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Standing Committee on Economics
19/03/2019
Implications of removing refundable franking credits

ALLAN, Mr Robert, Private capacity

ALLEN, Dr Katie, Private capacity

BANKS, Mr John, Private capacity

CHAPMAN, Mr Bob, Private capacity

DAVIS, Ms Marie, Private capacity

DOLAN, Dr David, Private capacity

DOYLE, Mr Michael, Private capacity

EDWARDS, Ms Dianne, Private capacity

ELDEBS, Mr Sharif, Private capacity

ENGLISH, Mr Pat, Private capacity

FALLICK, Ms Kaye, Private capacity

FARMER, Ms Margaret, Private capacity

FAUL, Mr Malcolm, Private capacity

GANS, Ms Liliane, Private capacity

GODWIN, Ms Barbara, Private capacity

HIRSH, Mr Irwin, Private capacity

HUNT, Mr John, Private capacity

HUTCHINSON, Ms Brenda, Private capacity

JACKSON, Mr Richard, Private capacity

JOHNSON, Mr William, Private capacity

JONES, Ms Shelley, Private capacity

KEDDIE, Mr Ray, Private capacity

KIRWAN, Mr Tim, Private capacity

LEE, Mr Andy, Private capacity

LESH, Mr Ron, Private capacity

MAY, Mr Peter, Private capacity

MURTAGH, Ms Robyn, Private capacity

RADO, Mr Tom, Private capacity

ROUCH, Mr Rob, Private capacity

SCOTT, Ms Julia, Private capacity

SINGLETON, Mr Ian, Private capacity

WALKER, Ms Angela, Private capacity

WOLLAN, Mr David, Private capacity

Witness A

Witness B

Witness C

Committee met at 10:02

CHAIR ( Mr Tim Wilson ): Good morning, everybody. I declare open this hearing of the House of Representatives Standing Committee on Economics. The ability for investors, including individuals and superannuation funds, to claim their fully franked credit refund is an established feature of our tax system and is core to the financial security of retirees. There is community concern about proposals to remove cash refunds for the franking credits of individuals and superannuation funds, including that it amounts to a tax on the savings of retirees. The committee is examining how the removal of refundable franking credits would affect investors, in particular older Australians who have planned for their retirement based on the existing rules and whose financial security could be compromised. This public hearing provides an opportunity for Australians impacted by a change to refundable franking credits to address the committee directly with a three-minute statement. Sometimes we need to make it longer or shorter based on the number of people in the room. We have a few people in the room, and so we will have to navigate it. I need to do that as chair, and my ruling as chair is final. We welcome your contributions and your participation, and we do want to get to your statements. Before commencing, are there any members of the media present? Yes. I refer members of the media present or who may be monitoring this hearing online—hello to our friends at The AustralianFinancial Review—of the need to fairly and accurately report the proceedings of this committee.

Additionally, I'd like to take this opportunity—apparently it's an issue for people who don't understand the policy; it has no impact on me—to formally declare that my superannuation fund, which I hold with my husband, Ryan Bolger, called Wilson-Bolger Superannuation, owns WAM Leaders and WAM capital shares. There you go. This inquiry has no effect on their value, and I can confirm to the best of my knowledge that Labor's policy to scrap refundable franking credits will have no financial impact on myself or my superannuation fund.

The way community statements will work is I will introduce each speaker and invite them to speak into the microphones provided. I will call out a person's name from the list. They will come and sit at the first microphone. I will also call out the name of the next person and they should come up and sit at the other microphone. We will go back and forth in tandem. It stops us wasting about a minute every time, so it's a big deal, and increases the number of people who can speak. The secretariat, John, will indicate to you with a sign when you've spoken for your three minutes. I will cut you off and introduce the next speaker. Because of the number of people in the room, I will just cut you off politely.

Please note that these statements are broadcast and recorded for the public record. I ask that speakers refrain from adversely commenting on other people and exercise caution when speaking about their own or other people's financial or private circumstances. If you don't want it in Hansard, the official record of the parliament, don't say it. It'll be there forever. Please be aware that these proceedings may also be filmed. If members of the public have objections to being filmed, please raise them with the secretariat. The committee will consider your request.

The first person I will call up will be Rob Rouch and then William Johnson. When people are speaking, whether you agree or disagree, because there'll be a diversity of perspectives, we encourage you to show absolute respect.

Mr Rouch : Thank you for the opportunity to speak to this inquiry. I'm speaking, as I believe that one aspect of payments of franking credits has not being covered by political parties or the press. Firstly, I'd like to congratulate the whole medical world—medical scientists, specialists, surgeons, general practitioners and hospitals. It's because of their work, particularly over the last 20 years, that we're all living longer; however, it does come at a cost. I'm 80 years of age, and I would not be alive if it wasn't for the work of the medical world. Australians suffer cancer; heart disease; arthritis; dementia; surgery on the spine, hips and shoulders; hearing problems; and eye surgery. Modern medicine has kept us alive, but it comes at a cost, and that's a cost our older Australians need to pay. When requiring treatment the first thing you're asked is: are you on a pension or have you got a health concession card? If the answer is no, you're on your own. In addition to surgery, there are physio and pharmacy expenses. And we have recently seen private hospital insurance increase, and it will continue to rise in the future. Recently, I had a small lump under my chin next to the throat. The GP thought it needed to be checked for cancer. They sent me to a specialist and then to Epworth hospital for an ultrasound and biopsy. The total cost to me was $633. This was just a small investigation. Large surgery and ongoing treatment can run into thousands of dollars.

Now let's get onto aged care for Australians who are not on the pension. Can we budget in our superannuation for the cost of aged care? The answer is no, as you cannot budget for the unknown. Older Australians should be considered and rewarded if they have made sacrifices to save, not penalised.

The purpose of superannuation was to support you in retirement. Retirement today means aged care, unless you die early. But, thanks to the medical world, we are all living longer, but we need to be able to pay. These Australians who are over 70 years saved their money and invested in Australian companies so as not to be on the pension, and they should not be penalised by having their entitlements to franking credits taken away. It's not only the older Australians that should be worried about the removal of the payment of excess franking credits. Younger Australians should also be worried about this and not see grandma and grandpa have extra worry about whether or not they can afford decent aged care.

I wrote to Bill Shorten's office on 17 November and received a reply within 36 hours to inform me that he or one of his colleagues would reply to my letter. That is nearly three months ago. I've received no reply, so I presume the current opposition is not concerned about the older Australians who have a justifiable need for the payment of excess franking credits where the tax has been paid by Australian companies.

CHAIR: Thank you. That is the end of your three minutes.

Mr THISTLETHWAITE: Can I just clarify—

CHAIR: I don't want to get into a slanging match.

Mr THISTLETHWAITE: I just need to clarify. Your statement was that Labor policy was to take franking credits away. That's not the case. It's only to remove the cash payment for someone that doesn't have an income tax liability in particular. Franking credits will still be there under the Labor policy.

CHAIR: Thanks, Deputy Chair.

Mr Johnson : Mr Wilson, could I ask the indulgence of the forum that I be given a little bit extra time, as I'm sure I'm going to be the odd man out.

CHAIR: Mr Johnson, your time is counting out.

Mr Johnson : All right. For the sake of transparency and clarity, I will provide details of my background and financial situation. I am married, with both me and my wife being self-funded retirees in our early 70s. We both own our own home of about 50 years and we lived in Deer Park in the western suburbs. We both have pension accounts with Australian Super, with a combined value of approximately $1.6 million, which provides an income of approximately $80,000 annually. We have two bank accounts earning approximately $2,000 annually. Mrs Johnson has almost 5,000 shares in NAB. I would expect the shares would deliver $10,000 in dividends and $4,000 in franking credits next financial year, which would give us a total income of $96,000-plus tax free.

I'd like to ask anybody in the forum if they have lost a part-pension over the last two terms of government or if they've lost a supplementary payment over the last two terms of government? That would equate to $1,300 per couple. Is there anybody here?

CHAIR: We don't have time for that—

Mr Johnson : You don't have time, do you, Wilson?

CHAIR: Excuse me, Sir—

Mr Johnson : I'm going to ask you: why have the forums never called on these issues?

CHAIR: Sir, your time is counting out.

Mr Johnson : Let's test the proposition that coalition MPs are concerned about all retirees' income. Can you tell me, Mr Wilson, which political party opposed the introduction of mandatory universal superannuation? Which party opposed every increase in employer contributions, attempted to remove super as a mandatory condition of employment through the introduction of WorkChoices and has frozen the employer contribution at 9½ per cent, costing someone on the average $50,000 a year about $25 a week? It is believed the general workforce is owed $6 billion a year in unpaid super from the coalition's constituency—the employers. And, of course, there is the cutting of part-pensions and supplementary payments over the last six years, and debt notices to pensioners or welfare recipients who didn't have a debt.

