Inside the franking credits debate
The parliamentary inquiry into the implications of removing refundable franking credits was less than two minutes into its public hearing at the Chatswood Club in Sydney’s north when Matthew Benson made his move.
“This process is a scam!” he shouted, interrupting chair Tim Wilson’s opening remarks. Benson took Wilson to task for what he calls a “grossly illegitimate” use of the parliamentary inquiry process. He was quickly drowned out by a chorus of angry derision from the rest of the audience, mainly self-funded retirees from Sydney’s wealthy northern suburbs.
In footage taken by SBS journalist Lin Evlin, Benson is dragged from the room by a middle-aged man and falls to the ground. A cheer goes up from the crowd. A number of grey-haired men in blue shirts and chinos applaud as he’s ushered out.
“When the guy pulled my arm I acted a bit,” Benson admits to The Saturday Paper. “To me, it doesn’t actually matter, because the inquiry itself is a farce. If I hammed it up a bit, who cares? The process is a joke, so my behaviour was a bit of a joke.”
Benson was angered by Wilson’s StopTheRetirementTax.com website, which required people to sign a petition – opposing Labor’s policy to remove franking credits – in order to register to speak at the inquiry’s public hearings.
“I thought to myself, ‘This is outrageous. You can’t use a parliamentary inquiry in this politicised way, you just can’t do that,’ ” Benson says. “That’s why I went in there and did what I did.”
Wilson’s perceived politicisation of the parliamentary inquiry process has dominated coverage of the franking credits debate in recent weeks – as have his personal and financial interests in seeing Labor’s proposal scuttled. On Wednesday, Labor asked house of representatives speaker Tony Smith to refer Wilson to parliament’s privileges committee. The Office of the Australian Information Commissioner is considering an investigation into whether user information collected by Wilson’s site was shared with Wilson Asset Management, a group chaired by investor Geoff Wilson, who is Tim Wilson’s first cousin once removed.
Earlier this month, media outlets pointed out that Jon Gaul, a self-funded retiree who spoke at the Merimbula franking inquiry hearing and was subsequently profiled by The Australian, is a long-time Liberal Party campaign manager and lobbyist.
But most people who showed up at the Chatswood Club, and the inquiry’s 10 other public hearings, were far more concerned with the policy itself. Maureen Chuck, a 63-year-old woman from Cabarita in Sydney’s inner west, took the microphone to offer a rare voice in support of repealing the rebate. To groans and catcalls from the audience, Chuck called Wilson’s “retiree tax” label an “egregious example of this government’s desperation to protect the wealthy”.
“It is not a tax. It is nothing like a tax. It is the removal of a tax rebate for people who pay no tax,” Chuck said. “This is not money that these people have earned. This money comes out of other taxpayers’ pockets in such a large amount that it would cover the funding of public schools all across Australia.” The audience renewed its groaning at the mention of public schools.
The strong emotions surrounding the franking credits debate – and broader confusion about what the credits even are – have been fuelled, in part, by misinformation about Labor’s policy. In October 2018, assistant treasurer Stuart Robert claimed it will “overwhelmingly hit low- and middle-income earners”, because ending the rebate will target retirees with a taxable income of less than $37,000 a year.
However, being in a low tax bracket does not necessarily mean an individual doesn’t have money. If a retiree has less than $1.6 million in their superannuation account, income from superannuation isn’t taxed, which means wealthy retirees can squeeze into the lowest tax brackets. According to analysis of ABS data by the Grattan Institute, more than half of Australia’s wealthiest over-65s – with an average wealth of $1.9 million – reported a taxable income of $37,000 or less in 2015-16.
But, according to Tim Wilson, this “analysis is based on outdated data before the introduction of the Coalition’s transfer balance cap of income above $1.6 million. Those people now pay tax, and will get a tax offset from the franking credit. So the rich are protected, meanwhile women who retire on lower balances than men and experience the legacy of the gender pay gap are not.”
The wealthiest fifth of retirees own 86 per cent of all shares, while the poorest half own less than 2 per cent. Analysis of Australian Taxation Office tax statistics by The Australia Institute in 2015 found nearly half of all franking credits were claimed by people with incomes of at least $180,000 – the wealthiest 2.2 per cent of taxpayers. Fifteen per cent of franking credits were claimed by the wealthiest 0.08 per cent, or 11,128 people. As things stand, franking credits effectively incentivise wealthy shareholders to remove themselves from the tax system and underwrite their investments with taxpayer money.
