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Standing Committee on Economics
20/03/2019
Implications of removing refundable franking credits

BOLTON, Mr Michael, Private capacity

CLAPP, Mr Greg, Private capacity

COGHILL, Mr Geoff, Private capacity

DARCY, Ms Marg, Private capacity

DICKIE, Mr Ian, Private capacity

DIXON, Mr Andrew, Private capacity

ESKDALE, Mr David, Private capacity

FELLOWS, Mr Chris, Private capacity

FISCHER, Mr Ed, Private capacity

GATES, Mr John, Private capacity

GATES, Mrs Lynette, Private capacity

GROVES, Ms Janet, Private capacity

HAYDEN, Mr Martin, Private capacity

HOSKING, Mr David, Private capacity

HUDSON, Mr Robert, Private capacity

JOHNSON, Ms Elizabeth, Private capacity

LANE, Ms Wendy, Private capacity

MAY, Mr Ken, Private capacity

McINTYRE, Ms Mary, Private capacity

MIDDLETON, Mr Mike, Private capacity

MUSSERT, Mr Tony, Private capacity

RANKEN, Mr Arthur, Private capacity

SEAGER, Mr Jeff, Private capacity

SIMMONS, Mr Rodney, Private capacity

STOREY, Ms Rosemary, Private capacity

Witness A, Private capacity

Witness B, Private capacity

Committee met at 09:01

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 full franking 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. This 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. We welcome your contributions and participation.

If you would want to speak today, please add your name on the clipboard at the front of the room. I will call up people in the order in which they appear on the clipboard. If we run out of people on the clipboard, so long as we've got reasonable time, we'll open it up for anyone else who wants to talk. That's the process.

I'm also very excited to be back in the town I grew up in, which is Mount Martha. I need to do the dutiful thing, which is to acknowledge my mother, who's in the audience today. Hi, Mum!

Before commencing, I remind members of the media present—there's at least a photographer here, but there may be others; there are certainly our good friends at The Australian Financial Review, who seem to follow every word over the internet and who we sent our good wishes to—and others who may be monitoring this hearing of the need to fairly and accurately report the proceedings of this committee.

Because, apparently, some people don't understand their own policy or the fact that in order for this policy to affect you, you have to be either retired or have a zero per cent marginal tax rate—I'm 38, so I'm a long way from retirement, and I have a 45 per cent marginal tax rate like every other member of parliament—additionally, I declare that I have a self-managed super fund, which I hold with my husband, Ryan Bolger, called Wilson-Bolger Superannuation, and it owns WAM Leaders and WAM Capital shares, because, apparently, they're distinct. 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 zero, nil, negligible or no financial impact on me or my superannuation fund.

This session is for community statements. Community statements provide an opportunity for you to have your say. Everyone will have three minutes to speak. No, we're not going to extend time for anybody. The same rule applies to everyone. Please note that these statements are broadcast over the internet and through the parliamentary system and are 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 private or financial circumstances. Basically, if you don't want it to be recorded forever, don't say it, because it will go into the Hansard of the parliament. Please be aware that these proceedings may also be filmed. If members of the public have objections to being filmed, they should please raise them with the secretariat and the committee will consider your request. Let's start.

Ms Lane : I am a self-funded retiree. I am not a wealthy woman. If these franking credits were taken away from me, my income would drop substantially. I understand that if I were a pensioner they would not be taking them away from me. I feel that this is unfair given that my investment portfolio was set up legally under a particular umbrella that was there for it to be done. So I feel an urge to sell the shares that give me the franking credits. A lot of people are probably feeling the same way. I foresee a share market debacle. Pull enough money out of these companies that are giving us these returns and the share market will slide. I would say that this will have an absolutely devastating effect on our economy. I can't understand why anyone would be so short-sighted, actually, when proposing such a proposal. I am sorry; I can't see anything more. Thank you for allowing me to speak.

Mr Hudson : Good morning. I wish to speak to the committee in relation to the self-managed super fund that my wife and I have. We have a self-managed superannuation fund and, to follow the thoughts of the lady who spoke before me, we are currently reducing our investment in the stock market because of our concerns about the franking credits position and moving much more towards cash. As was previously stated, I think it will have an extremely negative effect if everybody with a self-managed super fund who is retired moves towards cash and away from the market. I see this strategy from the Labor Party being as much as anything about forcing people to invest in union or possibly privately managed superannuation funds. The net effect will be to destroy the self-managed superannuation fund structures.

We recognise what we're doing will have a negative effect on our overall income, but we think it's probably the best thing for us to do pending the uncertainty of what's going to happen in the future. Thank you.

CHAIR: Thank you very much.

Mr Ranken : Welcome to this area, Tim and the committee. I've got two major points that I'd like to make about this proposed change to franking credits. The first one is that it's going to cost me between $45,000 and $50,000 per year. That's half the living that we have each year. The reason for this large amount is that we don't have enough capital to live on, so I use the capital that we have as a security. I borrow money at a certain percentage, we pick up a little bit extra and that gives us the extra income. The extra income pays the interest. The franking credits are 50 per cent of our living, so this is very important to me.

The second thing is that franking credits are something that most people do not understand, and the Labor Party are not helping to improve that. Franking credits, basically, are nothing other than a progressive tax on the income of shareholders paid progressively in exactly the same way that PAYE tax is paid progressively on salaries and wages. People have the tax removed before they receive their income. It's similar to PAYE tax, where people have to estimate their expected income and pay tax progressively on that. Final tax responsibility is worked out by the accountant. This has not been brought out clearly.