There is a common factor in all the above issues. The ones that impact the lowest paid don't impact the coalition MPs. That's why they hit them all the time. Let's have a look at some of the government's bloody actions over the last six years: co-payments for visits to doctors, which, if allowed to pass, would have led to full payments for visits to doctors; cuts to pensions over time by changes to indexation; freezing of employer contributions to super; freezing of—

CHAIR: Thank you very much, Mr Johnson.

Mr Johnson : Well, time's up!

CHAIR: Yes.

Mr Johnson : You absolutely stink—

CHAIR: Sir, these rules are set by the House of Representatives; they are not set by me. Turn his microphone off. Just to be clear: at these hearings anybody is entitled to say what they wish to say. There is one rule, which is: if people do not respect the rights of others then we will have to remove them. This is an opportunity for you to speak. Yes, you can say whatever you want, including that you don't like me; I don't give two hoots. You have a right to have your say. If you run over the three minutes, you can table a submission either in person or at aph.gov.au/economics. The rule for three minutes was set by the parliament, not by me nor by the committee members present. That was set well before this inquiry began.

Dr Dolan : My wife and I are now retired. We saved consistently through our working lives so that we could be self-sufficient and not rely on the age pension. We did not spend up on a bigger home or expensive cars. We managed to save enough between us to have a self-managed super fund in pension phase, with balances between the age pension cut-off and under the transfer balance cap. Both of our parents have been very long lived, so our life expectancy is well into our 90s.

Noel Whittaker's article in The Age on 1 April 2018—and no, I don't think it was an April Fools' joke—clearly illustrates what I understand to be many of the inequities of Labor's proposed policy. I have used the figures from Noel's article as the basis of this chart. This chart shows that, under Labor's proposed policy, a self-managed super fund needs a balance between $1.1 million and $1.2 million to have the same income as an age pensioner with assets of $275,000. It shows the dramatic loss of income resulting from the loss of franking credits. It is a ludicrous situation for a self-funded retiree to need so much more than the assessable assets at which the age pension is cut off at $848,000 to be able to even match the age pensioner's income shown here on the chart.

Now, this is our situation. Our super fund has a significant proportion of investments in good Australian companies that make profits, pay company tax and give franking credits. I've reviewed our situation in light of Labor's policy. We stand to lose in the order of $20,000, or possibly $25,000, a year. Yes, we are fortunate. We are frugal and we've worked hard to be in that situation.

I'll further explain our situation. I have a condition that I've been advised is inevitably going to get worse and most likely become very debilitating and disabling before I reach my 80s. I still have a long life expectancy into my 90s, as the condition is not life-threatening. This condition is likely to result in significant ongoing expense and care. So, because we don't qualify for the pension nor, I understand, the Commonwealth Home Support Program or the NDIS—we're too old—we'll be drawing down our assets at quite a significant rate. Labor's policy will mean that we'll end up consuming our assets much faster, resulting in us qualifying for the age pension and all the associated concessions much sooner.

CHAIR: That's the end of your three minutes. Thank you very much.

Ms Edwards : Thank you for the opportunity to illustrate the insidious nature of Labor's policy. My statement is on the advice of my accountant. I am an incest survivor and single. At 66 I inherited a reasonable sum. I bought an apartment in which to reside and invested the rest in shares. It was too late for superannuation or SMSF. I did not wish to live off the government. My income is below the basic wage but will reduce further with the implementation of Labor's retiree tax. I am looking for more work.

What Labor has done is effectively retraumatise me by placing me under incredible stress. People are appalled to hear what the champagne socialists plan for me. I close with a quote from a book published in 2018 by Anand Giridharadas:

There is no denying that today's elite may be among the more socially concerned elites in history. But it is also, by the cold logic of numbers, among the more predatory in history.

Thank you.

CHAIR: Thank you very much, Dianne Edwards. Ray Keddie?

Mr Keddie : I should indicate to the committee that I have an interest through the Association of Independent Retirees, the Melbourne eastern branch, where we do get a lot of information on these sorts of investigations. But I'll restrict myself to my personal problems here.

I was forced into retirement in February 1996 after working 35 years at BHP. During that time I paid my super and built up a considerable portfolio with BHP super. On retirement, I was advised to set up my own self-managed superannuation fund, which I did, and that has performed very well. It wasn't until I reached retirement age at 65—that's 25 years ago—that I was able to draw on that super. From the time I retired until I was able to draw a pension, I lived off my savings and the redundancy I got from BHP.

The money we get from our pension will be reduced considerably if this policy of the cash refund on franking credits is brought into fact. Over the last six years, our refund on franking credits in my and my wife's account averaged between 21 to 25 per cent of our total income. That's a massive drop, and it will mean a massive change in our lifestyle. We will have to look at completely changing our investment strategy and to other means of surviving. Thank you very much.

CHAIR: Thank you, Mr Keddie. Next is Ron Lesh then David Wollan.

Mr Lesh : Good morning. I'm managing director of BGL Corporate solutions. We make software for over 60 per cent of self-managed super funds. I thought I'd bring some realistic figures to the committee that we've drawn out of our cloud software that has 180,000 self-managed super funds in it.

The figures tell us—and this is for 2018 tax returns that have been lodged already for self-managed super funds-that all funds in accumulation mode, on average, pay tax. So, for people who are not in pension mode, they are paying tax at the moment. For those with part-pensions—on average, those under $1.6 million—they are going to lose over $2,000 a year, and, for those over $1.6 million, around $9,000 a year in refundable tax credits. That's not total tax credits; that's refundable tax credits. For those in full pension, they are going to lose $5½ thousand a year on average. For those under $1.6 million and those over $1.6 million, they are going to lose a massive $18,000 a year on average from their pension.

Now, I should say I do have my own self-managed super fund. I am not in pension mode; I am still working. We have been vocally involved in a campaign with a number of others to have this proposal from Labor, which I consider quite draconian, taken out of the limelight. The more I hear, the more we see people who are going to be affected by this proposal. I was talking to a client last week who has a self-managed super fund. They have a balance of under $1.6 million. They are telling me they are going to lose something like $32,000 a year from their income. It is about 50 per cent of their income. The figures themselves tell the story. This proposal will simply take significant amounts of money away from retirees.

Mr Wollan : My wife and I are over 65. She is retired. I continue to work part time. We have operated a self-managed super fund for many years, with a balance over the threshold for claiming a government pension. Our accounts are now substantially in the pension phase, and so are income tax exempt. In the formulation of a strategy with our financial planner, the fund assets were invested in a diversified range of cash term deposits, directly held shares and ETFs. The underlying assets are spread across Australian and international property, and Australian and global equities, including emerging markets and fixed-interest securities.

We decided that it would not be prudent to be overly exposed to any one class of assets, especially local shares, which are disproportionately composed of major banks and other large yield-oriented companies. As a result, we haven't enjoyed the dividend and franking credit streams that we could have had we been seeking income more aggressively. However, our exposure to international and other equities, while low on dividends, has more than made up for this with significant capital growth. Over five years, some of the other, international funds have increased about 40 per cent in capital value, while the Australian ASX 300 fund has increased only 16 per cent. This capital gain is on top of dividends and other income distributions, which have averaged about three to four per cent per annum. As well as this income, we receive a small amount of franking credits. Because until recently we were both making contributions, some tax was payable, and the franking credits were used to offset this. Into the future, it appears that we are unlikely to have taxable income to completely offset the franking credits. As a result, they will be lost under the opposition's proposed scheme. We may regret this loss but do not regard it as unfair.

We believe that if in the future the income from income distribution is inadequate for our needs we could liquidate a portion of these investments and still be ahead. That income would, of course, be tax exempt. That flexibility is one of the benefits of operating a self-managed super fund. It is my strong belief that our generation has had a privileged run in comparison to previous and subsequent generations. Yes, we've worked hard and smart, but besides benefiting from free education, a world-leading health system, a runaway property market and unprecedented local peace and security, we have been able to accumulate substantial assets largely subsidised by other taxpayers. These assets in our funds continue to pay income and accumulate capital gains basically free of any tax. Our adult children would love to have the entitlement to virtually tax-free income, but they don't. Instead, they are burdened with poor wage growth, inaccessible housing, massive mortgage or rent payments, ongoing HECS repayments, crippling child care for our grandchildren and growing health costs. None of these are tax deductible, yet we're happy for them and their cohort to continue to subsidise us with their taxes. That is unfair.

