Thursday, 4 April 2019
Economics Committee; Report
I seek leave to table reports of the Standing Committee on Economics and to make a short address.
On behalf of the Standing Committee on Economics, I present the following reports together with the minutes of proceedings: Review of the Reserve Bank of Australia annual report 2018 (First report); Report on the inquiry into impediments to business investment, incorporating a dissenting report; and Report on the inquiry into the implications of removing refundable franking credits, incorporating a dissenting report.
Reports made parliamentary papers in accordance with standing order 39(e).
A very important topic, thank you, Treasurer.
My mother, Pat, is 97 years old. She's housebound, frail and suffers dementia. My father's a bit younger—he's 92 years old. He's a semiretired medical practitioner, but he doesn't earn enough to contribute to the family budget.
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In the 2017 financial year my mother's net return was $27,000, of which $7,500 was franking credits. Without the refund from franking credits their income would reduce to only $19,000 per annum.
Those are the words of Mr Hughes, who, from our first hearing in Sydney, set the tone of this inquiry.
On 19 September 2018, the Treasurer, the Hon. Josh Frydenberg, referred to the committee an inquiry into the removal of refundable franking credits. The Treasurer asked the committee to enquire into and report on the implications of removing refundable franking credits and, in particular, the stress and complexity it will cause Australians, including older Australians who will be impacted in their retirement. I'm proud that, despite the noise around this inquiry at every point and the attempts by many people to shut it down, the focus of this inquiry has remained where it belongs: to give voice to the people who are affected by this policy.
Despite the calls by the shadow Treasurer in January of this year that this inquiry was an abuse, this is clearly not the view of many Australians. The public response to this inquiry was extraordinary. The committee held a series of 19 public hearings across the continent to allow Australians to have a say in light of a policy proposed to be introduced on 1 July 2019. These hearings were incredibly well attended. At many other public hearings we might be lucky to have a handful of members of the public. At these hearings the number often exceeded 300 people, and sometimes nearly 500. A total of 1,770 submissions were published and many more documents were received, and we simply ran out of time and the resources to be able to process them all for publication. I want to thank every single person who contributed to this inquiry for their courage. It takes a lot of courage to go on the public record and tell your private story about your own private circumstances and your own private financial affairs. But the reality is the people who did, had to.
While the participation in the inquiry was high, worryingly, the evidence suggests that many people at risk of being impacted from a policy change are unaware of the proposal that could result in them losing a third of their income. The risk is particularly concerning when many retirees in Australia live outside of capital cities and are at a vulnerable stage of their life—people like Ms Paull, who, at the Upper Coomera hearings, said:
My husband and I are both in our 70s and we're self-funded retirees. I belong to that era when females had to resign from the workplace when they married.
My annual income is so low that I do not pay tax on my dividends, and I receive the full franking credit as a cash refund.
My remember asking, as the chair: 'Does that mean that you earn less than the tax-free threshold of $18,200?' The answer was yes. She continued:
My husband is 78 years old and is in remission from cancer, and has recently developed heart issues. So those out-of-pocket health expenses are now running in the thousands. If we lose a third of my income, which will be approximately $6,000 a year, under Labor's proposal to deny cash rebates for franking credits to low-income and retired shareholders—which I am—we'll have to seriously consider giving up hospital health insurance …
While the public discussions surround the abolition of refundable franking credits has focused primarily on retirees, the committee heard evidence of others who need certainty in their lives and are at risk. These include mothers who have taken a break from employment to have children, those earning below the tax-free threshold and people with a disability with ageing parents who have share income to maintain independent living.
Sometimes people spoke for those who couldn't. In Chatswood, Ms Truelove represented her mother and said:
I'm just going to talk about my mother. I have a mother who is 101 years old. She still lives independently, and one of the reasons why is she can't afford to do otherwise. My mother was brought up on a farm; we have a family farm that was in my father's family. They first settled there in about 1870. My brother has been running the farm. Unfortunately, through drought, a fire that burnt 90 per cent of the farm and some mismanagement, there was a huge debt of $1.3 million on the farm. It was in my brother's name, which meant that the land got sold and the debt was paid. But the debt still stands in my brother's name as an asset to my mother, so she cannot get the pension. She is very talented in terms of what she does with her money. She learnt to invest in shares. Up until a few years ago, she bought and sold a few shares, and she has lived on around $120,000 worth of assets that she's bought and sold.