If franking credits are to be changed then there has to be no refund of excess tax paid in all other categories of taxpayers. That's particularly important, and I haven't seen that in the press in any form. In fiddling around with franking credits in amongst superannuation, which was set up to try to get people to provide for their own retirement, the whole balance of what retirees have put together and what financial advisers have put together will be substantially disrupted. It is not a fair thing for tax to be fiddled around with, particularly after people have been investing in good faith following an encouragement by the government 12 or 14 years ago. If they go and change it around, people will completely lose their retirement income balance.

Another thing I'm very unhappy about is that there is confusion between franking credits, capital gains tax, negative gearing and superannuation. Most of the announcements from the Labor Party have been a combination. There has not been clarity. There needs to be clarity in the community—otherwise, we will vote this problem in and most people won't understand just how devastating it's going to be. I thank the committee very much for letting me speak.

CHAIR: Thank you, Mr Rankin. Next is Michael Bolton—a very famous name.

Mr Bolton : My question is: does a grandfathering clause apply, in this case? I believe that when the decision was made to change the franking credits, back in March last year I think it was, there was talk that anybody who had pensions and superannuation funds before this date would not be affected by this change. As a self-funded retiree that will have an impact in the event of it not being grandfathered. I would say what the Labor Party has done, in relation to the negative gearing they have grandfathered—with the issue of properties financed, I would have thought there would be a grandfathering of that as well. If there is a grandfathering clause, I would be interested to know why it has not been so well publicised. A recent article by Treasurer Josh Frydenberg stated that there was something along those lines. So that's concerning me. Thank you.

CHAIR: Thank you very much, Mr Bolton. Next is Marg Darcy.

Ms Darcy : I'm a recently self-funded retiree. I haven't quite got to the end of the financial year yet of not working, so from next year I'll be a completely self-funded retiree. And I will be disadvantaged by the proposed franking credits policy because I do have some funds invested in shares. However, what I want to talk about is the inherent unfairness of the cash handouts that are currently given to self-funded retirees who pay no tax—like I will be.

Those handouts cost taxpayers $5 billion a year. That is $5 billion that is paid by ordinary people in the community, including those on low incomes—like childcare workers and cleaners. It's $5 billion a year that could help pay for better health and education facilities. It could help pay for decent action on climate change so that my grandchildren can live the quality of life that I've been able to enjoy in this beautiful country. It's $5 billion that could be spent on better health care for older people, for bringing much needed reform to our aged-care sector—

Member of the audience interjecting—

Ms Darcy : If you'll stop talking while I'm talking—

CHAIR: We're hearing you, Ms Darcy. It's for the public record.

Ms Darcy : It's $5 billion that could be better spent on health care for older people and on reforming our incredibly damaged aged care sector, in which people are abused and neglected.

There have been changes to benefits for retirees over the years. This government lowered the threshold of the assets tests, removing hundreds of thousands of older people from eligibility for pensions or healthcare cards. This government also reduced the taxation discounts for those on defined benefit programs, giving only a few months notice, reducing income—again—for hundreds of thousands of retirees. Yet there were no communities of inquiry into those changes.

I make this submission because I want a fair society. I want money spent on addressing climate change so my grandchildren can enjoy a quality of life similar to what I've been able to enjoy. I know that I'm fortunate, because I'm going to have a comfortable income in my retirement. And on that income, mostly, I will pay no tax. I don't think that's fair—if I keep my shares, I will get a cash handout that's subsidised by people on a much lower income than I will be living on in retirement. Thank you.

CHAIR: Thank you, very much, Ms Darcy. Next up is Elizabeth Johnson.

Ms Johnson : My husband will be here but he's at the doctor's, at the moment—and he's an accountant, which would have been helpful. We have worked very hard for the last 40 years, paying 13 per cent interest on the house, 18 per cent on the farm and 22 per cent on investments to get what we thought would give us a comfortable retirement. But we are already, at 65 and 67, dipping into our capital. If the franking credits go, we lose about a quarter of our income. The alternative, we feel, is to drop out of health care. The problem is that that adds an extra burden onto the Medicare system—a massive one. I guess the other problem—but I don't think you can handle it—is that interest rates are so low. Since we paid them so high, we kind of feel that we're being a bit cheated.

CHAIR: Thank you, Ms Johnson. Next up is Tony Mussert.

Mr Mussert : I'm a self-funded retiree. We have a very modest SMSF. A large percentage of that is embedded in Australian shares which enjoy franking credits. We already have to dip into our capital to provide us with a living wage, which has not increased in the last seven or eight years of retirement. With the loss of franking credits, that erosion of our capital will rapidly increase, and in a very few short years we will fall onto the public purse as pensioners. Any suggestion that there is a $5 billion windfall coming to self-funded retirees now is going to be offset by a fair percentage of us heading for the public purse anyway, so it's pretty self-defeating. I also make the point that franking credits, or those shares, are already taxed anyway in the company accounts. I make the further point that the proposals that I have understood from the Labor Party are selective in that they only impact certain retirees and not others. I think a tax of that kind that is selective is the most unfair of all.

Could I conclude not with a question but with an observation. I make this observation to you young people at the table and to the journalists in this room.

CHAIR: I'm flattered that you refer to us as young!

Mr Mussert : That observation is this: look around this room at the people in this audience. What you're looking at is the engine room of what Australia has become post war. It's this generation that has made you what you are. We've made our mistakes. We've made you politically correct. We've made you all sorts of things. We haven't given you a beating when you needed it. We haven't disciplined you. Beyond that, we are the people who made Australia what it is. I say this particularly to the journalists in the room: respect this audience because they made you what you are.

CHAIR: Thank you, Mr Mussert. Next is Mary McIntyre.

Ms McIntyre : I totally endorse everything that has already been said. I am actually of a younger generation; I'm 57 years of age. I am planning and thinking of my future. I'm in aged care as a registered nurse, and I've worked for over 38 years in nursing. I will not receive a pension at 65 years of age, if I even think I can work to 65 years of age. I endorse what Arthur Rankin said about clarity. Not enough has been said about the issues. I endorse exactly what the fellow just said. Most of the people in the room are older than me, and they are what made Australia. They've paid their taxes.

