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Standing Committee on Economics
31/01/2019
Implications of removing refundable franking credits

ALDER, Mr Tony, Private capacity

ALLISON, Mr Peter, Private capacity

BAKER, Ms Carolyn, Private capacity

BARKER, Mr Ian, Private capacity

BOULTON, Mr Robert, Private capacity

BRICKNELL, Mr Ray, Private capacity

BURROWS, Mr John, Private capacity

CADZOW, Ms Rhonda, Private capacity

COYNE, Mr Colin, Private capacity

DAVIS, Mr Rob, Private capacity

DUNCAN, Mr Charles, Private capacity

ESPEY, Mr Don, Private capacity

ENMORE, Mr Robert, Private capacity

FITZGERALD, Mr Peter, Private capacity

FOX, Ms Trudy, Private capacity

GRAYSON, Mr Viv, Private capacity

GRENENGER, Mr Tony, Private capacity

GROVER, Mr Rob, Private capacity

HICKS, Mr John, Private capacity

KENDALL, Mr Bill, Private capacity

LICINA, Mr Chris, Private capacity

MATTHEWS, Mr Terry, Private capacity

MATTNER, Mr David, Private capacity

MILLS, Mr Jerrome, Private capacity

NOWAK, Mr Joe, Private capacity

REINBOTT, Mr Graeme, Private capacity

ROSS, Mr Eric, Private capacity

ROWLAND, Mr Steve, Private capacity

RUSHBROOKE, Mr Ron, Private capacity

SHAW, Mr Gordon, Private capacity

SMITH, Mr Arthur, Private capacity

STEWART, Ms Jenny, Private capacity

THOMAS, Mr Jillian, Private capacity

WEATHERHOG, Mr Bruce, Private capacity

WOOD, Mr Adrian, Private capacity

Committee met at 14:00

CHAIR ( Mr Tim Wilson ): Good afternoon, everybody. The ability for investors, including individuals and superannuation funds, to claim their full franking credit refunds is an established feature of our tax system and is core to the financial security of many Australian retirees. It's estimated there are 165,000 Queenslanders who will be directly affected by a change in law. 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. We welcome your contribution and participation. If you'd like to speak today, please add your name to the clipboard to register.

Before commencing I refer members of the media present—there is at least one member of the media present and there may be others—and all those listening through the internet—hello to you—particularly the people from the Financial Review, for the need to fairly and accurately report the proceedings of this committee.

The way the community statements will work is I will introduce each speaker and invite them to speak at the microphone provided. I will mention the name of the person to speak to come to the front and I'll also mention the next person to come up so they can be ready because, frankly, valuable time can be lost while people prepare themselves. The secretary, John, will indicate to you with a green sign when you have spoken for three minutes. I stress that you should get straight to the point because I will cut you off—not out of rudeness but because we have to be respectful to others so they get their chance to speak. I will then introduce the next speaker.

Please note that the 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 private or financial circumstances. To put this into context, every word I'm uttering is being typed by somebody in Canberra and recorded in the Hansard where it will stay forever. So, if you say something, be mindful of that.

Please also be aware that these proceedings may be filmed. If members of the public have objections to being filmed, please raise them with the secretariat and the committee will of course consider your request.

Mr THISTLETHWAITE: Before we begin, Chair, I offer an apology in advance. I have to leave at 3 pm to get on a four o'clock flight. I just wanted to let everybody know that I will be leaving at 3 pm. Thank you.

CHAIR: Thank you, Mr Thistlethwaite. I'm sure if anybody wants to raise any issues with you, they can raise them with you by email afterwards. I call the first person on the list. Immediately after him will be Peter Allison.

Witness A : I'm here on behalf of my wife today. My wife is a 62-year-old former Australian public servant who was retrenched three years ago, when the local Gold Coast office she worked for was closed. Shortly after her retrenchment, she was diagnosed with emphysema. She's been unable to work since then and is confined to home for most of the time.

She has a small share portfolio in her own name. This gives her a dividend income of about $2,500, I think, and credits of about $800 a year. We're not wealthy people; we're not wealthy retirees. The franking credits that we receive are very much a part of our income that we desperately need. Under current rules, she receives her franking credit refund. Under Labor's proposed new rules, she would receive no refund. While an $800 extra imposition may not seem like a lot of money, it is to somebody who is earning less than $30,000 a year.

We consider it manifestly unfair that, if our combined modest share portfolios were invested through a self-managed fund, she would still be able to claim franking credits but, because she holds those in her own name, she is unable under the proposed policy to claim the franking credits. So basically I'm here today to just raise that point. If we were to hold these assets in a super fund, it would cost us probably $3,000 a year in fees. We can't afford to pay that. We chose to put our assets into our own names, but she's going to be penalised for doing that, and at 62 years of age she is ineligible to receive any pension. So it does affect us.

CHAIR: Thank you very much. Next up is Peter Allison.

Mr Allison : My wife and I are self-funded retirees, and we moved into pension phase on our fund two years ago in the expectation that we'd be able to fund our own retirement through till death. I'm now not so sure that we can. Our funds in the last financial year produced a net income of $60,600, the great majority of which came from dividends, and $15,000 of that $60,600 is dividend imputation that is refunded to us. If we lose that $15,000, that is an effective cut in our income each year of 24.8 per cent. If I were not a self-funded retiree and went back into the workforce and earnt $60,600, I'd be asked to pay $7,393 in tax at the end of the year, yet under Mr Bowen's scheme he's asking for more than double that, $15,000 in tax. That's manifestly excessive. If we rolled into a retail or industry super fund, again we wouldn't be affected.

We are not fat cats. The average annual income in Australia at the moment is about $82,400 for one income earner. My wife and I—two of us—are living off a pension that we provide for ourselves of $60,600, so how can we be considered fat cats at the top end of town on that basis?

I think Mr Bowen's assertion that his tax will raise $11 billion over forward estimates and a staggering $59 billion over the medium term is a mirage, much like the mining tax. Those who are at the top end of town, who can afford tax advice, will re-engineer their funds and avoid paying this tax. Small people like me, who don't have access to that expertise and are trying to manage their funds themselves, will be the ones left paying this tax. It's manifestly inequitable.

If there were any case for this clawback, it should be considered on some sort of progressive scale. Mr Bowen says there are super funds that are being refunded $2½ million a year in imputation credit refunds. If that's the case, structure this tax to focus at that end of where the refunds are. We're small people in the sights of a shotgun-blast policy. That blast will be avoided by those who have large super funds and large refunds, and we small players will be financially maimed as a result of this.

I thank the committee for investigating this and putting the time and effort into it. I hope you're successful in changing this policy.

CHAIR: Thank you very much, Mr Allison. Next up is Jillian Thomas and then Graeme Reinbott.

Ms Thomas : This is more a comment rather than my own personal situation. Chris Bowen says it's all about fairness, but he plans to tax people on the basis of who manages their money. So, those retirees with their money in an industry fund would receive cash franking credits while those with their money in an SMSF or held independently wouldn't. Surely taxing people on the basis of who manages their money is without precedent. On the same issue, pensioners who were pensioners before 28 March 2018 would obtain cash franking credits, but those who come after this would miss out and would therefore be subject to a retirees and pensioners tax. Where's the fairness here?