Dr Allen : I am the Liberal candidate for Higgins. I am standing up for the people of Higgins because they are concerned about Labor's retiree tax. I have been walking the streets of Higgins. I have been down at train stations and shopping centres, and I've heard over and over from older Australians that it is unfair. These are people that have worked their entire life, they've worked hard, they've planned for the future, and Bill Shorten has decided to pull the rug from under them. This is unfair. People who are planning for their future and who want to make sure that they are doing the right thing by the community and by society should not be treated in this unfair way. I've heard stories over and over from older Australians that they really want to do it for themselves. They don't want to be dependent on welfare; they've planned for their future. Why should the rules be changed now?

We are all aware that Australia has an ageing population. I trained as a doctor in the 1980s. We've known this for a long time. The tax rules have been as they are for a long time. Now is not the time to pull the rug from under the feet of ageing Australians. I believe we need to support people who've not had a voice and to stand up for retirees in Higgins. There are at least 10,000 people in Higgins alone affected by this unfair tax.

CHAIR: Thank you. Ms Godwin?

Ms Godwin : Thank you for the opportunity to appear before the committee. As retirees for some 10 years, my husband and I will be greatly affected by the proposed retiree tax. Our franking credits represent 26.5 per cent of our income. Withdrawal of franking credits would cause our income to fall below the level of minimum pension and would require us to draw down on our capital each year in ever-increasing amounts. It will also reduce our income below the level considered to provide a comfortable lifestyle in retirement, which is currently $60,198.

This proposed withdrawal of franking credits is unfair and discriminatory. It is unfair for a number of reasons. No. 1, for the last 15 years government policy has been to encourage people to be self-sufficient in their retirement years and not to be a burden on the state. As a result, people have organised their retirement funds to provide them with an income which gives them independence and a comfortable lifestyle. This will no longer be the case if franking credits are taken away. No. 2, in the past major changes to superannuation have been grandfathered so that retirees who have planned their lives around prevailing legislation are not affected. It is very unfair to require self-funded retirees to make changes to their finances when they've reached an age when it becomes very difficult to change their retirement fund, which has limited options. No. 3, the proposed loss of franking credits will not affect people with part-pensions or persons in industry funds, which is unfair and discriminatory. The proposed negative gearing changes to property have grandfathering clauses which the franking credit proposal has not.

The proposed change will force us to cut out some of our current expenses. While we've taken pride in not being a burden on the public purse, clearly there is no longer any incentive to be independent, and we could save around $3,000 per annum by cancelling our private health premiums and relying on the public health system for our health needs. We could also save money by cutting out charitable donations and reducing our house maintenance costs. We have not had a major holiday for many years, and therefore cannot make any savings in that area. This is important, because if Mr Bowen is talking about fairness, consideration should be given to reducing public servants' and politicians' pensions by 26.5 per cent, in line with what's proposed from Mr Bowen for self-funded retirees, thus helping to bring into the line the very generous pension which the public service and politicians—

CHAIR: I'm sorry, Ms Godwin, you're at the end of your three minutes. Just for clarity: it had nothing to do with your comments about politicians' superannuation. Just for clarity, the politician pension system was changed in 2004. Anyone elected after 2004, which includes every member of this panel, is completely unaffected and has the same arrangements or some derivative of the arrangements that every other Australian has. Thank you very much Ms Godwin.

Mr Singleton : Thank you for the opportunity to address this committee. I'm nearly 79 years old, my wife is 66 and we are self-funded retirees. We receive no government assistance whatsoever. The only government money we've ever received was $900 each at the time of the GFC—Kevvy money. We live in a modest two-bedroom apartment, own a car that's over five years old and have no other assets of significance. We have three sources of income: a monthly pension drawn for our SMSF, dividends from shares we hold in two companies—one of which is the disastrous Telstra—and income from a testamentary trust, of which we are the beneficiaries. Our total income at the moment is about $80,000 a year. I note from the Financial Review that the real net disposable income per capita in Australia last year was $58,384. That's $116,768 for two. As a couple, we are way below this figure, by over $30,000.

We have a self-managed super fund with consolidated contributions from many super funds which we've been members of for a combined 85-plus years. Our fund includes substantial additional funds that we contributed from after-tax earnings. The fund holds only Australian shares in cash. We're averse to property investment, negative gearing and overseas shares, despite the gratuitous advice of Mr Bowen. The fund was established under tax rules that have been in place for many years. They were in force before we set up the fund. It does receive franking credits—about $19,000 a few weeks ago. These cash credits remain in the fund to help meet compulsory future pension drawing requirements, the level of which is set as a percentage of the value of the fund on 30 June each year. Without these franking credits, we'd be forced to sell assets to meet our drawing obligations and, well within our lifetime, there would be no assets left and we'd need the age pension—a big cost to the government, certainly far greater than the forgone franking credits. Also, there's the double whammy of a lower income as assets are sold. From the trust, we also receive franking credits. If we lost these, our combined income would drop by $11,000 a year. That is a huge amount in terms of our total income.

Our question is, particularly to the member for Kingsford Smith: why should we be penalised when industry super funds, trade unions, not-for-profits et cetera are to be exempt? This is discriminatory. If cash rate funds are to be phased out, it should apply to all. There should not be one tax for one lot and one tax for older people. There is no sense of entitlement from our point of view—a view that prevails in some quarters, even amongst the staff in the office of the Victorian Premier and, indeed, the Leader of the Opposition and the shadow Treasurer. Finally, I find it somewhat ironic that the Leader of the Opposition is pressing hard for wage increases on one hand yet plans to severely reduce the income of hundreds of thousands of older Australians.

Mr Hirsh : Thank you for the opportunity to talk to the committee. I'd like to take the issues back a step. What is the source of what is eventually declared as taxable income? Dividends don't appear out of thin air. They result from a company running a business—hopefully a good, profitable business—which generates benefits for its shareholders. One aspect of running a business is that companies aren't the only way you can run a business. They can also be run in trusts, in partnerships and by sole traders. An aspect of the current Australian tax law is that business income is paid by the ultimate owners of the income tax, at the owner's marginal rate, and there is no discrimination between the four areas. Let's say there are two businesses: one operated by a company with a single shareholder and the other by a sole trader. Each business makes a profit of $50,000 and both individuals have no other income. The company pays tax on $50,000 and the net profit is a fully franked dividend of just over $36,000. On their tax return, the shareholder declares the $36,000, plus the $13,750 in imputation credits, which they don't actually receive, as taxable income. The sole trader declares the $50,000 of taxable income. Under current tax law, each will be assessed at almost $7,800 tax and, after tax is paid and refunded, each would have about $42,200 in their pocket. Under Labor's proposal, this wouldn't change for the person who runs the business as a sole trader. However, the company shareholder would end up with $36,250 in their pocket—a difference of almost $6,000. Their initial $50,000 business income is the same. So why is the shareholder now being penalised almost $6,000 just because of the structure that funds the business? This isn't fair.

Unfairness will occur all over the place. Someone who earns net taxable income of $30,000 in rental income will end up with $27,000 or so after tax, whilst someone whose $30,000 taxable income consists of fully franked dividends will end up with $21,000 in their pocket. The proposals will affect those whose superannuation benefits are held in a self-managed super fund far more than those whose benefits are held in a large public fund. And other examples can be provided.

Supporters of the proposal talk about refund of tax which hasn't been paid. But tax has been paid. I have shares in a small handful of listed companies, and the imputation credits that are attached to the dividends I receive are my share of the tax paid by those companies. I can't run a supermarket by myself, but I can get together with others to run the Woolworths chain of supermarkets. Please give me my full credit for the benefits that my companies contribute to Australia's economy.

CHAIR: Thank you very much, Mr Hirsch. Tom Rado, and then Alfred Gans.

Mr Rado : Mr Chairman, ladies and gentlemen, I and my wife are in our 80s. We've been working all our lives and we pay tax. We've been in Australia for nearly 70 years. I am in the same position as many other speakers, including the first speaker, who mentioned medical issues—and I can relate to that.

Approximately $14,000 to my wife and I combined—that's the effect of it; that's the loss of franking credits—plus approximately $14,000 in our family super fund are received annually as franking credits refund; approximately $30,000 annually. We are not Centrelink pensioners, but we are pensioners—we are self-managed super fund pensioners. All our retirement investments are in listed equities—that is, shares—either held personally or in our self-managed super fund; we've no investment property, no investment trust, no managed fund and no APRA superannuation fund.

We are comfortable, but not wealthy. We don't engage in overseas trips, cruises et cetera like so many others—including many Centrelink pensioners. We live frugally.