I want to know what you're going to do about people my age—57 or 58—that are planning for the future and are actually very disheartened. I feel like giving up the private health fund I've had all my life because I know I can go to accident and emergency and be treated, but that puts a strain on that. I've got a negatively geared property. I've worked extremely hard. I know what Labor is saying but I want to know what the Liberal Party is saying. My superannuation fund is a compulsory fund. I don't believe there's enough done for my age group, for the people who are hardworking and have been planning. Like the lady said, it goes back to cash, and I wouldn't mind having that little bag of cash under the bed. That's how people are starting to think. So I would like you guys who are about my age—or maybe younger, are you?—to look at the future of people 58 to 60 and then work with the people who are in the room.

I almost didn't come today, thinking, 'This isn't actually relevant to me.' And then I realised that it is very relevant to me because I will be the one voting for you guys, and I want more clarity and more things said by the Liberal Party in relation to these issues. And I won't even start on aged care; it has already been said. Thank you very much.

CHAIR: Thank you, Ms McIntyre. Next up is Ken May.

Mr May : I'm a self-funded retiree. I and my wife rely for our income entirely on dividends and our investments in the stock market. The situation is that we would stand to lose something like $30,000 a year in income from our superannuation fund. It might be slightly higher.

We then have another situation in the compulsory drawdown from our superannuation funds. In my wife's case, her drawdown is such that in 12 to 14 years, I estimate, her super fund will have no money at all. In my case, the drawdown is 11 per cent. That means I have to take—people here may not understand this—11 per cent out of my superannuation fund every year to go into living. That means that the amount that I have in the superannuation fund is reduced by 11 per cent every year because I'm not allowed to add any money, if we had it, into the superannuation fund. So I estimate that in seven years my superannuation fund is going to be worthless; I will not have any money at all. And, in that seven years, the capacity to earn anything from that superannuation fund will be depreciating at a compound rate every year. This, I think, is completely unfair and unreasonable. I'll go one step further: when I'm four years older, that drawdown is going to go to 14 per cent.

So what hope have I got for money from superannuation? We rely significantly on the additional amount that might come forward from the superannuation fund from the franking credits; we have to. We don't get sufficient money anyhow from the superannuation funds to support us, so we now have to go into savings. Those savings, which are also invested in the stock market, will also be reduced by maybe $30,000 a year. So we have a significant hit of something like, maybe, $60,000 a year—this is for the two of us—and I can tell you that I work certainly 50 hours a week, maybe more, on making the money from the stock market, because if you just have your money invested in the stock market and don't gain anything over and above a nominal interest rate, which might be five per cent, which I'd say is a fair amount that you might get out of it, you have more trouble. I don't know what else I can say other than that what I believe Labor is proposing is criminal, frankly. It could be classified, in my mind, as a criminal offence against the population, certainly against those people that are self-funded.

CHAIR: Thank you, Mr May. Next up is Chris Fellows. For clarity, if you would like to speak, you need to put your name on the register at the rear of the room or at least notify somebody up here on the table, but it would be preferable to do it at the rear of the room.

Mr Fellows : I am a recent retiree. I run my own self-managed super fund for myself and my wife. Franking credits are an important aspect of that, making the forthcoming election a single-issue election for me and other people in my family, like my aged parents, whom I also support. I'm not going to go again through all the arguments that you've already heard, but I will just add my endorsement to many of the excellent submissions, such as those by the Australian Shareholders' Association, Wilson Asset Management, AFIC and many others.

I also express my concern about a policy which is brought out without having been thought through thoroughly, as was demonstrated almost immediately when the Labor Party had to change the dimension to recognise pensioners. That illustrates the fact that the policy has not been thought out thoroughly. As retirees, we expect at least the policies to be thoroughly investigated, as Ms Phelps has pointed out. I would also fully endorse her position about a five-year moratorium. By all means take that opportunity to review the superannuation situation, and, if fiscal policy has to be changed, so be it. But let's do it in an organised and structured fashion.

There is one slightly newer item I'd just like to add to the table here. As I watch my aged father struggle with financial situations, can I leave the thought about simplicity in tax policy. That might sound like a contradiction, but it's particularly important as people get older; resistance to change increases and understanding changes and whether you should be selling shares or doing other things becomes more difficult. We have managed to spawn an entire industry of advisers, many of whom are doing a really good job—others not so much so. But, as retirees, we ought to have a policy where we can all understand how to optimise the use of our finances in the future. Thank you for the opportunity to speak this morning.

CHAIR: Thank you, Mr Fellows. Next is John Gates.

Mr Gates : I wish to speak to you today about the changes that have taken place for self-funded retirees with the Commonwealth Seniors Health Card. In the last few months, Australian Foundation have declared a special dividend of 8c a share. BHP have done likewise, with a special dividend of $1.02 a share. Now Westpac have come out and decided that, instead of paying their dividend in the first week of July, they will pay it on 24 June. What effect is this going to have on self-funded retirees with a Commonwealth Seniors Health Card that places a limit of $87,884, which includes franking credits? If you go over that limit, you are required by law to declare the fact and you will lose your Commonwealth Seniors Health Card. In my case, there's nothing I can do. I've got all these three shares. I'm going way over the top of the limit. I'm going to lose my card. What's the effect? When I lose my card, I lose my pharmaceutical benefits. So does my wife. We also lose our free access to X-rays, scans, MRIs et cetera. Surely something can be done about this particular tax year. They're likely also to be the ANZ and National Bank, following Westpac, and so the amount goes up and up. Urgent action is needed. My suggestion is that if exemption is given for this year only, that will cover the whole picture, because I'm quite sure I'm not alone as the only self-funded retiree who is going to lose his health card.