Mr Reinbott : Thanks for the opportunity to speak today. This issue is of huge concern to retired people my age who have between $800,000 and $1.6 million in their self-managed super funds. With a return of five per cent per annum, that's between $40,000 and $80,000 a year to live on—a modest living only. We certainly aren't the wealthy who we are told are being targeted by this tax change. Why have we been singled out?

My wife and I were farmers in North Queensland for most of our working lives. We were heavily involved in our horticultural industry, at both a state and national level. As farmers we worked long hours to secure a future for our family and our retirement. In 1995, our accountant recommended we set up a self-managed super fund, which we did. After more than 30 years in our industry we both realised that my health was being seriously affected by the stress and workload which had built up over the years. After consulting with professionals in the superannuation industry, we made the decision that retirement was our best option: we would invest in Australian companies and live off our dividends. These dividends were fully franked, meaning the company had paid income tax on their profits before distributing the remaining profits as dividends. When our self-managed super fund moved into pension phase, when we were both 60, it could no longer use the franking credits as a tax deduction, so we were entitled to a refund from the ATO. If this entitlement is taken away, our income will reduce by 30 per cent. I can't help wondering whether the politicians proposing this change would be prepared to do the same—take a 30 per cent reduction in their income for the good of the country.

We have an income of around $90,000 a year, including franking credits, to live on. We have two married children and four grandchildren, who will also be negatively affected if our income is reduced to $60,000. We rarely take overseas trips, and we don't consider ourselves as wealthy. We pay many taxes and spend most of our income here in Australia. So, you see, it will not only be my wife and I who will be disadvantaged by this tax change but our extended families and everyone in our community where our money is spent. Our self-managed super fund has only been in pension phase for six years. Suddenly, our annual income, which we have worked hard for all our working lives to achieve, could be diminished by 30 per cent.

CHAIR: Thank you very much. Next Peter Fitzgerald, and then, after Peter, Rob Grover.

Mr Fitzgerald : Thank you, Mr Chairman. First of all I'd like to thank this committee for giving us the opportunity to address this issue. I've attempted to raise it with my local Labor member for Richmond and the shadow Treasurer, neither of whom wished to speak to me about it, so I'm glad we could come and talk to you here.

I have a self-managed super fund with my wife. I am in the pension phase and have been for nine years. The majority of our funds are invested in the local stock market and, therefore, we are recipients of a franking credit refund each year. This proposed policy will result in a 30 per cent reduction in our income. We think this is grossly unfair and support what the other speakers have also said. When this policy was announced, there was a lot of reference to the $2½ million people. These are people with something like $75 million worth of superannuation. With the current government's policy of limiting the amount of super to $1.6 million, a lot of that will not be refunded to those people. If a further change was made to require that excess superannuation to be removed from the superannuation fund and not placed in the accumulation account, which is proposed, where these funds actually still get a 21 per cent reduction, the Labor Party would, in fact, get most of its money back and these large superannuation holders would not get a refund of tax credits. So that's my thought.

CHAIR: Thank you, Peter. Next is Rob Grover, and then John Burrows. You've tabled a submission as well, Mr Grover.

Mr Grover : Yes.

CHAIR: Thank you.

Mr Grover : In introducing this proposed policy by the Labor Party, a lot of talk has been about targeting wealthy retirees. I've got a couple of case studies, which you gentlemen have in front of you, and what I want to show is that it not only targets some wealthy retirees but targets some of the poorer people in this country.

On the handout you have in front of you, you'll notice case study No. 1 is Bill and Betty. Bill is a tradesman. He's aged about 30 years old. He lodges his tax return at the end of the year and his accountant advises him he's entitled to a refund of $3,200-odd. Under current rules and Labor rules, he'll get that overpayment of tax refunded to him. At the same time, his wife, Betty, has a share portfolio, and she's entitled to a $3,200 refund of overpaid tax at the company level with her dividends. Under current rules, she would get that $3,200 back. But, under Labor's proposal, she wouldn't. So what we have is a discrimination here, with two people—husband and wife—who both are entitled to a tax refund because tax has been overpaid. Labor would give it to one but not the other.

The second case study I have is two retirees, Chris and Jenny. Chris has a self-managed super fund with $300,000 in it. It earns him dividends of $18,000, and he's entitled to a refund of $3,200. Chris became an age pensioner on 1 January 2018. Under current rules and under Labor's proposal, Chris will get that refund of overpaid tax paid back to him as a refund. Jenny, another retiree, also has $300,000—an identical situation to Chris. She became eligible for the pension on 30 June 2018. She won't get the refund. She has the same amount invested. She's only six months younger than Chris. But, under Labor's rules, Chris'll get his refund but Jenny won't get hers. Why not? Because she became eligible for the pension at a later date.

We hear all the ads on TV about Labor's campaign being a fair go for Australia. I have to tell you that this proposal by Labor is not fair, and it's anti-Australian. It discriminates against people. We have people with identical financial situations, people who are entitled to exactly the same refund and, under what Labor's proposing, some will get it and some will not. I believe that this is an unfair and discriminatory policy by Labor, and I think it needs to be cancelled completely.

CHAIR: Thank you very much, Mr Grover. Your submission will go in. Now, Mr John Burrows. After Mr Burrows, John Hicks.

Mr Burrows : Thank you very much for the invitation to come to this meeting. I want to make the point that my wife and I are over 80 years of age and, as such, we need to plan carefully for the future. There is no chance that we are going to make any more money if we run out, if we get sick or if problems start. So we've got to plan. We don't have a large income, unlike Mr Bowen, who seems to suggest that we're all wealthy people collecting these franking credits; we're not. I would classify us as moderate-income people.

We had to relocate from Port Melbourne. We sold up here and went to a retirement village. It cost us quite a bit of money. We increased our assessable assets and lost a part-pension. It cost us around $10,000 to $12,000. The increased cost of being in a retirement village is double what we were paying in the way of owners corporation fees. There is another $5,000 or $6,000 perhaps. So we are losing quite a bit of money there.

We are at the moment dependent on the $10,000 a year that we're getting in the way of franking credit cash rebates. It's part of our income. It's an essential part of our income. I can't for the life of me understand how anyone can think that people who are getting a $10,000-a-year franking credit rebate are coming from some wealthy group. It stands to reason that if you're getting this rebate you're a low-income person.

We don't have superannuation. We don't have large sums of money stacked away, paying no interest or very low interest. In that situation, I think it's unfair. I rather suspect that we're really being hit in the crossfire. I think they're really trying to single out people with large sums of money in superannuation. It's costly to the revenue of the government and they're trying to kill that bird, but they're actually hitting a lot of other people at the same time. I think my wife and I are two of those people that they're hitting very hard. That's my point.

CHAIR: Thank you, Mr Burrows. Next is Mr Hicks, and then I think it is Chris Licina.

