The potential electorate backlash is high on the list of checks when any politician decides a policy agenda. Regardless of the 'conviction' of a politician, the main priority is reelection. The Labor Party misjudged the outcry about its proposed franking credits policy, forcing it to introduce hastily the 'Pensioner Guarantee', protecting those on a welfare pension from the loss of franking credit refunds, with a grandfather date for SMSF trustees.
Despite widespread media discussion, many people remain confused about the policy. For example, The Sydney Morning Herald last week said:
"The proposal means that a home-owning retired couple with total assets of $837,100 would lose all franking credits ... another couple with $200 less in assets would receive it all."
In fact, the Labor proposal stops cash refunds of excess franking credits, not a loss of all franking credits, and it's possible to retain franking credits by rearranging investments.
To clarify the policy further, we have an exchange between a reader and Shadow Treasurer Chris Bowen's office. The reader is distressed by the loss of a $14,000 annual refund in his SMSF and should be considering alternatives. The policy objections will not go away for Labor, and Ian Henschke describes the high profile alliance group set up to lobby against the policy.
Looking at Chris Bowen's other speeches, this is from the National Press Club on 17 May 2018:
Journalist: "Your negative gearing changes are grandfathered meaning those who enjoy the benefits today enjoy the benefits forever; they're largely baby boomers who enjoyed the growing economy every step of the way from free education all the way through to negative gearing with you. How is that fair?"
Bowen: "It's fair because those people have made investment decisions based on the rules at the time. Big investment decisions and we respect that."
What about the SMSF trustees who set up investments based on the franking rules at the time?
And yesterday, at the Financial Services Council conference in Melbourne, he said:
"I am not interested in advantaging one sector of superannuation over the other. I am interested in improving member outcomes. Full stop."
Superannuation stage of the Royal Commission
The Financial Services Royal Commission continues hearings on 6 August on superannuation "structural and governance arrangements, the relationship between trustees and financial advisers and selling practices". The Commission has also issued a background paper which shows super's growing importance, up from only 80% of GDP in 2009 to 142% in 2017 and rising quickly.
Superannuation's share of the financial system
The list of super funds giving evidence in Round 5 is here, and the Commissioner will issue an interim report by 30 September 2018.
Focus on managing SMSFs
Three articles this week on SMSFs. Monica Rule explains the operation of the Total Superannuation Balance, Robin Bowerman asks when is it right for a person to 'self-manage' an SMSF, and Brian Hor warns trustees to prepare for the day when they may lose mental capacity.
On investing, Hamish Douglass offers three possible scenarios for equity markets in the next year or so, and with Facebook down heavily last night after the New York close, he may be prescient. Andy Sowerby says investors who focus on income in retirement should think about risk in new ways and Adrian Harrington describes how Sovereign Wealth Funds are moving billions around different asset classes. Their investments move markets with implications for all.
In this week's White Paper, Colonial First State Global Asset Management writes a travel diary on infrastructure, finding that green really is good, with utilities investing in renewables, battery storage and efficiency with no adverse impact in the US from electricity market interventions.
Graham Hand, Managing Editor
Edition 264 | 27 Jul 2018 | Editorial | Newsletter