Labor announced that, if elected, they would deny franking credit refunds for superannuation funds and individuals. Although targeted primarily at Self-Managed Superannuation Funds, some APRA-regulated funds that cater principally for pensioners and some non-working and low-income individuals will also be adversely affected.
Generally larger APRA-regulated superannuation funds will not be affected because they have sufficient annual employer contributions income to offset against all their franking credits, so would not be looking for a refund.
Labor thinks that stopping franking credit refunds will raise $5 billion tax revenue per annum, which they propose to spend principally on schools and hospitals.
However, if enacted as announced, we would rather expect to see changes in SMSF members’ behaviour, for example by:
- transferring or rolling over Australian share investments into large APRA-regulated superannuation funds that offer investor directed portfolio services;
- purchasing real property instead, thereby competing against first home buyers; and
- investing offshore for better net returns, with resulting loss of Australian investment management jobs, diversity and innovation.
Without major refinement, we doubt the reform will raise such significant Australian tax revenue and it will have unexpected victims, for example among women taking maternity leave and people suffering total and permanent incapacity - i.e. non-working people that use hospitals.
Existing Labor superannuation policy remains imposition of a 15% tax on individual superannuation fund earnings in excess of $75,000. The relative costings for the two policies ($5b versus approximately $0.5b) indicates to us that individuals earning less than $75,000 income will also bear the brunt of the new Labor policy. However, unlike the wealthy, they will less readily be able to plan around it.