Her income last year was $6,600. Her franking credits were $1,900—I did her tax for her. That is about to be taken away, should the Labor Party get into power. That money pays for her private health fund. She rents an apartment that costs her $100 a week.
It's simply despicable that such a fiercely proud family would be pushed down the financial stairs by this policy. They are attacking Australians' sacrifice, they are attacking their security and they are attacking their dignity.'
It's against this evidence that the committee has completed the inquiry. The committee has considered the case for removing refundable franking credits and is of the view that the policy is inequitable and deeply flawed. Franking credits play an important role in Australia's tax dividend imputation system. Franking credits are attached to an imputed tax to the individual, to stop double taxation. They are stated on an individual's tax assessment notice as withheld tax and are used to assess an individual's taxable income at the end of the financial year and for access to other benefits, such as healthcare cards. Franking credits are only received when tax is paid, and their abolition for refundability while still being considered as part of a taxable income is poor tax policy and discriminates between taxpayers.
Those who have made their voice heard put worrying stories to the inquiry, and I've already read some. Many affected retirees spoke of anxiety from the fear of losing a third of their income. There is Karen's story of exhausting and soul-destroying stress, and we heard regularly about people for whom the simple existence of breaking apart the bipartisan consensus is causing anxiety and stress. Others raised concerns that abolishing refundable franking credits would compound the legacy of the gender pay gap. There was Margaret's story of historic sexism, and how too many people making decisions for us are totally unaware of our history and our lives.
Then there were the straight stories of financial hardship. There was Michael's story of medical challenges and how the removal of refundable franking credits would cause him considerable hardship. In particular, abolishing refundable franking credits would unfairly hit people of modest incomes who have already retired and who are unlikely to be able to return to the workforce to make up the income they will lose. In her submission, Barbara from South Australia said: 'I have been a Labor voter most of my life, however I could not vote for a Labor Party proposing these changes. Almost 10 years ago I took time off work for the South Australian government and an accident almost killed me, causing paralysis. I never worked again, and after a successful public liability lawsuit I received a settlement. If my funds were invested well, the majority of my disability expenses were covered. However, the proposed changes by the Labor Party jeopardise my ability to do this.'
The abolition of refundable franking credits will force many people who have saved throughout their whole lives to be independent onto the age pension. Of course, this undermines any stated objective that it may raise revenue and reduce the dependence on taxpayers resulting from an ageing population.
Some have argued that the intention to scrap refundable franking credits is designed to tax the wealthy. This, of course, is a deeply unfair characterisation of the 900,000-odd Australians who are going to be affected by losing up to a third of their income. It also does not take account of the introduction of the transfer balance cap in the 2017-18 financial year, which of course means there will now be, ridiculously, an effective 30 per cent tax rate for many Australian retirees unless they're uber rich—then, they get a 15 per cent tax rate.
Abolition of refundable franking credits is fundamentally regressive. Australia has a tax-free threshold of $18,200 for workers, and yet its abolition of refundable franking credits would apply an effective 30 per cent tax rate from the first dollar earned. The fact-free dehumanisation of franking credit recipients has made it easy to dismiss the concerns of those impacted. The Alliance for a Fairer Retirement System claims that in 2014-15 over half of those receiving cash refunds for their franking credits had incomes below the $18,201 tax-free threshold, and 96 per cent had taxable incomes of less than $87,000. These Australians are hardly high-income earners and yet they stand to lose up to a third of their income overnight.
