THE letter from Gordon Harvey (Daily, March 19) regarding Labor's recently-announced tax plan is misleading.

The changes proposed by Labor will only affect pensioners who hold a substantial portfolio of fully franked shares, and then only if their taxable income is less than the value of the franking credits.

If the policy is implemented as intended in July 2019, these pensioners will no longer be able to claim from the tax office a rebate equal to the difference between their tax liability and the value of the franking credits.

They will continue to be able to reduce their tax liability to zero, but they will not be able claim an additional refund from the ATO.

An interstate newspaper recently cited the case of a taxpayer who, under the current system, had an annual income of $160,000 and who used franking credits to reduce the tax payable to nil, then claimed an additional $12,775 from the ATO.

The current franking credits scheme was introduced by John Howard in 2000. Initially the scheme cost the ATO $300 million, but this has now blown out to $5.5 billion a year and is projected to reach $8.9 billion in a few years.

The current cost is more than the Federal Government spends on school funding.

People who are in a position to take advantage of the present system are effectively not only making no contribution to the pool of funds for health, welfare and education, they are actually reducing that pool.

This year that reduction is $5.5 billion.

Obviously organising one's affairs to take advantage of the present system is quite legal, but it is an odd system that actually rewards citizens who, like the taxpayer who claimed $12,775, are in a position to claim a rebate from the ATO.

The current system is not good social policy nor is it sensible tax policy.

For very good reasons, such a system is in place nowhere else in the world apart from Australia and NZ.

Mr Harvey might also like to note there is currently before the Senate a bill to scrap the energy supplement for pensioners.

That is, they will no longer get help meeting the escalating cost of electricity and gas.

That, surely, is 'attacking the most vulnerable in society...'

REX METCALFE

Nambour