By now everybody and his dog has heard about franking credits. I previously wrote what a wonderful thing they are. Well, someone in Canberra must've been reading my blog because Labor now wants to abolish their refundability.
Labor's argument that it won't refund a tax that hasn't been paid, branding it 'millionaires' welfare', discriminates between taxpayers as some would benefit from these tax credits and others not at all. Labor might as well revamp all Australians' 'birthright' of a free age pension which is based, at least notionally, on the premise that they had paid taxes for it. There would be very few who paid enough taxes to cover even the first few years of their pension, let alone an income stream for the duration of their twenty or thirty years in retirement, even if one assumed that ALL of their taxes were used for pension payments only.
It was in fact the unsustainability of our generous and unfunded age pension system that brought in the current superannuation rules to entice people to fund their own retirement. I have funded my own retirement, based on rules which have since been tinkered with again and again, and franking credit refunds are just another bucket of money Labor wants to grab in the belief that only Liberal voters will suffer.
Well, everyone will suffer because retail and industry super funds paying pensions also receive a refund for their franking credits but the lack of transparency around their operations means that most members of these funds aren't aware of it.
Dropping the refundability of franking credits also makes Australian shares less attractive to investors. Since all super funds have most of their money invested in Australian shares, a drop in value of those shares will reduce the account balance of every fund member.
Unlike many policies today – which are developed on coasters, backs of envelopes or through talk-back shows – refundability of franking credits was carefully thought through at the time and its logic - the avoidance of double taxation of dividends - is impeccable. It is also consistent with the logic of the dividend imputation system, which is that the full and final tax on a dividend should be at the shareholder's own marginal rate, which for retirees in pension phase is zero. That's the deal that got me and other people into saving for their own retirement in the first place.
The politicians who are now pushing these changes are quick to tax everyone but themselves. Politicians and public servants (what an oxymoron!) have a fully-funded defined benefit (The Future Fund) pension plan, fully indexed for life. All the adverse changes they want to make to everyone else’s superannuation does not affect them!
Labor's push to shut down the refundability of franking credits is just another piecemeal revenue grab and part of their soak-the-rich policies. Others include an increase in the top marginal rate of personal income tax, a 50 per cent increase in capital gains tax and a Medicare levy hike confined to incomes over $87,000.
If there is such a thing as a fair tax, then surely the GST must be it because everybody pays it, including our politicians, but it has remained at its original 10% ever since it was brought in. Moving it up by just a notch or two would bring in more revenue than any other tax measure but, of course, that's not Labor's way who want to wage class warfare and play to their large voting base of welfare recipients who are ideologically opposed to "rich" taxpayers who have to foot the bill.
I wonder if someone in Canberra is reading this blog now.
