Home Business Election 2019 $8 billion franking credits loophole ‘must stop’: Labor

$8 billion franking credits loophole ‘must stop’: Labor

Shadow treasurer Chris Bowen doubles down on the 'retirement tax'.

Jack Derwin

Digital Journalist, Your Money

Shadow Treasurer Chris Bowen has doubled down on Labor’s tax reform promises, vowing to shut down what he says is a two-class tax system.

Speaking at the Australian Centre for Social Services (ACOSS) federal budget breakfast, Bowen said Labor was committed to shutting down existing “unsustainable” tax loopholes, such as concessionary family trusts.

“Australia does have two classes of income tax,” Bowen said.

“If you have access to good advice, if your income comes in certain ways then you have access to the first class. You can use a family trust to distribute income around your family to minimise the amount of tax paid… that’s not a capacity that is available to the average pay-as-you-go worker,” he explained.

If Labor wins the 18 May federal election, it says that it will increase funding for health care and other social services by reemploying these tax savings.

Read: What an alternative Labor government would look like

However, it will be its proposed changes to the franking credits system that will provide a potential Labor government with the largest windfall.

“Franking credit refundability is a tax refund, a tax credit, for people who have not paid income tax. We are the only country in the world that does it. No other country says that if you own shares and you don’t pay income tax we will refund the income tax paid by that company,” Bowen said.

Read: Why the franking credits system should be overhauled

The Liberal party has seized on the policy, slamming it as a ‘retirement tax’, and spinning it as another example of new taxes under Labor.

While Labor introduced the original franking credit system in 1987, it was subsequent expansions by Liberal prime minister John Howard and treasurer Peter Costello that allowed non-taxpaying Australians to claim refunds.

“It now costs the budget $6 billion a year and is projected to grow to $8 billion a year,” Bowen said.

“That’s three times what we spend on the Australian Federal Police in an era of heightened security concerns. It’s more than the Commonwealth spends on public schools every single year,” he said.

While the policy’s most outspoken critics have claimed that it will hurt ordinary Australians, Bowen argued that by definition, the size of the refund is relative to one’s wealth.

“If you receive a cash refund of $25,000 a year it means you have $1.16 million in terms of shares accumulated. That’s shares. You may also own your own home, you may also own multiple properties. You may own anything outside of shares,” he said.

“We can do better than that and we have to do better than that,” he added.

“It must stop.”

Watch shadow treasurer Chris Bowen’s full speech above. 

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