But there’s little doubt the Wilson inquiry has been successful in riling up the nation’s self-funded retirees. It has so far published 999 submissions, mostly from individuals or couples. Many more will be made public as submissions from January and February 2019 are added. Analysis by Guardian Australia revealed this week that at least 97 submissions were variations on a form letter from StopTheRetirementTax.com, written by Tim Wilson himself.
The deputy chair of the house economics standing committee, Matt Thistlethwaite, has repeatedly called on Wilson to resign. He says justified concerns about the cost of living and aged care services are behind much of the heat at the roadshow’s hearings.
“What we’ve found is a lot of the people making submissions are drawing down the minimum amount they’re required to on their super, living off dividends from shares and cash refunds from franking credits. They’re doing that to try to pay for aged care services and ensure their kids can get into the housing market, and to leave something for them when they pass away,” Thistlethwaite says. “That’s not the purpose for which superannuation was established. We’re trying to assist elderly people in other ways, among which is this measure to raise revenue to fund those aged care places, to ensure Medicare is strong and to take pressure off the housing market.”
Unlike most parliamentary committee hearings, the roadshow has allowed attendees to speak for up to three minutes, ensuring large and vocal turnouts. Speakers have denounced the policy as a plot to destroy self-managed superannuation funds and force retirees into industry super, which they often claimed are controlled by trade unions. Others said they would simply give up trying to live off their own money, spend all their savings and turn to the age pension. The word “socialism” crops up fairly frequently at the hearings.
“We will have to make savings. We will cancel our monthly charity donations,” wrote Rodney and Sue Ross in their submission. “Our gardener and cleaner will have to go.”
Discrimination, or the perception of it, has become a popular theme of Wilson’s roadshow. In Upper Coomera, Charles Duncan argued that “to target a minority group like this is wrong”. Rhonda Cadzow declared “we will not become [the] stolen-from generation without a fight”.
Responding to the argument that Australia is the only country in the OECD to give tax refunds to people who don’t pay income tax, one speaker in Chatswood compared repealing the rebate to the persecution of queer people overseas. “The flogging of homosexuals doesn’t happen in Australia, but it happens in other countries,” he said. “Does that mean it should happen in Australia?”
“What is next in the ALP’s sights?” asked Meg Rowland at the Merimbula hearing. “If they don’t like an author, do they ban and burn his books? Or do they construct concentration camps for adherence of a religion they don’t agree with?”
Even organisations not known for doom-laden predictions seem to have caught the bug. In its submission to the inquiry, Cancer Council Queensland claimed the policy “will affect our donors, many of who [sic] are self-funded retirees, hold shares in the ASX and rely on the franking credits to support themselves and to support charities”. In a media statement released soon after the submission from its Queensland branch came to light, Cancer Council Australia clarified it “only takes a strong, independent position on matters of public policy that relate to cancer”.
Besides the more inflammatory statements, common threads emerge in the roadshow’s submissions and hearing transcripts: retirees feel they worked hard, followed the rules, never took money from the government. Many point out that they are not a burden on the tax system. They don’t consider themselves to be wealthy. Others suggest Labor’s proposal is retrospective – we planned for retirement under one set of rules and now those rules are being changed, they say, we don’t have time to start over. They feel the July 1, 2019 rollover date is too soon. They want to pass their money on to their kids.
Danielle Wood, of the Grattan Institute, says that while it’s understandable self-funded retirees feel aggrieved, the sense of persecution is overblown. “I think when a policy hits a particular group in a very visible way, as this does – it’s literally cheques in the mail that won’t be coming anymore – you get this very strong push-back. But the strength of the reaction is surprising, given a series of decisions over the past 20 years has essentially allowed many older Australians to not participate in the tax system,” Wood says.
“This group of older Australians is actually paying less tax than they were a decade ago. We’ve been slowly increasing the tax burden on working Australians for years, but there’s been nowhere near the amount of screaming about that.”
Ebony Bennett, of The Australia Institute, which supports Labor’s policy, says important voices are being drowned out in the noise. “At the moment, we’re only hearing from people who are losing out. There’s a huge number of people who don’t benefit from franking credits at all, and they’re being excluded from this debate,” she says. “How can you call yourself a self-funded retiree if you’re getting a massive cheque from the ATO every year on tax you didn’t pay?”
For her part, Maureen Chuck believes those framing the franking credits debate as a war between generations are missing the point. “I’m pretty much in the same boat as most of those other people, financially. We’ve got 35 per cent of people over 65 living in poverty, and the government reduced the assets test for the pension. They didn’t care about those retirees, but they care about these ones.”
This article was first published in the print edition of The Saturday Paper on Feb 16, 2019 as "Franking, my dear …". Subscribe here.