We have a pink-red coloured Commonwealth seniors health card—no other concession cards. This only entitles us to pharmacy benefits and some few medical benefits. Most medical and pathology providers only grant concessions to those on the blue Centrelink pensioner card, not those on the pink card. We don't get energy and telephone concessions et cetera.

Yet the ALP's Chris Bowen states that excess franking credit refunds are 'welfare for the wealthy'. That's not only incorrect, in most cases, but an outright insult. Mr Bill Shorten states that we are not taxpayers, as our tax rate happens to be zero. But the franking credit refunds are from the tax that the companies of which we are part-owners—that is, shareholders—have already paid at the 30 per cent rate.

CHAIR: Thank you very much, Mr Rado. Next up, Alfred Gans—

Mr Rado : I'd like to make a submission—

CHAIR: You can make a submission to John there. Alfred Gans and Liliane Gans?

Ms Gans : Lily.

CHAIR: Lily—apologies. I presume Alfred is your husband?

Ms Gans : Alfred is my husband.

CHAIR: And he is not presenting?

Ms Gans : We actually thought that we were signing an attendance letter. I have been inspired by the eloquence of all the people who have spoken before me, and of Katie Allen, so I really am motivated to speak. I hadn't intended to, but I really want to say that when you analyse this sort of behaviour by Shorten and Leigh it is really an attack on people who wish to be independent, who don't mind working hard, who want to reap the rewards of their work—not wealth, but just to sustain themselves or be comfortable and leave something for their children perhaps.

They feel that they have been penalised for working hard for believing the first rules of taxation, which will now change midstream. You do not change your horses midstream. This is what has happened here. People who have planned, who have arranged their finances, suddenly find, 'Oh dear, I will have to divest myself of all my Australian shares,' which is what we are going to do, 'and buy overseas shares so that Mr Shorten will not get a penny of it.'

To finish off, I do not like it when you—not you, but when one goes and pits one generation against another, one class against another, one race against another. It is unbecoming, and this is what the Labor Party plans to do. They say: 'Look, let's forget about the oldies. They don't matter. We want to pretend that we're egalitarian.' In that letter to The Australian that Andrew Leigh, whom I know personally, wrote, he said, 'If you asked young people of today what they think about franking credits'—do you know what? They don't think about franking credits. They are thinking about the next concert; they are thinking about what involves them, or to get out of school and parade somewhere. That's what they're thinking about. And when they were asked, they said, 'Oh dear, I think it's only fair that everybody pays as much tax as possible,'—except them. So it is unfair, it is ageist and it is changing horses in midstream, which really bugs us.

CHAIR: Thank you. Deputy Speaker?

Mr THISTLETHWAITE: I just want to put on the record your submission was that Labor's policy is pitting one race against others. I wish to dispute that. That's certainly not the case at all.

Members of the audience interjecting—

CHAIR: Order! I understand that this issue raises strong emotional responses and disagreements as well as reasoned responses from everybody. There should be respect to all members on the committee, including those who may not be of the same party as myself. I would just like to clarify that my understanding of the comments from the previous speaker were general comments around people being pitted against each other. I'm not making a judgement on that—

Unidentified speaker: About age.

CHAIR: about age—but she then went on and said that as a general proposition. Next up we have Richard Jackson and then Pat English.

Mr Jackson : Good morning. Superannuation as we know it is under attack from several of Labor's proposals. Firstly, negative gearing for those with large holdings of five or 10 or perhaps more negatively geared properties could be looked at, but certainly not for those owning only one or two properties, as they form the substantial part of their legal and fair life-savings plan and their superannuation. To interfere with this will only push more Australians to claim the pension. That is why Paul Keating reintroduced it, as the removal had interfered with the economy and reduced the number of properties available for rental.

Secondly, removal of dividend imputation credits would simply be double-taxing again, and would remove the incentive to work hard, save hard and build wealth for our old age. It would push more people to claim the age pension as well. Already the welfare budget is the biggest single cost to the nation's expenditure, as many will realise. This is some 40 per cent of the total Australian government expenditure, and that's referenced by the Australian Taxation Office figures from February this year. The age pension is the biggest component of the overall Australian welfare budget as well. My wife and I worked hard for many years, raising our family and saving for retirement. We took our lunch to work, avoided unnecessary expenses, all in order to pay for our retirement on top of everything else. It is simply unfair and unjustifiable for Labor to propose such wealth taxes upon us now.

So, with these proposed changes, from wealth tax implementation to negative gearing dividend imputation, combined with state Labor's large increase of some 50 per cent per year in land tax, the hard-earned wealth of many Australians as we enter old age and retirement as self-funded retirees is under attack, as I have outlined. Labor's proposed wealth taxes are, to repeat, unfair, unreasonable and likely to be counterproductive. To the ALP and to Mr Shorten: we too have been hardworking Australians who have saved for our retirement and we don't want you just to represent the people you do represent; you should provide incentive in Australia and not destroy it for the rest of us. Thank you.

CHAIR: Thank you very much.

Mr English : Thank you, Tim, for the opportunity and thank you for the good work you're doing in putting this up-front and on the news. It's getting plenty of publicity and it needs a lot more.

These are the things that concern me. We're self-funded retirees, by the way. We're not on the pension. We don't want to go on the pension, but we might have to. If Labor gets power, Australia will divide up into two different types of people on superannuation. No. 1 will be industry funds; they will get the franking credits. Others will not. Current pensioners will get the franking credits. Future pensioners will not. Why is that happening? Why the discrimination? As I said, I don't want to be on the pension, but I might have to be.

The spin that's been put around that we've paid no tax is spin. We have paid tax. The companies paid tax; therefore, we have paid tax. Why are they changing it? Where is the money going? That's what I'd like to know. Will it be wasted? Will it be used properly? I think not.

The next question I've got is: what is the next thin edge of the wedge after this one? What will happen next? Death duties? Would that come in? Don't be surprised. Including family homes in the pension asset test? Maybe. Tim, going into the future, I'd like to suggest getting more people involved. We're doing that pretty well. There could be handouts at shopping centres, a rally in the city, shopping centre information tables. Is it a good idea? I'd certainly be willing to man them.

Believe it or not, there's an article in The Age from 7 February 2019 by an actuary which points out very clearly that this is very unfair. It shows how a person on a wage can get a refund and a person with franking credits can't. This person who is an actuary asks, 'Why the difference?' because they are exactly the same. They both pay tax.

Thank you. That's all.

CHAIR: Thank you, Mr English.

Ms Farmer : Thank you for giving me the opportunity to have some input today. I would like to start with a story. I'm 85 years of age and, by the way, I do not belong to any political party and never have. The story I'd like to share with you regards my father, a retired pharmacist, who in the early 1970s, owing to the largesse of Prime Minister Fraser at the time, suddenly found himself the recipient of an age pension, together with his brothers and friends. Apparently Mr Fraser felt it would be a good thing to do because he had a surplus and it was a good way to help spend it. I remember my father chuckling over this as a very pleasant surprise. But, not surprisingly, a later government was forced to reverse this benevolence as it simply couldn't afford it if it were to fulfil its responsibility in providing the ingredients for a just society. I do not recall any hue and cry when this happened at the time, as most people realised that we simply could not continue this.

It seems to me that there is a similar analogy to the situation currently when the government faces a huge drain on our economy, especially from the superannuation system. I understand that the government is now paying $6 billion a year, compared to the original cost of $550 million when Howard and Costello introduced this scheme in giving cash refunds for excess imputation credits in the year 2000 while also making superannuation tax free. The fact is that the government can no longer continue to give tax refunds for the dividend imputation system to people who pay no tax.

I understand that, under Labor's plan, everyone who gets share dividends can still use the system to reduce their tax bill if they are taxpayers, both working people and retirees. I think it needs to be clarified that, firstly, no-one will pay a cent more tax, no-one will lose a cent from their super, no-one will lose a cent from their pension, no-one will lose a cent from share dividends and those of you who, like me, are taxpayers will not be affected. Currently, 80 per cent of the benefit of this system goes to the wealthiest.

CHAIR: I am sorry, but we are at the end of your three minutes. You can put the remainder of your comments in a tabled statement. Next up is Robin Murtagh.

Ms Murtagh : There is a lot about this which stresses me but the one thing that really distresses me is Labor's attitude that we were all born with silver spoons in our mouths and so we are all okay. I am the child of factory workers—two of them, one of whom happened to be an alcoholic gambler. I had to work from the age of 14 in a part-time capacity while attending school, because we didn't have any money. We had debt collectors at the door. It was at this stage that I decided that I had to fend for myself, because nobody else was going to do it. Fortunately, I got a Commonwealth scholarship—I had a teacher take me into university, because I didn't know where it was and neither did my parents—and I did a law degree. Subsequently, I have also done a Master of Taxation.

