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Standing Committee on Economics
Implications of removing refundable franking credits

ALLSOP, Mr Steven, Private capacity

BARANOFF, Mr Ron, Private capacity

BARTON, Mr Max, Private capacity

BEANLAND, Dr Denver, Private capacity

BLACK, Mr Peter, Private capacity

FARRELL, Mr James, Private capacity

HANLON, Mr Mike, Private capacity

HARVEY, Mr Richard, Private capacity

HODGSON, Mr Mark, Private capacity

JAMES, Mr David, Private capacity

JEFFREY, Mr Simon, Private capacity

LEIS, Ms Barbara, Private capacity

LINGARD, Mr Laurie, Private capacity

MOORE, Ms Janette Moore, Private capacity

MORONEY, Mr Jim, Private capacity

POWER WEST, Ms Gabrielle, Private capacity

REID, Mr Robert, Private capacity

SCAR, Mr Paul, Private capacity

WARNER, Mr David, Private capacity

WENDT, Mr Noel, Private capacity

WHITE, Mr Chris, Private capacity

WHITE, Mr Ed Ray, Private capacity

WILSHIRE, Mr Tim, Private capacity

Witness A

Witness B

Witness C

Witness D

Witness E

Committee met at 14:32

CHAIR ( Mr Tim Wilson ): I 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 the tax system and is core to the financial security of many retirees. There is a 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. In the state of Queensland, it's estimated to be about 165,000 people. The committee is examining how the removal of refundable franking credits would also affect investors—in particular, older Australians who have planned for their retirement based on the existing rules and whose financial security would be compromised.

The 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, and we welcome your contributions and participation. If you would like to speak today, please add your name to the clipboard to register. We have people who put their names down, but please do not hesitate to do so, because not everybody takes their full three minutes.

Before commencing, I refer members of the media present—and I understand there are some—or who may be monitoring this hearing through the internet to the need to fairly and accurately report the proceedings of the committee.

Please note that these statements are broadcast and recorded for the public record. I ask that speakers refrain from adversely commenting on other people and exercise caution when speaking about their own or other people's private or financial circumstances. To put that into context: if you say something today, it will be entered into the parliamentary record, Hansard, and it will basically be kept forever. Please be aware that these proceedings may also be filmed. We have had media come up and record them as well. If members of the public have objections to being filmed, please raise the issue with the secretariat, and the committee will consider your requests.

Mr Wendt : Thanks for this opportunity to speak to your group today. My background is that I've been retired for five years. I believed the story that I needed to put money away into superannuation because we couldn't rely on there being sufficient old-age pension when my time came. I'm being affected in two ways. As a self-funded retiree, I do not qualify for the age pension, so I'm not drawing on that, but I am required to draw about $80,000 from my fund for it to be compliant, and that is my wife and my living arrangements and income.

I've worked for a lot of Australian companies over the years and I've acquired some Australian shares as well which are outside super. I'm also impacted there by this policy. My self-funded superannuation fund, my accountant said, was probably $12,000 per year, and my outside Australian shares were to the tune of around $5,000 or $6,000 per year, depending on the dividends for the year. So the only way I can avoid this is actually to go and get a job and try to earn some money outside so I can get tax to get the offsets which other people are able to draw on. So I think this is a cruel and unfair grab for tax. Who can afford to hand out $18,000 out of their living expenses because the government needs money?

I've written to the local member, and she says the Labor position is that 92 per cent of taxpayers won't be affected, so what's the problem? The problem is it's people like us who are affected. It's supposed to be affecting the wealthy and stopping rorting. Well, I'd suggest there are many retirees with very modest means who are being affected by this. Anyone already in retirement with their super fund, I believe, should be grandfathered so that they are allowed to draw the funds, because you shouldn't be messing with superannuation and retirement planning, which is a long-term process. We've had enough of people messing around with superannuation rules and entitlements.

I've contributed over 45 years. I'm not drawing an age pension, so I'm not drawing on the government funds that way. I think it's a bit rich that in my retirement the government wants to change the rules, come along and start taxing me again. That's my statement. Thank you.

CHAIR: Thank you very much.

Ms Moore : Thank you for coming to Brisbane. I have provided a submission already—it is No. 644—to the Senate inquiry but I would like to make this statement because I am still alarmed at the misinformation, the use of out-of-date 2015 data and the divisive language in calling this 'a rort' and 'welfare for the rich', when the $1.6 million asset cap in super and pension phase already introduced has stopped the possibility of those extreme refunds which continue to be quoted to justify this policy. I am perplexed at the lack of understanding of think tanks, policymakers and media commentators surrounding the franking credit refunds—highly paid people either not understanding a withholding tax or how a progressive income tax system works. The need for grandfathering been not been brought up either; just now is the first time I've heard of it from a member of the public.

The ALP policy misses the mark and ends up discriminating against low-income investors and SMSF investors who are receiving fully franked dividend income, who are ineligible for the age pension and who were not on the pension prior to the March announcement. By labelling refundable franking credits as welfare, it has modified the policy to exempt age pensioners, unions and not-for-profits, and they can continue to receive the refund of excess franking credits. You would call that double-dipping in another time by rich people, but pensioners are now double-dipping on welfare. So the people who actually need the refunds—the low-income people, often elderly, and others ineligible for welfare currently or not on government support—will now pay up to 30 per cent tax on low incomes.