Mr Hicks : Mr Chairman and committee members, thank you for the opportunity to submit. My wife and I are self-funded retirees. All of our life savings are in an industry superannuation fund. As such, my understanding is that the proposed tax policy changes will have limited direct financial impact on us; however, I am still deeply concerned that such a grossly unfair tax policy is being proposed. The removal of refundability of franking credits is a huge disincentive to people working hard to self-fund their future retirement. It will also be a major disruption to the beneficial cycle that encourages citizens to invest their savings in Australian companies, creating growth, jobs and a stronger economy, without those companies being reliant on debt finance from overseas.

The authoritative findings of the Rice Warner submission to this inquiry made in November 2018 provide an independent and evidence based assessment to this proposed tax change. Rice Warner state at page 4:

A policy of removing refundability of franking credits for all investors is a scatter gun approach that will result in many casualties, noting some of those affected will come from the lowest income groups in society. The policy is not fair and there are reasonable alternative policy actions available that could remedy any perceived unfairness in using superannuation as a vehicle to reduce a wealthier person’s tax burden.

This is a bad public policy proposal that seems to be primarily designed to drive people out of self-managed super funds and into industry funds but with unacceptable associated consequences. Thank you for your consideration of my submission.

CHAIR: Thank you, Mr Hicks. After Chris, Arthur Smith.

Mr Licina : Mr Chairman, thank you for the opportunity. I came to this country nine years ago and now I'm a citizen of this country. Because we've been here for such a short time, it's virtually impossible to build up a healthy super. So, most financial advisers that you consult indicate that equities are probably the best way to move forward. With this new law that they're going to pass, I think this is going to make it very difficult for a lot of people. It's certainly going to make it difficult for us, and in my opinion this is going to put a further strain on the welfare organisations of this country. Thank you very much.

Mr Smith : Thank you all for hearing what I've got to say. My wife and I kicked off a small manufacturing business about 22 years ago. We were faced with borrowing—putting our house up for collateral and borrowing to fund our working capital. What we decided to do was to use our own money, and our own money came from three years of living on very little from the company and ploughing it back into profits. We earned $210,000 in profits over three years. It cost us $70,000 in tax to plough back $140,000. We could have borrowed at six per cent. The company tax rate was 30 per cent.

Anyway, here we are 22 years down the track and we're winding up. We've retired and we want to pull that money out of the business. If we were to pull it out as we need it—maybe in lots of $30,000-odd a year, because we don't need the lot all at once—we would get the tax we have paid refunded, because our taxable income wouldn't be such that we would pay any tax. But what's going to happen is that the government is going to take $11,000 or $12,000 a year, if Labor gets in, and keep the lot. To my mind, the government has had that $70,000 that we paid in tax some 20 years ago for 20 years. If they'd invested that at five per cent, they'd have turned it into 180 grand by now. They've done pretty well out of. And, by the way, our turnover of about $3 million a year has provided $60 million in income on which we paid tax, but every cent of that 60 million bucks went to our employees, suppliers or whoever, and those people paid income tax on that. At a small 20 per cent tax rate, they'd have paid the government $12 million in tax. They have 480 left, and then they'd spend that, and other people would earn. So what we did, in ploughing back that $200,000-odd of profit, has created millions of dollars worth of income and tax for the government over that period of time. Now that we get to a time when we're least able to pay for it, they want to take the lot from us and we can't take it out at our leisure. We don't think that's fair.

The other little thing that I thought, coming in here, was: if I was 50 and not 72 and I'd gone and got another job now, I'd be earning an income and paying tax and I could write those franking credits off against tax that I'd be owing and reduce my tax on that income. But, because I'm retired and not earning a big income, they want to keep the lot. Not fair! I'd also like to say that, if my wife and myself could receive a $1 government funded pension, we'd get the lot of it back.

Mr Matthews : I live at Ormeau. I'm a 72-year-old disillusioned Liberal voter. I'm a former national serviceman and a Vietnam veteran. My wife and I were in receipt of a DVA age pension up until 1 January 2017, when the government's retrospective legislation for pensioners, assessed under the assets test, came into force. From that date we became self-funded retirees.

In our assets, we have a small share portfolio—and it's very small compared to what I've heard here today. With the imputation credits, my wife gets about $2,474 and I get $970. That's a total of $3,440, or about $66 a week, which we'll lose under Labor. This will cause us some financial discomfort, as we rely on this money to pay our rates and insurances, and we get that back from the tax department—it's the only money we get back from the tax department. Our super is in fact an APRA-regulated industry fund. We live on drawing down from our super and, also, we get some rent from a unit on the coast that we fully own. That is our financial situation. We will be under financial stress because of this Labor thing.

I'd also like to add that it is a bit rich and hypocritical of Bert, Stuart and the rest of the coalition to be jumping up and down about the Labor Party having a go at retirees and taking money off us when, four years ago, they specifically targeted pensioners with their retrospective legislation. My wife and I were in that group, so we lost our pension. We are the same people with less money because of losing the pension. But it appears it's okay for those previously mentioned guys to kick us in the guts financially by taking our pensions off us, yet you complain on our behalf when the Labor Party also wants to take money from us. Isn't that hypocritical? I'd just like to add that Peter Dutton publicly admitted last April that the government got it wrong when it introduced that retrospective legislation.

CHAIR: Next up, Eric Ross, then Tony Grenenger.

Mr Ross : Thanks to the committee for giving us the opportunity to address you here today. Let me say that we will be affected if Labor becomes the government after the next election. You might say I really don't have much to complain about. We do receive about $65,000 in franking credits and we have our own superannuation fund, a family one. You might say, 'Okay, you haven't got anything to whinge about.' But let me say this: what do people with money do? They spend it. Even though we are retired, we run a small cattle property, and you can appreciate that $65,000 goes well towards keeping that viable. The other factor is that, as well, we spend money at the local produce agency. We have vet bills and we have quite a lot of expenditure. People with money can keep the economy going, and I think this is where some people at a higher level—and when I say 'higher', I mean people who are running the country—don't see it all through. We don't gain one cent in welfare at all, and so, consequently, we are not a burden on the community. If this comes in, it's going to mean one of two things: we are going to have to cut back our business operation, which, as I said, is only a small one on the side; and, as well as that, eventually you'll get that.

One of the other concerns I have is that in the Australian Shareholders Association book, which is a very good book that I support, we have articles written by financial people who basically believe they know it all. One of the ones I was concerned about is one written by the Rivkin committee—and we all know who Rivkin was. He is suggesting now that the future of this is that we shouldn't be complaining; we've got to find a solution around it. His solution is that the businesses now, or the companies that we have shareholdings in, will pay a lower dividend, and so, consequently, there won't be very many franking credits. This is their way around it: they will then put the money, maybe, in enhancing their businesses. Let me say: doesn't that sound like the people who suggest they might live off depreciation? You can't live off depreciation. We won't be able to live off the fact that we get lower dividends because companies have kept their money and are not going to put it out.

I will say this: it's not just a matter of people who are smaller people who are only getting a couple of thousand dollars. Even people in our situation are going to be affected, and the other community is going to be affected as well. It's not just a matter of quickly saying, 'Yes, we'll do this,' and a few people will be affected. I know I'm biased, but the Labor Party might say, 'Well, most of those people probably vote for the Conservatives now, so don't worry about it.' But I tell you what: if the local produce fellow down the road doesn't get the $200 or $300 a month from me, it's going to affect his income as well. So there are other factors.