As I still have a couple of minutes to go—franking credits: in talking to retirees it is quite obvious the majority of them haven't a clue what franking means. I even went to the Collins dictionary, and all they do is put franking under derivatives. They give no definition whatsoever. It's obvious to me as an ex-banker that a franking credit is a tax credit, purely and simply. If we called them tax credits, even Bill Shorten might understand what it is. Thank you very much for bearing with me.

Mr THISTLETHWAITE: You've raised a question, sir, and a couple of other people who have appeared before you have raised questions as well. I'm just going to say that I'm happy to answer—

CHAIR: Deputy Chair, I know you are happy to answer them, but this is an opportunity for people to give their statements. What I suggest, so we don't run out of time, is you do it at the end.

Mr THISTLETHWAITE: That's what I was going to say. I'm happy to answer your questions. The gentleman up the back that asked the question about the interaction with the pension—I'm happy to answer all of those questions. If you want to come and see me at the conclusion of the hearing, I'll answer all of those questions for you.

CHAIR: Thank you, Deputy Chair. Thank you, Mr Gates. Next up is David Hosking, and then Jeff Seager.

Mr Hosking : My wife and I are self-funded retirees, and in the last 14 years of our working lives we salary sacrificed extensively and established our superannuation fund and invested in mainly Australian companies that had high dividends and fully franked dividends. Both of us have now been retired for 13 years, and we're pretty proud of the fact that we've been able to be independent financially during our retired years. I honestly think we should be patted on the back for not putting any demands on the government coffers in terms of pensions and other handouts. I don't put my hand out. The only card I've got is a myki card, and therefore I'm happy to continue on not calling on the government coffers, but, instead of that, we're been given a penalty: we're being taxed. We live on a modest income of approximately $1,000 a week. We're going to lose about 40 per cent of that, despite the fact that we set up our fund within the goalposts that existed, within the guidelines. And with the stroke of a pen somebody can turn around and change our lives, our financial position. I know a lot of other people have said exactly what I think, but, from an individual point of view, I'm very disappointed to be beaten by this change in policy rather than be congratulated on the fact that we are not drawing the old-age pension and all the other benefits. Thank you.

CHAIR: Thank you, Mr Hosking. Next Jeff Seager, and then Janet Groves.

Mr Seager : My wife and I are self-funded retirees and we live quite comfortably. Like the previous speaker, whose remarks I totally endorse, we have worked with the rules and under the rules that were in existence when we set up our self-managed super fund. We take strong exception to what has happened now with the changing of the rules. In business, I was very much involved in the late eighties and early nineties in what was then termed 'union superannuation funds' and the setting up of arguing against them as an employer, and what we said at that stage of the game is exactly what's happening. We've got two different sets of circumstances where self-funded retirees are being penalised for the effort that they put in and the sacrifices that they made in terms of providing for their later life. It's just not on. The other factor that I would like to mention is that the level playing field is no longer in existence. We have industry super funds advertising every two minutes on air and, also, we have a difference with the defined benefits scheme. I know that some of you gentlemen are on a defined benefits scheme.

CHAIR: No, that's wrong.

Mr Seager : You may not be, Tim, but others are. It's about a level playing field. This is exactly why I resigned from the Liberal Party 2½ years ago, because of the $1.6 million limit being brought in at that stage of the game. My suggestion to all of the people in the room is to do what I've done and line up their children and tell them straight: if they vote for Bill Shorten, they will get less money willed to them at death.

CHAIR: Thank you, Mr Seeger. Just for clarity, nobody at the table here has a defined benefits scheme with their superannuation. Yes, there are some retired members of parliament who were elected before 2004. We have to explain this every time. Everyone elected after 2004 does not get a defined benefits superannuation scheme, which means that we have superannuation and, if this change is effected, as I announced at the start regarding my self-managed superannuation fund, it will affect me and all of the other committee members, depending on their personal arrangements, if they've so disclosed. Next is Janet Groves and then Mike Middleton.

Ms Groves : I just want to reiterate some of the things that have been said. I was working for 44 years in a PAYE position and I planned for my retirement on the basis that my mother basically lived in poverty when she got older and was unable to work, and I didn't want that for myself or my family. Yes, I am a baby boomer—the tail end of the baby boomers—but I'm not wealthy. We were very fortunate that things were set in place that were to our benefit, and I can see that that no longer will be the case for many young people in the workforce now. It's not going to be to their benefit at all. The goalposts are moved all the time. They keep moving them further out of our reach, and this one is a significant one. It'll make a very big dent in our income. Both of us are self-funded. The dent will be noticeable and it will affect our lifestyle, not to mention further down the track. As I said, the goalposts have been moved for us as well.

The other thing with our situation is that we worked hard and we have a lifestyle that we really enjoy. We have to live. We spend and we travel, and we put a lot of money into the country with our travel. We buy whitegoods and all sorts of things that we need, and many things we want, because at this point in time that's within our budget, within our financial capabilities. I look at it and I think: there are 900,000 self-funded retirees at this point in time. I feel that Mr Shorten is just selling off the assets again. He's just selling us off. A huge amount of money is going to come in annually for the Labor government. I have no doubt at all that, down the track, many of the people in this room are going to look towards a pension and I am quite sure the goalposts will move again. It'll be very difficult for us to access some of the pensions as well. The point is that, once that does happen, Mr Shorten won't care. That's a long-term thing, and this is not long-term planning. There's no long-term strategic planning in this decision whatsoever. Thank you.

CHAIR: Thank you, Ms Groves. Next is Mike Middleton and then Martin Hayden.

