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Standing Committee on Economics
25/02/2019
Implications of removing refundable franking credits

ANDERSON, Mr Tony, Private capacity

ATTWOOD, Mr Brian, Private capacity

BENSON, Mr Graeme, Private capacity

BERRY, Mr Ian, Private capacity

BLITZ, Mr Kevin, Private capacity

BUDROVICH, Mr Joe, Private capacity

CARMAN, Mr Philip, Private capacity

CARNEY, Mr Daniel, Private capacity

CORMACK, Mr Ray, Private capacity

DAVIDSON, Ms Gina, Private capacity

DE GROUCHY, Mr Ron, Private capacity

DE SZOEKE, Mr Andrew, Private capacity

DRUITT, Mr Paul, Private capacity

EDGECOMBE, Mr John, Private capacity

FUHRMANN, Mr Peter, Private capacity

GIBBS, Ms Lisa, Private capacity

GREGORY, Mr Peter, Private capacity

HARDING, Mr Tony, Private capacity

ION, Mr Edward, Private capacity

JONES, Ms Rosalie, Private capacity

KENNEDY, Mr Ted, Private capacity

LENARD, Mr Lazlo, Private capacity

LOVEROCK, Ms Valerie, Private capacity

MARIANO, Mr Clive, Private capacity

PEARCE, Mr William, Private capacity

PRYOR, Ms Anne, Private capacity

QUESNEL, Mr Gerard, Private capacity

ROBINSON, Mr Peter, Private capacity

SACHSE, Mr Rob, Private capacity

SIMPSON, Mr Dave, Private capacity

WATTS, Mr Howard, Private capacity

YUKICH, Mr Andy, Private capacity

Witness A

Witness B

Witness C

Committee met at 13:30

CHAIR ( Mr Tim Wilson ): I declare open this hearing of the House of Representatives Standing Committee on Economics. The ability for investors, including individuals and superannuation funds, to claim a full franking credit refund is an established feature of our tax system and is core to the financial security of retirees. There is community concern about proposals to remove cash refunds for the franking credits of individuals and superannuation funds, including that it amounts to a tax on the savings of retirees. This committee is examining how the removal of refundable franking credits would affect investors—in particular, older Australians who have planned for their retirement based on the existing rules and whose financial security could be compromised. This public hearing provides an opportunity for Australians impacted by a change to refundable franking credits to address the committee directly with a three-minute statement. We welcome your contributions and participation.

Before commencing, I refer members of the media present or who may be monitoring this hearing over the internet to the need to fairly and accurately report the proceedings of the committee. Separately, there has obviously been some attention on this inquiry. I understand somebody is handing out partisan material outside of the venue. I have control of this hearing room. I do not have control of what goes on outside of the venue. I believe that people have a right to freedom of political communication by the Constitution. I've asked the Speaker of the House of Representatives whether there is any requirement, and I have not heard back. Additionally, because apparently some people don't understand the policy, I would like to take this opportunity to formally declare that superannuation funding which I hold, which is a self-managed superannuation fund with my husband, Ryan Bolger, Wilson-Bolger Superannuation, owns WAM Leaders and WAM Capital Shares. This inquiry has no effect on their value, and I can confirm to the best of my knowledge that any attempt to scrap refundable franking credits will have no impact on myself or my superannuation fund. There you go; apparently everyone's the wiser.

The way community statements works is that I will introduce each speaker and invite them to speak into the microphone provided. The secretariat will indicate to you with a sign when you've spoken for three minutes. If you fail to adhere to that little warning, I will cut you off. I will then introduce the next speaker. Please note that these statements are broadcast not just here but over the internet and will be recorded for Hansard, and therefore are available for the public record, and as we've said there's at least one person from the media present. I ask that speakers refrain from adversely commenting on other people and exercise caution when speaking about their own or other people's private or financial circumstances. Basically, if you don't want to be held accountable for it, don't say it. Please be aware these proceedings may also be filmed. If members of the public have objections to being filmed, please raise them with the secretariat and the committee will consider your request.

Ms Pryor : Good afternoon, everyone. I'm the author of submission 452. I'm a 65-year-old and I'm a former schoolteacher. I stand to lose 25 per cent of my net income under this draconian policy. I need to tell you that I'm not rich. The Shorten rhetoric has labelled this proposal a tax loophole for the rich, yet in his 2018 budget reply speech he labelled those workers earning less than $125,000 per annum as middle to low income. Now, I've read a large number of submissions on your site and I see very, very few people that earn anything like that sum of money.

The other thing that I'm fed up with hearing from Labor is the rhetoric about retirees who pay no tax. It's simply misleading. I paid personal tax every year since 1975 and my self-managed super fund pays tax. So, to say that it's only retirees who pay no tax that get a refund is just totally wrong. Mark Dreyfus on Q&A a couple of weeks ago spoke of the unfairness of this and spoke also about the 27 jurisdictions that don't refund franking credits. His comment was misleading and deceptive because it completely ignores taxation and welfare systems. For example, in New Zealand, which is one of the 27 countries that do not refund unused franking credits, everyone over the age of 65 years receives a government pension. There is no assets test or means test. So, to actually just get on national television and say, 'Well, you know, there are 27 countries that don't refund franking credits,' is just completely misleading and wrong.

If implemented, this proposal is going to lead to an accelerated depreciation of capital. If you take a minimum pension—in my case it's five per cent—year on year the amount of capital in the fund will diminish. That means that year on year the five per cent of the diminished capital is obviously a diminished pension. This is like the reverse of compounding interest. For me, that's an absolute concern because I'm a 65-year-old and next year my father's 100. He's still driving a car and he's still living independently. On my calculations, that's another 35 years of retirement that I'm looking at funding. I should also point out that my great-grandfather died in the 1960s at nearly 102, so I come from pretty good stock.

Another issue I have is: how can the opposition possibly be aiming to implement an anomaly in Australia's tax system?

CHAIR: Sorry, Ms Pryor, we're at the end of your three minutes.

Ms Pryor : What a shame; I could go on for another 30!

CHAIR: Thank you, Ms Pryor.

Mr Blitz : Today I represent the north central district branch of the Association of Independent Retirees, an Australia-wide organisation with some 42 branches. I've documented a summary of today's issues and you have a full submission, which I do urge be read, because there are some very salient points within that which I won't have time to cover today. This report is based on a five-question questionnaire that was put to the members at their last meeting without reference or without their prior knowledge. Today I focus on their responses.

Question 1: 'Are you currently the recipient of any federal government support?' An overwhelming 79.3 per cent said yes, the conclusion being most of the respondents do not receive any federal government support. Question 2: 'Are you currently receiving franking credits?' It speaks for itself: 87 per cent. Retirees are obligated to declare dividends and franking credits as part of their taxable and assessable income. Question 3: 'To what extent are the proposed. ALP changes likely to affect you?' Here the spread was 'mildly' 38 per cent, 24 'modestly' and 38 'significantly', the conclusion being that self-funded retirees will have a negative impact on their planned retirement lifestyle going forward. Question 4: 'If the proposed changes are to take place, what would you like to see?' I'm sure that your committee's already heard it all: grandfathering, must be no changes, floor levels would be unfair and inequitable et cetera, with over 20 other similar comments received. Any changes are considered to be unpopular, unnecessary, short-sighted, unethical, mentally destructive and a form of elder abuse, with far-reaching effects on all retirees.