It seems forgotten or people are unaware that a tax return includes a total assessable taxable income, which includes refundable franking credits. People who are denied refunds are still taxed under a gross dividend income. They are going to miss out on any of the tax cuts coming through either by Labor or liberal, whoever is in, and any of the low-to-medium tax offsets and seniors' offsets. Similarly, with complying SMSFs in the accumulation phase, there is a tax component of tax-free, taxable, taxed and untaxed. If these funds are not receiving their franking credit refunds, that taxable component will be out of wack as well. That hasn't been thought about, or I haven't heard it being thought about.

The ALP policy also taxes asset classes differently but only now for low-income earners and SMSFs on marginal tax rates if franking credits are denied. Income from untaxed assets—bank interest, rental incomes, unit trusts—are all received as gross dividends and we pay a tax on those. The assessable income for those are added to it. The carve-outs and exemptions of old age pensioners, future funds and not-for-profits now leaves low-income earners and self-managed super funds not having refundable franking credits that can be grabbed. Nobody is left, only the low-income earners who need it as well.

CHAIR: That is the end of your three minutes. You are welcome to still make a written submission to the inquiry.

Mr Barton : I will take an objective approach rather than illustrate how it personally affects me, but it does markedly affect me. I would like to make some brief points and not spend any time actually illustrating those points. The first point I want to make is the policy targets low-income, self-funded retirees and shareholders who are at the lower end of the annual income scale. There has been a submission put forward by the Gold Coast Retirees association—I am sure you are aware of it—that illustrates the extent to which low-income, self-funded retirees would be disadvantaged. That is well worth reading if you haven't read it.

My second point is the policy selectively exempts some organisations and pensioners while others—the SMSFs, private trusts and stand-alone individuals—will face the full force and effect of the policy. That alone illustrates that the policy is discriminatory and fails the test of 'fair go, mate'.

The third point I want to make is the policy apparently will be applied with no transitory provisions to protect those who have entered into and depend upon the existing rules to derive their incomes. I think that point was made by the previous speaker.

The fourth point is that the policy provides no details on how the disallowed component of the franking credit will be applied. Will the disallowed component continue to be included in the taxable income? Will it carry through to future years in the same way as the current capital loss policy applies? Will it be applied as a precursor to assessable income before tests are applied for low income, SAPTO and other government allowances?

The fifth point is that the policy introduces a further complication to the assessment of individual taxable incomes. My way of thinking is it will require the application of an iterative process in order to determine the actual assessable income. That's good for accountants, but it flies in the face of the goal of simpler tax laws.

The sixth point is that the policy defies the intent of the current taxation law. A taxpayer that pays more tax than is their liability is entitled to a refund.

CHAIR: Thank you, Mr Barton. I'm sorry; we need to move on to the next one.

Dr Beanland : In my view, this fails the test of a fair go. You hear a lot about a fair go these days, but this certainly is so discriminatory that it cannot be counted upon to be called a fair go for anyone. Secondly, of course, it attacks basic Australian values because it's not a fair go. We have the basic Australian values of self-reliance and self-provision. It attacks those values in a very major way. We have the situation where it will in fact reduce living standards. There can be no doubt about this at the end of the day. More and more people are going to be pushed onto the pension or part pensions in some shape or form. They'll be discouraged from saving. Why save when you're going to be affected in this way with your savings and superannuation? Most of us will be superannuants or shareholders in some minor or major way.

Of course this is going to have a major detrimental effect across the board. To say it only affects a small percentage of people is to deny reality. It's going to have a major effect, not just on the people themselves who are directly affected but on many of their family members. People these days live as a family, as part of society, a broader group. We're not just talking about the grandparents who are superannuants; we're talking about the mums, the dads, the kids at school, and the ability for many people to ensure that their grandchildren and others in the broader family receive a decent education and have a decent standard of living.

We have a safety net test in this country that allows us to provide for those who are less economically well off through no fault of their own. That's a wonderful thing to have. We're one of the few countries that has that safety net. But how can we have a safety net when we're going to push more and more people into that situation? The safety net will become the norm, not the safety net as it was set out. It was always my belief that we have superannuation and we have these requirements to ensure that people have their own arrangements to look after themselves as they get on in years, so that they're not reliant on the taxpayers of the nation. What does it say about future generations? Are we now saying to our children, grandchildren and great-grandchildren, 'You're going to have to wear this?' This is the ultimate result of this. Down the line, more and more people will be affected and more and more people will have to wear it.

I think that this is a very clear example of double taxation. It is. It's very discriminatory across the board. It's certainly not a fair go for anyone. It certainly attacks Australia's basic values and basic living standards.

Mr Reid : Thank you for the opportunity to address this committee. I'm only addressing the issue of partial restriction on franking credits, not the total abolition of franking credits. Who receives refundable franking credits? My wife and I do. We're self-funded retirees with a self-managed superannuation fund and a little bit of investment outside superannuation, both of which get refundable franking credits. Our disposable income is considerably less than it would be if we were still working in our professions of teacher and soil scientist. So, we're not well-off by any means. Overall, franking credits represent about 20 per cent of our disposable income, and I ask the ALP members how their union members would feel with a 20 per cent wage cut. Bang!

In terms of tax principles, I put it to you that franking credits are tax neutral. If I'm paid a franked dividend as a retiree now, I get the benefit of that. If a worker is paid a franked dividend, he gets the benefit of that due to a reduction in his income tax paid. He gets exactly the same benefit.

