A less-than-frank Coalition funding gap

New information shows Joe Hockey is likely to be disappointed if he expects his 'no franking credit' levy, a quiet hit on retirees, to raise up to $1.5 billion to offset the parental leave plan.

The fact that Prime Minister Kevin Rudd missed a chance to trap Tony Abbott in the second debate has created a volley of new research on what will be raised from savers by reducing franking credits by lowering the company tax and matching it with a 'no franking credit' levy on large companies. 

Joe Hockey may raise less from retirees than he was counting on.

The franking credit revenue gain of $1.5 billion, which I mentioned yesterday (Rudd's botched debate is another blow to retireesAugust 22), came from Kevin Rudd himself in the debate and was not challenged by Tony Abbott.

It turns out that that the $1.5 billion figure had its origins in research done by the Greens. Now preliminary research by the public service indicates the more likely figure is somewhere between $700 million and $1 billion a year.

But superannuation expert Daryl Dixon called me yesterday to point out that most of the major companies have large amounts of undistributed franking credits that have been established at 30 cents in the dollar.

They will distribute these franking credits before they distribute the franking credits that come from profits taxed at 28.5 cents in the dollar. Obviously, it will vary from company to company, but Dixon thinks that for a big group of companies, the undistributed franking credits at 30 cents will last until around 2016.

And for the record, a fully-franked $100 dividend is worth $142.8 on the basis of 30 cents in the dollar tax rate. With the lower profits tax of 28.5 cents in the dollar, the dividend is worth  $139.7 – a reduction of 3.1 cents, or 2.2 per cent.

All this means is that there is a funding gap. In the scheme of things, it is not a large one.

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