and after a successful public liability lawsuit I received a settlement. If my funds were invested well, the majority of my disability expenses were covered. However, the proposed changes by the Labor Party jeopardise my ability to do this.'

The abolition of refundable franking credits will force many people who have saved throughout their whole lives to be independent onto the age pension. Of course, this undermines any stated objective that it may raise revenue and reduce the dependence on taxpayers resulting from an ageing population.

Some have argued that the intention to scrap refundable franking credits is designed to tax the wealthy. This, of course, is a deeply unfair characterisation of the 900,000-odd Australians who are going to be affected by losing up to a third of their income. It also does not take into account the introduction of the transfer balance cap in the 2017-18 financial year, which of course means there will now be, ridiculously, an effective 30 per cent tax rate for many Australian retirees unless they're uber rich—then, they get a 15 per cent tax rate.

Abolition of refundable franking credits is fundamentally regressive. Australia has a tax-free threshold of $18,200 for workers, and yet its abolition of refundable franking credits would apply an effective 30 per cent tax rate from the first dollar earned. The fact-free dehumanisation of franking credit recipients has made it easy to dismiss the concerns of those impacted. The Alliance for a Fairer Retirement System claims that in 2014-15 over half of those receiving cash refunds for their franking credits had incomes below the $18,201 tax-free threshold, and 96 per cent had taxable incomes of less than $87,000. These Australians are hardly high-income earners and yet they stand to lose up to a third of their income overnight.

Such a policy discriminates against retirees and self-managed super funds in favour of members of APRA regulated industry and retail superannuation funds and those eligible to receive a part or full age pension before 28 March 2018. Labor have protected their union mates at the expense of those people who have done the right thing. We know this because the shadow Treasurer himself said to those who complained and raised concerns, 'Go and vote for someone else.' This policy may also reduce the value of some Australian shares and reduce investment in Australian companies. A range of submitters were concerned about the need to rearrange their investments and to reduce spending, particularly on private health insurance and charitable donations. The committee is concerned that these serious policy implications have not been addressed in any proposal that is sought to be implemented.

In consideration of the evidence received during this inquiry, the committee strongly recommends against the removal of refundable franking credits. Any policy that could reduce Australian retirees' incomes by up to a third should be considered as part of an equitable package for comprehensive tax reform. A government that seeks to steal the overpaid tax of Australians does not deserve office. A parliamentarian that looks at citizens and their overpaid tax as ATMs does not have a right in this place.

Finally, I want to conclude by thanking the secretariat. This inquiry has been extensive. We have held a number of hearings, and it has at times been quite difficult to manage. There have been many attempts to shut it down. The burden has fallen on the secretariat to act impartially and with cool heads, and they have done so. Despite the nefarious attempts, the secretariat staff have ensured the legitimacy of this report has stayed intact, because it simply gives voice to the Australian people impacted by the proposals considered. My particular thanks go to Stephen Boyd and John White, who spent a lot of time travelling around the country with us. This inquiry was not easy, because we had to channel the rage of thousands of Australians who simply wanted a voice about the impacts on them of losing a third of their income on 1 July if there is a policy change. I am proud to say we have given them that voice. With sorrow, I table the report.