Such a policy discriminates against retirees and self-managed super funds in favour of members of APRA regulated industry and retail superannuation funds, and those eligible to receive a part or full age pension before 28 March 2018. Labor has protected their union mates at the expense of those people who have done the right thing. We know this because the shadow Treasurer himself said to those who complained and raised concerns, 'Go and vote for someone else.' This policy may also reduce the value of some Australian shares and reduce investment in Australian companies. A range of submitters were concerned about the need to rearrange their investments and to reduce spending, particularly on private health insurance and charitable donations. The committee is concerned that these serious policy implications have not been addressed in any proposal that is sought to be implemented.
In consideration of the evidence received during this inquiry, the committee strongly recommends against the removal of refundable franking credits. Any policy that could reduce Australian retirees' incomes by up to a third should be considered as part of an equitable package for comprehensive tax reform. A government that seeks to steal the overpaid tax of Australians does not deserve office. A parliamentarian that looks at citizens and their overpaid tax as ATMs does not have a right in this place.
Finally, I want to conclude by thanking the secretariat. This inquiry has been extensive. We have held a number of hearings, and it has at times been quite difficult to manage. There have been many attempts to shut it down. The burden has fallen on the secretariat to act impartially and with cool heads, and they have done so. Despite the nefarious attempts, the secretariat staff have ensured the legitimacy of this report stays intact, because it simply gives voice to the Australian people impacted by the proposals considered. My particular thanks go to Stephen Boyd and John White, who spent a lot of time travelling around the country with us. This inquiry was not easy, because we had to channel the rage of thousands of Australians who simply wanted a voice about the impacts on them of losing a third of their income on 1 July if there is a policy change. I am proud to say we have given them that voice. With sorrow, I table the report.
by leave, this inquiry has been a farce from the outset. The usual role of the Economics Committee is to scrutinise government legislation and to hear the views of the Australian public and offer amendments to the House of Representatives. But, because this government is devoid of any economic policies or economic plan of their own, it decided to look into an opposition policy. That's fine, but the manner in which the government, the Treasurer and the coalition members of this committee have run this inquiry is an unprecedented abuse of parliamentary process and committee processes and undermines the standing of the Economics Committee in the community.
The procedure that the chair established when this inquiry started was for his own website to be set up to take submissions. His website had an official look; it had a coat of arms and it said that it was authorised by the Chair of the Standing Committee on Economics. But then it had articles on that website attacking the Labor Party, our policy and Kerryn Phelps. If you put a submission in to the House of Representatives Economics Committee through that website, it was a pre-filled-out submission. All you had to do was add your name, and that was a submission to the House of Representatives Economics Committee. This means that roughly a thousand of the submissions to this inquiry were written by the chair, the member for Goldstein. They weren't written by members of the Australian public; they were written by the chair! And then, as a condition of submitting your views to the inquiry, you were asked to tick a box to say that you would sign a Liberal Party petition against Labor's policy—an unprecedented abuse of parliamentary process.
Then we found out that the website was partially funded by Wilson Asset Management, a company that has a vested interest in ensuring that Labor's policy does not get up. We then found out that Geoff Wilson, the principal of Wilson Asset Management, colluded with the chair about establishing the inquiry and the dates and venues at which it occurred to make sure that they could get some of their investors, who had a vested interest in seeing this policy go down, to turn up to the hearings. And the hearings just happened to coincide with investor meetings of Wilson Asset Management. Then, after the first hearing of this inquiry and after Wilson Asset Management had appeared before the committee, we found out that the member for Goldstein, the chair of the inquiry, has shares in Wilson Asset Management. The member for Goldstein, the chair of this inquiry, has a vested interest, a financial interest, in seeing this policy go down.
Mr Tim Wilson interjecting—
What a disgraceful abuse of parliamentary privilege by the member for Goldstein!
When the hearings began, they treated the hearings of the committee like a Liberal Party branch meeting. When we went to the hearings, we had Liberal Party election posters at the front of the venues. When we were in Queensland, the member for Fisher gave evidence to the committee and then encouraged members of the crowd to sign up to the Liberal-National Party. After the members of the crowd had all stopped laughing, he went around the room handing out Liberal Party membership forms. Mr Deputy Speaker, I might remind you that this was an official hearing of the House of Representatives Economics Committee.