An obvious roll-on effect is reduced retail spending, personal health capital spending, more retirees applying for the age pension welfare and especially the roll-on effect of increasing unemployment. Now the big one, question 5: 'This is your chance to be heard. What would you like to make this committee aware of?' There were some overwhelming 50 different responses, including, in summary: anger, frustration, stress, abuse, depression, furious punishment for those having lived frugally, enjoy a big spend-up now, duplicate taxing, and even the extent of the will not to live longer. Please allow me to submit eight poignant messages, some of which may be of special interest to your committee.

CHAIR: Sorry, Mr Blitz, we're at the end of your three minutes.

Mr Blitz : May I please make two final conclusions? They're very important.

CHAIR: Very quickly.

Mr Blitz : Kevin Rudd in his heyday stimulated the national economy by gifting $900 to every retiree, irrespective of the subsequent disastrous national debt crisis—the exact opposite proposals of the current ALP leadership. And we wish that the Australian Human Rights Commission legally charge the government who pass on the proposed ALP charges with elder abuse under the quotation 'any act which causes harm to an older person'.

CHAIR: Thank you, Mr Blitz. Frank Procter? No, you don't want to. Jill Pallett? Philip Carman, then after that Gerard Quesnel. Just for clarity, since I have formerly served as Australia's Human Rights Commissioner, I can confirm that only an aggrieved party can make a complaint to the Human Rights Commission. The government can't do it on your behalf, in answer to that question. Mr Carman.

Mr Carman : Good afternoon, ladies and gentlemen and members of the committee. I'm 65, so I'm capable of being called an elder, but I think the most important issue here is that we have misinformation, and I believe that that's elder abuse when people are made unnecessarily frightened by something that they can avoid quite simply. Any competent financial adviser will tell you that if you have a self-managed super fund of less than $10 million and you're over age 67 this legislation will not affect you if you take the right advice. I'm not going to give advice here, but it's very simple to simply step around the legislation when it's introduced.

I personally think that there are some elements of the legislation that are particularly fair, but, sadly, one of the few things as a financial adviser I can do is help you to avoid your tax responsibilities. I don't know what the markets will do tomorrow. Nobody does. But I can tell you how to avoid unnecessary tax obligations. This legislation will not force anybody to pay one cent of tax unless they're under 67, nor will it stop them getting their tax credits refunded in cash unless they're under 67. And they would need to have, in my estimation, more than $8 to $10 million in a self-managed super fund with a diverse portfolio to be subjected to any adverse consequences. So, if you're not in that category, you need not worry. Just get good, competent financial advice. If you haven't already been told by your adviser how to get around this, they're not competent, in my judgement. But, frankly, it's very, very simple.

CHAIR: Thank you, Mr Carman. Just for clarity, we're talking about a policy. We don't actually have legislation. In fact, this committee can only inquire about pre-legislative proposals. Next up is Gerard Quesnel and then after that Ron De Gruchy. I'm reading people's handwriting; I apologise if I mispronounce anybody's name.

Mr Quesnel : Good afternoon, members of the House committee and everyone. I am a self-funded retiree living with my wife. All our income comes from dividends received from a portfolio of shares in multiple companies and distributions from three attribution managed investment trusts and interest from bank term deposits, all jointly owned. For the financial year ended 30 June 2018, our combined taxable income as assessed by the ATO was $46,210. Tax on that income was assessed at $1,863.90. Non-refundable tax offsets like seniors and low-income offsets were used to reduce the tax payable to zero. So there was no income left to which franking credits could be applied. Therefore, we received a refund of all franking credits, to the tune of $11,683. This pattern is expected to be repeated for all foreseeable future years. For this analysis it is preferable not to use a figure of taxable income of $46,210, as franking credits are included as income in the tax returns but no cash is actually received, and to use the more appropriate figure of actual interest and dividend and distribution income, as detailed in the tax returns as $38,233. Added to that the refund of all franking credits of $11,683 gave us a true total income of $49,916 for the year. If a Labor government is installed and they follow through with their promise to stop refunds of franking credits, the modest income to which I am accustomed will be slashed by close to 25 per cent, leaving me with little more each year than the age pension. That's food for thought. This outcome for my wife and I is untenable and ridiculous really. What this analysis tells me is that the greater the total income of an individual, the greater is the opportunity for all franking credits to be offset and to forfeit nothing. As is the case so often in similar circumstances, the ones most hurt are the ones least able to afford it. Is this an attempt at taxing the rich? Perhaps the self-funded retiree needs protection, not pensioners. Thank you.

CHAIR: Thank you very much. Next up is Ron De Gruchy, then Paul Druitt.

Mr De Gruchy : Good afternoon. I am the president of the Superannuated Commonwealth Officers' Association in WA. Most of our members, because they pay income tax, will not be affected by this proposed change in legislation involving the refund of franking credits. However, some of my friends do feel that they will be affected and they feel that someone should voice their concerns. Most of us are used to changes in many different types of legislation. Though it must be said that the change that occurred two years ago to the means test for the age pension did upset many retirees. There are also changes being made to the age where someone can apply for the Centrelink age pension, as well as changes to the eligibility for the Commonwealth seniors health card. All of these changes have been brought in by the current government, including introduction of the $1.6 million limit for superannuation in the pension phase, together with reductions in the amounts that can be moved into superannuation. Perhaps it can be said that all these changes have needed to be made to ensure that Australia does not become bankrupt. We can't continue to keep borrowing money forever. Obviously, there are mixed feelings about the proposed change in the refund of franking credits. There are those who are extremely concerned that they will be worse off financially if they are forced to forfeit their cash refunds from the ATO, and there are the others who say that this tax concession that affects about four per cent of the Australian public is not something that is of benefit to the country.

A radio interview with Ms Emma Dawson from the Per Capita organisation and Mr John Moroney from the Self Managed Super Fund Association on Wednesday last week was enlightening in that certain facts and statistics were discussed. We were told that a few years ago a payment of $2.5 million was paid to a superannuation fund from the ATO purely for franking credits. In addition, six superannuation funds held more than $100 million, and 2,184 funds held more than $10 million. Obviously, it is these types of financial holdings that the Labor Party is targeting with their policy on franking credits. Unfortunately, it is also true that many small investors with superannuation amounts of around $1 million are becoming caught up in this policy. As an SMSF with a total of $1 million, I only bring in about $50,000 to $60,000 per year. Note that this is tax-free. Franking credits could be as much as $10,000 to $20,000 per year. To a retiree with limited chances of gaining additional income, losing $10,000 to $20,000 each year can be of great concern. If this legislation ever does come to pass, it is our strong belief that a cap on refunds should be available to everyone.

This is important; this is the punchline. If the sum of $10,000 became the limit for refunds of franking credits, that would allow the government to stop paying large amounts to the so-called wealthy retirees. It would also allow the average person—

CHAIR: I'm sorry, but I have to cut you off. You are welcome to table your submission as a statement, but we do need to give other people a chance.