In terms of investment risk, I'm carrying investment risk. A worker with a few shares is carrying an investment risk as well because, if franking credits are abolished for me, I am carrying a different investment risk. He is getting more return on his investment. It alters the whole structure of investment for me and for everyone else investing in this country. If I had investments in a large superannuation fund now, I would get all or part of the franking credits refunded. My understanding is that the Labor Party was based on fairness and equity, and this is highly inequitable. It violates the principles of fairness and equity.

In terms of the impact of removing franking credits, my wife and I would become eligible for pensions well before we reach our life expectancies. In terms of how we would manage, firstly, we would cease charitable donations. Though we get no tax benefits from them now, we have been giving charitable donations for many years. We have continued to do so, and our contributions in that area have increased. Thank you.

Mr Jeffery : I'm not retired, but I have it in sight. The detail of the proposed policy is pretty poorly reported, but there's a kind of vibe with this retiree tax that it only affects self-managed super funds. I've got some modest funds in both a self-managed super fund and an industry fund—a reputable one. So, I called my industry fund about my investment sector, which is Australian shares, and asked, 'What's going to happen to the dividend imputation credits that they attract? Most of these industry funds that have things like Australian shares have just got them in indexed funds anyway, so they get their dividend imputation credits and I said, 'Well, we're not going to pension phase. What's the difference?' I'm trying to figure out: should I put it all into an industry fund?

Anyway, after some sort of waffle—maybe the bloke was from Wentworth; I thought that'd make you laugh, Craig—and I'd like to feed into what Dendra said before, he said, 'Look, they just don't know.' This is the industry fund. He said, 'We don't know till we see the 200 pages of policy and legislation.' So, all they've got to work with at the moment is a few sort of grab lines of policy that they're able to extract out of the papers. The Labor Party says it's going to be the first order of business. So we've got this situation here where many folks are trying to figure out what to do before the end of the financial year, including big companies, who are trying to figure out whether they've got to distribute some dividends now—and we're trying to second-guess all this on some very poorly articulated detail, as the earlier witness mentioned.

In closing, as I said, all we have are a few grab lines of policy statements, and, I've got to say, these grab lines, as we heard before—I didn't get the lady's name—seem to be just aimed at demonising those in this room, who want to give to Australia, as opposed to those others outside who might want to take from Australia. Thank you very much.

Mr Warner : I am retired and a member of a self-managed super fund along with my wife, who, I might add, has Parkinson's disease. We are both approaching 70 years of age. I wish to express my deep disappointment and anger about the way my wife and I will be treated in the event that the Labor Party implement their policy to remove franking credit refunds. Our super fund provides us with our only income. The fund is not now, nor was it ever, large enough for us to live off the income generated by its investments, and as a result the fund balances reduce each year, which then reduces the income it produces. We do not qualify for the age pension and our aim is to remain independent of the age pension for as long as possible. This Labor policy will reduce our retirement income by around 25 per cent, or about $15,000 a year, based on our last tax return. This income will leave us marginally above the couples full age pension rate, but we will not receive the associated pension benefits. Our net position will be that we're worse off than couples on the full pension, including the value of associated benefits. We both suffer a range of health issues associated with ageing, and our ability to find paid employment to make up for the 30 per cent lower income is basically non-existent. We'll be forced to use our capital at an increased rate to cover the loss of franking credits and, as a result, will be forced onto the age pension much earlier than would otherwise occur. We will then join a retiree economic underclass with net incomes below retirees with similar assets but whose income is bolstered by the pensioner guarantee.

This policy will promote resentment and conflict within the retiree community between those who do and those do not receive their franking credit refunds, and will increase rather than reduce age pension poverty over time. In whose world can the development of a policy that creates haves and have-nots within a group of average, not wealthy, older Australians receiving the age pension be seen to be fair, balanced or equitable? It is terrible policy to demonise and pull down one sector of the community in an attempt to lift up another part of the community. It is the government's responsibility to govern on behalf of all Australians, rather than creating and fostering various classes based on age, gender, wealth et cetera, which leads to a divided community. We are told this policy is being introduced to target wealthy retirees rorting the system, but it is not targeted to achieve this objective. Targeting funds with balances greater than $1 million, for example, would reduce franking credit refunds by over 81 per cent, according to the latest PBO data. Surely this would achieve the desired policy objective. Given the pensioner guarantee, the original policy objective of eliminating franking credit refunds being paid to nil and low taxpayers obviously no longer applies.

If the Labor Party are wedded to this policy, they should at least mitigate the damage it will cause by grandfathering, targeting the change appropriately and extending pensioner guarantees to include all age pensioners irrespective of the date they qualify to receive the pension. Thank you for the opportunity to make this statement today.

Mrs Leis : We have worked for over 40 years putting aside savings so that we can create a retirement fund. We're not wealthy people. We worked hard for what we've got. We invested in shares to earn some retirement income so that we would not be a burden on taxpayers—and that's the way we were brought up. We earn a reasonable income from dividends and gain imputation credits. Unfortunately, interest rates from cash accounts are at a record low, so we rely on our share dividends, and the imputation credits help by reducing our tax payments. We are comfortable but not wealthy, and that's due to careful budgeting. We're now going to be penalised for doing so. We could be forced onto welfare because of the hit this action will make. It will impact on our situation. I'm also concerned about what could happen to the share market if people start selling their shares to look for alternative income streams. Thank you.

CHAIR: Thank you very much.

