Submission to Senate Inquiry on Franking Credits

GEM Capital has made a submission to the Senate Inquiry into the removal of cash refunds from franking credits as we are of the view that this proposal singles out retirees to pay a high price in the name of budget repair.

Here is the Executive Summary of our submission.  A full copy can be downloaded by clicking on the icon at the bottom of this article.

 

"I am an Investment Professional who provides financial advice to retirees (and has done so for over 20 years).  Personally I will not be impacted by the proposal to remove franking credits as I will be able to use the franking credits.  It is in my capacity as a financial adviser to retirees, who most certainly will be impacted by this proposal, that I offer this submission.

Summary

I am of the view that the ALP proposal as it currently stands, to scrap cash refunds from franking credits, is very poor for the following reasons:

  1. This proposal is inequitable across different sections of the tax base.  Bill Shorten has argued that scrapping cash refunds from franking credits is aimed at the ‘big end of town’.  He then realised the reality is that it impacted the lower classes and he has since spared those receiving age pensions.  The reality is that the high income earners and high net worth individuals are unlikely to be materially impacted by this proposal.  Those who will pay the largest proportional price seem to be mainly ‘middle class’ retirees, while those at the higher and lower end are likely to be unaffected.
  2. This proposal is highly likely to encourage retirees to spend their capital and become more dependant upon the welfare system.
  3. This proposal provides a significant disincentive to save for the majority of Australians.
  4. This proposal adds further complexity to the taxation system, with accompanying compliance costs, that also rely on Centrelink’s systems for its integrity toward the exemptions.  I wonder whether the additional compliance costs have been included in the modelling of savings.
  5. This proposal changes the goal posts retrospectively to middle class retirees who do not have the option to build further capital to compensate for such material changes to their income.
  6. Retirees in our client base, already dealing with the changes to Asset Test for Age Pension effective 1st January 2017, are extremely anxious about further changes to their retirement income which materially impact their level of disposable income.  This is taking place at a time of record low interest rates and low prospective rates of return in financial markets. 
  7. This proposal may also result in retirees taking additional investment risk to achieve higher income returns to offset the loss of franking credits.  This could raise the prospects of capital loss, which could result in them becoming dependant upon welfare at a later stage, at a cost to the Government."