Mr Middleton : Gentlemen, thank you for the opportunity. I'm 80 years old. I rely on my superannuation fund's allocated pension to survive. I'm not entitled to any other pension, so the loss of the payment of the surplus ITCs is, for me, very significant. I object to the application of this declared ALP policy to stop the cash payment of surplus ITCs, and particularly without allowing older Australians sufficient time to restructure their financial affairs.

To start this policy from 1 July this year is, I consider, rather cruel and callous and an affront to the millions of retired citizens who have, up to this point, used their own personal labour and their own personal capital to provide many of the very personal benefits that our politicians enjoy. Any important change like this should, in my opinion, apply instead, at the very least, from 1 July 2020. This will give pensioners and others sufficient time to rearrange their rather complex financial affairs that our tax system demands.

The problem is, gentlemen, that we of the older group are a little bit slower and it takes us a little bit more time to make major decisions, and I don't feel that the thought bubble that created this particular policy has given proper credence to that aspect. I submit that whilst I personally am not opposed to the object of surrendering tax credits in cash—because, if you think about it, to do otherwise is to actually not tax the profits of the corporation that's paying the dividend to some degree—I am opposed to the principle of applying it without allowing or giving the older generation proper time to rearrange their affairs and to have the opportunity of maximising the rules and regulations that the government of the day provides. Thank you.

CHAIR: Thank you very much, Mr Middleton. Mr Hayden, and then Rosemary Storey.

Mr Hayden : Thank you for giving me the opportunity to speak. Many years ago I was at a meeting, and an old lady came up to me and was telling me how she voted for the Liberal Party. She was older than I am now, so she was quite old, and I asked her why that was. She said that her father had told her, 'Because the other side don't know how to handle the money.' Well, how much has that been proven over the last few years?

Anyway, here is my story. I'm 74 years of age. I live in a bayside suburb of Melbourne, where I have lived since 1984. It's nothing flash; just a modest 15-square single-storey three-bedroom brick-veneer home. When we bought this, at the time I was entering my second marriage, and, as you can imagine, after a divorce I was left with very little. Consequently, my second wife and I had to save very hard for our deposit to buy the home, and we then paid it off as quickly as we could while supporting two children from my first marriage.

As you can imagine, there wasn't much spare money, but after paying off our house, and with no other assets, we knew that we had to think about our future. So, we didn't spend our surplus income on holidays, having a good time, extending the house et cetera. We put it aside, and eventually decided that we would use it to buy shares to support our retirement, which is what we did from our post-tax income.

I worked for the whole of my career in a bank—nothing special; just a middle manager—and I was told that bank shares would be good. So that is what we did. We bought bank shares and some other blue-chip ones, not to buy and sell to make a profit et cetera, but just shares that we were advised would provide a good income. We still have those shares. My wife and I do not receive any form of pension whatsoever. We don't have a business, we have no tax deductions and we pay our own private health cover. We live an ordinary life—we dine out occasionally; we go away for the odd weekend; nothing flash at all—and we pay for everything ourselves. We don't cost anybody anything. Compare that with how much just one single pensioner costs. We could have been pensioners, but we're not, because years ago we thought about our future and we wanted a safe retirement. Consequently, we planned for it, just as Paul Keating said we should.

Mr Keating also said that one day the pension may not be sustainable. We do not cost the government anything. Labor's imputation policy will crucify us. It will mean a substantial decrease in our income, which could possibly see us eligible for some form of pension. Where is the justice in this? Why should self-funded retirees like us, who were simply hard-working ordinary people, be penalised just for being forward-thinking and responsible enough to plan well in advance for their retirement? If we were talking about people who were claiming hundreds of thousands of dollars, it would be a different story, but we're just a couple of self-funded retirees who will have a most unfair and inequitable reduction to their income should this policy go ahead. Bill Shorten has said, 'Sell them'—he was talking about shares—'and get into property.' How ridiculous is that? What about the capital gains we would have to pay? We wouldn't have enough to get into property anyway. But also, if we did as Shorten says and got into property, there would be substantial tax deductions to be gained, so where would be the advantage to any government in suggesting that ordinary taxpayers do this?

CHAIR: I'm sorry, but we're at the end of your three minutes. Thank you very much. You can table the remainder of your submission to be included in the inquiry.

Ms Storey : My husband and I are both self-funded retirees. We set up our fund because we were advised it was a good thing for us to do. We also didn't want to be a burden on society. We think there are people who have far greater need for pensions than we do. We worked hard and we have been incredibly frugal because of our parents. We still collect things from the side of the road, we re-cover furniture and we buy food that's at its expiry date, because that's the way we have been brought up. We don't go away on lavish holidays. But we do enjoy ourselves. Without the franking credits refund we probably couldn't manage. I am so pissed off. Can I say 'pissed off'?

CHAIR: 'Frustrated' is the word you're looking for, I think.

Ms Storey : Thank you. I am so frustrated that I feel like selling what we have and going on the pension and just blowing the money. What is the point of trying hard and what's the point of bothering? There is the capital gains tax on profits from the sales of shares that was introduced around 1985. Pre-1985 you didn't have to pay capital gains tax when you sold your shares. Why can't they do a similar thing with this? Why can't they say that, from the year 2020, people who set up their own self-managed funds don't get the credits back, but the people who set up a fund in good faith, to not be a burden, continue the way they are?

Mr Clapp : I'm one half of a retired couple. We're going to be affected to the tune of about $40,000 a year. We haven't lived extravagant lives. We had a very strong belief, like many people in the room, from the Paul Keating and Peter Costello message, that we needed to look after our future. If you had work at that time you had a strong obligation to try and not be on the pension. Whilst we worked we paid extra tax on the shares that we owned. We feel that this was a little bit of the payback. Like the person a couple of speakers before me said: what does the government want us to do? Go back and invest in property? We've seen what's happened with overinvestment in that area. If we can't get the returns from shares that we were getting, let's go and look at property. It just won't work.

