In the Grattan Institute’s submission to the parliamentary inquiry into the franking credit regime, the institute said that while the proposal was fair, there were much better ways to improve the budget.
“Removing refundability of excess imputation credits is a fair way to help improve the budget and wind back the growing intergenerational transfers in our tax system,” it read.
The submission, written by Danielle Wood and Brendan Coates, expressed how the growing age of Australians means that excess franking credits will take more of a toll on the budget in coming years.
“The Parliamentary Budget Office estimates the revenue loss from excess franking credits will grow from $5.6 billion in 2020–21 to $6.9 billion in 2027–28,” it read.
The submission said that the proposal would help address this in a way that would just affect wealthier Australians, because of the way the regime is structured.
“Removing refundability of excess franking credits mainly raises additional tax from older and wealthier Australians. Most excess franking credits flow to people with high-balance SMSFs and to the wealthiest 20 per cent of older Australians who own shares directly,” it said.
However, it also noted the downside to the removal of the credits as it could change how people invest as well as other consequences.
“Removing refundability of excess credits is a partial winding back of dividend imputation policy and therefore a reduction in the economic benefits of the policy: promoting investment in domestic firms and encouraging tax compliance. It also increases the effective tax on savings,” it said.
The institute, instead, advocated for taxing superannuation and winding back tax offsets that would achieve the same goals but without the downsides.
“The Grattan Institute has previously advocated more substantial reforms – such as taxing superannuation earnings in the pension phase at 15 per cent (super distributions would remain tax free) and winding back the Seniors and Pensioners Tax Offset – that would achieve the same benefits but without some of the investment-distorting effects of Labor’s policy,” it read.