Mr Druitt : Good afternoon. My wife and I are 86 and 83, respectively. I'm going to give you a very brief run-down of our investment background and the effect on us of the worrying aspect of the dividend imputation. We established our superannuation fund in October 2001 with funds from the sale of our real estate business with up to 25 staff at one stage and with two investment properties. These funds were invested by a financial advisory arm of a large trustee company with a mixture of managed funds, unit trusts, ASX-listed securities, cash and term deposits. They also managed a share portfolio—although it was very small—in our individual names and jointly. Later, we transferred to another advisory company in 2006.

What is important from the dividend imputation is that we believed in 2009 from advice that we could transfer to our own self-managed super fund and manage our own investments. We sold nearly all the managed funds. For years they'd been giving us low returns. This is the point: we expanded a fair proportion of our share portfolio based on the premise of investing in well-managed companies with optimum dividend imputation. This had proved most satisfactory. However, the federal opposition's proposed cancellation of dividend imputation would be devastating should it pass.

We've been drawing down monthly funds from our super fund since 2001-02 and we have not been a burden on the government. In the 2017-18 financial year we drew a combined $69,000, so we've had a reasonable life, you can see. Our franking credits from all sources were just on $15,000. We are still some way from being eligible for part pension. Our tax income in the 2017-18 year was $32,853, so, when the opposition Treasurer says it's only for a few rich people, it's not us. We are still some way from eligibility for part pension, and the loss of the imputation credits would be very severe indeed. Actually, if it happened, we'd need to reduce our spending on retail, discretionary spending, donations et cetera. I'll table that comment.

CHAIR: Thank you, Mr Druitt.

Mr Benson : My wife and I were both teachers and believed in superannuation as a way to fund your own retirement so as not to be burden on the welfare budget. My father taught me to maximise your super contributions where possible to ensure you can fund a comfortable retirement, which has been the case to date. However, Labor's proposed policy on franking credits will throw this into jeopardy if it becomes enshrined in legislation.

We run our own two-member super fund, which we have managed to grow over the past 13 years. As Labor's proposal is not going to be universally applied, it is discriminatory, unfair and absurd. It does not apply to industry union super funds but does apply to self-funded retirees with a self-managed super fund. This is like having a policy that says, if you live in a house with a red roof, or industry super funds, you get franking credits; but, if you live in a blue-roofed house, or self-funded retirees with their own self-managed super fund, you don't, which is obviously quite absurd.

In our case, my wife and I will each lose approximately 30 per cent of our allocated pension, which is our sole source of income. The absurdity of the policy is further typified by the fact that, if I paid the full amount of tax on my allocated pension income, which included the franking credits, I would be approximately $5½ thousand to $6,000 better off than having all my franking credits stripped from me, and my wife would also be approximately $6,000 better off. As I said, it is quite absurd.

For a Labor government to avoid paying an increased number of pensions and increase the strain on the federal budget—because that will certainly happen as many people will rework their retirement income to get social security benefits and perhaps recover franking credits. A fairer system would be to refund franking credits to all individuals up to a certain amount. I'm suggesting $18,000 because it's below the current tax-free threshold and it's quite a bit below the current pension for a single person. Thank you.

CHAIR: Next is Edward Ion.

Mr Ion : There was no collusion between myself and the previous speaker. My wife and I are both 70, worked as teachers in the WA education department and have been retired for some years now, living principally off GESB super. We have assets just above the present cut-off limit which precludes access to the age pension. Before the 2018 change to the asset limit, we received a tiny pension. That has been removed, and we are now living entirely on accumulated assets. Some of these assets include a small share portfolio, which provides an income from franked dividends. This income is well below the tax threshold, so we pay no income tax. The return of franking credits through the tax system makes an important contribution to our overall income. Labor's proposal to remove the return of franking credits for those not receiving a pension will impact heavily on us and on retirees like us, who are in a marginal group just outside of access to age pension and with little or no additional income. The proposal will hasten our need to become age pensioners and be reliant on government welfare payments.

As a solution, we propose that all dividends to shareholders be paid by companies as unfranked dividends. All recipients of these dividends then would pay tax at their own marginal rate. People in the marginal group would be affected on a sliding scale. Those on no income with limited assets would be unaffected, those close to the tax threshold would be affected more and those above the tax threshold would pay tax at the marginal rate—and there are variations around this idea. An alternative could be that having access to an Australian government seniors health card or pension card would be a determiner of eligibility to the rebate of franking credits.

Changes to the retirement age pension access and asset limits were phased in over time to not disadvantage those already retired or approaching retirement and who had planned ahead for the event. Bringing in any changes to franking credit rebates would be must be similarly treated to avoid disadvantaging any group. Changes to this area must be properly modelled and thoroughly costed and the details fully disclosed showing the impact on the government budget, long-term impacts on access to government pensions and the effect on individuals. Thank you.

Mr Cormack : I'm speaking for both myself and my wife. You sitting there at the table might not like to hear this, but I've been a rusted-on Labor man since the age of 15. I've worked six days a week. My wife and I have worked very hard. But now I think, with this policy of Bill Shorten, he's more or less betrayed me and probably a lot of people in this room. I'm not so sure whether Chris Bowen brought this policy out with his own thought in mind or whether this is a Paul Keating policy, because he seems to be taking advice from Paul Keating. Finally, I'd just like to say that this morning's West Australian more or less says it all. I don't need to say any more. Thank you.

CHAIR: Mr Cormack, are you tabling that or are you just showing it to the committee? All right.

Mr At t wood : I am just a general local person who's been living in Forrestfield for 45 years. I am fully self-funded through my own well-managed system. I rely on interest and dividends from shares. If the imputation credits are taken away from me it will affect my income by about $5,000 to $6,000 per year. At the rate that things are going up every year, including shire rates, water rates, usages and vehicle registrations, one cannot afford to take a backward step. I am completely against this thing that Mr Shorten's going to bring in. That's all I need to say.

Mr Fuhrmann : First of all, I'd just like to congratulate everyone for coming here today because we are the most vulnerable people in society. So listen to Bob Marley: 'Stand up for your rights.' If you do not stand up for yourself, don't think anyone else is going to do it for you. You have to be a part of the whole process. I'm looking forward to many more of these meetings. I'm just going to make a few suggestions. People have put out their individual scenarios. What I'm suggesting is that, as is tentatively proposed with the negative-gearing system that may come in, a grandfather clause is the only logical way. People who are already in their retirement are very, very vulnerable and it's going to be very difficult to change your whole system. I set up my own fund 30 years ago in the belief that governments encourage you to go into superannuation. We just feel absolutely screwed with this proposal. Next I'd like to ask the question: why is it that if we put all our funds into industry funds we will receive franking credits and if we keep them in our well-run, self-managed super funds we are going to be hit with this proposal?

I read Judith Sloan's article in The Australian the other day—and she's written some very good articles on this. The key thing is: the companies—we are owners of those companies; we are the shareholders—have already paid the tax to the government on the profits that they have made. They are just distributing the profits that we, as shareholders, have made as members of those companies. Why are we being double-taxed on those dividends? It just does not make sense.

Judith Sloan also pointed out that it's not the government's money; it's our money. We have earned this money and we have to go hammer and tongs up to this election. I would encourage everyone to write to senators that are not aligned to political parties and encourage them to block this legislation, should it ever have a chance of getting through.