The thing that upsets me most about this is that it's not fair. This proposal is meant to hit about eight per cent of the people who get these credits. That's just not fair. There is the $1.6 million that someone touched on before. I think the community eventually accepted that because it applied to everybody. This one doesn't. It doesn't affect the pensions of older politicians, some of whom, in May, will be getting over $200,000 per annum for the rest of their lives, indexed. It doesn't affect them at all. It doesn't affect anybody in industry funds and it doesn't affect people who are on defined benefit pensions, and a lot of them are more wealthy than the people in this room, so I don't think that's fair.

There was one person who spoke quite eloquently earlier—and I've read a fair bit in the paper—about people in our position who are very willing to give up their money for hospitals and education. My message to them is: donate it. If you've got spare money, donate it to a local hospital or to your local school. Leave out the middleman but support your fellow retirees—those people that do need the money.

Another point that's been made often, in the papers especially, is to make people with self-managed super funds seem like they're villains. People set up self-managed super funds for many reasons. The reason we did it was that when I was retrenched in 2006 I went to Sunsuper and to my wife's super company, VicSuper, and said: 'We've got some shares; we want to put them in super,' but their solution was: sell the shares, pay your capital gains tax, give us the money, which will be 30 per cent less than what you had, and we'll go and buy some shares. Well that was really bloody sensible! That's why we set up a self-managed super fund—not for a tax loophole, not for anything else like that.

I endorse a lot of the points other people have made, but the last point I'd make is: I've educated my kids—and I've got grandchildren now—about money, the value of money and looking after yourself. The message I have to give them after the last few years is: 'Just spend all that you get and keep a little bit so that you can get on the pension but live well and have a bit left over. Unless you're super, grossly rich, make sure you get the pension, because otherwise the government is just going to come and change the rules and take the money off you.'

We obeyed the law all the way along. That really gets my goat. The fact that it's only eight per cent of the people is not fair. If you took that money off everyone in the room, we'd have to accept it, but taking it of eight per cent is not fair. I'm being discriminated against, and that's what craps me off.

CHAIR: Thank you, Mr Clapp.

Witness A : I'm 75 years old. My wife and I have a self-managed super fund. We have worked hard and long and are very happy to enjoy this self-managed super fund without access to any other funds. I believe this is a conspiracy including the ATO. Instead of advocating for all trustees of super funds, the Australian institute of super, it seems, have attacked self-managed super funds at every opportunity, even delivering to the Productivity Commission's recent superannuation review a manifesto, a submission, alleging inefficiencies and ill effect on the property market. Yet statistics and strategists, such as Credit Suisse, reveal that self-managed super funds are flexible and high yielding and carefully invest to seek returns—which is what superannuation is meant to do, particularly in this climate of low cash, poor property returns and high-fee, high-flying funds—away, of course, from government pensions. The harping enemies of self-managed superannuation funds are union- and industry-backed entities. They are losing customers. Why? Because the selfies are doing better than their funds—by a lot. And we invest in Australian companies supporting jobs. The regulations and these pop-up compliance duties are forever changing with the sole purpose of reducing competition. Does that sound familiar? It's tall poppy syndrome, and it's here now and we have to stop it. Thank you.

CHAIR: Thank you. We will now hear from Mr Fischer.

Mr Fischer : I wish to make a quick comment on the reason the Labor Party put up for why they should get rid of imputation credits—that is, because nowhere else in the world has them. But if they look at everywhere else they would see that people are paid a pension if they work for 50 years, regardless of how much money they have. So get rid of the credits and give us all a pension. Then there wouldn't be an argument anymore.

CHAIR: Thank you, Mr Fischer. We have half an hour remaining of the advertised time. So, if somebody has not had a chance to have a say and wishes to do so, they may do so. One person has identified that they'd like to have a second say, but I first have to give other people the opportunity to have a first say. Next we will hear from Andrew Dixon.

Mr Dixon : Thank you for the opportunity to speak; I do appreciate it. I've heard a whole lot today about how much this measure will specifically cost people but almost nothing about why they were entitled to that money in the first place and very little about why it is fair or why anyone is relying on the government in the first place to shore up their financial affairs. I've heard people say that they will drop private health care, as if it is a threat to the government. That is absolutely your right. You have to make a decision about the quality of care in your twilight years. So make that judgement call as you would any other product or service. Perhaps it is my ignorance—as one of the younger people in the room—but I don't see the fact that a policy costs you money to necessarily be unfair. I pay taxes too—a whole lot in fact—and I don't do so in the expectation of getting it all back in retirement.

To members of the committee: if this session has been at all representative, you will hear from an infinite number of people affected by this issue right now and almost nothing from people the system is setting up for for the future. To the right-leaning members of the panel—and please note that I do consider myself to be a right-leaning libertarian type: you need to start thinking again about the whole future generation of voters, like mine, instead of smirking and shaking your head whenever the words 'climate change' are mentioned. I have never voted Labor and, with their policies of giving everybody who asks for anything whatever they want straight from the coffers, it is unlikely that I will in the future. But that's what it seems like Liberal opposition to this policy is. Is that the hill you want to die on?

If we assume that Labor will win the next election—and I think that's a fairly safe assumption—those of you who are Liberals need to stop asking for accolades for meeting basic responsibilities in life and realise that the government needs to remain solvent, which is well in line with mainstream conservative economic management and principles, well beyond the next 30 years.

The tax system has changed several times in my working life, and I've asked for nothing to be grandfathered until the end of my life. The fact is: eventually, someone has to take a hit for the greater good. If you have an ounce of the selfless devotion that those who fought and died for our freedoms had, you'd be asking to make the sacrifice for the next generation—not asking for a pat on the back. Thank you for not having me forcibly removed!