CHAIR: Thank you, Mr Ross. Next, Tony Grenenger, then after Tony we'll have Bruce Weatherhog.

Mr Grenenger : Good afternoon. I'm 73 years of age. My wife and I are self-funded retirees. Quite a bit of the stuff that I had noted down here has been taken care of: the 20 to 25 per cent drop in income with the loss of the franking credits.

What I want to just focus on is something that I really have trouble with, which is the fairness of some of this. I'll try to explain it in this way. We own shares in public companies, and as such we are a part-owner of that company. If the company earns a profit, it is required to pay tax on that profit on behalf of the shareholders who are the part-owners of that company. If the tax it pays on behalf of each shareholder is at a rate less than the marginal tax rate of that shareholder then the shareholder part-owner has to pay additional tax to make up the difference. If the tax it pays on behalf of the shareholder is greater than the shareholder's marginal tax rate, the excess tax paid on his or her behalf must be returned. That is the only way to make it fair. Otherwise, some shareholders or part-owners will be receiving a greater proportion of that company's profits than those on marginal tax rates.

Labor's proposal is even more discriminatory by allowing those on a pension to receive cash credit refunds while self-funded retirees not on the pension will not. This is a policy, in my opinion, which clearly, over time, will lead to more people on the pension and fewer self-funded retirees, hardly a long-term goal to be proud of. I just don't understand it. Thank you.

CHAIR: Thank you. Bruce Weatherhog and, after that, Rhonda Cadzow.

Mr Weatherhog : Thank you very much for listening to me today. I think most of it has been said. My wife and I are both self-funded retirees. We do not get anything except a small health card, which is not worth a lot to us, but we appreciate it anyhow because we understand that the Australian taxpayer is paying for it.

I really only have one question to the opposition leader, Mr Shorten: who does he consider as being rich? He always says, 'It's the wealthy I'm going to tax.' I'd like to know: if you have $50,000, $100,000, $200,000, $1 million, $2 million or $3 million, are you rich? He keeps on saying, 'We're only doing it to get the rich.' He doesn't say how much you have before he thinks you're rich. I can hear what people here are saying today—exactly what I've thought. I think it's just so unfair. We worked all our lives. We've been married nearly 50 years. We did what everybody suggested and put money into superannuation. We even paid extra money. When John Howard came to power, I paid an extra 15 per cent, putting money into superannuation for a few years, which I accepted, and after that they gave us extra deductions which made it all worthwhile. But I would like to know from the Labor Party: what do they consider as being rich? Thank you.

CHAIR: Thank you very much, Bruce. Next is Rhonda Cadzow, then after that Rob Davis.

Ms Cadzow : Good afternoon. My husband and I set up our self-managed super fund with two aims: firstly, to obtain control of our hard-earned money and, secondly, to not be reliant on government handouts. These were the two driving factors in all our planning, acting on sound advice from both an accountant and a financial planner, playing by the rules all the time. In 2012 we had accumulated enough capital to maintain what is defined by ASFA as a comfortable retirement and moved our SMSF into retirement phase. This strategy has proven to be achievable over the past six years. So we were dismayed to hear that, upon election of an ALP government, a small percentage of people would no longer be eligible for franking credit refunds. This will lower our income by approximately 15 per cent per annum, which is over a thousand dollars a month in pay. Our only means of replacing this income is to run down our capital at a much faster rate and, at some stage in the future, become reliant on government handouts. So, at a stroke of the pen, our retirement plans, worked towards as payee taxpayers, are null and void.

We do not accept that the refunding of tax credits to a small proportion of the population is unsustainable when the same benefits, and far more generous benefits, are available to other sections of the community. We firmly believe that the Labor Party want to force self-managed super funds into industry funds and are attacking our savings and that of one section of the community in particular because they believe there are not sufficient numbers of us in any electorate to change the outcome in any House of Reps seats. However, Senate seats are a different matter and all our votes will be counted as one. If all those who are against the government riding over the people and discriminating against self-funded retirees put Labor last on the Senate ticket, we may just manage to convince Canberra that we will not become stolen-from generation without a fight.

CHAIR: Next up, I promised we would get to you, Rob, and then after that Bill Kendall. Rob Davis.

Mr Davis : Thank you, Chairman and committee. I and my family have worked my own small business since I was 23 years old, and then employing a few people as well. When running a small business, you do not stand for 40 hours a week then close up shop, like most employees. Most of the year my wife and I put 60 to 80 hours in a week, probably in the early years making no more than the average employee. With perseverance and from making a few right decisions, our business grew, paying a fair amount of tax over the life of the business. Then it was time to think of retiring.

The government said that it had a wonderful super plan and that, if everyone subscribed to it, it would reduce the government's liability to afford a pension for all Australians. We thought, 'Well, if we aimed at putting our business into the self-managed super fund, with all the regulations, it would benefit us as well as the government. The cost to set up the fund was well over $15,000. Since that time successive governments have made tax grab after tax grab on the super fund regulations, which should have been grandfathered for people already retired and receiving a pension from the SMSF. We do not get any government concessions after working hard all our lives putting money away for our retirement on the premise of the benefits being in the super fund. Political parties have consistently eroded these benefits on the espoused super fund as touted.

I've put most of my savings into the share market, which has taken really great big hit in the last couple of months. Then we have Shorten wanting to steal away our franking credits, which were in the regulations, which is at least a third of our income, as a tax grab. I'm 77 years old and not costing the government anything. No wonder the average person does not trust a politician! I did the right things but am still getting punished. I may as well have been an employee and never worried about where my next dollar was coming from, and spent what I had so the government would pay. I'm looking to you and the Liberal Party being elected for the next term—and a little PS: Malcolm Turnbull should be banished to Siberia!

CHAIR: Thanks, Rob. There are so many other people I want to banish to Siberia first! Next is Bill Kendall and then, after Bill, Robert Boulton.

Mr Kendall : Yes, the Labor proposal will affect me. However, fact: Australia has two taxation systems—income tax and company tax. Fact: the federal government has always joined the taxes together, by a purely arbitrary political arrangement, from no franking cash credits to all franking cash credits. Franking credits are tax credits. Fact: company tax credits are not cancelled during the company's life. Why should an investor, a part company owner, have their credits cancelled?

It appears we have two options: (1) leave credits outside of personal taxation income and only use credits against taxable income, and carry the excess credits forward for future tax and future taxation, including capital gains and for tax balancing when the person is deceased. This would also take political manipulation out of the equation; (2) to avoid complications, why not leave the situation as it is at the moment, with cash income from credits used against tax on taxable income? Then tax the excess credits at the personal, marginal rate. This would be a substantial sum for Labor to use on schools and health and would return their voter group. Proposal: the Labor Party knows how many credits are involved. We know that. We've heard from everybody in the room. That is why they're proposing cancelling this.

I believe that everybody should be concentrating on obtaining a workable solution before the next election when the Labor Party are at their most vulnerable and prepared to accept an arrangement. I am prepared to accept an arrangement as I see the credits as what they are: tax credits. As a PS—I'll put this PS in; I didn't mean to—if Labor bring in their proposal, charity tax allowances will be to the Labor Party's advantage, not the donor's, as the unused tax credits would be taken by Labor. It's a very complicated situation that they've got themselves into. Thank you very much, and there's a summary I've put in.