In conclusion, I'm a lot younger than some of the people here. I was forced to retire due to ill health, but I don't think the people of the Labor Party understand the stress and concern that this proposal has brought forward. For Chris Bowen to say, 'Well, they can vote for someone else' just blows me away. I've been a Labor voter and a Liberal voter, but you have lost me on this one. The attitude and the arrogance of this man just blows me away. I thank the committee you for holding these—

CHAIR: Thank you, Mr Fuhrmann.

Mr Gregory : It's reassuring to see there are a number of grey hairs amongst the panel—it gives a degree of confidence. I have found the best way to win an argument is not always emotion; it's presenting irrefutable facts. There is only one reason for removal of the cash refund from franking credits: it's to increase cash in Treasury. The removal of franking credits will have an impact on perhaps moving some self-funded retirees onto the welfare system. I ask if modelling has been done by Treasury to determine the actual net cost of removing franking credits because, until you get those figures, you just don't know what you're doing. That's it. Thank you.

CHAIR: Thank you.

Witness A : I'm a 72-year-old single female—and I notice we're not very well represented today—and a self-funded retiree. I live in a two-bedroom home in an eastern Perth suburb. I've been continuously employed since I graduated in 1967. The majority of that employment has been in the relatively low-paid tourism industry in the Kimberley and regional Western Australia. The highest level of wages I received was about $70,000, including subsidised rent.

When I commenced work, there was no compulsory superannuation but I took out my own product. I've also contributed to pay for health insurance all my life. My industry did not have an industry super fund so, when compulsory superannuation came in 1992, I invested in a company policy. I was only able to purchase my home due to the death of my mother when I was left a quantity of Wesfarmers shares. My family got those shares by putting into the local co-op store in the 1940s. I used those shares as a deposit. On the countdown to retirement, based on the taxation rules of the time, I elected to go for a self-managed super fund for the last stages of my working life. I was then advised to sell all my assets and buy a big home—a McMansion I call them—so I would qualify for a part pension. As a person of modest means and lifestyle, I did not choose this option.

I currently have approximately $50,000 in my super fund and stand to lose between $5,000 and $6,000 in franked credits—unless I go to that financial adviser! As this is used to cover the compliance fees of the fund, I'm really down double that. I receive an allocated pension of $28,000 per annum. I have some share dividends of $6,000 and I lose $3,000 in franked credits from those. So thus I stand to lose income of about $10,000 to $15,000 a year. This may not seem much but it's one-third of my annual income.

My budget when I retired eight years ago was $28.000. Due to the cost of living and everything, it is now $38,000 so the franked credits income really allow me to cover my basic living costs and my failing health costs. I will possibly end up on a pension sooner than would otherwise occur because of this proposal. I feel the proponents of this policy hope that I will die before this occurs.

I also object because it's discriminatory. If Australians have no taxable income but save their money through an industry super fund or certain retail funds then they are entitled to receive their cash franking credit refund in full. Those that have to pay the tax are deemed to be rich. We are not rich, as you've heard today from so many other people who have spoken today. The tax also, as someone has mentioned, has already been paid by the shareholder's company. In our tax system, it is a principle that everyone should be taxed equally and no-one should be taxed twice. With this proposal, these basic laws of taxation—

CHAIR: I am sorry, we are at the end of your three minutes. You're welcome to table the remainder of your remarks with the secretariat if you wish.

Mr Carney : Good afternoon, ladies and gentlemen. Chris Bowen has, with regard to these proposals, has proclaimed that no-one will pay a single cent more tax; no-one will lose a single cent from their super contributions, pension or share dividends. Today we hear that he's playing semantics; that's what he's doing. I started my working life 70 years ago and, throughout this long working life, I never received any superannuation. But at the age of 58 I started my own small super fund, and we concentrated on investing in blue chip Australian company shares which paid franked dividends. Thank God I never used the services of this new age profession of financial advisers, planners with their commission based fees, once considered by the professions as being unethical—ethics seem to be out the window. I receive no government pensions, no pharmaceutical benefits card, no Commonwealth senior card, no pensioner discounts for rates water et cetera. I do get a free bus ride at certain hours and I enjoy that.

My small super fund must pay me an annual pension of seven per cent of the market value of my capital, and last year this was about $46,000—it will be the same this year—and it just managed to do that from the dividends it earned plus the anticipated tax refund of franking credits, which it is not going to get, apparently. My land tax, shire, water, power, health cover, chemist, vehicle and essential costs are about 20 grand a year. I'm pretty satisfied really—I was until Mr Shorten and Mr Bowen came upon the scene! I have a clear conscience as a citizen who has arranged his affairs fairly, wisely and in compliance with the law.

Governments are free to change laws; however it's bad law to regulate retrospectively and, in this case, without grandfather clauses. We've planned our affairs and they should be exempt. The cost to me is about $10,000 a year—verifiable, for anyone who wants to check. So, Mr Bowen, you've reached great heights. I'm going to be famous because I'm perhaps the only person in Australia who's going to lose a single cent. But I hear today there are lots more of us going to lose more than a single cent, and justice and fairness are out the window.

Mr Harding : I'm 74 and should live to be 100 without financial stress. Last financial year, refunds of excess franking credits made up nearly 30 per cent of my income from my self-managed fund so I'm not wealthy. Like many others, I'm trying to spin out very limited resources. Most people have said what I was going say anyway but I put it to you: firstly, the threat to remove refunds of excess franking credits and the way it is being handled is generating severe anxiety among independent retirees. Secondly, refunding of excess franking credits is embedded into our financial plans and has been encouraged as a reliable and responsible measure for the long term not to be cut off at the knees after a few years. This has become financial customer practice and, as such, carries with it strong moral obligation for its retention.

Thirdly, this is a test of integrity and trust. The government of the day must recognise that the loss of refund of excess franking credits will be a significant blow to many independent retirees. If it goes ahead, they will coldly and deliberately hurt a lot of people. In view of the long government supported history of franking credits and widespread use of them, the decision makers are on a band to retain the refunding of excess franking credits as a financial planning option for the foreseeable future. Without the refund of excess franking credits, many folks will have to review their affairs. One wonders what the government will gain from pushing us in the direction of Centrelink to be another liability. Where is the logic and fairness in derailing the arrangements of a huge cohort of independent retirees fending for themselves?

The proposal is attracting not just my angst, but the word is spreading to friends and families throughout the social media, explaining how mums and dads and grandma and grandad's could be seriously disadvantaged and how the ballot box can fix it. Remember: younger folk won't appreciate what's happening unless you tell them. Their political allegiances can change in a flash if they perceive that their ageing loved ones are being callously treated. Those meddling in the franking credit arena are cunningly cultivating the false impression that all independent retirees must be rich and, as we all know, that's rubbish.

Mr Watts : Thank you very much for inviting us to appear before your committee. I'm 79 and I'm a retired GP from Kalamunda, near the airport. I was a GP for 40 years. My wife and I receive a small part pension because of our advancing age. We do receive some money from franking credits on the small volume of shares we own. I understand that ALP policy about franking credits not will not affect my wife nor I. The bulk of our income is derived from superannuation and, again, this will not be affected. We have a roof over our heads, food in the cupboard, I have a loving wife and loving relationships with my family and we live in a wonderful country, so what more does anyone need in life?