Mr R White : My name is Ray White, but I'm not in real estate! I regard franking credits as an interest-free loan to the taxation department, and—

Members of audience interjecting—

Mr R White : True. And as such, there's no reason why they shouldn't form part of a taxpayer's assessment. If a refund is due, so be it. I think that we are worrying unnecessarily. I think Mr Chris Bowen the Mr Shorten will have a lot of difficulty getting their proposals through the Senate. So be it. I'll leave it at that.

Witness A : You've already got my written submission. My wife and I are self-funded retirees. We both have a Commonwealth Seniors Health Card, and we are affected by this proposal to take away franking credits. Let me give you a couple of examples of how may affect other people. Some friends of ours live on the south side. They get the full pension. They've been $1.8 million for the house. They don't want to sell it. Why? Because they would lose the pension. They get their franking credits back.

Last year, another couple we know, because they were under the maximum limit for the pension, got $10 a fortnight pension. I think it was the Liberal Party that reduced the amount by $300. They lost their $10 a fortnight pension, but they retained their pension card. When you read Labor's proposal, two weeks after introducing it, they changed it to exclude any Australian citizen receiving a federal government pension or allowance who holds Australian shares. I looked up what allowance meant. It's not the supplement you get for having a Commonwealth Seniors Health Card. It's carers allowance and that sort of thing.

I've got granddaughters at university. They've got a few shares, and they use the dividend and the franking credits to help them get through their university degree. They'll lose their franking credits. To me, why should I be affected when you've got these other people on the pension and students not getting their franking credits back. Some pensioners will get it all back. I'm not one of those. To me, that's not a fair go, like that previous speakers have been saying.

When you don't have a pension card—maybe the people here don't know what benefits you get when you do have a pension card. To start with, the people I referred to earlier, who have a pension card but don't have a pension, get free hearing aids. I had to pay $5,000 for my hearing aids. Is that fair? No way it is.

I read your reports on Google. You talk about what the superannuation funds are going to do. They are going to diversify and get rid of Australian shares by; buy overseas shares. I can't do that because I have to pay capital gains tax on the shares if I sell them. What can I do? This is totally ridiculous by the Labor Party. It is double-dipping, like the previous speakers have said. I'll be recommending to my family: don't save for your retirement; spend it and enjoy it while you are young.

Mr Farrell : Thank you for the opportunity to participate today on behalf of the Cancer Council. Every 20 minutes, another Queenslander is told that they have cancer. Cancer impacts on families and communities across this state, and I know that many members of the committee and others in this room have been affected. For decades, the Cancer Council Queensland has worked to prevent cancers, to provide valuable support to patients and their loved ones, and to fund life-saving research. With no ongoing government funding, we rely on the generosity of the Queensland community, who hold fundraising events such as Relay For Life, Daffodil Day and Australia's Biggest Morning Tea and who provide donations to support that life-saving work.

One of the unforeseen impacts of the proposed changes to the refund on franking credits is to threaten the donations to the Cancer Council and to other charitable organisations like ours. I have provided a copy of our submission, submission No. 701, which discusses this in greater detail.

We understand the proposed changes will not affect refunds for dividends from shares held by charitable organisations like ours, as been raised by previous witnesses; however, it does affect us indirectly. One of the ways in which some Queenslanders reduce their taxable income is by making donations to charities. Donors that are no longer receiving refunds will have will have reduced cash income and will donate less to our organisations, as Mr Reid said earlier.

The bill informs that this proposed change will affect giving by two of our large donors, who have provided hundreds of thousands of dollars to the Cancer Council in recent years—more detail is set out in our submission. They have advised us that these proposed changes will mean that they will have less ability to make donations to support the Cancer Council. While these two donors have advised us that their giving will be affected, this change may also affect many other smaller donations coming from our large supporter base, as you heard earlier. This change will affect other charities that rely on deductible gifts and donations. While we are not able to quantify these impacts, we know that they will have a significant impact on our organisation. We understand that this is an indirect and possibly unintended consequence of the proposed changes. If these changes do go ahead, one possible response might be to allow refunds to offset deductible donations to charitable organisations like the Cancer Council. Otherwise. We are concerned that the proposed changes will have a significant impact on our fundraising activities and the services that we provide to all Queenslanders for all cancers.

Mr Wilshire : I am a tax agent accountant; I work for Confidential Tax and Business Services. I have been working there for the last 20 years. We have now heard how the policy has affected self-funded retirees and, even more so, those who have a self-managed super fund, especially in retirement phase. The effect is much more than any change to what negative gearing would do, in my opinion. In lots of other cases that people do not report on, it affects small business clients. Let's say a small business client has been in business 10, 15 or 30 years and has a company structure so they may have parked retained earnings of $300,000 up to $1 million. They might have a plan to pay themselves franked dividends for the first 10 years of retirement—$35,000 a year fully franked; it might be $50,000 taxable income. They would get a refund there of $6,000 a year and would have planned for that or they would get more if they decided to contribute it to superannuation. So all of a sudden, that will derail those plans—instead of being a 10-year plan, it will be a five-year plan. That is a perfect example of how it will affect small businesses, especially those structured as a company. If you're in business and you want to grow your business, a company is the right structure.

To paint a picture of how absurd this legislation actually is, look at two different types of investment income both with $50,000 of taxable income. If you get $50,000 worth of rent income, you will pay $9,000 worth of tax. At the moment, you would be getting a fully franked refund dividend of $35,000 in cash. With a $50,000 taxable income, at the moment you would be paying the exact same amount of tax as the rent person; now you are not. You are actually $6,000 worse off because of the type of investment.