I was retrenched in 1992, thanks to two particularly bad decisions by the Hawke-Keating government which not only destroyed the Australian Wool Corporation but also made a pretty good job of destroying the entire wool industry. You've got to be pretty good to do that, as we were riding on the sheep's back at the time. It was a very difficult period. Growers were threatening to kill themselves and 200 staff were retrenched. When I left I decided that what I should do was make my own way, and I went into the stock market, which has been, for me, very successful. However—and this is the bit that I don't like talking about—I have a super fund that is well below $1 million; I am 75; I have no job; I have no partner and no likelihood of getting one either—not at my age; I have no children to leave my vast estate to; I own a modest villa-unit in Kew; and I predicated my whole retirement 18 years ago on the basis of the franking credits.

I wrote to Chris Bowen and I got a reply that incensed me. He said that we were the only country in the world that had franking credits. Now that is true, but what he didn't say was that, in America, where companies go for capital growth, if you have an income—and I am talking about income, not asset base—as a couple of US$436,000, which is about $500,000, then you pay 15 per cent tax. In fact—talking in Australian dollars—if you have an income below $50,000, you don't pay any tax. But what the American companies do is they go for capital growth. We all know about Amazon, Google, all these; they are tax evaders of the first order. And they do that because their investors do not want dividends; they want capital growth.

CHAIR: Your three minutes are up.

Ms Scott : I'm a private person but needs must. I am very proud to be a self-funded retiree and I imagine that I am in a similar situation to many other self-funded retirees. I grew up in a poor household but with a very strong belief in the importance of self-reliance. I worked harder at school than most to obtain a good education and then I studied hard at university to qualify for my chosen profession. I then worked for 40 years till the age of 63, when I retired to help look after my grandchildren to enable my daughter and son-in-law to pursue their careers. When I discovered superannuation midway through my working life, I heeded the call from the government to contribute all I could to fund my retirement. The purpose of superannuation is to enable Australians to fully or partially fund their retirement, thereby easing the pressure on the taxpayer funded age pension; however, it seems that a future Labor government plans to introduce a number of changes designed to make it unattractive to leave our savings in superannuation post retirement. One of these is the proposed change to the accessibility of the full benefit of franking credits. It is targeted particularly at self-funded retirees like me.

Because I worked hard to educate myself and worked in stressful but reasonably well-paid jobs and have managed my expenditure carefully, I won't qualify for the full or part age pension. I haven't chosen to engineer the ownership of my assets to enable me to access the part-pension. As a self-funded retiree, am I wealthy? I own my own apartment and I hope that I have enough money to fund my retirement. I have recently bought a new car to replace my 17-year-old Mazda. I lead a modest lifestyle and I continue to keep a close check on my discretionary expenditure. Surely, Australians like me, who aspire to be self-reliant and whose goal is to avoid relying on the taxpayer funded age pension, should be applauded. Why should we be excluded from continuing to benefit fully from franking credits because we choose to invest in Australian companies that employ fellow Australians?

I have one further point. Having worked in the superannuation industry for over 25 years, I chose to set up a self-managed superannuation fund so that I could control the investment of my assets in retirement. Is there now something wrong with this approach? Why shouldn't my self-managed super fund continue to receive the full benefit of franking credits when all corporate, retail and industry funds can continue to fully benefit?

In conclusion, and at the risk of repeating myself, I am very proud of what I have achieved and I am very proud to be a self-funded retiree. It distresses me to think that a future Australian government would introduce measures that would discourage aspiration amongst our younger generation.

CHAIR: We have a certain number of people who still want to speak and a limited time frame. If anybody can exercise restraint and reduce the amount of time of their contribution, it would be appreciated—meaning, get straight to the point.

Mr Doyle : First, thank you for the opportunity and welcome to this part of Melbourne, where the really rich people live. It's true! It's a bit difficult to find out exactly where, but Bill Shorten grew up and went to school in Higgins. I live here-does that make me as rich as Bill Shorten? I get $35,000 from an industry super fund, plus about $3,000 in dividends and $1,000 in franking credits. That's $39,000. I do get subsidised medical prescriptions, but no pension from taxpayers, and I still pay my tax through GST.

Am I rich? Well, my family home was a third-floor council flat in South London. I went to school in Brixton. We couldn't afford school dinners; I went home at midday and mum often gave me a small bowl of custard. That's all we had in the house. Actually, I must admit that I loved it! As a young man, I struck metaphorical gold: permanent residency in Australia. I worked here for 35 years, paying taxes. I managed to save some and invested some of my taxed income in companies. On retirement, I took swimming lessons; they weren't available in Brixton. They cost me $600. I can swim now, and I swim twice a week. That costs me $11.20.

I pay $200 a year to be a member of Toastmasters, and it's great, encouraging shy, nervous people—young workers—to challenge themselves to speak confidently. With a few other Toastmasters, I've given public-speaking courses at schools like Hume Secondary College in Broadmeadows and St Peter's Primary School in Clayton. I'm paying to learn the piano at Richmond Music Academy. I didn't get that in Brixton. I've come to appreciate the beauty of Beethoven and the blues of Thelonious Monk and Pinetop Perkins.

Without franking credits, I won't be able to afford to go swimming, I'll have to cancel Toastmasters and there'll be no more piano lessons. I'll probably get dementia much earlier and, due to less exercise, I'll need to make more use of taxpayer funded medical facilities. But do you know what annoys me most? It's not being there when grade 7 children give speeches to an audience of teachers, parents and brothers and sisters, most of them migrants from India, Somalia, Iraq and all over the world in a school hall at St Peter's primary in Clayton. They're not rich, and neither am I.

CHAIR: Thank you, Mr Doyle. Next up is Marie Davis.

Ms Davis : Thank you. I'm 71 and I'm self-funded but not self-managed. I've worked all my life, from when I was 17 until I was 67. I started as a nurse and became a psychologist. My husband died when I was 53. I didn't inherit a large amount of money; he had three children from a previous marriage. I had very little super savings at that time; I had maybe $15,000 or $20,000.

Since then I've worked and worked to reach my current financial situation and not to rely on the pension. It's been really important to me, because of my background, to feel safe. I've managed my assets very carefully and I will be impacted detrimentally and significantly. At 71, I have a sound plan to avoid being on the pension and to manage my financial and my medical needs. It seems ridiculous to me that policies keep changing, which impacts on me and my age group so detrimentally. I'm unlikely to change a whole lot if this comes in. However, I will look at pulling my money back from Australian shares. I can no longer pick up work to replace what I will lose. I just hope that if you do bring this in that you will grandfather it.

I'd like to make a broader comment about the current tenor of this public debate. I find it very divisive. That disturbs me enormously. There seems to be a 'them and us' tenor about the debate, as though somehow we 'wealthy' elders are taking something away from the younger generation. I feel demonised. I'd like to see the tenor change, both in the media and politically. Thank you.

CHAIR: Thank you very much, Ms Davis. Next is Ms Kaye Fallick.

Ms Fallick : I am the publisher of YourLifeChoices website, which has 230,000 members who get daily e-newsletters. I've written about retirement income for 20 years. I'm speaking because I think the debate has become confused and highly coloured. I've been walking the streets of Higgins for 33 years as a resident. I'm in a self-managed super fund. I grew up in a poor household and I've worked all my life. Let's put all that on the table.

Many wealthy retirees are not paying tax. The Parliamentary Budget Office says 92 per cent of taxpayers don't receive franking credits. Who currently benefits? Eighty per cent—facts on the table—goes to the wealthiest 20 per cent of retirees. Ninety per cent going to super funds goes to self-managed super funds. But self-managed super funds are just 10 per cent of super members. These are numbers. These are real.

The proposed Labor policy exempts all pensioners, which is 70 per cent of retirees. This is the majority. Many retirees live tax free because of super concessions. I would like to question the common parlance of 'self-funded retiree'. I would really prefer the term 'nonpensioners', because are you really 'self-funded' with super concessions that currently cost more than the age pension costs for 70 per cent?

I like this policy because I think it improves the budget position. When it was introduced, we heard it cost $550 million. It's now $6 billion. On 12 March The Fin Review reported it would be costing $16 billion. This is about one-third of the age pension. This is not fair to younger generations. This is not divisive language. I'm talking about a nation which we used to think was egalitarian. This is not a tax grab. It's not a new tax. It's a reversal of a cash payment to people who don't pay tax.

I'm hearing 'I am not a burden on the public purse,' but, when we look at super concessions, yes, you are a burden on the public purse. Everybody in this room, in one way or another, is a burden on the public purse. It just depends how it comes. I think this policy is good. It's fiscal responsibility. It's time for adults to run the economy. I think it's time to stand up for our children and our grandchildren. As we say to the younger generation, it's actually not about you—

Member of the audience interjecting—

CHAIR: Order!