From my reading, older people on a high income or with high-value assets will be adversely affected and have significant reduction in the income if the ALP implements its proposal. But people in those circumstances probably don't need franking credits because they can use their money in other ways. That's probably a subjective judgement on my part. I think older people on pensions or superannuation are often not aware or may not be informed of the planned changes that the Labor Party is proposing. I think it's sad that the information provided by the government seems to be alarmist, out of proportion and not adequately detailed. Having talked socially with some elderly former patients, I'm aware that inaccurate or selective information engenders anxiety in them about their financial future unnecessarily. It seems important to me that accurate details of the policies of both sides of parliament are provided to help to alleviate the anxiety evoked in elderly people, particularly those older people who suffer cognitive impairment.

CHAIR: We're at the end of your three minutes. Thank you very much.

Witness B : Good afternoon. Thank you to the committee and the previous speakers. Dear committee, the removal of franking credits from our self-managed super fund—we're both in pension phase—will mean a reduction of about 20 per cent and thus reduce the balances, which will subsequently either reduce our pension income and/or the longevity of the remaining fund.

Running a self-managed super fund has many risks, but in the last decade one of the largest risks has been the continued tinkering with the rules by politicians. It is disappointing that some of the current and retired politicians who were elected before 2004 are proposing legislative superannuation changes that will not or may not affect their own superannuation. In the spirit of superannuation changes, previous changes, back in 2004, to the parliamentary superannuation were grandfathered for existing politicians. Why has this spirit not been applied to other Australians when changes are implemented? The parliamentary document itself states:

When entitlements under the Act were changed by amendments, the accrued benefits of members under existing arrangements have been protected. This approach, often called grandfathering, is consistent with the treatment of changes to benefits in other superannuation schemes.

Under the ALP proposal, selected groups are also exempt, such as unions, universities, religious groups and not-for-profit organisations. Part and full pensioners will also be exempt from a specific date. Why discriminate against aged persons based on whether they are trying to be self-funded or are drawing from the public purse or on the date of when they qualified for the government age pension?

Retail industry fund members in pension phase will also be largely unaffected, as the Ponzi nature of adding new members and their tax liabilities in accumulation mode can be offset from those members in pension phase with franking credits, as tax is calculated at fund level. As self-managed super fund trustees, we have strategised for self-funded retirement over many years, but now it appears that the rules will once again be changed if the ALP implement their franking credit policy. We are in pension phase now and we don't have another 10 to 20 years to adjust. Our reduction in self-managed super fund income will force us to take a different strategy, and this will likely involve selling all ASX franked share assets and replacing these with other asset classes which provide an unfranked income. One suggestion to any government—and I suggest this to the ALP members on the committee—is: if you implement this policy, please collect the money before spending it, because you may not have as much as you think you're going to collect. Thank you.

CHAIR: Thank you very much.

Witness C : Good afternoon, everyone, and to the chair, Mr Tim Wilson. My wife and myself are 75-year-old retirees receiving a pension from our self-managed super fund. We consider ourselves as average middle-class folk and not wealthy cohorts using self-managed super funds as a vehicle for tax minimisation. We both have a Commonwealth seniors health card. We have two cars worth less than $25,000. When we travel it's always in economy class. We live in a modest home in the northern suburbs of Perth, having downsized to help fund our retirement and to provide an adequate pool of assets: one, to ensure that we don't receive a government age pension during our retirement; two, to allow better health care as we age; and, three, to provide security without the need to return to the workforce during retirement.

Right now we're facing three major financial storms that will result in our super balances diminishing significantly faster than initially planned in 2006, when we retired. The removal of excess franking credits by Labor, if elected and legislated, will mean that we will we receive 30 per cent less income. Six per cent of our fund balances is required to be taken as an account based pension from July this year, as we will be 75 after July. Financial markets have been extremely volatile. At our age we need to seek the shelter of returns with less risk. The impact of these three pension income drivers will likely result in both of us drawing a government age pension in the foreseeable future.

Super funds such as ours should be exempt from the removal of excess franking credits for three significant reasons. Firstly, the decisions to fund our account based pension when we retired in 2006 were made relative to the super fund rules of the day. If excess franking credits were unavailable in 2006, we would have worked longer and increased our fund balances to ensure that there were sufficient funds available to fund a lifetime pension. Secondly, those receiving an account based pension over the age of 75 are unable to make further contributions to compensate for lower earnings. Henry's 2010 tax review recommended this restriction be lifted—and, of course, it hasn't been lifted, and I don't expect it to. Thirdly, we are unable to available ourselves of the downsizer contribution measures introduced in the 2017-18 budget, as further downsizing will only result in having to rent, with no overall benefit.

There are many strategies available to mitigate the removal of excess franking credits. A considered option is to withdraw funds from the super fund and purchase a more expensive family home to absorb the excess assets over the $387,500 couple threshold for a full age pension. This would then qualify both of us for a full government age pension of $34,209 indexed for a couple.

CHAIR: If you want to make further comments, you'll have to table them. You're at the end of your three minutes. Thank you very much.

Ms Davidson : Franking credits will continue to count as personal tax already paid for those wealthy enough to pay tax. Retirees who are too poor to pay tax are told the franking credit is a bonus from the government to which they are not entitled. How can this double standard be a fairer tax system? Members of industry or retail super funds will also have more cash in their pockets than SMSF members. Why? Because industry and retail super funds have thousands of members who are not yet retired. These super funds will continue to receive franking credits and can pay these to their retirees, but SMSF members will get punished for being SMSF members and will lose their franking credits. This translates into less money for them. How can this double standard be a fairer tax system? It is blatantly unfair to target only those retirees who are SMSF members not in receipt of a means-tested government pension or allowance and are yet too poor to pay tax.

I'll move on to the financial impact of the policy. SMSFs must lodge annually with the Australian Taxation Office a detailed tax return that has been independently audited. The ATO then compiles an annual report from this data. In the last annual report, 35.5 per cent of SMSF members were over the age of 65 and will be affected by the new policy.

The average super fund balance of these members was just over $652,000. In case that sounds like a lot of money, let me put this into context. The government's MoneySmart website has a retirement income calculator. Enter a retirement age of 67 years, enter the aforementioned balance of $652,000, and your annual retirement income will be just over $43,000. This will drop to $33,000 if these retirees are deprived of their franking credits and if 80 per cent of their income comes from franked investments. If the super fund balance at age 67 is above average at, say, $1 million, the calculator estimates your annual income at $52,500. This will drop to $39,900 without the franking credits.

As stated above, this proposed policy targets only SMSF retirees. Those in industry and retail super funds will continue to benefit from franking credits. Creating a policy which targets only one section of retirees—namely, those in SMSFs—is blatantly unfair. Thank you very much.

CHAIR: Ms Davidson, thank you very much. Next up are Barry Kirkup and Rosalie Jones. Do we have either of those people? Yes. Rosalie, and then Ian Berry, I think.