In the ultimate insult to the integrity of the House of Representatives Economics Committee, the member for Mackellar over there held a fundraiser after one of the hearings, and guess who he invited to speak. The member for Goldstein!
On a point of order: he has misled the House. His statement is not true. I did not hold a fundraiser after a hearing. He is misleading the House and he should withdraw and apologise for that remark. It is unparliamentary and he knows better.
Because of the behaviour of LNP members, naturally many members of the public were outraged. They were outraged at the conduct of the government members on the House of Representatives Economics Committee and the abuse of taxpayers' dollars. So many members of the public wrote to the committee. They sent emails and letters expressing their disgust at the procedure of the House of Representatives Economics Committee. Two of them were former members of the House of Representatives. We had a meeting of the House of Representatives Economics Committee a month ago and I moved a motion that, in the interests of transparency and accountability, the letters from members of the public be published, that the letters be put on the website of the committee. The committee voted, and the committee voted for all. Obviously, Labor and Greens members voted in support of publishing the letters and the coalition members voted against it. The chair used his casting vote to deny publication of those letters. So much for freedom, boys; so much for transparency and accountability. The chair, in one of the hearings, said:
... many of you know that I'm quite hardline on defending free speech and I won't back down ...
Labor's policy is fiscally responsible. It's an approach to ensuring that you are closing tax loopholes that overwhelmingly benefit the well-off in this country, so we deal with the structural challenges that the budget is facing—namely, the ageing of the population. As the population ages, the need for health and aged-care services increases. We have 120,000 Australians on a waiting list for aged-care places in this country.
Mr Falinski interjecting—
We've had a Medicare rebate freeze for the last six years. We've had cuts to hospitals and cuts to school funding. If we're going to ensure that the budget is sustainable and that we can fund those services into the future, we need to make responsible savings. That's what Labor's policy does. When this policy was introduced by the Howard government, it cost the budget $500 million. It now costs $5.8 billion. It's more than we spend on Australian public schools, it is unsustainable, and we're giving tax handouts to people who don't pay tax in this country. Labor is saying that, if we're elected, we will end that policy.
The PBO analysis of our policy is quite illuminating because it looks at who receives cash refunds for dividend imputation in this country. Fifty per cent of all excess imputation credits refunded to SMSFs accrued to the wealthiest 10 per cent of SMSFs, by fund balance, which had in excess of $2.4 million in the balance of the fund. Eighty-two per cent of those funds had balances of more than $1.04 million. These are not people who are struggling. That is why Labor is doing this, because the claims that this policy targets the poor are not suggested and not supported by the facts. And, of course, Labor guarantees that pensioners won't be affected by this particular policy.
This policy of refunding franking credits also promotes risk and inhibits investment in Australian companies. We all know that it distorts investment decisions. We heard from many who said that they were advised by their accountant or their financial adviser not to look for where the best companies were investing, their research and innovation, their development proposals or their growth into the future; just look for the companies that have fully franked dividends and will return you a guaranteed income funded by the Australian taxpayer. It inhibits growth in the stock exchange, and it's one of the reasons why many start-up businesses in Australia have to go overseas to try and find capital, because they can't get it here in Australia because we have a lazy investment market on the back of this policy.
Many people who gave evidence at this inquiry said that they only invested in the banks and Telstra because of the fully franked dividends that they received at the end of every year. If you're in the retirement phase of your lifestyle, being fully invested in five or six different companies is not a wise investment strategy. It's certainly not encouraging diversification.
The other myth that was propelled by the government around this is that it is a tax. It's simply not a tax at all. We're asking people who don't pay any income tax in a particular year to refund those franking credit refunds that they've been receiving. It's not retrospective. It was announced last year to give people the opportunity to digest the policy and, importantly, to get financial advice from their accountants or their financial advisers. It is not a withholding tax. It's a good policy, and Labor backs it to the hilt.