Wagga Labor candidate Mark Jeffreson has defended his party's franking credits policy, which would affect the finances of many retirees with share portfolios.
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Riverina MP Michael McCormack said the proposal was "grossly unfair" and would leave 7000 people in the Riverina and Central West financially worse off.
Labor has proposed to end cash refunds for investment dividends paid to those below the income tax threshold.
Mr Jeffreson said the policy's savings of nearly $11 billion over four years would be better spent in the budget than on refunds to people with substantial assets who had paid no income tax.
"It will create a more fair tax system," he said.
"The money we save will go to schools and hospitals.
"Anyone receiving a social security pension won't be affected by the changes."
Mr McCormack said his government would pay for essential services without "raising taxes".
"Labor’s retiree tax is grossly unfair – it takes money from the pockets of low-income earners and retirees," he said.
"My office has received correspondence from a number of concerned constituents who have expressed their outrage over this unfair tax grab from Labor.
"These Australians are aspirational, self-reliant people who have worked hard to support themselves and do not want Labor taking their hard-earned money out of their pockets".
Mr Jeffreson said "heaps" of people had contacted him about the policy, both for and against it.
"There are people who don't like it; there are people who I have spoken to who rely on it for a significant portion of their income," he said.
"There was one man who said he relies on those tax credits for $30,000 per year.
"But you have got to ask yourself, what is the amount of capital that is generating those returns and should he be relying on the taxpayer to prop him up?
"If you have got returns of $30,000 you have probably got decent capital there and you can look after yourself."
Association of Independent Retirees acting president Wayne Strandquist said changing the policy would have flow-on effects for regional economies such as in Wagga, where retirees were a major customer group.
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Mr Strandquist canvassed several Wagga association members about Labor's policy.
"I asked members how they would make up for the cut in income," Mr Strandquist said.
"Basically they said they would try to plan to reduce expenditure on non-essential spending and lifestyle choices.
"That included reduction in dining out and coffee, not replacing household appliances, less spending on clothing and less charitable donations and cutting memberships in community clubs or groups."
Mr Strandquist has the group had been contacted by a number of farmers who used dividend imputation to provide an income for tough years when their farming business made no profit and hence paid no tax.
The policy of 'dividend imputation' was introduced by the Hawke Labor government in 1987 to prevent investors from being taxed twice by issuing 'franking credits' to offset other personal taxes.
Prior to the policy, companies would have to pay tax on their profits and investors would be taxed again when they received income from dividends.
The Howard Coalition government changed the policy in 2000 to allow investors to use franking credits not only offset taxes but claim a cash refund if they were paying less that the corporate tax rate on their personal income.
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