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Excess franking credits: The conundrum

Excess franking credits appear to be an issue coming into this election.

The ALP is calling excess franking credits a gift to the taxpayer. Shorten has claimed that if “you are getting a tax credit when you haven’t paid any income tax , this is a gift.” AFR page 1, 15 April 2019.

Company shareholders have paid income tax if the company they hold shares in has paid tax.

The theory of franking credits was simple.

A share-holder should not pay tax twice on the same income stream. It was unfair. Undemocratic! Whatever!

The Hawke-Keating Government introduced it in 1987. They thought it was a good idea! At the time!

But now the guard has changed! 32 years later it is not a good idea.

It is not a good idea because shareholders are now getting a “gift”. A gift initiated by the ALP in 1987.

Interestingly enough this inter-twines with the Keating initiative to organise superannuation for all employees.

Super funds have been a beneficiary of the excess franking credits.
Especially SMSF’s. We have over 600,000 SMSF’s all trying to accumulate retirement kitties for Australians.

Let’s hope that the financial modelling done by the ALP takes into account the disincentive to buy shares that would be signalled to SMSF’s and retirees. And the impact on the housing market. And the construction market [already affected by the proposed changes to the negative gearing provisions and the Banking Royal Commission].

Oh dearie me!

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