CHAIR: Thank you, Mr Kendall. We'll table that as a submission. Next is Robert Boulton and, after Robert, Ron Rushbrooke.

Mr Boulton : I have made a written submission to the inquiry, but I had a further thought to add. For the sake of those listening to the streaming, I'll reiterate one of the points that I made in my submission and give the lie to what Labor says is not refunding people who don't pay tax: the franking credit is in fact a tax on our income. The further point I make to say that we are taxpayers is based upon the fact that most of the income in my super fund was tax paid when I accumulated it, and I now pay a 10 per cent tax on it when I spend it, retrospectively applied, as the goods and services tax. In any other context what Labor is proposing to do would be called elder abuse or theft.

To make it clear that recipients of franking credits are entitled to keep or receive the full value of them, I would call on the present government, before they lose office, if they are going to, to legislate or regulate to enable companies to pay the full dividend with no reduction of withholding tax to either all shareholders or only those who are identified in their records as super funds, which mine is. Rather than refusing to have our credits reimbursed, the government really should be paying us interest for the time that they have unlawfully held the money that they were not entitled to take from us. A further thing: could you please advise us whether there is a website somewhere where we can see all of the submissions that have been made to the committee, please?

CHAIR: Thank you, Mr Boulton. In answer to your question, all submissions are available at the Economics Committee page, which you can find if you go to aph.gov.au/economics. There are more than 1,000 submissions. They're all public unless people have asked specifically for them not to be public. In some cases, people have asked for their names and contact details to be withheld. Mr Rushbrooke.

Mr Rushbrooke : Thank you, Mr Chair. I thank the committee. My wife and I commenced a pension in 2005 as self-funded retirees. We went into pension phase. Until 2008, we thought we had the magic pudding. Unfortunately, when the dust settled, my accountant suggested to us that we go to Centrelink and apply for a part-pension, which we received eventually. I am not going to be affected by this franking because I'm grandfathered out of it. However, for anyone in the future who's in my situation, the franking credits will not be granted and, therefore, my assets will reduce by the franking credits each year. Therefore, I would receive an increased pension. This is exactly what happens with the Labor Party. When they proposed the mining tax, would you believe that, when the dust settled with all the administration costs, the amount of money that they received was about $20,000. They were supposed to get $6 billion. They were always saying $6 billion was their default position. That is how much they were going to save with this franking credit. I would suggest that the Labor Party, in the room where they propose all these policy changes, get a sign-writer to write on every wall, in letters about 300 millimetres high, one of Newton's laws of motion: 'For every action there's an equal and opposite reaction.' Thank you very much.

CHAIR: Thanks, Ron.

Ms Stewart : Thank you very much for letting me have this opportunity. Most of what I was going to say has already been said, so I'm not going to say very much. I just want to dwell once again on the issue of a fairer tax system. Chris Bowen said that it would result in a fairer tax system. Regarding the impact of the proposed change, in the 52 years of being in the workforce in various countries, I would say this is the most unfair proposal that I have ever seen proposed as a tax change. It's going to hit a very small group of self-funded retirees. The point I really want to make is that our current tax system does not tax incomes from pensions. When you get an income from a pension, be it from a government pension, a self-managed super fund, an industry fund or whatever. But this proposal is going to introduce a 30 per cent tax on dividend income on the people who have self-managed super funds, whereas it's not going to affect people on government pensions or, as far as we know, people in industry super funds. I'm not going to dwell on the personal situation of my husband and I, but we will lose $30,000 in cash income from this proposed change.

If Labor is concerned about being fair, I think it would be reasonable to exempt self-managed super funds in pension mode from the change of policy. This is, especially, given that, with luck, people with large super balances—in excess of $1.6 million—under the present government, have now got to pay 15 per cent tax on their income, so they will be able to use their franking credits, but the people with less than $1.6 million are going to be unfairly discriminated against. Thank you.

CHAIR: Thank you very much, Ms Stewart. David Mattner.

Mr Mattner : Good afternoon, Chairman and committee. Thank you for the opportunity to address you this afternoon. While I'm now retired, I ran an accountancy practice in this electorate for over 30 years. While I support the retirees in self-managed super funds, the representations that I want to make in fact relate to the individuals who will be affected by Labor's proposals who are in a younger generation. I've put a submission to you which details this. But, for the benefit of the people that are here, the submission relates to a normal, existing small business.

Three young families establish a successful, expanding business. It operates as a private company, which is normal when three families are involved, and there are six equal shareholders. All shareholders work full time and long hours in the business, which also employs 20 staff. Spare capital is reinvested to promote the expansion. The agreement is, at the end of the year, the total profit is distributed equally between the six shareholders, and it's distributed as fully franked dividends because the company has already paid tax on that money. This is the only income for these six shareholders. The example is that the taxable profit of the company for the year is $240,000. The company tax paid on that is $66,000. Therefore, the cash available for distribution to the six shareholders is $174,000—that is, $29,000 each.

So these are hardworking people that, in a family environment, earn less than $60,000 a year. Keep in mind that, having received this dividend, the franking credit is also taxable. That is something that everyone seems to overlook. The franking credit forms part of these individuals', and every person's here, taxable income. If you take the individuals' situation, they get a cash dividend of $29,000 and they get a franking credit of $11,000. So their distribution that's taxable is $40,000, and that is one-sixth of the $240,000 profit that the company made. As with most prudent people of their age, they put 10 per cent aside for superannuation, so they invest, for their future, $4,000. So their individual taxable income is $36,000. The tax on that, including the two per cent Medicare levy that they pay, is $3,657. But keep in mind that the company has already paid on behalf of these people $11,000 on exactly the same income—income that they worked hard for.

Under the current tax regime, the excess tax paid by the company on behalf of the shareholders is refunded. So it is then available to be spent in the community or to be reinvested in the small company.

CHAIR: Thank you, Mr Mattner. I'm sorry, we're at the end of your three minutes.

Mr Mattner : Okay. Just very briefly, under the Labor proposal, the tax payable will be treble what would be payable as an individual.

CHAIR: Thank you very much. Viv Grayson.

Mr Grayson : Thank you, Chair, for allowing us to present to your committee. The proposal by Labor has been done on the basis of perceptions that it will raise a lot of money and that it will target the rich. Both of these are wrong, and this should certainly be emphasised in the coalition's response to this. Robert Gottliebsen, in an article written late last year, demonstrated the fact that this is not going to raise as much money as Labor expects. He also drew attention to the fact that it's mostly going to impact on retirees on an income below $87,000—they're certainly not rich. In fact, our own Assistant Treasurer, Stuart Robert, drew attention to this at a seminar he was at in November of last year, when he said:

Any changes will overwhelmingly hit low and middle-income earners, with 84 per cent of the individuals impacted on taxable incomes of less than $37,000, and 96 per cent of the individuals impacted on taxable incomes below $87,000.