Ms Jones : I'm 69 years old, single and a self-funded retiree. I'm also an ex-teacher. Although financially independent, I'm not wealthy. I have a unit in a retirement village valued at around $350,000. I have superannuation in GESB of $400,000 and a one-bedroom unit valued at around $150,000. The rest of my money is valued at about $150,000 and is made up of cash and shares. When I retired some years ago, I based my decision to retire on a number of criteria: my financial position, my health, current economic conditions, interest rates, share prices and, most important of all, government policy and law, which dictated my entitlements—that is, the entitlements that were in place when I made my decision.

Unfortunately, after I retired, conditions deteriorated, and my total annual income fell from around $35,000 to about $30,000. This was due to falling rents and falling interest rates. These were simply economic conditions, and, although I didn't like them, I accepted them. However, because of government law at the time, I decided because of low interest rates to reduce my cash holdings and invest in shares. I was aware that I was entitled to a refund of the franking credits that came with share dividend payments. It was a crucial component of my decision to invest in shares.

My current total annual income of around $30,000 includes a franking credit of, last year, only $1,800, but that's six per cent of my total annual income. The Labor Party wants to take that away. Do I see the leaders of the Labor Party taking a six per cent cut in salary and entitlements? Do I see them take that cut to fund education and hospitals? No. Absolutely no way will that happen. I cannot afford to lose six per cent of my annual income, and why should I, when those were the entitlements that I was entitled to when I made my decision to invest in shares? The leaders of the Labor Party, who are on in excess of $250,000 per annum, will still receive the benefit of franking credits, while those on under $30,000 will lose benefits. The Labor Party is taking from the poor to pay the wealthy.

CHAIR: Sorry, Ms Jones, we're at the end of your three minutes. I apologise. Next up, Ian Berry, then Tony Anderson.

Mr Berry : I'm a retiree. I have a self-managed super fund, and I have a small amount of other assets invested in shares. I calculate that I'll lose about 30 per cent through the loss, if this change were to come about. Taxation is supposed to be equitable across all taxpayer classes, and this action will differentiate inequitably in several ways and initiate double taxation on certain taxpayers, an anomaly which Treasurer Paul Keating sought to eliminate when he introduced the franking credit system decades ago. That was subsequently transformed, with refunds being allowable, by the coalition government at the time with Labor support. This whole change that Labor is now proposing will undermine the strategy of government in encouraging taxpayers to save for their retirement and not be a burden on the exchequer in later life. It is also an attack on those wishing to manage their own financial affairs after retirement.

One of the methods that the Labor Party say this can be countered by is transferring to industry funds. But the franking credits will go into a general pool, and retirees will only get back a portion of the franking credits they were previously enjoying. Mostly, the industry funds will get this. It's often wondered whether they didn't actually propose this whole thing for their friends in the party. The retail super funds will also benefit, but they're on the nose at the moment, after the royal commission.

It is also anticipated that many wealthy superannuants will avoid the adverse impact of this proposal by rearranging their financial affairs to continue obtaining franking credits and that the ALP estimates don't take this into account. It is noted that foreign shareholders often rent their shares to Australian institutions around dividend time and retain some of the benefits of franking credits, which would not normally be available to foreign shareholders. It is not impossible that Australian institutions will set this up for lower and middle-range taxpayers and SMSFs. This again would adversely impact the revenue they are projecting.

Also, many superannuants might divest themselves of investment assets, spend up big on luxury cruises, upgrade their homes and claim the Australian pension. Probably not, but it will adversely affect government expenditure. An ALP government will not benefit from this change to the extent they claim. But by then they will have committed this so-called revenue to various programs and will continue to be locked into perpetual deficits, for which they are renowned. Worse, by massively restructuring superannuation benefits and changing the rules, they will have eroded the will of Australians to save for their retirement and support themselves.

CHAIR: Thanks. There are many people who want to speak, and we're tight on time, so I'm going to have to reduce the time to about two minutes. The point is to get straight to the point. Tony Anderson, and then I think it's Rob Duncan.

Mr Anderson : On 28 March 2018, Bill Shorten stood up in the federal parliament, and he stated:

We stand for the fair go. … That's the contest, and the contest starts now.

Good afternoon, ladies and gentlemen. I'm a 75-year-old self-funded retiree. In 1997 my wife and I started our own self-managed super fund and put all our savings into it. In the following years, we put all the spare money we could find into it so we might have a comfortable retirement. We are now retired and have been for the past 17 years. How will Bill Shorten's fair go affect us? It will simply reduce our income by 30 per cent at a stroke. This man must be stopped.

CHAIR: I have another Rob at the top of the list—Rob Sachse? No? If not then I have Joe Budrovich, and then after that Dave Simpson.

Mr Budrovich : Thank you. For brevity, I just want to talk about trust, circumstance and fairness. My wife and I are recent retirees, starting the journey. Back in 2000, for the first time, we thought about retirement. We did that because franking credits could be refunded. We made an active decision then that we would live a moderate lifestyle so that every year we could contribute some extra into our superannuation. Every year we did that, irrespective of whether there was a coalition government or an ALP government. It was approved. Every year we put money in and in the last four or five years of our lives, when we probably should have put money into the house, we didn't. The view was that franking credits would be refunded, so we would put money into super and in our retirement years we can slowly work through and draw down the big bucks to fix up the house.

Our situation is that we both have self-funded super and we both are over the threshold for a pension and well under the 15 per cent tax bracket. I've geared up the funds so that we do really well on dividends. The loss of franking credits to us is about $25,000. That might mean a lot, but we haven't drawn out—we didn't know this was coming. We had trust that governments, irrespective of party politics, would honour what they said and would give due notice to make a change of plans.

Now, I'm caught, two years into retirement, because if I'd known I wouldn't have retired early. I would have worked extra to have the extra money to live the lifestyle we wanted to have. I feel so sorry for those people who are one, five and 10 years behind us who are planning to retire well who will now probably retire on 30 per cent less money. That's not the retirement they were planning.

The last thing I'd like to talk about is fairness. I understand—and I might be wrong—that the ALP's policy will allow pensioners and part pensioners to retain the franking credits—it does? Thank you. I did an example and according to the Department of Human Services website a part pensioner couple who don't own their own home can have $1,055,000 in assets—that's the asset test. If they invested most of that in shares they would get annually $1 of pension, $50,000 in dividends, $21,000 in franking credits and $3,000 in rental support. A self-funded retiree couple with one dollar more will get only the $50,000 in income, because they won't get the franking credits and of course they don't get the subsidy. Therefore, $1 means you get $25,000 less.

Mr Simpson : My wife and I have our own self managed super fund. We planned our retirement by the rules of the day. In actual fact, if we look at what the Campbell report said, the taxation system must pass the test of neutrality, equity and simplicity. I couldn't see how it could be more simple and neutral as it was. The policies in relation to franking credits and imputation credits were supported by both parties. If people over a number of years who have planned their retirement with the rules that were in place have the rug pulled from under them, it's basically unfair. When a set of rules is put in place for self managed funds that are different to industry funds, of course they've got members coming on. We're in the retirement stage. Those in the accumulation stage pay it down. To us it's a tax. Contrary to what Bowen was saying, if the taxation department has that money it's money that they've taken from us. But that money, when it's applied to industry funds, all of a sudden you can pass it down to those that are in the accumulation stage. So, what happened to the ATO. They get less from those organisations but they take from the ones that operate under the rules that are in place. As the lady said before, how would you like six per cent taken off your wages. I'd say to you, as a number of people here have said: how would you like 30 per cent taken off your wages and the conditions that you've got in retirement? You guys have a different setup. When you retire, how many terms do you have to do and get a pension.