Mr C White : I am a self-funded retiree and also a trustee of my super fund. I have made a previous submission online to the committee. I would like to add further comment after reading the submission by the Self Managed Super Fund Association, submission 420, in particular, the example of the impact of ALP policy on self-funded retirees, which considered three groups of retirees. For my part, I disagree with the use of the franking credits as an added item to the income from the self-managed super fund. It seems to treat that franking credit as a separate amount a couple receive, perhaps like a part pension.

It is the pension fund that earns the franking credit, not the member in retirement. In my case, that credit forms part of the five per cent for my allocated pension. Once the franking credit disappears, the fund has to find a shortfall, whether through other income the fund may earn if it is very lucky or by selling down assets. This means the fund will be in a steeper decline in value and also in income generation. Assuming I live long enough, I will be on a government pension much sooner than later if the ALP's policy comes to fruition. Added to that, it is a wish for the committee, I would hope that they would do their job properly and get the details from the ALP's and analyse the assertions that the franking credit refunds to zero taxable income entities really are unsustainable.

As far as I know, no-one seems to be looking at the franking credit pie and how it is distributed through all the classes in society so I would like the committee to look at that as well; they have far more resources than I do. I will leave that with you. Thank you very much.

Witness B : Thank you for the opportunity to speak. In my and many others view, the ALP's policies blatantly biased and discriminatory against the self-funded middle-tier level retirees. As stated by many people before me, my wife and I are not on any kind of government pension. If changes are to be made, the current system should come, as an absolute minimum, be grandfathered or as is proposed for the changes now to negative gearing, negative gearing, capital gains tax and trusts or otherwise perhaps phased in gradually over say three- to five-year period. It is totally unfair to make such a large change at the stroke of a pen.

Our retirement investment strategy was put into place legally as per the then rules six years ago, after much debate, sleepless nights and fees to financial advisers in order to make us self-funded.

Retirees are big spenders. Labor seems to be ignorant of the fact that a lot of our SMSF pension is actually recirculated back into the system, and that therefore helps the community and the economy in general. It is not put under the mattress. In turn, this money is then taxed as it goes through the system and is spent and taxes are raised which helps the budget bottom line for the government. If I may ask a question without notice, what becomes of all these meetings and energy and outcomes that you guys are doing at the moment if Labor, as predicted, are going to win the election anyway?

CHAIR: It's not standard that the chair or the other committee members are asked questions in hearings, but I'm happy to answer it. The process of the inquiry is that you have a submissions process where people make submissions and then you have public statements and ultimately a report is provided. Whether this policy proceeds ultimately, I think it's fair to say, is determined by who is elected at the next election. I do not want to prejudge who is going to get elected and, of course, it also depends on what the numbers are in the Senate, but, this is a process to get people's opinions and views on the official record so that they have the chance to inform those considerations. Otherwise, it's up to the parliament.

Witness B : Thank you.

Mr Allsop : Good afternoon. I'm a 52-year-old forced retiree. I am a motor mechanic with a bad back who can no longer work. I am fortunate enough to have a small inheritance, which I am drawing on at the moment. I earn about $40,000 a year that I pay myself, and I'm paying about $4½ thousand in tax. With the franking credit offset gone I will be paying something like $9,000, so I will be living on $30,000 which, in this economic climate where everything is so expensive, is not going to be enough for me to be able to keep existing. I may be forced on to welfare or something like that, because, as I said, at this point in time, I draw on nothing from the state or the government in any, way shape or form. I find it abysmal that the situation with the politics is the left wing and the right wing are continuously playing politics at the cost of the Australian people. You've got to realise that the left wing and the right wing are part of the same burden. If they don't work, it doesn't fly.

I do not see much for my future, just with the way my pension is a part pension and my super is not very extensive, mainly because of the injuries that I've suffered. I haven't had contributions to it, so I will be in a predicament. I have a feeling that most people who are in the working class at the moment who were not earning enough to live on, because they can never have enough to pay their bills, are going to be reeling when they hit my age or older. I am just bewildered by everything that is going on in Australia at the moment. I think it's disgraceful.

Witness C : Thank you for the opportunity to provide feedback on the impact on my family of this discriminatory, predatory and callous ALP policy. There's been a lot of commentary in the media about the impact of this policy on the income of retirees. They are the people who have already paid a lifetime of taxes. This policy also significantly affects a great deal many more people than just retirees. It will also have devastating consequences for people who are not yet retired, who are still working full-time, who are still paying tax at their marginal tax rate, who are still supporting their families and who rely on and need the income from this legitimate tax refund via refundable franking credits as a means of making ends meet. They are people like myself and my family who have diligently invested in Australian shares for 30 years.

To put a personal perspective to this and to assist you in understanding the impact on my family, let me give you an outline. I'm 56 years old and married with two children, aged 14 and 12. Our eldest boy has been diagnosed with ADHD and our youngest boy is autistic. I've been an average-wage earner all of my life and last year had a taxable income of $70,968. But we have always been diligent, focused savers, living within our means, so that we could invest inside and outside of superannuation in order to provide for ourselves. We don't drive fancy cars; we don't take overseas holidays; we don't eat out. We hardly fit the Bill Shorten-Chris Bowen rhetoric about the big end of town or of being wealthy.

