A free kick for Libs: battlers the losers in Labor’s franking debacle

A free kick for Libs: battlers the losers in Labor’s franking debacle, by Alan Kohler.

“Frankly, this is Labor’s Work­Choices. Why bother to save for my own retirement? It’s just a piggy bank for politicians to raid.” — Talkback radio caller this week.

The franking credits cash refund crackdown may be Bill Shorten’s and Chris Bowen’s first big mistake. …

You can see how Shorten and Bowen walked into the franking debacle. It takes the franking system back to what Paul Keating explicitly intended — no cash refunds — and would reverse another one of Peter Costello’s many reckless handouts during the mining boom. …

But the problem is that conceptually there is no difference between cash not paid and cash received, to the party at either end: franking credit cash refunds are not a loophole but an equalisation, between those who pay 30 per cent tax or more and those who happen to pay less, mainly because they earn less. Drawing a line between the elimination of tax that would otherwise be paid but is not because 30 per cent tax has already been paid on that money, and rebating it as a cash refund is arbitrary, illogical and discriminatory. ..

There are two reasons why basing a policy on this idea is a mistake, apart from the fact that it’s fundamentally discriminatory: first, the only people who understand it are the users of franking credits, and therefore the losers, while the winners — those who don’t use franking credits — don’t understand it and won’t care; and second, it further entrenches superannuation as an object of political contest, as embodied in the quote at the start of this ­column. …

And importantly, the losers are in Labor’s heartland. …

It’s not as if this is a recent benefit that is being nipped in the bud: Costello extended dividend imputation to include cash refunds 18 years ago, so it has been part of the retirement incomes system longer than it wasn’t.

Retirees and charities have had plenty of time to get used to it. The ability to get an end of year cash payment has become part of their budgeting and it will be a serious loss when it goes.