The objection that I have—and which, no doubt, many others and most people in this room have—is around the fact that it's very arbitrary in nature. Attention has already been drawn to the fact that those people who are entitled to and have signed up for a pension prior to March of last year will continue to get their franking credits refunded, and those who are eligible for a pension after March of last year will not.

The arbitrary nature is also illustrated by a very simple example, I guess, of the impact on two retiree couples. This has been done by the Self-Managed Super Fund Association. The couple with their own home and a superannuation fund worth $700,000, based on five per cent income, would have an income of $35,000. Assume they get franking credits of $6,000 on that, and they are entitled to an age pension of $9,900. Their total income, therefore, is $50,900. A similar couple, under Labor's proposed regime—the previous couple was under the current system—who happen to have $200,000 more in their own home and their superannuation fund, so $900,000, are earning five per cent, which is $45,000. They will get no franking credits and will not be entitled to any age pension or part pension. Their total income would now be $45,000, so they are going to end up with less than the other couple. Where is the equity in that? Why wouldn't that entice people to shed $200,000 and to gain a part pension and reinstatement of the franking credits?

CHAIR: Thank you, Mr Grayson. Unfortunately, we're at the end of your three minutes. Next up is Colin Coyne.

Mr Coyne : Good afternoon, Tim and the committee. My wife and I both turn 70 this year. We are not involved with self-managed funds and those sorts of things. What I'd like to bring to the attention of the committee today is the anomaly with the DFRDB system for military pensions. The situation has been drawn to the attention of Darren Chester. It affects the older generation military superannuants that have been out of the Defence Force for 30 to 40 years and only now are finding out that their Defence retirement pay will not revert back to its full entitlement even though the commutation factor has been repaid to the government. Minister Chester has had his attention drawn to the situation. There have been two stories in The Australian paper; the last one was on Monday. Minister Chester's office refused to comment to The Australian on the story.

The legislation currently imposes a financial lifetime debt on former long-term Defence members and their spouses under a condition of service entitlement which was caused by the nondisclosure by a government entity. We were not told that when we were offered the commutation; all we were told was that the repayments would be worked out on our life expectancy. Anybody in Defence, going back 30 to 40 years, would have assumed that, once the debt was repaid, our retirement pay would revert to its original level. What the government is standing behind at the moment—and it works on both sides, Labor and Liberal—is that in the DFRDB Act 1973 it was written that retirement pay would not revert to full entitlement.

Minister Chester has said:

There are no plans to make further changes to the DFRB and DFRDB schemes because the commutation payment agreed to by its members is an immediate payment in exchange for a permanent reduction in pension … It was neither an advance nor a loan. Any expectation that a member's retirement pay should be restored to the original amount once the lump sum has been 'repaid' reflects a misunderstanding of the scheme.

Now, that's incorrect, because the members did not agree to that. We were not made aware of it. It was just buried in the 1973 legislation. I did 22 years in the Air Force, from 1968 until 1990. As I said, we are finding out only now that we have reached our life expectancy age and we're still getting our reduced retirement pay—and that passes to our spouses afterwards. I thank you very much for your consideration.

CHAIR: Obviously, that's a separate issue. If you'd like to provide me with the information, I'll make sure that it gets through to the minister. Just provide it to me at the table, if that's all right. I call Tony Alder.

Mr Alder : Thank you, Chair, and committee members. I appreciate the chance to be here. I also thank everybody here for being so supportive today. I'm 65 this year. I'm retired, with a self-managed super fund. The aim of my financial life was to pay off debt as soon as I could, to organise a self-managed super fund and, within that super fund, to have shares that provided fully franked dividends. By doing so, that created a reasonable income for me and my wife to live comfortably. I wanted to be totally independent financially from any government support—indeed, any support from taxpayers and anybody else.

We earn a comfortable $80,000 a year, which is inclusive of about $21,000 in franking credits. The 30 per cent decrease in my income and my wife's income is going to put us back to about $59,000. Now, I put this to everybody, particularly the pundits and naysayers on the Labor side who think that we are wealthy: if you decided one day to tell any employee, whether it be a government employee or other employee—teachers, firemen, respected Defence Force personnel—that they had to take a 30 per cent cut in their salary, what do you think they would do? There would be anarchy. Mr Bowen doesn't have a personal interest in this, mainly because his pension fund will be 75 per cent indexed for life, so he doesn't really understand the implications of removing franking credits to self-funded retirees.

If this does get through, retirees with self-funded super funds will have no comeback. We don't have enterprise bargaining. We have nothing to fall back on. We really have to cop it on the chin. So we really need to be moving now and making sure that we get our point across. It is totally unfair, it is discriminatory, and I believe that we have to fight hard to make sure that this does not occur. We followed the rules in the first place. We followed the rules that were laid down for self-managed super funds. We did the right thing. We saved and we wanted to be financially independent. We are no burden on the tax people. So, at the very least, because we followed those rules, there should be some sort of grandfathering put in place.

I don't wish to take anything away from any future person who goes into a self-funded super fund, but they will follow the rules that are in place on the day, like we did all those years ago. That's all I have to say and I thank you for listening to me today.

Mr Barker : I'm 77 years old and I have a self-funded super fund with my wife. I still work part time. I've actually been a CPA for over 50 years and I'm a self-funded super fund auditor. I want to go over a number of principles of taxation that have generally been accepted in Australia. One, we should have a progressive system of income tax whereby the poor pay little or no tax and the rate of tax is progressively increased as your taxable income increases. Two, in 1987 Paul Keating largely did away with double taxation with the introduction of the dividend imputation system. It was recognised that a company is just a different legal structure whereby the owners' share of the ownership was determined by the number of shares held and that profits should not be taxed both to the company and again to the shareholder when receiving dividends. Three, to correct unintended consequences, John Howard modified the system so that tax was effectively not being charged to taxpayers who had otherwise no tax to pay. Thus, the refund of excess franking credits—that is, the refund of excess tax paid—was introduced. Four, it is preferred that tax is paid as you go rather than paying no tax until assessed at the end of the year. Examples include PAYG tax prepaid on behalf of employees, PAYG payments by small business, which are generally paid quarterly, and company tax prepaid and credited to the company franking account on behalf of future dividends. Five, certain groups are given extra assistance such as family tax benefits, the seniors and pensioners tax offset and a couple of other minor items. Six, there is a general tendency to assist small business wherever possible rather than big business—that is, lend a hand to the small-business man prepared to have a go.

The proposals by Labor challenge most, if not all, of these principles. For individual taxpayers, only those that have the lowest scale and the second lowest scale will be adversely affected. The very poorest of our taxpayers, on incomes of up to $18,200, will now have to pay 30 per cent tax on their franked dividends. This is just plain wrong. Taxpayers on the second scale, with incomes of up to $37,000, will pay more tax if franked dividends exceed $11,906. Taxpayers on the third scale, with incomes of up to $87,000, will only pay extra tax if franked dividends exceed $66,073. The richest taxpayers, on the fourth and fifth scales, will not be affected. This means that Labor intend to tax the poor and not the rich.

Chris Bowen was quoted in the AFR this morning as saying:

… having negative income tax, refunds to people who haven't paid any income tax and being the only country in the world that does it and spend roughly about as much on that as we do on public schools is not sustainable, is not fair, it's got to give.

