If you thought Bill Shorten’s recent policy announcement regarding the removal of cash refunds on franking credits was poorly conceived, you may well be right.
And his reversal of the policy for recipients of Centrelink benefits yesterday may be evidence of policy-on-the-run as a million self-funded Aussie retirees will be staring down the barrel of a 15% pay cut if Shorten is elected.
Shorten, the Steve Smith of finance
Like Steve Smith, Shorten took an instant hit to his popularity after he announced that shareholders will not receive cash refunds of franking credits.
Franking credits are tax credits passed on to shareholders because the company has already paid up to 30% tax. For example, those people who pay less than an average of 30% tax could receive a cash refund.
Franking credit essential to retirees
Franking credits are particularly important to self-funded retirees, many of whom have earned their right to a tax-free retirement following a lifetime of hard work. Self-funded retirees are set take a hit to their income of 15% if Shorten is elected as Prime Minister in the next election in or before May 2019.
Kelly O’Dwyer described the policy as being designed to “crush SMSFs”.
I’d like to see the reaction from the unions if Shorten tried to cut the pay packets of their memberships by 15% a year. We’d quite possibly have war in the streets so you’ll have to excuse the animated responses I’ve seen from ordinary hard-working mums and dads who feel passionately about their rights to the tax refund, many of whom can’t return to the workforce after they’ve retired.
“Mr Shorten’s a bit of a goose”
I too was a little animated on Sky News Business last fortnight when I described Shorten as “a bit of goose” but I was inundated by readers supporting my stance and who felt bitterly disappointed and let down not only by the policy but the smug way in which he delivered the message.
Here are some of the response I’ve seen last fortnight:
“The word ‘loophole’ is insulting. It looks like we’re cheating and being devious.”
“He’s an idiot.”
“Been a selfie for over 14 years followed the rules, been self-sufficient, no government handouts then these bludgers arbitrarily change the rules.”
“Good on you for speaking out about this issue. I am a self-funded retiree with a million dollars in super – sounds a lot but my wife and I don’t consider ourselves as wealthy. We still need to watch our spending. Further, it appears those people that save and invest their money (and take risks in investing) are penalised by the Labour [sic] Party.”
Insulting and penalising previously hard-working ordinary retirees is bad policy
Shorten also described the current cash refund as a “tidy little arrangement” further insulting self-funded retirees who have earned and rely upon the rebate to meet their basic living costs – which have been rising faster than CPI (Consumer Price Index).
Utility costs, health care and council rates have all been rising faster than CPI.
John Maroney CEO of the Self Managed Super Funds Association (SMSFA) had plenty of fuel to add to the fire.
“These retirees have depended on receiving a refund of the excess company tax paid above their SMSF’s marginal tax rate on company profits to supplement their income in retirement.
“The refunding of excess company tax paid via refundable franking credits has been a long-standing feature of superannuation that SMSF members have built their retirement strategies around,” he says.
“Under Labor’s proposal, the only SMSFs exempt are those that currently have at least one member receiving the age pension.
“And in the future, there will be no protection for SMSF retirees who may need part government support to supplement their superannuation income, creating an unfair, two-tiered and complex treatment of SMSF members who access the age pension in retirement.
“Potentially, these SMSF members are worse off than people with less savings but refundable franking credits and a part pension.
“The end result is to reduce people’s incentive to save for retirement to achieve self-sufficiency.”