The Financial Services Council (FSC) has criticised the premise the Labor Party has used from a government expenditure perspective to justify its proposed policy of banning imputation credit refunds for certain retirees.
The council used its submission to the House of Representatives Standing Committee on Economics inquiry on the matter to present a contrary view that refunds did not impact on tax expenditure.
“Some participants in this debate argue that refunds are a subsidy or make the tax system non-neutral. The FSC does not agree with this view,” FSC economics and tax senior policy manager Michael Potter told the committee.
“Franking credit refunds to super funds and individuals are not specifically listed as a tax expenditure in Treasury’s annual tax expenditure statement.
“This suggests franking credit refunds are not a subsidy, tax concession or loophole.”
Potter also argued the refunding of imputation credits ensured parity and fairness for all Australian taxpayers.
“Refunds ensure everyone pays the same total tax at their own tax rate even when they’re at a zero tax rate. Here by total tax rate we mean the sum of personal and company tax,” he said.
“Changes to refunds would mean that some investors, specifically those with lower tax rates, would pay a higher total tax on some investments, specifically shares, which creates an uneven or non-neutral playing field.”
The FSC also put forward that members of large super funds would also feel the effects of the proposed policy, not just those belonging to SMSFs.
“Others participating in this debate to discuss this issue said the members of large super funds are largely or completely unaffected by any change to franking credit refunds,” Potter said.
“However, the official figures and our own survey results show this view is not correct. In fact, there could potentially be millions of Australians benefiting from franking credit refunds through membership of large super funds.”
According to Potter, the FSC survey of 14 large super funds receiving franking credit refunds involving 331,000 member accounts gave a better indication of which superannuants were benefiting from the current policy.
“Many of the surveyed funds had low average balances, indicating that refunds were likely benefiting numerous people who are not wealthy,” he said.