CHAIR: Mr Dixon, we don't have anybody forcibly removed unless they seek to deny other people a right to speak. It is a public hearing and everyone is entitled to come and speak, whether they agree or disagree with any members of the committee and the panel. We've had people with a full diversity of perspectives, and we welcome everybody's input. Next we will hear from David Eskdale. I am aware there is one audience member who wishes to make another comment, but first I have to give people who haven't had a say the chance to speak. Did I meet you, Mr Dixon, at Mornington Golf Club? I did. Thank you.

Mr Eskdale : My name is David Eskdale. I'm 72. I have a part pension and I have about a quarter of a million dollars invested to supplement my income. I'd like to make some observations which are just a little bit broader than this inquiry, if you don't mind. You can tell me—

CHAIR: It's best to anchor things to the inquiry, but we're not going to censor you either.

Mr Eskdale : I would make the observation that when a fireman goes to a fire he actually tries to an aim the extinguisher at the source of the flames and not the flames. We've had a finance royal commission which, it does seem to me, has really illustrated that government organisations have been found wanting when it comes to understanding what needs to be done to make things fair and equitable. I really wonder whether it isn't time for the tax office to be subject to a royal commission.

It does seem to me that we are watching a government, in challenging the rights of pensioners, trying to pick the low-hanging fruit. We have a large corporate environment, working hard, but they are also supported by very skilful, cunning lawyers, well intentioned, who seem to be able to protect them and expose government agencies to ridicule when in fact we should offer respect. Now, I sit here and I look at each of you men and I say: I respect you and I applaud your efforts in trying to do what I think is probably an impossible job. But I think that part of the problem we have in our society is that we are beset by lawyers who protect others' interests.

I also think that the public debate is really appalling. I think that politicians need to recognise they have a duty of disclosure and to actually raise the standard of political debate. Yesterday we saw big corporates saying to the ALP—and I don't wish to single them out: 'Come clean; tell us what you really plan to do.' I think people who are public servants lose sight of the fact that they are public servants, but I emphasise that I honour each of you here because you're doing a very difficult job. But people who address us in the community need to remember we pay their wages. We expect a standard of debate that is far above the monotonous debate that I hear ad nauseam when I listen to question time in parliament. Thank you.

CHAIR: Thank you, Mr Eskdale. The suggestion of a royal commission into the ATO has been noted. Ian Dickie.

Mr Dickie : Good morning. Thank you. I'm 69 and obviously a self-managed superannuation retiree. I did have a prepared speech, but I endorse a lot of what has been said. There are a couple of things I do want to point out. You don't have to receive a cash refund to receive a financial benefit. If two people receive a franking credit of $100, let's say—one person's a retiree like me and another person's a taxpayer—they both receive a financial benefit. What's proposed if this policy change occurs is that I won't receive that benefit but the taxpayer will. I consider that's somewhat unfair. There was another point made, too, by Labor, which is that the $5 billion that's paid in cash refunds each year is unsustainable. Now, I did a little bit of research. The Australian Institute maintained that the total franking credits are worth $30 billion a year, of which $5 billion's a fraction. If $5 billion is unsustainable, I'd question the balance of it. Why is that not being addressed? It's just unfair. I think it's a bit like saying, 'Don't look here; look over there.' Look at the $5 billion in cash refunds and let's concentrate on that.

If we're really serious and if the argument's going to have some intellectual rigour about it and if you're saying, 'Let's have a sensible debate about franking credits,' don't just look at that small fraction of it; look at the lot of it. Basically, that was my addition to any of the comments that have been made this morning. Thank you.

Mr THISTLETHWAITE: Mr Dickie, I can answer that question at the end, if you wish.

CHAIR: Thank you, Mr Dickie. Next is Lynette Gates.

Ms Gates : I'm aged 88. My husband is nearly 95, so we must be the oldest here. The thing about franking credits is that this has worried my husband so much that it's affecting his health. He's a very intelligent man. You're all telling us what to do, but the trouble with us is we haven't got the time left to do it in. We lead quiet lives; we go overseas for a few weeks every year in the winter. If something isn't done about these franking credits, what do people of our age do? The young girl who was here before—she was about 57—said she's got time to look into it and everything. We haven't got the time. I just thought I'd say that for a bit of humour! Thank you.

CHAIR: Thank you, Ms Gates. I just want to clarify that nobody else who hasn't already spoken wishes to speak. We can give those who have already spoken another chance, but I need to make sure that anybody who has not had a chance to speak can do so. If you wish to do so, come straight to the front.

Mr Coghill : I'm Geoff Coghill, a retired accountant—I'm a farmer these days—with a self-managed super fund. The gentleman before said that somebody has to take a hit. Maybe somebody does, but it's the way in which the hit has to be taken that I think is the issue. What we have here is a sledgehammer approach which is going to smash a whole lot of things that are good, and it is going to have inconsistent outcomes. For example, I would simply move to switch investments to those that will provide an untaxed income, those being property in Australia or foreign sources, and other people will pick those up. Those who have other income will continue to be able to use their input tax credits to offset the tax liability on those. So some people will not be so affected and others will be severely affected. Certainly, the maths are pretty simple for my income from my self-managed super fund: most of the income is in fully franked Australian shares; that will disappear. There go the overseas holidays for most people here. In short, I think it's a bit of a half-baked proposal by the ALP. It needs to be thought out more clearly and perhaps an approach to tax the income and continue to allow input tax credits would be a far better approach.

CHAIR: It's Mr Arthur Ranken and then Mr Hayden again. It's still timed, even for those who wish to speak again.