CHAIR: That's actually all changed. It doesn't exist any more.

Mr Simpson : Okay, it's changed. There is a definite difference for individuals unless they have some major health issue or whatever. I want the politicians to put themselves in the position of those that are most vulnerable. Understand the rules that were in place. People haven't broken the law. They've applied by the conditions and laws that are in place, and what's happening all of a sudden? I don't know whether Mr Bowen is red or white. He reckons it's not a tax. That's not what Mr Gottliebsen said. A tax is a tax. If it walks like a goose and makes a noise like a goose it is a bloody goose. This is a tax on everyone here.

CHAIR: Just for clarity, not that I'm seeking to defend the politicians on the panel, but anyone elected after 2004 does not get a defined benefit scheme. If you're a parliamentarian, we have superannuation like everybody else. This policy has as much or equivalent effect on us as it does on anybody else. Which I'm sure would keep some people happy.

Mr Lenard : This policy, the scrapping of the refund of franking credits, will have the greatest impact on SMSFs and any individuals with share portfolios in their names who receive no other income. It's unique to remember that. The savings estimate that Labor has used is inherently flawed, considering changes have been made in recent years and the expected strategy initiatives we can undertake as current recipients moving forward. The biggest of those, and the biggest winner of this, will be the other super structures such as industry funds, like the ones supported by the ALP, public offer funds and master trusts, who still get their credits refunded. Yes, it will have a flow-on effect on the recipients in those funds, but why is one lot of people being discriminated against—those who have their own SMSF, who want to live without being an imposition on the government and pulling a pension?

There are a couple of scenarios in the submission I gave you. One compares an SMSF, a self-funded person, against someone receiving the pension. It's based on about a million dollars in the fund, which is not a lot. That person would be 17 per cent worse off. In the other one, based on two funds having a million dollars each in them, The SMSF is 30 per cent worse off than an industry fund. In essence, this simply amounts to an attack on SMSFs over all other superannuation structures. The proposal results in an unfair advantage to industry and retail funds over self-managed funds, and it doesn't give people the option to make their choices, as they would like to do. As an SMSF I'd have to restructure my affairs to ensure that all the benefits are not lost—or, as other people have already said, adjust other incomes. Self-funded retirees will be further disadvantaged by this policy. Australia has a political environment where successive governments have continued to erode an individual's ability to grow and manage a super portfolio to have an adequate income in retirement.

Mr Yukich : Thank you for giving me an opportunity to address the committee on the financial impact that will occur to superannuants with self-managed funds resulting from the proposed legislation changes announced. Over the last 21 years my wife and I have entirely lived on the proceeds of our self-managed super fund and continue to do so. But the latest audited financial figures for the year ending 30 June 2017 revealed that our net cash profit without imputation was $40,200. With the credits it increased to $51,700. Our living expenses of that year were $61,300. It seems high, but today's paper said retirees need $60,000 a year to live on. It shows that, without credits, we have been $21,000 worse off; with imputation credits, we're still $9,600 worse off. The impact of not receiving imputation credits means that sometime in the near future we, and many others, will be able to receive a government pension, placing a further drain on Commonwealth funds.

I would now like to question the anomalies and inconsistencies of the proposed legislation changes announced. Why is it that pensioners will be able to receive superannuation imputation credits before it's grandfathered but self-managed super funds meeting the pension income-and-asset test miss out? Why is it that negative gearing will be grandfathered but grandfathering will not apply to self-managed super funds? The latest Australian tax office quarterly statistics report revealed that, in 2017, 45.3 per cent of total assets ranged from zero to $2 million, 30.7 per cent ranged from $2 million to $5 million, and 24 per cent ranged from $5 million to $10 million-plus. Respectfully I thank you for listening and sincerely hope that the committee recommends grandfathering to apply to at least the 45 per cent of self-managed super funds with total assets of up to $2 million. Thank you.

Mr Pearce : I'm a 75-year-old retired person, a fifth-generation Australian, and I believe I represent many Australians who grew up in this wonderful country under the guidance of parents who survived both the Great Depression and World War II. Credit, as we know it today, did not take root until the mid-1970s. Until then, most Australians lived within their current means. That meant making decisions for both short-term and long-term financial survival. My plan was to both provide for short-term needs, with moderate housing—my first house was a two-bedroom transportable with no window treatments or carpet—and save for the future. It would be a lie to say I was thinking about retirement funds in my 30s, but decisions like saving, rather than unaffordable overseas travel, and protection of the family, with prudent life-insurance policies, were definitely on the agenda.

Later, when the kids' education stage had passed, focus turned towards providing for life after work. There are two options: live it up and then rely on the age pension or make some salary sacrifices and build a retirement fund, which would provide some discretion in the uncertainties of mature age. Saving, including salary sacrifices, continued my take-care-of-your-own-future philosophy. Further opportunities arose which included a considerable financial risk. I eventually retired, having established a self-managed super fund which relies heavily on professional financial advisers, accountants and auditors. My preferred position would've been to keep it simple and put funds into term deposits, but that alone simply cannot generate enough income today. Share trading was thus forced upon my super fund, with potential to earn a return from either growth or annual yield.

Franked dividends, where tax at the prevailing company tax rate has been paid before distribution to the owners—that's us—are a level playing field in that the tax rules are consistent. Similarly, owners of shares may or may not have other source of income, such as employment. Again, the tax rules are fairly well understood and non-discriminatory: one pays additional tax or receives a refund, according to the income received, from tax contributions collected already. Why should self-managed super funds be treated differently?

Ms Loverock : I'm a recent retiree. Firstly, I find it insulting that because you have to leave at three o'clock you've cut down people's times and you're on your phones; you're not listening. You could at least give us the courtesy of paying attention.

CHAIR: Respectfully, I'm typing down notes.

Ms Loverock : Not on your phone you're not—you've got a computer.

CHAIR: Yes.

Ms Loverock : Yes, and I was watching you on your phone.

CHAIR: Yes, and there are other people—

Ms Loverock : Okay, I'm out there, but—now, my husband and I have worked from the time we left high school, and we have worked very bloody hard. We've raised three children, and we struggled. We struggled very hard because we were having to pay compulsory superannuation. Our children—we would have liked to have had money to spend on them, but we were told, 'You must have compulsory superannuation because there won't be a pension when you get older.' Fine. We paid the superannuation. We contributed as well, because that's what we were told we had to do. My kids have grown up. They're fantastic kids; they've done really well. But my big issue is that this compulsory superannuation we have had a big collapse in the GFC. So we were told to diversify. So we went into money in the bank, which we have to pay tax on when we get interest on it. We don't earn enough money, so we don't have to pay tax on that, if you get my drift. The money that we put into shares, because we had to diversify because we couldn't trust the superannuation funds because they all collapsed, we now are going to be losing the credits for. I can't see how anyone in their right mind thinks that that's acceptable. We are not rich. We have struggled all our lives to be able to support ourselves because there's not going to be a pension. The government can't afford to pay you a pension when you retire, so you have to pay compulsory superannuation, and this is what we get. Thank you for nothing.

