ASR takes leadership role in Franking Credits campaign on behalf of self-funded retirees
The petition campaign led by the Australian Stock Report (ASR) has garnered over 56,000 signatures and proved a key influence in the franking credits debate, leading into last month’s federal election. This mass mobilisation of investor sentiment easily made it the biggest petition and market contribution on this issue.
The controversial ALP policy to scrap cash refunds on unusable franking credits — which was estimated by the Parliamentary Budget Office (PBO) to potentially impact over 1.2 million Australian taxpayers — was met with community-wide concern, especially from self-funded retirees.
In just a few months, the ASR’s nationwide petition provided momentum and focus to wide-spread resistance to the proposed change; and, positioned ASR as a thought leader in the superannuation sector. This proved to be part of a decisive swing against the Opposition, with the Coalition pointing to Labor’s disregard for self-funded retirees as a key element of its successful election campaign.
Dividend imputation was introduced under the Hawke/Keating government in the 1990’s, and along with cash refunds on unusable franking credits introduced by the Howard government more recently, has been established as an essential part of many retirees’ investment strategies.
Self-funded retirees would have been worst hit
The Alliance for a Fairer Retirement System – a group of nine different investment, SMSF and retiree organisations – estimate that around 70 per cent of Australian retirees over the age of 75 would have suffered a 30 per cent cut in dividend income under the ALP policy. The Alliance also said small business owners, people earning less than $65,000, single parents and non-working spouses would suffer if cash refunds were eliminated.
While a broad spectrum of Australians would have been hit if the ALP’s planned changes had taken effect, self-funded retirees and self-managed superannuation funds would have been worst off. Most of these people are far from wealthy and are simply trying to get by in retirement. This is certainly true for many of ASR’s clients.
In addition to the very real negative impact on many retirement lifestyles, the proposed policy would also have had a negative impact on investment decisions affecting Australian companies that pay tax in this country.
Negative impact on household name Australian companies
Most self-funded retirees hold investment portfolios that are heavily weighted towards generating a reliable income stream from company dividends. The availability of dividend imputation is a major consideration for these investors and has a direct influence on their investment choices. It is also true that investors are more inclined to invest their money with companies with which they are familiar. Australian investors have always displayed a strong bias towards investing in blue-chip Australian equities.
When overlaid with the need to maintain a balanced portfolio that recognises the market capitalisation of individual firms and industry sectors, this means that Australian banks, telecommunications companies and diversified industrials typically form a large proportion of the investments made by self-funded retirees in Australia.
While some investors might have chosen to redirect their funds into APRA approved vehicles to retain the ability to offset franking credits on Australian equities against income from other sources, many would simply have divested themselves of Australian equities altogether; including many household name companies, and redirection of investment funds into asset classes which do not benefit from dividend imputation such as international equities, bonds or non-dividend paying companies. There is no doubt that this would have put downward pressure on share prices and therefore upwards pressure on the cost of capital to many large Australian firms that pay tax in this country.
Self-funded retirees have typically structured their household budgets and their personal lifestyles, over a period of decades, to meet their personal goals in retirement. This means deferring or avoiding personal consumption at considerable cost to themselves and their lifestyle, but at considerable benefit to the public purse and the common good.
By funding their own retirement, they significantly reduce the pressure on the aged pension system. Given the continued ageing of the Australian population and the substantial proportion of the Commonwealth Budget already devoted to this sector, this is an important factor for any government to fully appreciate.
ASR putting the case to Government
At the same time that it launched the petition which received over 56,000 signatures, the ASR also initiated a survey of clients which received over 3000 responses and harvested a number of case studies of ASR clients detailing the personal impact on their lives. All of this was included in an ASR submission to the Commonwealth Government’s Joint Parliamentary Committee on Economics, which considered the issue and held public hearings on the matter earlier this year.
However, it was the national petition run by the Australian Stock Report that provided the means for tens of thousands of Australians to express their concern with the Opposition’s plan. Ultimately, the move was decisive, with many election analysts noting the impact of this debate on the federal election result.
This year’s Australian Stockbrokers Foundation Awards Night which was held on 27 June was attended by Federal Treasurer Josh Frydenberg. The annual event is billed as an important opportunity for the investment sector to raise funds for charity while celebrating the successes and milestones of the past year.
Without a doubt, the celebrations will include the ASR’s successful campaign on behalf of self-funded retirees and other investors to prevent the removal of the cash refunds on unusable franking credits.