Dear Bill, please don’t drop your plan to screw me

Hon Bill Shorten MP
PO Box 6022
House of Representatives
Parliament House
Canberra ACT 2600

Confiscation of Franking Credits

Dear Mr Shorten,
I am not in your constituency nor have I voted Labor since Gough Whitlam’s second election victory in 1974. Nevertheless, as an Australian, I would like to make a heartfelt request. Please do not reverse your ill-conceived and unconscionable plan to confiscate franking credits from self-funded retirees. At least don’t wait a minute longer if you do intend such a reversal, in whole or in part. I will explain my view if you will bear with me.

The pressure against the plan is mounting. Among others, Geoff Wilson, the chairman of Wilson Asset Management, has been prominent in opposing the plan. Reportedly, Solomon Lew expects you to back down once in office. It is all quite disconcerting for those of us faced with protecting our position in retirement.

First on the tax itself. Dividends paid to persons in Australia are taxed at the recipients’ marginal rate of income tax. Thus, if your marginal tax is the highest at 47% then your dividends will be taxed at that same rate. This will be broken down as 30% paid by the company (assuming it pays tax at the fullest rate) and 17% by the person concerned. If your tax marginal tax rate is, say, 21%, then the excess tax paid by the company (9%t in this case) on the dividends you have received will be rebated back to you by the taxation office.

There is a clear taxation principle which applies across the board. All taxpayers are treated equally as they should be. All pay tax at their applicable income tax rate on the dividends they receive. Not rebating taxation credits to those whose income tax rate happens to be below 30% is an abrogation of the principle of equal treatment. This becomes particularly onerous when applied to self-funded retirees whose superannuation is in a pension phase. In this phase, the applicable taxation rate is zero for earnings on balances below $1.6 million. Many retirees, including me, have modest superannuation balances – high enough to miss out on a part pension, low enough to completely miss out on extravagant living – and depend upon franking credits being rebated to earn a liveable income.

Why then, you might wonder, do I ask you to stick with your dreadful decision? Well, I made my plans and set up my investments on the basis of the existence of the current taxation regime. Now that I fully expect you to come into office – the Liberals being so divided, indecisive and inept – I have started to unwind my assets held in Australian companies which pay fully franked dividends. I will continue that process over coming months. You would realise that the value of those shares has already been impacted by your decision. I would expect them to fall further in value, at least in relative terms, in the period immediately before the new taxation regime comes into effect. In any event, my reason for holding them will have been undercut.

The last thing I want is to be messed around again in my declining years. Apart from the effects of your decision, my bank shares have already markedly fallen as a result of Scott Morrison’s iniquitous bank tax and as a result of the royal commission. Who do politicians think pays for this? I will tell you who doesn’t and they are bank directors and senior executives.

I am now unwinding my assets when I had no plans to do so. At my stage in life I can do without this aggravation. What I now don’t want is you reversing your decision as you get closer to the upcoming election or immediately afterwards. That would be too galling and costly to swallow. Do it now or not at all.

Needless to say, my view of politicians across the board is jaundiced beyond repair. None of you seem to take the trouble to thoroughly investigate the consequences of your decisions on various sections of the population before you charge ahead. It is a level of irresponsibility that is quite beyond the pale.

I should add that I intend to make this letter public but would appreciate a personal reply which, of course, I would keep private if you wish.

Sincerely,
Peter Smith