CHAIR: Andrew de Szoeke.

Mr de Szoeke : I'll be short and brief. I concur with everybody that's spoken before. I think you've got the hint. Please proceed with doing whatever you have to do to turn this all around. Thank you.

CHAIR: Thank you. Joe Galti or Pat Galti. If not, then Catherine Halhead. If not, then Clive Mariano and then Ted Kennedy, and finally Tony McRae.

Mr Mariano : I'm a self-funded retiree and I'm proud to be one. I worked my butt off for 41 years to plan and save for my retirement and in that I had super, I had some money in the bank and I had dividends. While I was at work, the government was happy for me to pay additional tax on the dividends that I earned. But now that I'm retired and my income is less than $18,000 year, they plan to change that. Come on guys, that is unfair and unjust. With my super, money in the bank and the dividends, I believe I can be a self-funded retiree for 10 to 15 years and not be a burden on the welfare system. But, if they change that and I don't get my refunds of the franked dividends, I will be a burden on the system a lot earlier.

Another general comment is that this rule is not followed in other countries. Hang on. Every country has its own suite of rules for tax, for retirement, for everything. You cannot just take one rule from one country and say they don't practise it. If you're going to make a reform, you need to reform the whole package to make sure people don't lose. Under this particular proposal people will lose and they've planned that for a long time. Thank you.

CHAIR: Thank you. Next up Ted Kennedy, and then Tony McRae?

Mr Kennedy : My name is Ted Kennedy; I'm a farmer. I, like many, came to this great country and have enjoyed the opportunity of hard work and its rewards. We raised a family, bought our own farm and have now provided for our autumn years and health—may they last long. I don't quote my age at any time or claim a seniors discounts or card. This country has been great to me; it's the land of a fair go. I paid taxes all the way along. Bill Shorten's double dipping or double take from our future-proofing investments will impact on our income, but, more so, it is a terrible blow to the very fabric of our society for private endeavour and enterprise to get raided when you've succeeded and made provision for your retirement—noting you've paid your taxes all the way along. The pension was introduced as a very important safety net but to try to provide for your own retirement with some comforts without seeking handouts and being a burden on society is the Australian way, not Shorten's. What sort of pension will we have to line up for? God help Australia.

CHAIR: Thank you. Finally, is there a Tony McRae? If I don't have a Tony—

Unidentified speaker: McGrath?

CHAIR: McGrath, sorry, my apologies. Tony McGrath? If I don't then that's the end of my list. We're at time. Does anybody else wish to say something who hasn't felt the opportunity to do so?

Ms Gibbs : I'm Lisa Gibbs, and I work for a chartered accountant managing their self-funded super funds. I just thought you might be interested in some figures that I've done myself on this. I look after about 250 self-funded super funds. Of those, I've got about five that I'd consider very wealthy clients that would have from five million to thirty million thousand dollars in their funds. I did the exercise of going through and seeing how this would affect those people. Of those people, only one of those very wealthy funds was going to be affected by this policy. I think the whole flaw in the policy is that they're getting information from the wrong source. Also, I do actually think that this is not just a thing that old people need to be worried about. It's going to affect every single Australian. Obviously the idea is to get old at some time, because the alternative is not so great. Also, if you really want to give a very fair assessment of what franking credits are, you can just imagine an employer withholding tax from someone's salary and then the government refuses to refund that excess. That's the model that you're kind of looking at. Australia is one of the highest taxed countries in the world. Your marginal tax rate is 49 per cent plus Medicare and then, by the way, you pay GST. It's always been my view that you should actually be encouraging retirees to spend their money, because that's where you'll get some more GST.

CHAIR: Thank you, Ms Gibbs. Would you go and sit there, sir, and could you start with your name.

Mr Robinson : Yes; Peter Robinson. I'm still working—but I'm 68 this year—unlike many people here who are at the stage of their lives where they're obviously in retirement stage and their income depends upon what they can generate from a variety of sources. I think it's very encouraging to see so many people here who have taken responsibility for looking after themselves. That's admirable. But from my point of view one of the important things is I don't believe that this is a double-taxation strategy, because companies are merely paying taxes on an income that they're earned. As a result of that they're paying for things like health, education, defence, social security and many other things, just as I pay income tax to pay for those things as well. Importantly for the Labor members of the committee that are here, I urge you to listen to some of the comments that have been made by some people, because they don't get much out of the franking credits. I've heard thousands of dollars, maybe $18,000 maximum.

I notice that, in terms of the amount of the franking credits that go to the top 20 per cent of self-managed funds, 80 per cent—over $4 billion—goes to 20 per cent of self-managed superannuation funds. As a result of that, I think that, if we were to look at a policy that maybe grandfathered up to a cap, as has been suggested, it would make far more sense in terms of spreading the burden of the attack on the tax base.

Importantly, I note that, in the past, the coalition government has changed the rules in 2014 and 2015. Some were successful; others weren't. But some did actually come through and have an impact on people who are sitting here. So both sides of parliament need to be accountable to people who have made plans, and I think the suggestions of maybe some sort of grandfathering with a cap would be appropriate. Thank you.

CHAIR: Thank you.

Mr Edgecombe : I started work at the bankers 64 years ago just down the road here. I went wherever the bank told me to—Meekatharra, Ravensthorpe, New Guinea, wherever—but I finished up as Westpac manager Midland in '93 when I was 53. I had retired from that with ill health. I then had a one-acre block, and I was going to build a dream house there. To save funds, I sold that block. I've got a cottage at Ellenbrook and a disabled son there. We were very cautious with our funds.

We are still self-funded retirees, but it would hit us hard to lose franking dividends. I think it'd be a dreadful thing if it comes into being. I've downsized my housing. If I built a dream house and used all my super funds, effectively, this would have me on the pension by now. Thank you.

CHAIR: Thank you.

Mr Sachse : My wife and I retired in 2011. We invested mainly in Australian shares when the rules were changed to allow the franking credits. We had 15 lots of shares, and 14 had franking credits on them. We had three unit trusts listed, and one of them had franking credits on it. They were all Australian companies. If we lose our franking credits, we miss out on franking credits of $21,600, which is 24 per cent of our income. That was on 2017-18 figures, and year to date is $13,000, which is 25 per cent of our income. As I said, we made a choice to have a self-managed fund in the early nineties, and that was so because everybody was saying you won't get a pension because there won't be pensions around when you want to get one.

We had our own business. I had trucks and had six drivers. The only holidays I took between '86 and 2011 were one of two weeks in the nineties and three or four in the 2000s, and that was because people were dying and I had to go to funerals and things. As one man said before, we are members of these companies. We've paid our credits, and now the Labor government wants to tax us 100 per cent on our credits.

CHAIR: Thank you, everybody, for your attendance here today. I know it's hot and I know it's uncomfortable. Many of you have stood for a long period of time. We appreciate your patience for the opportunity to come and deliver your testimony. Please note that written submissions will continue to be accepted throughout the inquiry. If you would like to make a written submission, you can go to aph.gov.au/economics.

Resolved that these proceedings be published.

Committee adjourned at 15:10