Ms Fallick : it's about future generations and, in my opinion, it's about all Australians. Thank you.

CHAIR: Thank you very much, Ms Fallick. I cannot tolerate people interrupting people's witness statements. This is a public hearing. If there is to be respect for other people to express their opinions regardless, they must be able to do so in silence. Mr May.

Mr May : Peter May is my name. My wife, Judy, and I are self-funded retirees. I call on the parliament to grandfather this proposal when it comes to you. I'd like to explain the impact it's going to have on my family. We started saving for retirement in super in 1987. This was the year when Bob Hawke and Paul Keating introduced dividend imputation. Labor inspired us to save for our retirement. Our goal was to save enough to generate $60,000 a year to live on when we retired.

In 1999, we established a self-managed super fund. The fees that the banks were charging had meant that in 12 years we'd saved only $300,000 between the two of us. In 2000, John Howard introduced fully refundable franking credits. When we invested money into our super we had paid tax on it. The deal was that we would then pay no tax on those investments when we retired. We changed our investment strategy and invested in high-yielding, fully franked shares. We retired at the end of 2017 with half the transfer balance cap each. We found $60,000 in 2017 wasn't enough to live on, and we now draw $70,000 in order to pay all of our bills.

We expect to be retired for 30 years. I looked up what sorts of franking credit refunds we have been getting over the last three years. It was $24,000, $28,000 and $31,000 in the last three years as a result of that investment strategy that we made back in 2000. So 30 per cent of our annual income will be lost if Labor introduces this tax. Given that the company tax has been paid at the rate of 30 per cent and as owners of this investment, effectively what you're doing is putting a 30 per cent tax on the earnings that we have in our super fund. That's not fair. We can do nothing once we've actually retired. I call on Labor, who have really been the champions of the battlers, to grandfather for anyone over the age of 60 and who is underneath that $1.6 million transfer balance cap—

CHAIR: I'm sorry, we're at the end of your time, Mr May.

Mr Hunt : Members, ladies and gentlemen, my name is John Hunt. I plan to retire in the next five or six years. In 2001, my father passed away and willed to me a modest number of shares. It was at about this time that I began serious consideration regarding retirement and whether I could afford to live comfortably in my twilight years. Three benefits of my share ownership stood out. First, I could increase my shareholdings through prudent dividend reinvestment and create an asset to complement my superannuation in the long term. Second, while I was still employed full-time I could utilise the benefit of my franking credits to soften my taxation liability. Third, I could look forward to a modest retirement from my superannuation income stream. The icing on this cake would be dividend income diverted from my dividend reinvestment plans and the excess franking credits paid by way of my taxation lodgements. I'd always made the assumption in my planning that my super income stream would be tax-free and any dividends and franking credits would total less than the taxation threshold and, therefore, leave little exposure to liability. I calculated the amount to be about $16,000 roughly. That's the icing on the cake.

For nearly 20 years I have forsaken the cash benefit of my shares, preferring astute financial stewardship to create a totally self-funded retirement, or so I thought. Any proposed abolition of the excess or refundable franking credits is likely to strip $4,000 to $5,000 from my retirement income—that is, a nice holiday or perhaps the opportunity to assist great nephews and nieces with university fees or home ownership. Had I known that my tax refunds for shares would ever be in jeopardy I would probably have been better off to cancel my dividend reinvestment plans and top up my super. I can now see myself possibly tugging at the public purse strings by way of a part-pension. I rue the certainty of death and taxes and the uncertainty of my franking credits possibly disappearing. Thank you.

CHAIR: Thank you, Mr Hunt. Andrew Lee and then Shelley Jones.

Mr Lee : I feel so strongly about this that I'm prepared to give my personal situation. Over the last 10 years my income from my self-funded super fund has averaged $44,000 per year. That is my only income. That has been sufficient for me to have a comfortable lifestyle. The cash refund component of that, over the last 10 years, has averaged $9,000, which is 20.5 per cent of my income. And this is what Labor intends to remove. Even the GFC didn't reduce my income by that much. And we recovered from the GFC. There is no recovery from Mr Shorten's changes. It'll go on year after year after year, for me, the $9,000. My super fund has deliberately invested 55 to 60 per cent in shares, of which about 90 per cent are Australian. That's a very deliberate strategy. I don't know much about the overseas market. I'm very proud to be a small part-owner of some Australian companies and I feel as if I'm contributing to our economy and helping to provide jobs for Australians.

It's going to take a lot of adjusting to cope with this change, the drop of 20 per cent of my income. I already drive a 16-year-old car, rather than buy a new one. I service it myself. I manage the gardening and all the maintenance and painting around my house. I've been reluctant to draw down on the capital in my super fund as I want to remain independent, and not rely on the government pension, for as long as I can. My mother lived to 103, so I've got a fairly long period that I want to continue to be independent!

There are many inequities in the current tax system that should be comprehensively addressed rather than the most recent piecemeal attempts. It's very disappointing that neither side of politics has had the nerve to do this. Labor is attempting to address the problem in the wrong way, I believe. I think they should remove the income-free status of self-managed super fund pensions and retain the cash back of franking credits. That would mean that I would pay tax. I would feel as if I'm contributing by paying tax, but it would only affect me by—my tax would be probably $2,000 or $3,000 and I'd still get the $9,000 back.

They could also address restricting the ability of those with large super fund balances—

CHAIR: Sorry, Mr Lee, you're at the end of your three minutes. You can table the remainder of your statement. Ms Shelley Jones.

Ms Jones : Thank you for the opportunity to talk to the committee. I am a self-managed super fund retiree and I stand to lose about 30 per cent of my income with this proposal from Labor. I don't want to talk about the injustice and unfairness, because I think others have done that very well. What I want to talk about is a very important point—that is, when big changes like this are made, normally there are proper transitional arrangements or grandfathering arrangements. This is the basic foundation of how we view fairness in Australia. I may not have this right, but my understanding is that if the Labor Party gets into power 1 July is the date where things change and the policy is implemented. That gives us a month. Right? May is the election and, then, there we are: July.

All of us—and I think the others have done it very well—have said that it's so important for your life to build up superannuation over a long period of time and to invest over a long period of time. We have been told that's the way to do it, and I think we've all tried really hard to do that. However, if we don't have any transitional arrangements that are effective—what is a transitional arrangement? Some years to cross over, so you can change your investment strategy, or grandfathering, which the Labor Party have always done for groups of people. They've done one or the other. I would hope that they can hear that something like that needs to be done, whether it's transitional or grandfathering. If you don't do that then you change Australian culture for the future and you make it dog eat dog.

CHAIR: Thank you very much, Ms Jones. Next up is Robert Allan and then Brenda Hutchinson.

Mr Allan : Thanks, Mr Chair. My name is Robert Allan, and I live in Hawthorn. I'm a self-funded retiree and have managed my own SMSF since 1997, when I think they were first introduced. The motivation for setting up my own super fund was to plan for, fund and have control over my retirement. I would add that my wife and I, in bringing up our family, have prided ourselves on being self-sufficient, like many other people here—and I think it's a very interesting theme. I've never received any government handouts and, frankly, I don't want any, okay?

For someone managing their own fund it is very frustrating, given the low-return environment we are currently in, to have to deal with the constant changes politicians have made and are proposing to make to the superannuation rules. The change proposed by Labor to abolish refunds of excess franking credits is yet another significant and, in my opinion, unfair change. Unlike most other changes, this one will not impact superannuation across the board but instead target fully self-funded retirees. It is a blatant grab for cash and smacks of class warfare. The policy is also ill-conceived, as demonstrated by the subsequent changes the Labor Party had to make to grandfather those who were on government pensions or benefits. So if you have an SMSF and were on a government pension or benefit before March 2018 then you will still get the refund of excess franking credits, but if you're a self-funded retiree, fully providing for your own retirement, you do not get a refund of excess franking credits. Where is the fairness in that?

I'll make a couple of final remarks and keep my presentation fairly short. I don't mean this in a nasty sense; I'm making a direct comment. As a final remark, I'm sure most people who plan their own retirement feel peeved that those who set the superannuation rules—that is, politicians and senior public servants—are not subject to the same rules. We are all aware of the very generous superannuation schemes for politicians and senior public servants that provide indexed pensions for life. So there's one set of rules for the rule makers and another set for the rest of us.

