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Investments, Regulation, Retirement

Imputation credit policy carries currency risk

The Labor Party’s proposal to scrap imputation credit cash refunds will encourage Australian investors to invest globally, hence increasing currency risk, a fund manager has warned.

Wilson Asset Management chairman and chief investment officer Geoff Wilson told the firm’s shareholder presentation in Sydney today part of Labor’s argument for the policy is SMSFs have allocated too much money to Australian shares.

However, encouraging them to invest overseas is illogical, Wilson argued.

He said the policy would force investors to take on additional risk, including currency risk, which is dangerous for investors approaching retirement.

“If you live in Australia, if all your liability is in Australia for the rest of your life, where do you want to invest? In America?” he said.

“I mean how illogical. You want to invest in Australia.”

He presented the case for investing locally, saying it reduces the cost of capital for Australian companies and encourages Australian companies to invest domestically.

“So they pay Australian tax, they employ Australians to look after Australians. To me that is the logical part of investing,” he said.

“But no, they want to encourage you to invest overseas.”

He also attacked Labor for its revised imputation policy, which introduced a pensioner guarantee.

Introduced shortly after the initial policy proposal, the policy document said SMSFs with at least one pensioner or allowance recipient before 28 March 2018 will be exempt and will be permitted a full refund of franking credits.

“But if you just happen to be born a day later, bad luck,” Wilson said.

“So if you go on the pension on 29 March, then you don’t get your franking credits. I mean to me this was knee-jerk policy, illogical and grossly unfair.”

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