Did a niche tax reform become one of the deciding issues of this election campaign, ultimately leading the Coalition to victory?
While there is no way of empirically knowing if Labor’s plan to reform franking credits explains voters’ swings against them, there are some indications that it hurt them and they know it.
But first, what are franking credits?
It was difficult to escape the term “franking credits” during the campaign, and there is still quite a bit of murkiness around it. It cropped up in debates and interviews, with Labor calling it “welfare for the wealthy” and the Liberals deriding it as a “retiree tax”.
Franking credits are a rebate given to some corporate shareholders by the government at tax time. They were introduced in 1987 by the Hawke-Keating government in an effort to stop double taxation on shares. Then in 2001, the Liberal Howard government brought in controversial reforms to the system giving tax credits to shareholders who were not actually paying any tax.
How did it become a campaign issue?
Early last year, Labor treasurer Chris Bowen announced that his party would curb franking credits in order to save $11.4 billion.
It only gained traction when the Liberals hit back against it. Liberal MP Tim Wilson began a months-long crusade against Labor’s franking credit reform policy making it a front-and-centre election issue. In September, Wilson, the member for Goldstein in Victoria, launched a parliamentary committee looking into Labor’s proposed franking credit reforms as a pre-election inquiry.
He went on a pilgrimage visiting RSL club function rooms across the nation, speaking to self-funded retirees about how hard the reform would hit them. The forums were meant to be “hearings” into franking credits with retirees — a way to take in feedback.
But when Wilson set up a website titled Stop The Retirement Tax to allow people to sign up to these hearings, it initially started as a Liberal Party petition.
It also emerged that Wilson appeared to collaborate with a relative who is also a high-profile fund manager — Geoff Wilson. The asset manager happened to manage the politician’s investments, and the former owns shares in the latter’s company, according to the Sydney Morning Herald. This was not disclosed when creating the committee.
Wilson was also accused of privacy breaches, failing to disclose that the petition details were being given to his relative and asset manager Geoff Wilson. Subsequently, Wilson was referred to the Australian Federal Police.
Labor MPs accused him of breaching committee protocols for reportedly proselytising and riling up retirees rather than being there for feedback. Scott Morrison declined to rebuke Wilson over the controversial events. As these meetings took place, the debate over franking credits featured in election campaign leadership debates and it was toiled over on the ABC’s Q&A with treasurer Chris Bowen.
Wilson also sent out over 6000 unsolicited letters encouraging superannuation trustees to sign up to the Liberal Party.
The impact
Franking credit reforms are still being hotly contested even after the Liberals won the election.
Business commentator Robert Gottliebsen, who has been vocal against Labor’s policy, wrote in The Australian that retirees decided the election.
Retirees don’t march in the street but they belong to connected organisations which enable them to become a massive political force if they are aroused.
Whether there is truth to this or not, Labor has certainly felt the impact. Labor frontbencher Anthony Albanese, who is standing as a candidate for leader of the Labor Party after Bill Shorten stepped down, told ABC’s 7.30 that his party did not communicate its policy reform well.
“We have not sold the message well enough, I don’t think, that we are interested in jobs and economic growth as the priority, as well as the distribution of wealth in our society,” he said.
And if Labor’s internal pre-election polling has been anything to go by, then the biggest swing against Labor came from Australians aged 65 and over.
Truths and untruths
There were misleading statements made throughout the campaign. The Coalition’s Assistant Treasurer Stuart Robert made the claim that curbing back franking credits would hit some of the lowest-paid Australians.
“Any changes will overwhelmingly hit low and middle-income earners, with 84% of the individuals impacted on taxable incomes of less than $37,000,” he said.
This was reinforced on Wilson’s website Stop The Retirement Tax, where he claimed: “Labor are attacking your full tax refund. After the election they want to scrap refundable franking credits. That will hit your security in retirement and risk pushing many vulnerable retirees below the poverty line.”
But an ABC fact check showed the statement that this would hurt the lowest-paid Australians was “misleading”.
The fact check ascertained: “Taxable income does not include the largest source of income for many retirees: superannuation.”
Treasurer Josh Frydenberg also continued to push the line that “Labor’s $45 billion retirees tax will hit hard working Australians who have done the right thing and saved for their retirement”.
Media coverage — and omissions — may have also contributed to the disinformation surrounding Labor’s policy, fuelling retiree anger.
As the dust settles after the election, The Australian this week published a piece titled “Geoff Wilson’s sigh of relief as policy is rejected”. Wilson is the fund-manager and distant relative of Tim Wilson’s who helped him coordinate the campaign to keep franking credits, but none of that was included.
Do you think franking credits won it for the Coalition? Write to boss@crikey.com.au with your full name and let us know.
A previous version of this article incorrectly stated that franking credits are dividend imputation taxes.
Yes. Apparently, a meme on Facebook telling a lie is more convincing than a link to the actual policy, or a link to an independent review of the claims made about the policy (I found the Grattan Institute analysis very thorough), especially among the kind of people whose catchcry is ‘do your research!’
How many of these so-called self-funded retirees are actually just topping up their marvellous deferred benefit supers that no one else can get anymore? What a crock.
What’s the chance that these parochial parasites would barely raise an eyelid if the Liberals try to raise the pension age up to 70ya for GenX and younger whilst still maintaining their greedy little franking credits?
It stinks, they stink and I don’t wish them well.
Defined benefit and I have one……after years of talking a lower wage as a professional in the APS than I could have in the private sector.
I don’t consider myself a parasite…mind you I don’t have any shares with my super…….just a CPI indexed pension.