I have a couple of other off-the-cuff comments that have come out of this discussion. A previous speaker talked about the unfairness of the tax-free status of and tax benefits given to retirees. I think it's fair to say that in most countries that I've looked at in terms of superannuation there is a period in the accumulation phase where you're either paying tax or you're not, or you get taxed at the end or you don't. In the US, for instance, you can go into a 401(k) plan and you're not taxed on the way in and the fund's not taxed. You pay tax on the way out. In this country, we pay tax on the accumulation of funds, and contributions are taxed on the way through. So it's the flipside: we get tax benefits on the way out. I don't think that's unreasonable, personally.

If I can make a comment—

CHAIR: I'm sorry; that's the end of your three minutes. I don't want to be a pain, but I just need to clarify that the parliamentary indexed defined-benefits scheme for politicians ended in 2004. The only people who get it were elected before 2004, so it is over. Next is Brenda Hutchinson and then Bob Chapman. Brenda?

Ms Hutchinson : Hello. I'm the partner overseeing the superannuation division at TAG Financial Services. We are an accounting/financial services firm based in Malvern East. We are one of the biggest accounting firms in the suburbs. I am the partner overseeing our superannuation division, and I wanted to speak today on behalf of the clients and about the feeling we get from the clients.

When this proposal was introduced, what seemed to be the consensus of most people was that this was supposed to be a tax on very high-income earners and the very wealthy. We've done some blogs around and looked at the numbers. I'm associated with Ron Lesh from BGL. We've done some figures, and those who are going to be more impacted are probably the middle-income earners. Those who have well in excess of $1.6 million in their superannuation fund won't get the refund of the imputation credit, but they will still get the benefit of the imputation credit because the tax on their accumulation accounts will be offset by that refund credit. Those who are under the $1.6 million transfer balance cap, which are the majority of self-funded retirees, who have perhaps $700,000 or $800,000 will actually lose that. What they're finding, as we've heard today, is that so many people are going to have their incomes impacted by that.

We're then being told we should perhaps go into industry super, that they will be able to share the imputation credits and do the refund. I've audited a lot of those big industry funds with hundreds of thousands of members in them. You don't specifically get the imputation credit back; it's shared across all the accumulation members in those funds. So there is an impact on the income.

The other thing I hear from our clients more and more is the loss of confidence in the superannuation system because of the continuous changes to the playing field. Someone mentioned earlier that two sure things are death and taxes. We actually say it's death, taxes and superannuation changes, because there are so many of them.

The other thing we are looking at is: if this strategy does come into place, what are going to be the investment strategies for our clients? A lot of them are wanting to leave the Australian share market; they're going to pull their money out of that. They're either going to go overseas, maybe via managed funds or direct investments, or their going to look into property or cash investments. So they're just going to pull their money out of the Australian environment.

CHAIR: Thank you, Ms Hutchinson. Next up is Bob Chapman.

Mr Chapman : I'm a fellow CPA. I've practised for 45 years and I'm following another person in superannuation. During that career I spent a lot of time assisting clients to plan their retirement strategies. Invariably, self-managed superannuation formed a part of that, as did imputation credits. As has been mentioned by the witness before, confidence has been rattled because every government that comes in wants to tinker with it. When you're sitting down and making a plan, we know the retirement period is going to be 65 and actuaries are saying you'll live to 85 and a couple will live to 100. They need certainty. That word hasn't been used today, and this is what I think we need. We need certainty. We can't have governments coming in and changing it; then we have to change our strategies. Existing retirees are not nimble enough to change; they've already set their course. Grandfathering is part of that certainty. If we have grandfathering there is certainty.

I feel that superannuation should be removed from the political arena and should be given to an independent body similar to the RBA. They can sit down and put rules in place so that people can start to get some confidence back that the system is going to be there for them when they retire and it won't be kicked backwards and forwards and tinkered with as they go forward. They will have certainty. It's impossible to do planning without that certainty. The young generation have fallen off superannuation simply because they're disillusioned. It's not that they don't think about it; they've given it away. They're disillusioned by it—$25,000 is not going to provide enough in superannuation anyway.

I come back to the point that grandfathering has to be imposed. 'Fairness' is a funny word that's been bandied about. It's fair for one and not fair for the other—grandfathering negatively geared property and not grandfathering retirees with imputation credits. I can't get fairness out of that. I think you'll find that you've got to get the confidence back into the thing with certainty. Retrospective legislation is far from fair. I think it's probably tantamount to moral theft.

CHAIR: Thank you, Mr Chapman. Next up is Malcolm Faul.

Mr Faul : I am a 70-year-old self-funded retiree with a self-managed super fund. I started planning long term for retirement and I've long thought that taxing dividends—this was before 1987—at the top personal rate as well as charging the company tax was wrong. I was very pleased when franking credits were introduced in 1987 by a Labor government. It came to 2000, John Howard was in power, and I just couldn't believe that not only would dividends be tax free in pension mode but we'd actually get the franking credits back as well, which was really the company tax. What we're saying is that company tax should actually be refunded; it's not a refund of the superannuant's.

The intention of franking was just to ensure that company tax was not double taxed, and under this Labor proposal that will be the case. It will cost me a significant amount of money, but I think it's the right thing to do. Others in my bike group and my lunch group also think that we're unbelievably lucky. We've been subsidised throughout our working lives by contributions to super being lightly taxed. We're subsidising our retirement by having tax-free income, which was not always the case. We've had it pretty good. Maybe there are some adjustments needed—maybe some feed-in time is required—and I think industry funds should not be favoured over self-funded retirees. If that's part of the proposal, I'm against it.

CHAIR: Next up is John Officer. John Officer, if we don't have you here we'll hear from Sharif Eldebs.

Mr Eldebs : As someone who has worked in the superannuation industry for 23 years, I just want to highlight a few points that are going to have a flow-on effect from this policy, and it's coming from a different perspective to those we've heard for most of today. I too run my own self-managed super fund. I'm in accumulation mode. I'm 43 years old. I have heavily invested in Australian direct shares. If I don't contribute to my own super fund then I will also lose the benefit of franking credits. That's just something to keep in mind, because you're paying tax at 15 per cent within your super fund and you're getting the refund credits at 30 per cent. For example, if something happened to me and I were not able to work, therefore I were not able to contribute to my own fund, I would also lose the benefit of franking credits. That's just something to keep in mind.

Point No. 2 is that there are some larger funds out there—within, for example, the APRA-regulated funds—that also receive excess franking credits, because they have a high proportion of retirees within their fund. This policy will create an uneven playing field. You will have funds that have enough tax payable to offset their franking credits promoting themselves and saying to retirees who are involved in other funds, 'Come and join us, because we've got enough taxable income.' You're going to create this uneven playing field, even within the industry funds and the APRA regulated funds, with this policy. That's another thing to keep in mind.

CHAIR: Thank you very much, Mr Eldebs. The next statement, please.

Witness A : My wife and I are self-managed retirees. We have planned our retirement based on the existing taxation laws, one of which entitles self-managed funds to a full taxation refund of dividend imputation credits whilst the super fund is in pension phase. The Australian Labor Party's intention is to withdraw the dividend imputation credit refunds from self-managed super funds. This will have a significant impact on our future income stream if that policy becomes law. Our only option to recover some of our projected loss of income is to first seek professional advice, financial advice, at considerable cost, and then implement a more aggressive investment strategy. Whilst I categorise myself as a conservative and unsophisticated investor, I do understand that higher returns normally equal higher exposure to risk of losing my hard-earned savings.

The Australian Taxation Office recently revealed that the top 100 self-managed super funds control more than $7.9 billion, and a further 5,600 self-managed super funds have balances of more than $5 million. These are presumably the 'filthy rich' that Bill Shorten is referring to. What Bill Shorten doesn't disclose is that, effective from 1 July 2017, the Commonwealth government amended the superannuation legislation, forcing all superannuation funds to convert their capital in excess of $1.6 million back into the accumulation phase, therefore attracting a taxation rate of 15 per cent. This enables the 'filthy rich' to obtain their dividend franking credits to be refunded as tax that has been paid. In effect, the ALP's proposed policy doesn't really target the filthy rich, as Mr Shorten implies, but hardworking Australians like us with much smaller superannuation balances.

There are approximately 600,000 self-managed super funds operating in Australia, managing $696 billion in assets. If you exclude the 'filthy rich' from this pool of assets, there are approximately 494,000 self-managed super funds with an average balance of approximately $1.1 million, generating an income of approximately $50,000. If imputation credits are removed, they would lose $15,000. The net result for a self-managed super fund consisting of two persons is that annual income would be only $17½ thousand per person. By comparison, the age pension is $19,968 per annum. If the ALP's 'retiree tax' were enacted, you would have to ask why anyone would save for their retirement when the age pension puts you in a superior financial position. Clearly, the 'retiree tax' is very specifically—

CHAIR: We're at the end of your three minutes. You can table the remainder of your statement. Can we have the next person.