Last year my personal tax refund due to refundable franking credits on investments outside of superannuation was $8,914. We don't spend this money whooping it up. We rely on this refund to pay for the prescription medicine for our ADHD-diagnosed son, to pay for the paediatrician appointments, to pay for the speech therapist appointments, to pay for the psychologist appointments for our autistic son and to pay for a tutor, at $70 an hour, to assist our challenged sons with their school curriculum so as to give them a fighting chance in this increasingly competitive world. But there's more. Apart from this policy change negating my personal tax refund, which we clearly rely upon, we'll also lose our self-managed super fund tax refund, which pays the $5,147 premium cost for my life and TPD—total and permanent disability—cover held to protect my family in the event of my demise.

The franking credit refund is not, as Shorten portrays it, some nice little lurk for wealthy people or people who pay little or no tax. It's a legitimate refund for excess tax paid. Last year I still paid, after my franking credit refund, a net tax of $14,611—and I'm in the 32½ per cent marginal tax bracket! So, from what I've told you this afternoon, as a non-retiree person still in full employment and paying taxes, the proposed ALP policy, both within and outside of superannuation, would have the effect of costing my family in the order of $14,000 a year. This is money which we clearly cannot afford to lose. I ask the committee: where am I supposed to find this money if this appalling, ill-considered policy, which targets hardworking, thrifty, independent Australians, is enacted?

CHAIR: Thank you very much.

Witness D : Mr Chairman, thanks for coming to Brisbane. I'm a retired investment adviser, and I want to talk about the unintended consequences, not so much for retirees, who we've heard so much about—and I'm sure, need I say it, you're a little bit sick to death of the same story—but for other people who are moving towards retirement. People seem to have missed the simplest thing about Labor's proposed policy: they'd be lowering the return on an investable amount of capital. So, if you lower the return, you need increased capital. You can look at the numbers for any level of earner. I looked at a $75,000-income earner who wants $50,000 in retirement. That gentleman would have to earn an extra $260,000 of capital, and, if he could save at the rate of $26,000 a year, it would take him 10 years. Labor's policy wants people to work 10 years longer, which is an unintended consequence of lowering the return.

My second point is a bit more specialised. For those of you who don't know, currently the Australian government is able to borrow on international markets at 2.3 per cent. Our big brother, the US, has to pay 2.7. Our credit rating is in such good shape we can borrow at half a per cent below the US. If Labor gets into power, the baggage that the big spenders carry—that spread will disappear. With the federal budget borrowings running at $500 billion-plus, I suggest that the Treasury punch in an extra half a per cent on the borrowings to recalculate the forward estimates on what Labor is suggesting. It would be a very sad event. Look out if interest rates rise in this country under a Labor government: Sydney and Melbourne house prices haven't seen the floor.

I also query why a government would be looking to tax retired people when we are moving towards a surplus in a timely manner. It is just ridiculous that such a policy is even thought about when the country is in fine shape and is moving towards a surplus. If they want to correct an ill in our economy, they should go after the multinationals, like Apple and McDonald's, and give the government bodies more money to find out how these guys develop loopholes to park money in Ireland and everywhere else. Thank you, Mr Chairman.

CHAIR: Thank you very much. I call Richard Harvey and then Peter Black.

Mr Harvey : Good afternoon one and all. Just a quick thumbnail: I'm 76 years old, I've been retired 15 years and I'm a trustee of my own super fund. I started my retirement with a retail fund, which was taken over. This resulted in increased fees and costs, together with lower returns; hence I committed to a self-managed super fund.

Today, dividend imputation credits represent approximately 20 per cent of my fund income. Labor's proposal, from what I can read of it, is a divisive one, because not all recipients of dividend imputation are treated in the same manner. Chris Bowen, in his first media release, titled 'Labor's dividend imputation policy', actually states, 'A Shorten government will make the tax system fairer.' Sorry, but that's simply not true, and it doesn't matter where you come from—it can't be true. Their proposal will result, basically, in some people, or one group, paying a 30 per cent withholding tax and a second group paying a 15 per cent withholding tax whilst others will be excluded from that—they will pay no withholding tax at all. I understand that political parties have every right to develop policies, and I have no objection if their policy is clear and fair all over, but there is no way that this is a fair shake of the whatever.

Why is it that such a policy is not applied to our retail and industry funds? There's probably a fairly simple answer on the industry funds, but we won't get involved in that. Bowen also states that some individual SMSFs receive greater than $2½ million in cash refunds from dividend imputation credits. Now, I would really like to know whether anybody on this committee has any proof that that is the truth. For a start, it couldn't happen today unless someone has it in an accumulation side of the fund. The best you'll do today, even if you invest your $1.6 million, is $50,000 in dividend imputation. In fact, if you extrapolate that a bit further, in order to achieve $2½ million in refundable credits, you need $150 million in shareholding in fully franked shares. That's the only way you can do it.

CHAIR: Thank you, Mr Harvey. Next up is Peter Black, followed by David James.

Mr Black : Thank you for this opportunity. My name is Peter Black. I'm 63 years old. I'm a swing voter, for what that's worth. My wife and I have been trustees of an SMSF, a self-managed super fund, since 2001. I'm the member. We're below the $1.6 million cap. We hold a modest portfolio outside that. We are not wealthy by Labor's definition of $2.4 million—nowhere near it. We've saved and worked hard to accumulate sufficient savings to replace the government pension with our own self-funded income stream. We don't want to be on the government pension.

Impact No. 1 is $22,000 a year straight off the top which you otherwise would have spent on incidentals like specialists, health treatment and dental treatment. Impact No. 2: yes, we will likely have to move on to the pension at some point. It's inevitable; it's a calculation, and a lot more people before us will have to move there. Impact No. 3: if it comes into effect, I'll consider moving my funds out of my self-managed fund into direct investments. The franking credits will soak up the taxation impact of such a move.

