IPA flags dangers with piecemeal changes to franking credits
Labor should not proceed with any changes to refundable franking credits unless it is willing to consider more holistic changes to the tax treatment of savings more broadly, says the Institute of Public Accountants.
Ahead of the public hearing being held by the House economics committee on refundable franking credits next week, the Institute of Public Accountants (IPA) defended the refund of imputation credits as a well-established feature of the taxation system.
IPA chief executive Andrew Conway said the inquiry into the implications of removing refundable franking credits 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.
“In today’s economic circumstances, it would be difficult to justify from a fiscal sustainability perspective,” said Mr Conway.
“However, 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 was weak, he said, 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.
“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,” said Mr Conway.
“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.”