Investors’ dire warning to Labor on franking credits plan
Opposition Leader Bill Shorten in Tasmania this week. Picture: AAP
The nation’s biggest listed investment companies, which safeguard more than $40 billion invested in local shares on behalf of 400,000 Australians, are warning of dire ramifications for retirees, low-income earners, small business owners as well as broader capital markets as a result of the Labor Party’s planned attack on franking credits.
The collection of specialist equities investors, who have combined their public policy muscle under peak group the Listed Investment Companies Association of Australia, have written to Bill Shorten, alerting the Opposition Leader to the hit to income for a cross-section of people if his government were to implement its radical shake-up of the franking credit regime.
In particular, the industry body has warned that the policy would potentially affect those borrowing to invest in private and public companies, which the listed investment companies believe is not realised by many policymakers. This could strangle a $1 trillion pipeline of equity funding provided by borrowers, self-managed superannuation funds and self-funded retirees to businesses that would ultimately damage the economy and employment.
Angus Gluskie, the managing director of investment company Whitefield, speaking on behalf of the industry association, said low-income earners would not escape the punitive damages of the ALP’s proposed scheme, while a promised ‘‘pensioner guarantee’’ announced by the ALP after its initial franking policy was savaged by voters would also not limit the back-pocket pain.
“This policy clearly affects low, not high, income earners, which flies in the face of good tax policy and ALP values. It is certainly not the type of policy the ALP should espouse, and not in the interests of many ALP voters,’’ Mr Gluskie said. “The proposed policy does not align with the principles of good taxation being fairness, simplicity and support for low-income earners, nor ALP values. It hurts low-income earners, retirees, SMSFs and those borrowing to invest in business, and operates unevenly between taxpayers.
“The policy still impacts lower-income self-funded retirees and SMSFs and encourages greater use of government pensions. This is the opposite of commonsense retirement policy and hurts mainstream middle Australia.”
Listed investment companies include ASX-listed groups such as Australian Foundation Investment, the nation’s biggest with more than $7.3bn in equities, Argo Investments, Australian United Investments and Milton.
Earlier this year Mr Shorten unveiled his franking credits policy to claw back nearly $60bn over 10 years by abolishing cash refunds for excess dividend imputation credits.
Modelling from the listed investment companies sent to the ALP this week argues it would increase the tax burden on individuals with low marginal tax rates and those who do not access a government pension. Depending on an individual’s income level and mix, the policy may reduce a low-income earner’s after-tax income by up to 30 per cent.
Its analysis claims taxpayers earning less than $65,000 who are likely to be financially worse off include 18-65-year-olds running their own business, single parents, non-working spouses and self-funded retirees.
“I think at first most people thought this would impact retirees, hence the pension guarantee as a band-aid, but that only solves the issue for one echelon of people and there are many people outside of that this also impacts,’’ Mr Gluskie said.
He said the knock-on impact to capital markets could be savage: “These types of people currently contribute around $1 trillion of equity investment into markets, and this would suddenly create a disincentive on that, against that investment, that potentially is really destabilising.’’