What a system when your superannuation fund becomes useless and expensive when you retire—ridiculous. I will not move my funds to an APRA or industry fund as the returns are woeful and the fees high, not affordable. My fund has produced 11 to 12 per cent per annum before fees and taxes from 2001 right through the GFC, and that is not hard, and yet the superannuation industry can't match it. I'd like to know why when the fees are very expensive.

Impact No. 4 is about inequity, which doesn't seem to be said very much. For example, under Labor's policy a well-off executive retiring from a $500,000-a-year salary with superannuation of five million fully franked shares in one APRA fund which happens to be in a taxpaying position would receive dividends of $200,000 and continue to receive $85,500 in refunds. Another worker just happens to be in another APRA fund which is not in that taxpaying position and is on a modest wage, and they will lose whatever franking credits they get. I don't understand why this is not out there more publicly as there are different rules for different people, depending on what fund they are in. It's a lottery for funds, and we don't make that point well enough publicly for people to understand that this is not just self-managed funds versus other funds; it's a lottery. How can that possibly be right?

Thank you very much.

CHAIR: Thank you very much, Mr Black.

Mr James : We have a self-managed super fund, which we have had for quite some time. We have abided by the rules, and I still can't come to grips that anyone could be silly enough to introduce the cancelling of franking credits. It will dramatically affect our way of life, and I am at this point in time thinking about moving overseas for the next four or five years because I can see that, if the unions win the next election, this country's going to go downhill extremely quickly and it will be the unions running the country.

I've asked this question before, but to me it is very discriminatory and also to me it's stealing money. We know the goalpost. We abided by what the rules were, and now we're finding we're going to lose 25 or 30 per cent of our income, which is quite a bit. So to me there should be an opportunity for a legal challenge, and I'd like that answered at some stage. I have asked it before from somebody but didn't get an answer, so that's my main concern at the moment.

CHAIR: Thank you very much, Mr James.

Mr Hanlon : I'm not yet retired, but I'm heading to that stage. My family, which is basically my wife and I, have had a lot of purchase of shares over the years because, basically, back in Keating and Hawke's days, that's what they encouraged. That was the actual basis of this imputation credit: they wanted Australians to invest in Australian companies, so that's what we did. Fortunately, we've ended up with quite a good share portfolio.

Now, certain people in the climate that's happening at the moment are talking about the big end of town, and lately it's now the top end of town. It's interesting that this top end of town doesn't seem to be here to support abolition of franking credit refunds. Isn't it interesting that it's the top end of town and the big end of town that actually has the tax liabilities to offset, whereas the little end of town won't have the tax liabilities to offset? So I'm not quite sure whether we've actually got the ducks lined up here.

The opposition Treasury spokesman, after announcing the policy, all of a sudden within two weeks decided that age pension recipients would be exempt, so basically he's acknowledging that there is a financial impact for people if all of a sudden he's reversed it. There was also exemption for different organisations—namely, charities and I'm not sure but I think unions as well.

The loss of income through superannuation—what happens? People draw down on their capital, so they run out of capital sooner and therefore they go on the actual welfare system because they haven't got their own income. We've been encouraged for all these years to have our own source of retirement income.

The estimate is that we're actually going to take $6 billion out of the tax credits in the first year. That money, sucked out of people like ourselves here, who go out and spend on tradesmen, eating out, domestic holidays and all that, is $6 billion out of the economy. Certain people would argue that that $6 billion is going to be collected by the ATO and redistributed to schools and health, but isn't that actually encouraging a welfare state? Isn't it interesting that the federal government is getting involved in health and education and the arguments about that but they're really primarily state responsibilities?

Another point that I would like to raise is that this is happening for our tax refunds, but what's going to happen to pay-as-you-go income taxpayers? Does that mean, if they have an actual income tax refund cheque, that they won't get sent that tax cheque?

CHAIR: Thank you.

Mr Hodgson : Parliamentary members, retirees and others, I'm here today because I value the democratic system under which we live day to day. I recognise that policymakers, parliamentarians, make taxation laws and other policies which affect us all. I also value the Australian sense of egalitarianism—equal values, equal treatment. It seems to me that this system is not a level playing field. A particular portion of the population—that is, those who are perhaps least able to manage their affairs—are going to be affected by these policies.

In my distant past, I acquired a degree in economics. As a rational investor, I cast my mind out to the actions that I can rationally take in response to this policy, should it be voted through parliament. Ultimately, it boils down to: I will suffer around a 15 per cent diminishment in disposable income. That either means I'll exhaust my funds faster or I can reduce my consumption. If I reduce my consumption, it wouldn't be good for the economy. If we collectively reduce our consumption, the multiplier effect of a factor of about 1.4, from memory, will mean that retailers will cop it in the neck. In addition, we will run down our bank balances. Guess what? The banks create banking funds from our deposits. It will tighten money supply, and there will be other implications. Both of these effects will not be good for the economy.

I want to leave it there because I think most of the other speakers have said the important points. But I will take a vow, and the vow is: I will continue to act and vote in a just fashion. I will remember this, and it will temper my voting behaviours for decades to come. Thank you.

