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Does the government spend more on franking credits than on public schools?

Labor Senator for NSW Kristina Keneally delivers her first speech in the Australian Senate on March 27, 2018 in Canberra, Australia. The former NSW Premier was sworn in as a senator in February 2018, filling the vacancy left after Sam Dastyari resigned from parliament. Image: Getty

Labor Senator Kristina Keneally has suggested the government currently spends more on franking credits than it does on public schools.

But is this accurate?

The Statement

"That $6 billion is more than we spend on public schools. It will soon grow to $8 billion."

NSW Labor Senator Kristina Keneally. April 30, 2019

The Verdict

Somewhat True - Mostly accurate, but there is more than one error or problem.

The Analysis

AAP FactCheck examined Senator Kristina Keneally's claims that franking credits cash refunds cost the federal government $6 billion a year, that this figure was greater than the amount the government spent on public schools, and that the figure of $6 billion would soon grow to $8 billion. [1]

Senator Keneally was the NSW premier from December 2009 until March 2011, when she lost power to the Barry O'Farrell-led coalition government following a 16 per cent swing against Labor. She moved to federal politics when she filled a NSW Senate seat vacated by the resignation of Labor's Sam Dastyari in February 2018.

Federal Labor has pledged to make Australia's tax system fairer by closing a concession that gives cash refunds for excess dividend imputation credits. Labor stated it was cracking down on this "tax loophole" because it will soon cost the budget $8 billion a year. "$8 billion a year is more than we spend on public schools or child care," the Labor statement said. [2]

A spokesperson for Senator Keneally told AAP FactCheck said the Senator meant to say $8 billion is more than is spent on public schools, which is in line with Labor's statement, when she was being interviewed on ABC TV News Breakfast.

Imputation credits, also known as franking credits, are tax credits that allow Australian companies to pass on tax paid at the company level to their shareholders. Franking credits can then be used to help reduce individuals' income tax paid on dividends or potentially be received as a tax refund. [3]

The dividend imputation system was introduced by the Hawke government in 1987. The logic was that the profits of Australian companies should not be taxed twice: first at the corporate level; and second at shareholder level, after distributing profits as dividends.

Hence, "imputed" credits were attached to dividends, equivalent to the amount of company tax already paid on those dividends. [4]

According to 2018 Treasury Freedom of Information (FOI) documents, cash refunds on franking/imputation credits cost $5.9 billion in 2014/15. [5]

According to 2019 Treasury FOI documents, that amount rose to $6.3 billion in 2015-16. [6]

These treasury figures support Senator Keneally's claims that imputation credits cost the federal government $6 billion a year and are growing.

The increase from 2014/15 to 2015/16 is 6.8 per cent. If it continued to grow at this rate, the figure would rise above $8 billion by the 2019/20 financial year, as Labor stated.

According to the 2019/20 government budget strategy and outlook paper, the government budgeted to spend $7.68 billion on public schools in 2018/19, rising to $8.32 billion in 2019/20 and again to $8.99 billion in 2020/21. [7]

That means that in 2019/20 when the cash refunds on franking credits are expected to reach more than $8 billion, the comparative figure for federal spending on public schools is also more than $8 billion. The projected figures are relatively the same.

Senator Keneally claimed $6 billion in franking credits was more than was spent on public schools but she meant to say $8 billion, in line with Labor's statement. [2]

FactCheck concludes that Senator Keneally's claim that franking/imputation credits cash refunds cost $6 billion is true. Her claim that this will rise soon to $8 billion is true, based on the current rate of growth.

But AAP FactCheck finds the claim about spending more on cash refunds than on public schools is only somewhat true, as the figures are expected to be almost the same by the year 2019/20 based on treasury and budget forecasts, and the current growth rate of franking credit cash refunds.

Senator Keneally also made an error while on live TV when she said $6 billion was more than the government spends on public schools. She meant to state Labor's published figure of $8 billion.

The Verdict

Somewhat True - Mostly accurate, but there is more than one error or problem.

The References

1: 'Interview with Senator Kristina Keneally', ABC TV News Breakfast Twitter (4m25s). April 29, 2019: https://twitter.com/BreakfastNews/status/1122988667847315456

2. 'Dividend Imputation Credits, the truth about Labor's policy on dividend imputation credits'. Australian Labor Party: https://www.alp.org.au/other/dividend-imputation-credits/

3. 'What are Franking Credits? Helping you understand Franking Credits in Australia.' Franking credits. 2019: http://frankingcredits.com.au/

4. 'Will Labor's dividend imputation policy overwhelmingly affect the low paid?'. ABC News. March 19, 2019: https://www.abc.net.au/news/2019-01-30/fact-check-labors-dividend-imputation-policy/10626204

5. 'Franking credits refunded', Treasury FOI document. July 20, 2018: https://static.treasury.gov.au/uploads/sites/1/2018/07/FOI_2292_-_documents_final_redacted.pdf

6. 'Refundable franking credits and dividend imputation'. The Treasury FOI. Australian Government. January 18, 2019: https://treasury.gov.au/foi/2404

7. 'Statement 5: Expenses and Net Capital Investment', Budget Strategy and Outlook Budget Paper No.1 2019-20. Commonwealth of Australia. April 2, 2019: https://www.budget.gov.au/2019-20/content/bp1/download/bp1.pdf (page 5-10, government schools national support)

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