This statement is both wrong and deliberately misleading. Firstly, I believe that nearly every—

CHAIR: Sorry, Mr Barker, I don't mean to be rude but we need to end your submission here to move to the next person. But thank you very much for your contribution, and you're welcome to table your notes as part of the hearing. Next we have Charles Duncan, and then Don Espey.

Mr Duncan : I am another one of those despicable wealthy retirees who are clearly the targets of this piece of legislation or proposed legislation. In the last financial year my wife and I, as a retired couple, had a combined income of $94,000, and that included an amount of $19,000 in the form of refundable franking credits. Under this policy which is being proposed we stand to lose all of those franking credits, reducing our income from $94,000 down to $75,000, a reduction of 20 per cent. Now, I'm not crying poor. If we really had to, my wife and I could downgrade our standard of living and we could probably manage quite well on $75,000, but what I have to ask is: why should we? Why should we be asked to accept a cut of 20 per cent in our income when no-one else is? It just doesn't seem right. Surely, if you are asking me to accept a 20 per cent cut in my income, you should also be willing to go to people in other sections of the community and ask them to accept a 20 per cent cut in their income. That would be the fair way to go about raising this tax, would it not? But, of course, this policy is not fair. It doesn't pretend to be fair. It is very specifically and narrowly targeted at one minority group in the community, the self-funded retirees—a small and inconspicuous group, a group which has no union to defend it, no unified voice of protest, no great profile on social media and which carries very little relevance at the ballot box. It is quite obviously an easy target. But surely you can see that to target a minority group like this is wrong. It is wrong. It is unconscionable. It is unfair—it is grossly unfair. I really have to hope fervently that the parliament will have the courage to realise that this is a bad policy and to abandon it before it becomes law.

CHAIR: Thank you, Mr Duncan. Next up is Mr Don Espey. For clarity, one of the key reasons we organised these hearings was that some of us share that sentiment very strongly, including Mr Evans and me, and it is very important that people have a voice and that they are heard, because people should not be ignored just because they're in their retirement stage of life. Mr Espey.

Mr Espey : I originally came from Zambia, and next year I'll have spent half my life here, when I'll be 76. One of the anomalies of the Australian system which I find very strange is this differentiation between pensioners and retirees. A government pensioner is an old-age pensioner that takes money from the government and a self-funded pensioner is a pensioner who takes money from himself—he pays for himself. By calling ourselves retirees we've immediately created a different group that doesn't get the sympathy that one gets when you're a pensioner. I don't understand why self-funded pensioners continue to consider themselves to be self-funded retirees.

By the way, changing subjects slightly, if you look at the rest of the world, the so-called civilised Western world, whether it be England or Europe or Canada or even America or New Zealand, in all of these countries, when you get to pension age, you become a pensioner and you get pensioner benefits.

Changing subjects lightly, if you look at the rest of the world—the so-called civilised Western world—whether it be England, Europe, Canada, America or New Zealand, in all of these countries, when you're a pensioner you get your pension age, you become a pensioner and you get pensioner benefits. In Australia you don't become a pensioner unless you put your hand out and you take from the government. Then you're called a pensioner and get pensioner benefits. Why is it that self-funded pensioners called retirees who want to watch the Wallabies play rugby have to pay full prices? This wouldn't occur in England. That's fact. Why do you not get the ambulance coming to your door without having to pay for it? Because you're a self-funded pensioner.

I'll now come to this next inequity that is absolutely disgraceful. People who are a group like ourselves, who have been saving for their future and have been putting money into safe investments—have gone out of riskier investments into supporting the companies so they get franked dividends. Now, all of a sudden self-funded pensioners, not trade union tradies or government pensioners—this little group who call themselves retirees—are being hammered by what is patently a ridiculous proposal by a person I refer to as Boats Bowen. Why do I call him Boats Bowen? Well, he used to be the minister for immigration—

CHAIR: I understand, but we're tight on time—

Mr Espey : And now we've got him in finance, and look what he did before.

CHAIR: I understand. It's a very political point, but we are here to deal with the specific issue—

Mr Espey : What I am saying is I'm not surprised, given the nature of the people that are running the portfolios and based on past history, that they're going to screw it all up again and hammer self-funded pensioners, as they are trying to do.

CHAIR: Thank you. Now is Rob Enmore. Next is Gordon Shaw. We've had to slightly reduce the time for each person just because of the time limits.

Mr Enmore : I thank the committee for giving us this option to say our peace. My wife and I both have a self-managed super fund. This proposal or thought bubble is going to affect us greatly. There are just two principles, which I'd like to bring to everybody's attention, which I think are wrong. The first is that self-managed super funds, if they don't get the franking credits, are being singled out. It's our position that people in the same financial position with the same amount of assets and income across the board—it doesn't matter what system you're in—should be treated the same.

The other point that I would make that doesn't seem to have come out is: where there are long-term retirement rules under which people arrange their future, for when they finish work, it should be grandfathered. This seems to be the only case where this is not so. In summary, the loss of franking credits will reduce our budget buffer to resist falling stock prices or financed aged care to meet our current expectations, resulting in a lower quality of life below our current expectations of which we plan for.

CHAIR: Thank you. Next is Gordon Shaw. After Gordon Shaw is Jerrome Mills.

Mr Shaw : I thank the committee for the opportunity to speak here. Mine is a pretty simple thing. My wife and I started a self-managed super fund in retirement pension mode back in about 2005. Sadly, my wife passed away two years later, so I'm making the best I can of spending all the money before all of this franking credit thing happens, because I'm sure that I'm going to be ending up on welfare. That's one thing. I think there are probably a lot of people in this room that are going to go the same way. I'm almost there. I was getting a part pension until the 1 January 2017 changes in the legislation, but it was only minuscule anyway. So I don't think that I'm that far off. Probably in the next financial year I will have to be on welfare to survive, because I don't have a big self-managed super fund. I'm a relatively simple guy, and under those circumstances I'll have to put my hand out to the government. Thank you. That's all I've got.

CHAIR: Thank you, Mr Shaw. Next is Jerrome Mills and then Adrian Wood.

Mr Mills : Obviously I'm probably the youngest one talking today. I will say, however, this policy does directly and indirectly affect me. It affects me directly because of potential falling share prices. I have a lot of my income in shares and savings and a falling share price would actually take a big dip out of it; it happened in November. But it affects me indirectly because I'm a self-contractor, and mostly I deliver alcohol to people—some of my clientele is actually in this room.

I view the current system as social security. Super was originally intended to relieve pressure from the government, and having a so-called retiree tax or the removal of franking credits will put pressure back onto the government. I'm actually wondering whether or not Labor put this in their costings when announcing this policy about the people who are low-income going back onto the age pension because of it. That's my major concern about that. Thank you.

CHAIR: Thank you very much. Next is Adrian Wood.

Mr Wood : I'd like to thank you for your time and for having the people attend. I am 65 and a self-funded retiree. At present I will lose 25 per cent of my income. I retired under the rules of 2012. Labor's plan to hit self-funded retirees and change the legislation is wrong. The franking credits are not theirs to take. It's tax paid on my behalf. They going to severely reduce everyone in this room and behind me that's 55, 50, 59—their income is going to be affected.