Ms Powell West : I would just like to congratulate the other speakers. They've made some excellent points, and some of them have put up some challenges that I think need to be investigated. I only have one comment to make, which is about my experience with trying to communicate to Labor the impact that their policy would have. My partner and I have had share portfolios since the early nineties. Our share portfolios are outside of superannuation. We also have money in superannuation. So we will lose quite a lot in franking credits should this policy go ahead. So I sat down and I wrote what I believe was a unemotional, well-balanced letter to all of the Labor members of parliament from Queensland, to the Labor senators from Queensland and to the four members of the Labor leadership team: to Bill Shorten, to Tanya Plibersek, to Chris Bowen and to Andrew Leigh. I also wrote a letter to our local member, Trevor Evans. I received one response and the one response I received was from Trevor Evans.

CHAIR: Always good to reply to correspondence. Ron.

Mr Baranoff : I've been in a self-managed super fund for 38 years. I'm endeavouring to do something so that I continue getting my franking credits. For instance, at the Longman election at Bribie Island I handed out how-to-vote cards. Was I successful? No. But it did give me some more incentives. I've come here today looking for ideas so that I can continue to fight for our superannuation. I've done other things but I won't go into those, they're nothing really grandiose. I will conclude from this and say that from now until May I'm looking for ideas. I'll travel down south if there's a rally, wear a uniform at the appropriate time, talk to my friends about it et cetera. I will write to comedy shows, which I've done and suggested what they should use which they have used. That was Mad as Hell. If you do follow that show, he has a segment there where if a certain gentleman makes a ridiculous statement he puts up 'zinger' after it. I'll leave it at that.

Mr Lingard : I don't have a prepared speech. I've listened carefully to all of the other speakers. I'm old school. I'm 80 years old. My training said first identify the problem. Who in the room has put their hand up to help their local member at the election? Put your hand up. If you're not out there helping them you're supporting this threatened legislation. It's as simple as that. Thank you.

CHAIR: Thank you, Mr Lingard.

Mr Scar : As a matter of disclosure, I'm a Senate candidate for the LNP for the next election, so I'll put that on the record. The question I want to ask this committee after listening in particular to the gentleman who is 56, still working with an income of $70,968 last year, and has a 14-year-old and a 12-year-old—the eldest with ADHD; the other is autistic—is: how in goodness name is it fair that he loses the benefit of his franking credits when I'm currently a highly paid senior executive in the mining industry earning hundreds of thousands of dollars a year and I get 100 per cent of those franking credits? How is that fair? It is unjust, it's inequitable, it's not a fair go, and I can tell you: if the Labor Party does win the election in the lower house, we will fight it tooth and nail in the Senate.

CHAIR: Thank you, Mr Scar.

Mr Moroney : I'd like to thank everybody for presenting their submissions. I think that the Labor Party's policy stinks. I'd like to ask everybody in the room who they're going to vote for and who their family is going to vote for. Are you going to vote for the ALP or are you going to vote for the Liberal Party?

CHAIR: Just for clarity, this is a formal parliamentary hearing and, while I understand that people have very strong views and obviously I am a member of the government, it would not be appropriate to take a poll based on people's voting sentiments. I want to make clear that, throughout this entire inquiry, anybody is entitled to come and speak and that includes people who have supported and opposed the policy. I'm not going to try to pretend it hasn't been heavily weighted to those against it, but, nonetheless, that's a response from the public. Do you have any other comments to make, Mr Maroney?

Mr Moroney : I wasn't going to ask people to put forward their names; I was just going to ask them to put up their hands.

CHAIR: I understand, but parliamentary inquiries need to be impartial in their process. In the absence of anybody else wanting to make a contribution, I'm happy to take repeat contributors. Does anybody else have a contribution they wish to make?

Ms Moore : There is one thing I'd like to say. Regardless of the ALP policy, as shareholders we get the ability to elect and choose to receive gross dividends, unfranked dividends, and in that way receipt of the gross dividends would simplify this whole thing. It would offer transparency, flexibility and fairness for all the low-income taxpayers as well. By receiving a gross dividend, an unfranked dividend, we would receive all of the dividend at the time the dividend is paid. That's what currently happens in industry funds. The gross dividend avoids the complexity and cost of additional compliance to the carve-outs and any caps on franking credits that might come in, the age pension dates, the grandfathering and legislated personal income tax as people would actually get those tax cuts as well as the dividend when it's due. You can invest that dividend on the date the dividend is there. Also, in terms of receiving bank savings interest, if you don't provide your tax file number the banks take a withholding tax at about 45 per cent. At the end of the financial year, you're usually repaid that withholding tax, if you've paid excess withholding tax. It is exactly the same with franking credits and refundable franking credits. By extrapolation and denying franking credits, will the ALP also deny withholding tax refunds on bank savings interest at the end of the financial year? You're starting at the thin end of the wedge. Thank you.

Witness E : Just a quick one: when are the government actually going to become very vocal on this issue? I can't believe the golden opportunity here for them to earn some very much needed votes. I hear more about this policy and the ramifications on 4BC—of course, you never hear anything about it on the ABC—than I do from the government. As I say, there are big votes here, I would have thought, and I can't believe we don't hear much about it. This is the first time, really, I've felt involved, together with some things on the internet, and that's it. That's my 2c worth. Thank you.

CHAIR: I'll take that as a comment. Thank you for attendance here today. Please note the written submissions will continue to be accepted throughout this inquiry. You can access the details of the inquiry at I thank you all for your attendance and participation. It's been immensely useful. Thank you very much.

Resolved that these proceedings be published.

Committee adjourned at 16:51