Yep, ‘defined’, something weird happened there. Me too, albeit a very small one, the vast majority of my super is what I’ve put into it, not 80% (or whatever) of my last three salaries. However, I know people who worked in the military and then worked in the APS and then took redundancy only to be re-employed by the APS under contract and they now have eight different defined benefit pensions plus industry super plus shares. They gangbusted their super whilst on contracts and even claimed low income allowance at the same time (back in the day). And if you ask them, they’re self-funded retirees. Just saying…
There is no doubt Franking Credits got the Coalition over the line, and it’s a shame because this tax concession is a disgrace. The argument should have been about younger people having to pay higher taxes for this concession, as well as the potential for increased services. The fact is:
1. The vast majority of franking credit dollars go to the wealthy a quarter of all refunds claimed in 2014-15 went to 33,761 self-managed superannuation funds with balances of over $2.4 million (ABC Fact Check). My parents receive under $100 in franking credits, they are part of the average. So clearly there are many retirees doing exceptionally well out of this policy.
2. Some younger people stated they voted LNP to protect their inheritance, but I hate to break it to you the vast majority of you won’t receive it until you’re about to retire yourselves. In the meantime good luck with your mortgage as you work longer than most Boomers ever did to pay it off.
3. Boomers fail to acknowledge on average that they are twice as wealthy in real terms as their parents at the same age. Yet this is contradictory in that the poorest half barely have any wealth and many are reliant on the pension. The affect of this is a double whammy I seem to recall from Grattan that we spend about $45,000 on average per person on those aged over 65 on government services, twice as much as the next nearest age grouping. Boomers are by far the biggest beneficiaries of tax payer funds.
4. Boomers are barely contributing to the tax base, again from Grattan “An older household earning A$100,000 a year pays on average less than half the total tax of a working-age household earning the same amount. Considered another way, an older household on A$100,000 pays about the same tax as a working-age household on A$50,000”.
5. Yet there is a cohort of Boomers who are on the poverty line, mainly women, in many instance due to marriage breakdown.
6. Many white collar retirees are returning to the workforce, increasing the participation rate, after receiving a redundancy and are on the receiving end of their superannuation pension. This crowding out younger people for promotion as they return to their old positions. Further exacerbating the income and wealth gap between generations.
Something’s got to give.
Some good points Mr J, and some that need clarification.
1. A balance of over $2.4 million refers to the fund not the individual. An SMSF can have up to four members, I’m guessing a large proportion have two. If it’s a single member anything over the $1.6m cap would be taxed.
3. Older people have always been more reliant on tax-funded services, whether it’s the age pension or medical services. Baby-boomers are simply the latest cohort to get old.
4. If boomers are retired then by definition they pay less tax now. If they have money in their super funds it’s because they earned – and paid tax – when they were younger.
5. Agreed there is a wide discrepancy, as in all levels of society, not just baby boomers and other retirees.
6. Tell that to all the unemployed over-50s who never get a look-in for a job.
Let’s say for a moment that franking credits are a good idea. Nevertheless, they are not fiscally sustainable & will continue to increasingly deprive Treasury from funding the nation adequately.
The bottom line: they are not sustainable.
Perhaps we should have a plebiscite purely on franking credits & keep political parties out of the equation.
Franking credits themselves were first introduced as a way to encourage investment in Australian businesses, which isn’t a bad thing. It’s the repayment of excess credits to someone who didn’t pay the tax that is utterly indefensible. We’re the only country that does it.
I suspect most people have little or no idea about how superannuation is taxed. Income from superannuation in the pension phase is not taxable. So retirees can have the full $1.6 million cap in their pension fund, earning a modest 5% a year giving a non-taxable income of $80,000, and still not drawing down on their nest egg. Their spouse can do the same, so their total household non-taxable income is $160,000 a year. Remember they saved all this money either through compulsory superannuation or salary sacrificing at 15% tax.
So people saved the money at a concessional taxation rate, and now pay no tax on the income it provides and yet still want a refund on tax they haven’t paid because their TAXABLE income is too low.
I’ll bet many thought a “retiree tax” was a tax on their income, including their non-taxable income.
Bowen and Shorten assumed everyone is a policy wonk like then and understood how it works. I never heard them explain it – Bowen in particular on 7.30 completely missed the opportunity. There should have been ads explaining it too – in very simple terms, ie we are not going to tax your superannuation or your income from your pension funds.
Good explanation. See mine below. As someone approaching retirement, I am aghast at the largesse to the more well-off, while people with low super balances and who do not own their home get shafted.
Still Labor botched the selling of what was a good policy. What Labor should have done is increased the age pension across the board, taken away all means testing and scrapped all tax concessions in one swoop.
As I am now guilty of saying ad nauseam, the problem is that super has come to be seen as an inheritance vehicle, not just a means to a comfortable retirement; hence the focus on ensuring that you die with the same principal as you started retirement with, and then it goes to the kiddies taxed at (I think) 15%. Labor has done little or nothing to rebut this perversion of the purpose of super.
Any attempt to impose greater tax at death would run into the death duties resistance, an even more potent force than the negative gearing/franking credits one we have just seen.
Smart people would remember how much hammer Kelly O’Dwyer got from her own party in the branches before the last election for introducing the $1.6 limit referred to in DF’s letter. That was a warning of what Wilson et al would do if Labor threatened a change like that being discussed here. I have a hunch this possibility wasn’t mentioned when the policy geniuses were workshopping the policies in question.
Bill Shorten focussed solely on the refundable credits but the inequity issue is a combination of factors. Labor under Simon Crean did not oppose refundability when the Libs introduced it in 2000 but at that time super fund pensions were not tax-free. If the franked dividends were taxed at the retiree’s effective marginal rate most credits would be absorbed and not refunded except for those whose effective income was low enough. But that would require a much more significant change to tax policy and an easy target.