News & Insights

The Daily Telegraph: Federal election 2019: Labor’s proposed $56 billion retiree tax would affect retirees, new mothers

Thousands of pensioners will lose under Labor’s $56 billion retirement income raid despite Bill Shorten guaranteeing they wouldn’t.

An investigation by News Corp Australia also reveals new mothers will be caught by the Opposition’s obliteration of franking credits cash refunds, which experts say sets a dangerous “double taxation” precedent.

A further finding of the investigation is that large union-linked industry superannuation funds are entirely shielded from Labor’s move, while members of up to 50 retail funds are likely to suffer lower returns, including pensioners.

The effects of the cash grab are already being felt on the Australian Securities Exchange, with large businesses changing strategy in anticipation of Mr Shorten’s share swoop.

Meanwhile, some individual investors are weighing up selling their local holdings and buying foreign stocks instead.

The independent Parliamentary Budget Office has estimated Labor’s plan would save $7 billion less over a decade than the party expects and that it would affect 840,000 individuals, 210,000 self-managed super funds (SMSFs) plus some bigger funds.

Labor announced its policy on March 13 last year, claiming it would save the Budget $59 billion. Before the month was out, a backlash forced it to exempt 320,000 pensioners through a “guarantee”. The savings figure was revised to $56 billion.

At the time Mr Shorten said “pensioners will still be able to access cash refunds from excess dividend imputation credits.

“Pensioners and allowance recipients will be protected from the abolition of cash refunds for excess dividend imputation credits when the policy commences in July 2019,” he said.

Also, Labor’s franking credits policy document says the guarantee means “every pensioner will be able to benefit from cash refunds”.

However, that is not the case because the protection to those in SMSFs only applies if they were a full or part pensioner before March 28 last year.

Labor’s plan would create “two classes” of pensioner separated by whether they retired before and after that date, said financial services expert Michael Rice.

Others agreed.

“They are the forgotten people,” said Plato Investment Management chief Don Hamson.

Many pensioners who retired before the “guarantee” would be hit as well, according to the Financial Services Council, whose members manage $2.7 trillion of investments.

These pensioners are in non-SMSF funds with low numbers of members who are still working. In such funds, some of the benefit of franking credits will be lost because there is not enough tax to fully use them. Unable to be returned as cash, this will mean lower returns to members — including pension recipients.

“There could be thousands of age pensioners who are members of large super funds and would be adversely affected by any changes to franking credit refunds,” an FSC spokeswoman said.

Plato’s Dr Hamson said funds with at least 70 per cent of their assets belonging to retirees would be likely to lose some of the benefit of franking credits. He estimated there were at least 50 such funds. Labor’s “guarantee” does not cover any part-pension recipient in these funds.

It’s understood none of the 50 is a large industry fund.

“Big industry funds are going to continue to get the benefits of the franking credits,” said Focus Superannuation Services founder Sharon Osborn, after scrutinising the annual reports and tax statements of big industry funds.

Mr Rice, founder of super advisory firm RiceWarner, also said the changes may “disproportionately” affect women who hold shares and leave work to raise children. If they didn’t have taxable income they would lose their franking credit refunds, he said.

The man who would be treasurer in a Shorten government, Chris Bowen, said Labor hadn’t lied and that Labor cared more about women’s retirement savings.

“Labor is making sensible, overdue reforms to rein in these tax loopholes so we can better fund schools, hospitals, early education and TAFE,” Mr Bowen said.

He said independent analysis had found 80 per cent of the benefit from franking credit cash refunds went to the wealthiest 20 per cent of retirees.

However, experts told News Corp Australia those on modest retirement incomes of between $40,000 and $50,000 would be hit hardest.

And a parliamentary inquiry into Labor’s policy earlier this year heard that farmers would lose the cash refunds that helped them get by in tough years.


Written by John Rolfe

This article was originally published in The Daily Telegraph