Labor’s franking credit policy ‘distresses’ investors

An inquiry into Labor’s proposed removal of refundable franking credits has been told investors were ‘distressed’ at the policy.

AFIC chief executive Mark Freeman. Picture: Aaron Francis

A standing committee on economics inquiry into the Labor Party’s proposed removal of refundable franking credits has been told ordinary investors around Australia were “distressed” at the ALP’s policy to terminate franking credit payments as it played havoc with their retirement plans.

The inquiry was told the plan would unfairly penalise one group of Australians who were close to retirement and thus had little time to re-engineer their savings plans.

Retirees had trusted the government, saved for their retirement and wished to be self-sufficient, but this was now being put at risk.

Australian Foundation Investment Company chief executive Mark Freeman in his evidence before the committee yesterday said it created an unfair situation where superannuation funds could still access granting credits while individual investors, many of them low- and middle-income earners, would not get refunds under the ALP policy.

Retirees and those approaching retirement were unhappy, distressed and worried about how they would pay bills such as medical costs if the ALP policy was introduced, Mr Freeman said.

The issue was also constantly being put to AFIC — the nation’s biggest and oldest listed investment company — by shareholders distressed by the policy proposal.

Earlier this year, Opposition Leader Bill Shorten unveiled his franking credits policy to claw back nearly $60 billion over 10 years by abolishing cash refunds for excess dividend imputation credits.

The ALP later amended the policy to exempt full and part-time pensioners. The alterations also exempt pensioner recipients from self-managed superannuation funds.

But despite the tweaks to the policy it has become a lightning rod for attacks from a range of investment professionals including Wilson Asset Management’s Geoff Wilson and former ANZ and Woodside chairman Charles Goode.

Mr Freeman told the committee shareholders “weren’t happy” about the hit to their income, which would see them struggle. “There are many people talking about how they will struggle with medical payments,” he said.

AFIC has held 10 meetings around the country with shareholders since the policy was unveiled and it was the No 1 issue, Mr Freeman said.

“Another observation from those shareholder meetings is that many of those impacted are on a very modest income and not rich.”

He said many investors were distressed about the ALP policy, having saved and worked hard for many decades to prepare for their retirement. He said there was also an “inequitable playing field” in that super funds could still access the franking credits while individual investors could not.

Deputy chair of the standing committee and ALP parliamentary party member Matt Thistlethwaite told The Australian after the hearings the franking policy was fair, would help repair the federal budget and ultimately be of benefit to retirees as the money saved from the initiative paid for healthcare and aged care.

“We believe the policy strikes the right balance. According to the Parliamentary Budget Office, overwhelmingly those affected have asset balances in their self-managed super funds above $1 million,’’ he said.

According to an analysis of the proposal by the independent Parliamentary Budget Office released this week, funds with more than $1m claimed 82 per cent of the franking credits, worth $2.1bn a year.

“When you talk about the need to repair the budget and some of the structural problems with the budget, (and) continue to properly fund health, education, TAFE and other important areas, we need to raise that additional revenue to fund those services into the future,” Mr Thistlethwaite said.

He said the ALP was giving retirees and those approaching retirement a “long lead in time” to seek financial advice and ameliorate the affect where there was one.

“We are trying to repair the budget and continue to provide elderly Australians with high living standards. We are talking about funding aged care places, we are talking about funding ensuring Medicare remains strong, ensuring we are properly funding hospitals. To do that we need structural reform of the budget to fund those important programs.’’