Statement on Labor’s Shonky Franking Credit Costings

The Senate has now forced the Government to reveal the assumptions and methodology behind Labor’s unhinged franking credit reforms. It is clear that these do not exist.

My motion of 10 May 2023, which was successfully amended by the Greens, required Treasury to present these key inputs to the Senate. This follows an unusual frustration of my Parliamentary Budget Office costing request when I asked for the capital raising franking changes to be costed.

During the recent public hearing, Treasury admitted there was no need for these changes in the relevant Bill and conceded that their costing was based on ancient 2016 data.

Yet, in response to the Senate’s order for the production of documents, Treasury claims that the alleged revenue gain from $10m per annum costing “arises from the imputation system operating as intended in the absence of contrived arrangements.”

This is a bizarre contradiction of Treasury’s evidence when fronting the Economics Committee, where they said: “It is a costing. It's not a forecast of activity, or it's not an estimate of the activity should there not be a measure in place. It had to reflect the observable data that we had from 2016."

And in the same response to the Senate Order they say “there has been minimal activity associated with franked distributions funded by capital raising observed by the ATO since the measure’s announcement in 2016.”

How could the costing be $10m with activity but also $10m without activity? The revenue gain is supposed to come from correcting "contrived activity", and yet that activity is said not to occur. They are making it up as they go along. The costing is a fiction.

Even more bizarrely, when probed via FOI about costing notes for the original 2016-17 MYEFO measure, Treasury said that no such costing notes exist. This has been a shambolic process led by Stephen Jones. How can anyone have confidence in what the Assistant Treasurer proposes if his costings are seemingly baseless and dreamed up on a coaster.

We have heard from market participants that there is a great risk that these measures will not save $10 million per annum but will actually result in a loss of tax revenue of up to $2 billion per annum.

If the baselessness of Labor’s costings is anything to go by, then Labor’s franking changes may poison dividend imputation in Australia and result in enormous damage to our economy and corporate tax collection.