Up to 50,000 pensioners over the next decade could fail to meet Labor’s safety net threshold and lose their annual cash refunds for excess franking credits under Bill Shorten’s plans to axe $55 billion in tax breaks for retirees.
Treasury analysis of tax data shows that every year between 3000 and 5000 pensioners who were also members of a self-managed super fund would fail to meet the criteria for Labor’s “pensioner guarantee”.
Labor argues the policy was announced a year ago, which gave people more than enough time for them to plan for the new arrangement should Labor win the election.
The Coalition, however, claims that it would set up two classes of pensioner under a Labor government.
The opposition will today also be forced to fend off accusations of hypocrisy, with the Coalition pointing to Labor’s 1998 election tax manifesto in which it committed to introducing franking credit refunds for investors.
Claiming that this would provide a fairer tax system, Labor’s 1998 tax reform policy said it would provide relief for low-income self-funded retirees.
“Labor will provide a cash refund for those shareholders who can’t make use of their imputation credits because they do not pay income tax,” the document said.
“This will be a significant benefit for older Australians, especially self-funded retirees on lower incomes.”
According to ATO data, over the medium term (10 years) there will be about 50,000 SMSFs either established by existing pensioners or that have members who qualify for a pension for the first time and would qualify for franking credit refunds.
Under Labor’s policy, however, the only pensioner members of an SMSF who would qualify for exemption and have their cash refunds protected were those who had been members of an SMSF before March 28, 2018. The analysis by Treasury, on request from Josh Frydenberg’s office, was based on analysis of individual SMSF income tax returns from 2012-13 to 2016-17.
It reveals that over Labor’s 10-year estimates of $55bn in savings, at least 30,000 individual pensioners and up to 50,000 pensioners could be expected to lose refunds.
Labor was forced into a dramatic rewrite of its key tax measure when it was revealed that the plan to scrap cash refunds for excess dividend imputation credits — franking credits — pitched as a tax break for the wealthy, would also hit hundreds of thousands of low-income pensioners.
These included those on Aged Pensions as well as other allowances, including carer payments, disability support, parenting payments and Newstart allowances.
The Opposition Leader and his Treasury spokesman Chris Bowen announced that a “pensioner guarantee” would be added to the policy, pledging that “every” pensioner would continue to benefit from cash refunds.
Conditions were placed on the guarantee that only SMSFs with at least one pensioner or allowance recipient before March 28, 2018, would be exempt from the changes. The government claims this means any individual who was a member of an SMSF and became a pensioner after March 28, 2018, would not be exempt and would be targeted by Labor’s policy.
Existing aged pensioners who have taken out an SMSF in the past year would also not be exempt.
According to Australian Taxation Office data, about 900,000 Australians would be hit by Labor’s tax. The Treasurer claims that individuals would lose $2200 a year on average and SMSFs will lose $12,000 a year.
“This data makes it clear tens of thousands of pensioners will be hurt by Labor’s retiree tax if there is a similar take up in the future,” Mr Frydenberg said.
Mr Bowen accused Mr Frydenberg of “dodgy analysis”.
“Labor’s pensioner guarantee protects Australia’s pensioners,” Mr Bowen said.
“This is just more dodgy analysis from a Treasurer who is more interested in protecting the livelihoods of wealthier Australians than he is about protecting vulnerable Australians.”
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