Franking credits change a broken promise

franking credits election promise

Changes to franking credits would be a broken election promise and indicate the government does not understand their purpose in generating income for investors.

Proposed changes to limit the distribution of franking credits run counter to an election promise made by the federal government and are indicative that it does not understand the role they play in creating income for investors, the head of Wilson Asset Management (WAM) has claimed.

In a letter to shareholders, WAM chair Geoff Wilson said two proposals from the government related to franking credits will dismantle the franking credits system and negatively impact investors.

Wilson was referring to a budget announcement that proposes a limit on the distribution of franking credits to shareholders where companies are returning capital to their shareholders through off-market share buybacks and draft legislation that has similar limits related to capital raisings.

“We are extremely disappointed to see the Labor government trying to introduce changes that will have a significant impact on mum and dad investors and low-income earners,” Wilson said.

“Surprisingly, this is their second attempt since the election to undermine the franking credits system, following a recent draft legislation from Treasury, still under review, which looks to stop companies distributing fully franked dividends that are associated with capital raisings.”

Wilson called upon WAM shareholders to write to their member of parliament detailing how the changes would affect them and provided a form letter that stated the proposals were “contrary to the Labor government’s election promise to not make any adverse changes to the franking credits system”.

“The Australian government does not appear to fully understand the importance of the franking system in Australia, as many of those impacted rely on fully franked dividends as an income stream,” the letter stated.

“When a political party attempts to attack franking credits it is a personal and inequitable attack on retail investors, companies and the retirement security of many Australians.”

In his letter to shareholders, Wilson said Treasury did not have a detailed understanding of the franking system and the form letter added: “Unfortunately, it appears the new government has had the ‘the wool pulled over its eyes’ by the Treasury department even though [former Labor prime minister] Paul Keating has continuously warned them that fundamental changes would have broad impacts on Australian investors.”

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