Witness B : Should Bill Shorten win government at the next election, as a self-funded retiree I put the following questions to you, which may be typical of questions from many other self-funded retirees here. With the loss of income, and this could be 25 per cent under Labor's proposed retiree tax—that is, the loss of franking credits on shares—self-funded retirees' income could be reduced to the threshold where one could become eligible to claim a part-pension.

My late husband, born in 1924—and that's pertinent in regard to superannuation for someone his age—and I have no superannuation. An income is derived wholly from shares, which are all fully franked. Their number or quantity does not pass the assets test to become eligible for the part-pension. These two tests, I believe, are out of kilter. A quantity of shares is required to generate sufficient income to become a self-funded retiree and thus to be independent and not rely on the government for assistance—that is, a pension. Shorten's proposal would reduce the income threshold for being eligible to claim a part-pension but, because of the assets test, you would not be eligible to receive the part-pension. What is your answer? Can you put this to Shorten to reply to? My question is: is it correct that those who do not have any superannuation will be exempt from Shorten's retiree tax?

CHAIR: It's not standard that the committee is asked questions, but I suggest it's a matter that could be raised with Mr Thistlethwaite afterwards.

Mr THISTLETHWAITE: I'm happy to answer that question, if you want, at the conclusion of the hearing.

CHAIR: Perhaps it's best answered by Mr Thistlethwaite at the end because it probably leads to a discussion rather than a simple answer.

Witness B : All right. And then: what is the threshold to pass the assets test? I ask you that too. Thank you.

CHAIR: Thank you. John Banks.

Mr Banks : Good morning. My wife and I have run a self-managed fund for 20-odd years now. On the amount that we have got invested, this will cost us $30,000. That might sound like a lot of money, but in my opinion it has been very wisely and carefully spent. We've paid 50 per cent of our grandkids' education now for 12 or 15 years, and there are still a few years to go on that. We've been able to afford a high level of health care, which for 10 years we hardly used but, believe me, at 79 and 80 years of age it's starting to come into play. That doesn't leave any of that $30,000 over. I think there is a misconception about this whole attitude. I don't like this business of thinking it's money just being thrown around.

We have always thought carefully about this. We don't want to go on a pension. We have managed well without doing that. From what I read in the papers I don't think this is widely understood, frankly. Everyone who owns Australian shares gets a franking credit—that is, everybody. It was a wise decision. By distributing the franking credits to individuals, the recipients, every one of them pays a different tax rate. Some are 48½ per cent, some are 30 per cent, some are 10 per cent and some are nil. We in the nil bracket are being picked out. I see this only as a retirement tax.

We made our decision to set up this fund when we sold our factory, which we had run for many years. The bulk of the funds was put in that way. We made a decision on the rules as they stood. You don't change the rules at half-time. We would have taken a vastly different approach to superannuation if these rules had been in place back then—believe me, we would have. I have always been careful in the way I have operated. It would have stopped us doing it, frankly, because we knew how we would spend the money.

I just don't accept that this is a fait accompli. We should keep arguing this case. Should there be a Shorten government I think they should still be fought on it and shown how unfair this legislation is that they are suggesting. I saw in the paper recently Chris Bowen suggesting you buy American shares instead of Australian. What sort of government person would say that? It's wrong. It's not the way to go. We should be encouraging Australian companies. We were talked into buying Telstra and Commonwealth Bank way back, and I'm sure everyone in the room has been involved in that. I still follow them, in that they are Australian companies employing all Australian people in this very land.

CHAIR: Thanks. I'm sorry, we're at the end of your three minutes. Tim Kirwan.

Mr Kirwan : Thank you for the opportunity. This whole proposal by the ALP is a blatant attempt to smash do-it-yourself super funds and disadvantage those self-funded retirees by forcing them to collapse their funds and move into industry funds because the DIY SS funds will no longer be viable. The ALP gets money from the unions and the unions get money from the industry funds. The DIY SF funds are a victim of their own popularity, as members from both industry and retail funds have been drifting away and setting up DIY SS funds for their superannuation needs because, as in my case, it costs one-tenth of the fees an industry fund charges and they have complete control over their fund investments. However, granted, I have to do all the administration.

The ALP say they have exempted industry funds as they can offset franking credits against any operating expenses, regardless of whether they pertain to superannuation management or not. These expenses, of course, mainly consist of salaries. A DIY SS fund does not pay the member running the fund, but, under the same principle that the ALP is applying, it should be, and the salary would be equal to the franked credit receivable, and thus the playing field is equal.

The ALP states, or at least implies, that all people in DIY SS funds are wealthy. That is completely untrue. Even more astonishing, they pretend that people in industry funds do not have large balances. That is also untrue. I have mentioned why the ALP's doing this and why it is so unfair to attack DIY SS funds. Their strategy is based on deception, and by this I mean 75 per cent of the population don't know what a franked credit is and are not interested. Accordingly, this deception and the emotive language used by the ALP amount to fraud. Why, if the ALP succeeds, will anybody put money into DIY SS funds? It will be their death knell, regardless of 30 per cent of all superannuation in Australia being in these funds, and with current membership increasing much more rapidly than either industry or retail funds. More to the point, under my calculations, assuming a DIY SS fund will receive a four per cent return under Labor's plan—in other words, not receiving the franked credit—a couple will need at least $1.3 million in a DIY SS fund to equal what a couple receive in an age pension and if they have a maximum of $387,000 allowable invested in shares and are earning the four per cent. Both will produce $52,000 per annum; however, the DIY SS member won't receive the fringe benefits, will receive no CPI and will take all the risks.

Further, even more astounding, a couple who have no money at all get a pension of $36,000. It means a couple in a DIY SS fund will need $900,000 at four per cent to achieve the same level of income and once again won't receive any of the perks. Accordingly, the ALP—

CHAIR: I'm sorry, we're at the end of your time. You can table the remainder of your statement.

Ms Walker : I'm a self-funded retiree. I retired in 2016. I'm living fairly frugally on what I consider to be a modest income. However, Labor's retiree tax will mean that my income will drop by $10,000 a year, and that, to me, is catastrophic. In fact, I'm coming to the conclusion that superannuation is a policy failure. It was designed by Paul Keating; however, it's not working out. It should be declared as a policy failure, and self-funded retirees who are affected by the constant goal-shifting, changes to the rules and adverse taxes are the victims of this policy failure.

The Labor Party is obviously having problems affording nanna's and poppa's self-funded retirement, and maybe it's time, if you get into government, to return to the drawing board and come up with a retirement policy that guarantees income security and certainty and peace of mind for Australian retirees, because the superannuation system in its current form certainly does not. I would be suggesting that the solution to the problem would be a New Zealand style non-means-tested universal pension scheme that would be paid for out of tax credits up-front over a working lifetime. That means everybody who has spent time in the workforce would get the pension, no questions asked, and that pension will have been paid for up-front by working people. I believe that scheme would be fairer, simpler and cheaper. It would take the burden off the taxpayer, and those who are seeking a more comfortable retirement are more than welcome to take out a pension supplement savings plan, invest in shares or property, and pay tax accordingly. I believe that we need a radical overhaul, because the current system is not working out. I believe that retirees are fair game and the government will be back for more. I have no confidence in superannuation—none whatsoever. It is not working for me or for many other people.

CHAIR: Thank you, Ms Walker. Next?

Witness C : I am an accountant. I hold a masters degree in taxation law. I've had a lifelong interest in taxation policy. What you learn in taxation policy 101 is that the way to assess the fairness of a tax system or a tax policy is to look at it in two ways. Is it vertically fair in that people with more income pay more tax? And is it horizontally fair in that people in the same position and on the same income pay the same tax?

I was very surprised by this proposal by the ALP, because you should just 'compare the pair', as they say in the advertisements. A person with a self-managed superannuation fund receives $70. A person in a large super fund, be it an industry one, a Commonwealth Bank one or whatever, also receives $70. After tax, the person in the large super fund receives $100. The person in the self-managed superannuation fund in pension mode receives $70. As I see it, that is unfair, and I don't know how you can justify it as being fair. That is basically my submission.

CHAIR: Thank you very much. Peter McDonald, you were down to speak but you may have left. I thank everybody for their attendance here today. Please note that you can table submissions to John or you can make them online at aph.gov.au/economics. They will continue to be accepted throughout the inquiry. We are at the tail end of the inquiry, so I encourage you to make them as quickly as possible. We will now suspend proceedings and we will resume at 2 pm at Brighton Town Hall. I declare this public hearing closed.

Committee adjourned at 11 : 57