Wilson Asset Management chief investment officer Geoff Wilson has used his statement to a House of Representatives Standing Committee on Economics hearing as part of its inquiry into the implications of removing refundable franking credits to highlight the negative impact the proposed policy will have on women, the greater economy and forecast government revenue.
At the public hearing held in the Sydney northern beaches suburb of Dee Why, Wilson said female SMSF members would be disadvantaged, stemming from the fact they enter the retirement phase of life sooner than men and their superannuation balances are in general lower when they do compared to those of men.
“As at 30 June 2016, the average member balance for women was $511,000 and for men was significantly higher at $641,000, resulting in women having the higher likelihood of financial stress due to these proposed changes,” he said.
The negative impact on the greater Australian economy of the proposed policy was another factor Wilson stressed due to the effect it would have on retail investors.
“The big four banks make up 20 per cent of the market [and] retail investors comprise between 43 and 53 per cent of the big four bank share registers by value,” he said.
“The proposed changes could, according to Citigroup, see the value of the big four banks decline by up to 10 per cent. That’s a loss of $36 billion.”
Further, he predicted the proposed policy would erode the corporate tax base and would not be the revenue windfall Labor is expecting as a result of changes Australian companies would make to their capital structures.
“Australian companies are currently incentivised to maximise the amount of Australian tax they pay in order to have more franking credits to distribute to their shareholders. This incentive creates a strong corporate tax base of Australia,” he said.
“Altering the current dividend imputation system would lead to behavioural changes that could erode the corporate tax base.”
He refuted claims $5 billion of government revenue could be clawed back through stopping imputation credit refunds in certain circumstances due to the potential shift from capital raising through equity to increased levels of debt.
“Dividend imputation leads to the efficient capital allocation by directing capital toward Australian companies. It increases local investment and what that increased local investment does is it actually increases tax payments in Australia and increases employment for Australians,” he said.
“Dividend imputation also reduces the tax bias that typically favours debt over equity and lowers the cost of equity.
“If this [proposed policy] does destabilise the system for dividend imputation, then a 20 per cent increase in gearing in Australia, where companies will favour debt rather than equity, will actually reduce the tax take in Australia by $3.8 billion.”