The current claim
Treasurer Josh Frydenberg has again attacked Labor over its plan to raise more than $5 billion a year by scrapping refundable franking credits on dividends from shares.
During the Treasurers’ debate at the National Press Club in Canberra, Frydenberg suggested the policy would mostly affect people on lower incomes.
“Over 80 per cent of people who are relying on their cash refunds have a taxable income under $37,000.”
RMIT ABC Fact Check examined a similar claim by Assistant Treasurer Stuart Robert in January that the proposal was “not fair” because it would hit the lowest paid Australians.
“Any changes will overwhelmingly hit low and middle-income earners, with 84 per cent of the individuals impacted on taxable incomes of less than $37,000 …”
We found Roberts’s claim to be misleading.
Likewise, we find Frydenberg to be misleading.
Why these claims are misleading
To make his case, Frydenberg relies on the taxable income of people claiming excess franking credits as a cash refund. This is problematic for a number of reasons.
First, taxable income does not include the largest source of income for many retirees: superannuation.
Superannuation income (for fund balances of up to $1.6 million) is generally not subject to tax in the retirement phase, and is therefore excluded from taxable income.
Indeed, many relatively well-off individuals have low taxable incomes, particularly in the retirement phase.
In a submission to a House of Representatives inquiry, the Grattan Institute gave the following example.
“Take the example of a self-funded retiree couple with a $3.2 million super balance, plus their own home, and $200,000 in Australian shares held outside super. Even drawing $130,000 a year in superannuation income, and $15,000 a year in dividend income, they would report a combined taxable income of just $15,000 and pay no income tax whatsoever.”
Second, in a related sense, taxable income often has little to do with wealth.
For example, the Grattan Institute has estimated that, when superannuation withdrawals are pared out of income data for retirees, almost half of the “wealthiest” 10 per cent of people over 65 report incomes of less than the $18,200 tax-free threshold.
Third, Labor’s policy applies to both individuals and superannuation funds.
By focusing on individuals, Mr Frydenberg ignores the impact that would flow through to members of superannuation funds, particularly self-managed superannuation funds, which account for almost half the refunds claimed.
Figures from the Parliamentary Budget Office show that almost a quarter of all refunds claimed in 2014-15 went to 33,761 self-managed superannuation funds with balances of over $2.4 million.
This is not to say the policy will have no impact on some individuals with modest incomes and wealth.
What is clear, however, is using the taxable income of individuals tells us little about the overall financial position of those affected, or about the fairness or otherwise of Labor’s policy — as we found in our fact check in January.
Principal researcher: Josh Gordon, economics and finance editor