It is evident from the conversation here that a lot of investors in NAB and the banks are likely to be self funded retirees chasing franking credits.
I understand broadly what Labor are proposing regarding removing franking credit refunds for non-government pension receiving self funded retirees. I'm not going to support or argue against their specific policy here. Something needs to be done but I doubt Labor have come anywhere close to adequately addressing the complete overhaul that the personal income tax system needs in Australia. This is the great disappointment that neither Labor (Rudd/Gillard/Rudd) or Liberal (Abbot/Turnbull/ScoMo) were willing to address.
Costello did the right thing to provide the tax incentives for people planning for retirement to set themselves up to be less dependent of government income support in retirement. Bravo. It was widely argued, publicly, by economists at the time that things like franking credit refunds to people paying zero tax was a largesse that was not sustainable.
Put simply, the system is not sustainable especially given the demographic reality of the wave of baby boomers coming into retirement. There is a serious intergenerational inequality opening up in Australian society.
It would cost the government less money to scrap all tax concessions for retirees and just simply hand out the pension to everyone of pension age without applying any income or asset test. That fact alone demonstrates how unsustainable the current system is. In a lot of ways it probably would a fairer and more sustainable system too.
I understand why people who have planned their retirement, by the rules, would be upset at having those rules changed and losing a significant amount of income. I also understand the frustration of people who are on modest retirement incomes being portrayed as fat cat rorters of the system.
The fact remains, however, that the current tax concession system for retirees is not sustainable, especially given the demographics of an increasingly aging population. The entire personal income tax system needs reforming in every which way.
It's like the unsustainable water rights that have been handed out to irrigators along the Murray-Darling. For decades, scientists have been warning that the largesse with which politicians handed out water rights was unsustainable and would eventually lead to ecological collapse and insufficient drinking water. And yet, for decades politicians ignored those warnings and look where we are at. The same thing is happening fiscally. At the time, economists called out the Costello largesse as unsustainable and eventually the chickens will come home to roost. Something has to be done.
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