Voters get frank with Labor over plan to axe dividend imputation refunds

In NSW three Labor targets – Page on the North Coast, Robertson on the Central Coast and Gilmore on the South Coast – are also retirement havens. Dobell and Eden-Monaro – where the committee will hold a hearing in Merimbula next week – are two NSW Labor marginal seats that are also home to a significant number of retirees who have sought a sea change.

In races where the outcome could hinge on just a few hundred votes, the government hopes a grey-power backlash against the franking credits policy could deliver an against-the-odds victory come the election, which is due by May.

‘Class envy’

One of those who spoke at yesterday’s hearing was Alan Stubbs, who swapped Melbourne for the Sunshine Coast 12 months ago with his wife after they gave up teaching. Stubbs, who said he had been a Labor voter and spent four years as an assistant secretary for the former Victorian Secondary Teachers Association, said the changes were “quite hurtful” and fostered class envy.

“This has got nothing to do with trying to raise money for education or hospitals,” Stubbs told the hearing.

“People are actually getting active. Thank God we’ve got a Senate. Thank God we’ve got independents. I don’t think it’s a foregone conclusion that Labor will be elected and I don’t think it will be a foregone conclusion this will be passed into legislation.”

Committee chair, Victorian Liberal MP Tim Wilson, is unapologetic about holding the inquiry. He estimates about 165,000 Queenslanders would be worse off under the policy.

“I think this is a game-changer political issue,” he says.

“This is retirees’ financial security on the ballot paper in May. They know the only thing stopping Labor wreaking carnage on their retirement is a vote against them.”

So far though, Labor is holding firm.

Responding to a complaint on Wednesday from a radio listener who claimed they would be $5000 a year worse off, Bowen was blunt.

“If they feel very strongly about this, if they feel that this is something which should impact on their vote they are, of course, perfectly entitled to vote against us,” Bowen told the ABC.

“I say to anybody who raises this with me: imagine a system where every shareholder in the country was a retired person who did not pay income tax and we refunded all the company tax to that person. That’s what the system is; we would have to have zero rate of corporate tax from Qantas, from Telstra, from every Australian company.

The public hearing into the impact of franking funds on pensioners held in Townsville. Michael Chambers

“We spend more on this than we spend on public schools at the commonwealth level and it’s growing very, very quickly; [soon] we will be spending more on this than we do on public schools.”

Number crunching

Labor strategists note that at the town hall style meetings Shorten has been holding across the country, the hip pocket tax-related questions focus on the franking credit policy while queries related to Labor’s plans to limit negative gearing have faded away.

But they take comfort that the questions – or more accurately statements from people on how they will be affected – seem to come from retired professionals who are unlikely to be Labor voters.

Bowen cites Parliamentary Budget Office analysis that shows 92 per cent of taxpayers did not receive any cash refunds for excess imputation credits in their 2014-15 tax return, while the majority of refunds go to wealthier households.

MPs Tim Wilson and Craig Kelly at the Parliamentary Public Hearing into the impact of franking funds on pensioners held in Townsville. Michael Chambers

The government’s own number crunching of the changes showed in November just over 300,000 of the 900,000 people who stand to lose refunds lived in Labor electorates.

To date, recent election results show the franking credit policy has not hurt Labor.

The plan was announced 12 months ago, just days out from the Batman byelection in inner-city Melbourne. Labor comfortably held the seat, even though the Greens – who can usually be counted on to support policies that give the wealthy a smaller slice of the pie – opportunistically promised to amend the plan in an appeal to Liberal voters.

Similarly, Labor improved its grip on Longman in Queensland when it swept the Super Saturday byelections, despite the preponderance of retirees on Bribie Island.

The one concession Shorten and Bowen have made is to exempt 300,000 full and part pensioners. While the “Pensioner Guarantee” spared a quarter of those originally hit by the policy, it was achieved pretty cheaply: over a decade the policy will still raise $55.7 billion, a reduction of just $3.3 billion, allowing Labor to boast it would still collect 94 per cent of the revenue.

The danger for Labor is sentiment may shift. A number of people who have appeared at the committee hearings have prefaced their remarks by stating they have previously supported Labor but are now planning not to vote for Shorten because of the policy.

Association of Independent Retirees national president Wayne Strandquist says surveys of its membership show that Labor supporters will be affected – and many are angry enough to switch their vote.

“It is driving a bit of rolling thunder through Queensland,” he says.

“I believe in areas where there is a concentration of self-funded retirees there could be enough of them to change the outcome [in electorates].”

Strandquist says cash refunds have proven a popular form of investment for retirees, particularly as interest rates on savings accounts and term deposits have plummeted in recent years.

Under the current approach, introduced by the Howard government, shareholders who pay little or no tax receive their franking credits as cash payments if the credits exceed their tax liability.

Lobby groups

Case studies the association has presented to the parliamentary committee indicate Labor’s plan to stop rebates will cost its members between $3500 and $42,000, with the average loss $10,950.

“These people are typically buy and hold investors,” Strandquist says.

“They buy into the banks, Telstra, Wesfarmers, Woollies, those large Australian top 20 dividend companies that have historically offered very little risk and get a strong regular income.”

In addition to the outcry from retirees, financial advisers and self-managed superannuation lobby groups are coming out in opposition, warning it will drive investors into the property market or overseas shares.

Strandquist says Labor should grandfather existing recipients given many had structured their nest eggs to avoid being a burden on taxpayers, noting the contrast to the negative gearing policy, which carves out existing investment-property owners.

“We have a difficulty in that our members invested their funds under certain laws and tax arrangements. There are limited ways they can boost their income if the rules change after they stop working and have invested their money.

“They will potentially be needing to go on to the age pension 10 to 15 years earlier than they otherwise would have done. That’s completely the reverse of what they intended.”

Former teacher and small businessman Arthur Smith, who plans to attend Thursday’s Gold Coast hearing, says he and his wife are not wealthy people but will be $6000 each worse off annually. He believes the changes foster inequity.

“If I was still 50 and went out and got a job, I could claim all those dividend credits back against my tax but because I’m retired, the buggers are going to keep the lot. I would be better off going out and working.” Smith says.

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