Labor proposal targets low income earners: Association

The Alliance for a Fairer Retirement System is arguing Labor's refundable franking credits proposal does not target the wealthy but impacts low income earners instead.

Deborah Ralston, spokesperson for the Alliance and chair of the SMSF Association, said the vast majority of people who will be affected by the proposed franking credit changes receive a refund of less than $5000 a year.

Ralston said these individuals "would not be considered wealthy by most Australians."

More than 92% of tax payers do not receive any franking credits, but the top 1% of self-managed super funds received an average cash refund in franking credits of more than $80,000 in 2014-15, according to the ALP.

The Alliance's argument about whether franking credit changes will impact lowincome earners comes down to the question of what is considered wealthy.

The Alliance said the average income for a full-time working adult last year was $83,454 and it argues that a retiree with a self-managed super fund of $1.6 million, earning 5% a year, would be on about that same average income. However, the franking credit refund on a diversified portfolio of that size would be just over $10,000.

The $83,454 figure the Alliance refers to comes from Treasury modelling and excludes many in the workforce. It only refers to full-time workers not taking into account the 46.3% of women working part-time.There is disagreement on this figure.

Grattan Institute research from April this year said the average wage for all workers is $67,243, for all taxpayers that number drops to $58,528.

The Grattan Institute said the average Australian taxpayer makes just $43,574.

The median annual retirement income in Australia, according to SuperGuide, is $35,189.

SuperGuide advises an annual income of $42,953 would provide a 'comfortable' retirement.

The Alliance points out that self-funded retirees save the taxpayer money and said this is a reason franking credits should remain.

Rice Warner executive director Michael Rice said: "The present value of the maximum Age Pension for a couple who retires at 65 today exceeds $800,000."

He argues that, while most retirees will eventually become eligible for a part or full age pension even if they're self-funded, to save the taxpayer money the government should avoid adding incentives to the system that encourage retirees to become pensioners before they need to.

The Alliance said one million taxpayers over the age of 65 receive an average franking credit of around $4000 a year and that the majority of those taxpayers are older women - often widows - relying on a portfolio of Australian shares for income.

Ralston said: "We need to think very carefully before we reshape the Australian superannuation and retirement income systems, key aspects of which have had bipartisan support since 2000 or earlier. Retirees and those approaching retirement have made plans over many years to enable them to achieve a secure and dignified retirement under the current structure."

"Any proposals that risk causing major upheaval for over a million people deserve careful considered study within an overall review of the Australian superannuation, taxation and retirement income systems. Key principles of such a review would include fairness, adequacy, certainty and sustainability."

Read more: AustraliaLaborAlliance forFairer Retirement SystemGrattan InstituteSuperGuideDeborah RalstonSMSF AssociationAge Pension forAustraliansMichael RiceRice WarnerTreasury
Link to something 92AW6poQ