Mr Ranken : In the course of this meeting I have become quite disturbed. I've found out that Westpac are intending to pay their dividend before 30 June. That means that there'll be three dividends from Westpac in this year—three lots of franking credits. There'll be a lot of people who have a flow-on plan with their finances who will suddenly find that they're into a higher tax bracket this year. I don't know what will happen next year. If they're on a higher tax bracket they'll be taxed more. It will be a big disadvantage to them, and that disturbs me. That shows that this problem of the franking credits and all the rest of the confusion that the Labor Party is causing is already having an effect. I can't stress more that franking credits should be considered a dividend tax and excess tax paid should be returned, just like PAYG tax.

Another point that I would like to make, which I didn't have time for before, is that everybody here who will be forced to have to sell their shares will pay capital gains tax. But, under these new proposals, they'll have to pay 50 per cent more capital gains tax, because the intention is to go from 50 per cent to 75 per cent. That's not been brought up here. For those who didn't know it, that is a fact.

I just have a lot of problems with all of this confusion that the Labor Party are causing. They're mixing up the negative gearing, the superannuation, the capital gains tax and franking credits. They're leaving it confused. They're not making a lot of noise about it at the moment. I see it as a major attack on the mature financial strengths of our community. Everybody here has mature money. They have worked hard. This is an attack on the fundamental foundation of our country. I see it as a socialist attack. I see it as being not dissimilar to the socialist revolutionary rules that Gough Whitlam was trying to bring in in 1975, which I found myself quite involved in. This whole thing is extremely dangerous. Individually, franking credits, capital gains tax, negative gearing and superannuation are problems on their own, but, mixed up together, they become an even more confusing and bigger problem. Thank you for allowing me to fill in the rest of the time this morning.

CHAIR: Next is Martin Hayden and then the gentleman in the white shirt.

Mr Hayden : I just want to finish up what I was talking about before for just a couple of minutes. Listening to everybody speak today, it's quite obvious that there are no super-rich mega-dollar people here. I feel that we're all ordinary working class people. I feel that this policy is totally unfair and is just part of Shorten taking from the rich to look after the poor. The problem is that people like us are not rich; we have just been responsible.

Mr Middleton : I had an additional point: for your information, before I retired, I was a senior taxation executive with one of the world's largest corporations.

I want to draw your attention to the fact that this suggested change to taxation legislation will probably cost the Australian government around $50 million to $100 million to implement. If you understand the tax system that we currently use, to calculate assessable income you have to add all the benefits. The franking credits are added back to calculate the rate of tax that is applied. If this new system is introduced, then to do that you will have to make a calculation adjustment to remove the amount of franking credits that would otherwise be refunded in the form of cash. That's a rather complicated calculation for the ATO. Based on the fact that it would cost the Department of Social Services $10 million to change any software, it'll probably cost the taxation department something similar. Considering assessable income is the basis for the calculation of all social service activities, Centrelink activities and all sorts of pensions, so you're looking at a horrendous internal cost which will reduce the benefits of the taxation that is being proposed.

Mr May : I would like to thank you for organising this, Tim. From my knowledge and reading of the press, you are the only vocal voice in the Liberal Party who has made any significant comments about this adverse franking credit plan. I thank you for that, and may I say how bitterly disappointed I am as a Liberal Party person with the remainder of the politicians in the party who have virtually said nothing. We are not hearing anything from them at all.

CHAIR: While that's very kind, sir, I need you to address the substantial issue of the inquiry.

Mr May : I will take it one step further, then, on the issue. The previous speaker referred to the capital gains. I referred, also, to the fact that my superannuation fund is going to be worthless in seven years, reducing significantly, because I cannot put any more money in when it's in pension phase. The only way I can keep that topped up to any extent at all is by using the franking credits that I have available, which can go back into the fund because they're part of the fund.

The other point the previous speaker made was about capital gains. We can't get sufficient money from our superannuation fund as it's going down, so we have to go into savings. In going into savings, you might be in a situation where you have to go back into shares that you are holding and will sell—maybe they're Commonwealth Bank shares that you had 20 years ago. You've got capital gains on those, and the capital gains are absolutely horrendous. What happens next is that, as well as losing the franking credits, you go into another taxation bracket and you have to pay more taxation because of the capital gains on your savings.

CHAIR: Thank you very much, Mr May. We have seven minutes remaining until 10.30. If anybody has not had an opportunity to speak, I'm giving you a last chance now.

Witness B : I'd just like to make one comment: the Superannuation Act, in its first 10 years, doubled. In its first 25 years, only nine months went by where there was no change to the Superannuation Act. Just think of that, people.

CHAIR: Thank you, Sir.

Mr Simmons : I have one comment. Back in the seventies, I think it might have been Malcolm Fraser who brought in a surcharge on your income tax for a non-means tested pension. Do any of the current pollies, here, remember that? It's never been refunded or cancelled.

CHAIR: Thank you, Sir. I don't know the collective memory of the committee, but I wasn't born in the seventies, which I realise is its own comment! Unless anybody else has anything remaining to say, I will thank you for your attendance here this morning. This was an opportunity for you to make your statements and explain to the committee the circumstances that you will face, depending on a change to policy. I note that the deputy chair—I hope he doesn't mind me outing him, but it's not a secret—is a member of the Labor Party and has said that if anybody has questions he's happy to take them at the front. Otherwise, thank you for your attendance.

Please note that written submissions will continue to be accepted throughout the inquiry. If you have made a statement and you did not complete it or you wish to formally table it, give it to John, at the front, or you can make it online at aph.gov.au/economics. We will now suspend proceedings and resume at 3 pm—if anybody wants to catch the Sorrento-Queenscliff ferry and come to Torquay, as we will be doing. I declare this public hearing closed.

Committee adjourned at 10:26