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Regulation, Retirement, Superannuation

Draconian franking credit policy risks recession

Excess franking ban could trigger a recession.

A fund manager has warned Australia faces the prospect of its first economic recession in almost three decades if the Labor Party introduces its dividend imputation policy if it wins the next election.

“We believe Shorten and Bowen’s plans will have dramatic implications for the equity and property markets, resulting in the first economic recession in Australia for 27 years,” Wilson Asset Management chairman Geoff Wilson told the recent Alliance for a Fairer Retirement System’s Fairer Retirement Summit in Sydney.

Wilson said Labor’s proposal had emerged in the final stages of a record-breaking bull run and labelled the policy an attack on the equity market.

“Bear markets are extremely painful and we expect the negative effects of the looming bear market will be significantly worse if Labor wins office and introduces their draconian policies,” he said in his keynote address.

He said the recent stock market retreat has erased 2018 calendar year gains in the United States, while China’s equity market has tumbled by nearly 30 per cent from its peak earlier this year.

The Australian market has fallen by over 10 per cent and has entered a technical correction, he added.

In August, Wilson Asset Management started a petition to enlist the support of its clients and any other interested investors to rally against the opposition’s proposal to bar certain Australians from accessing imputation credit refunds.

A poll of the 25,000 signatories to the petition found almost one-third plan to spend their financial assets to receive the age pension.

It found around 70 per cent earn $90,000 or less a year, while almost 85 per cent would lose up to $30,000 a year and nearly 15 per cent would lose more than $30,000.

Labelling the policy a retiree tax, Wilson said it will hurt low-income earners and modest retirees.

He said they have saved and invested under the current franking dividend system and this should be respected and safeguarded by all sides of politics.

“If Labor is not stopped now, I believe they would continue to erode the current system to the detriment of all Australians,” he said.

“We must all stand up and fight for a fairer future for all Australians. Labor’s policies will not only significantly impact retirees and low-income earners, but they will destroy the aspirations of a generation of young Australians.”

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