I'm not entitled to a government pension. I receive zero assistance in council rates et cetera. I pay full tilt for everything. If I knew this—which I didn't till now—I would have changed my retirement plan. This avenue has now been taken away from me. I can't change. I've locked in my retirement plan. As far as council rates and doctors and electricity and rates, they go up, but my pension isn't going up. Because I'm self-funded, I'm a pensioner, whether it's government or private.

Under Labor they'll actually kill off all superannuation in any way, shape or form. If you were 40, you'd be crazy to pay into super. Labor has to remember I paid 35 per cent tax to receive my money, I paid 15 per cent tax per annum on its growth, I paid a two per cent management fee and now they want to take another 25 per cent from me. The problem with Labor is they'll eventually run out of other people's money and they'll kill off self-funded retirees. Thank you.

CHAIR: Thank you, Mr Wood. We will go to Joe Nowak and then Ray Bricknell.

Mr Nowak : I'm 74. I became an adviser. I call it life assurance—I hate the word financial planner. I retired in June 2017. My young son Michael runs the company. I've done a lot of allocation work and everything else. I think you're all correct. You're all correct that this is just a grab for money. There are no other sentences.

I remember back in 1972 to 1975 when Gough Whitlam was around with a man called Cairns. He was out of Moscow. All they wanted was the money but now in the year 2019 we have a bigger proportion of people that are our age, so the government need a lot of money going forward for health, for retirement, for schooling and for everything else. Because they've got this big gap of us not paying tax on our pensions they then want that money in the system. What I'm suggesting today is that there will be a tax on your pension regardless of whether you're self-managed or whatever, because super only takes 15 per cent tax right? So whether you're on $80,000 or $100,000 you still get a lot of tax breaks in that system. I'm saying to you now, because they need the money in the system they will tax everybody. So don't run off to a managed fund and the industry funds, because they're all sitting there waiting for you, that's the biggest con out.

I was national president of the Association of Financial Advisers in 1989, 2001 and 2002. I dealt with Treasury. I dealt with politicians. You've got to get your case across, but it's very hard. I don't think they're anti-us; I think it's more a case of they need the money. They have badly managed the money. Like in 2007 Mr Rudd spent money like a drunken sailor. They can't control the money—that's a lot of people. I just hope that in the future they can control it. But they're going to be short a lot of money. They're still over $360 billion in debt and they've got a young population coming through. I'm saying super is good but there will be a tax on everybody. You'll see what they're doing. They're just playing games. If you listen to Bowen he's backing off on negative gearing. He's saying, 'I'll come out with the goods later.' He's backing off on this one—not giving you more detail. I think what he'll do is he'll bring it back in and then he'll clean us all out. Thanks a lot.

CHAIR: Thank you. Next is Ray Bricknell

Mr Bricknell : Good afternoon. Thank you very much for giving up your time to come here. I need to establish my position I suppose. I'm an 80-year-old fully self-funded retiree and I've been retired on that basis for 25 years, my wife and I. I might well be the only swing voter in the room. I would like to ask the committee members whether you have read the Grattan Institute analysis of this proposed policy?

CHAIR: Yes, I have.

Mr Bricknell : Have you read it?

Mr EVANS: Not cover to cover but I have seen it.

CHAIR: The Grattan Institute has presented to this inquiry.

Mr Bricknell : Yes. They submitted it to the inquiry, yes.

CHAIR: They have presented like you are now.

Mr Bricknell : I commend it to your attention. As they say, this is bad policy, but unfortunately we've got a political situation now—and this is what really disturbs me as a voter—where the major political parties are no longer able to compromise on anything, and this country is suffering as a result of that. Of course this is bad policy. The Grattan Institute suggests a better policy, which, interestingly, the last speaker proposed and that is stop taxing contributions, stop taxing earnings in super funds and simply tax pension drawings. Of course, if the Labor Party propose that now the Liberal Party will crucify them in the election campaign. So, therefore, we don't get good policy now. We get bad policy that's very political in its bias simply because you guys can't get together and compromise with one another. And so that's my point. I really would hope that, in the future, the major parties could go behind the closed door and start doing a bit more compromise and a bit less political pointscoring. Thank you.

CHAIR: Thanks, Ray. Next up is Steve Rowland.

Mr Rowland : Thank you for the opportunity to speak. My name's Steve Rowland. I'm 69. I've been retired since I was 58. I run a self-managed super fund with my wife. The income to that is about $100,000. The tax credit last year was $30,000, and that provided a reasonable income addition to us to enjoy the fruits of our life. One of the things that's happened, and I'm sure lots of other people are in the same boat, is that, when you get to our age, you visit the doctor a lot more and you spend a lot more time on your health. I'm a cancer survivor and, consequently, I'm a very lucky person, and I make sure that the people who did something for me get something in return.

Now, I think this is the only point that I want to make that I haven't heard said today: the funds that come out of our fund that go back to the research organisation that helped me get over my problem, well, there's a lot less to go around, and I don't think they'll do as well. And I think you'll find that a whole lot of research organisations or charities that benefit from donations from retirees will suffer greatly. I think that that's one of the main things that has been overlooked.

I'd also point out that it was never the government's money. The taxation system is such that, when they decided to go from double taxation to single taxation, the easiest way to collect it is from the company. If they return the dividends to all us individual shareholders and then we paid the tax at the rate that was required, we'd be in the place that we currently are. However, it's much easier to get it from the source than it is to get it from the recipient. So I think they should change the policy, pay all the dividends out and then tax us individually. Thank you for your time.

CHAIR: Thank you, Mr Rowland. Time for Carolyn Baker.

Ms Baker : Good afternoon. Thank you very much for the opportunity to talk. I'm a local chartered accountant here on the Gold Coast, and I acknowledge all of the comments that have been made today. They've been extremely accurate and extremely well thought out. I have heard many, many stories of exactly the same issues, and I suppose I just wanted to mention the following points. Fairness, as that's been described today, is about tax reform for all taxpayers. Franking credits are a very important part or element to tax reform, and, yes, it does address double taxation. But the real rate of tax that each taxpayer pays has to be brought to the table. Fairness is allowing individuals to plan and make decisions with certainty. Many decades ago, the Labor government decided to introduce a superannuation scheme to have a robust super scheme, and we're towards trillions of dollars invested in the super scheme. We need to stop the continual changes. Super is the income stream of all retirees now and in the future. Future generations are becoming increasingly hesitant about tax and about super. Canberra needs to reward those who plan their future finance. Thank you very much.

CHAIR: Ms Baker, thank you very much. I think that was an excellent point to finish on. Thank you very much to everybody who's attended today. Unfortunately, we are out of time. We have gone 10 minutes over, but I did want to give everybody who wanted a chance to say something to do so. Please note that written submissions will continue to be accepted throughout the inquiry, so, if you have a submission, you are most welcome to still make it. We have a series of other hearings in New South Wales and Victoria—WA and South Australia as well. There being no objection, the committee authorises publication, including publication on the parliamentary database, of the transcript of the evidence given before it at the public hearing. I therefore declare this public hearing closed.

Committee adjourned at 15:40