Franking credits proposal opposed, inquiry opens

The inquiry from the House economics committee is set to begin public hearings in Melbourne next week.

IPA chief executive Andrew Conway said the inquiry will heighten community understanding of a well-established feature of Australia's taxation system.

"The Labor Party is proposing to change the rules to remove the ability for individuals and superannuation funds to claim their full entitlement to franking credits,” Mr Conway said.

"The inquiry will highlight the significant implications attached to any change in government policy on refunding imputation credits.

"If we were designing a new tax system today, you would most likely not have full imputation where the taxation is assessed in the hands of the recipient and any excess franking credits are refunded.”

According to Mr Conway, removing refundable franking credits would be difficult to justify from a fiscal sustainability perspective in today’s economic circumstances.

However, Mr Conway noted that the refunding of imputation credit policy has been in operation for close to two decades, and removing it in a piecemeal way without dealing with the consequences is fraught with danger.

"The case for removing dividend imputation is not strong and any tinkering needs to be assessed against some alternative benchmark tax system such as removing dividend imputation entirely and replacing it with a discounted tax rate,” Mr Conway said.

"More importantly, we need to be looking at how we tax all forms of savings more consistently. A more holistic approach to taxing personal savings across all asset classes as recommended by the Henry review would be more beneficial than changing one aspect in isolation.

"We do not support any changes in the removal of refundable franking credits unless it is associated with more holistic tax changes to the treatment of savings more broadly. A survey of our members also shows that 95 per cent of respondents do not support any change.”

The IPA will be appearing before the inquiry next week.