24 January 2019
Billionaire investor Robert Millner has raised concerns that Labor’s policy to rip up the franking credit system on dividends could create two different classes of investors.
Mr Millner also expressed concern that Labor’s changes also hand an advantage to union-controlled industry funds, which will mostly maintain the rich flow of franking refunds.
Speaking to The Australian on Thursday after the $3 billion listed investment company Milton Corporation, which he chairs, issued its half-year profit results, Mr Millner said the proposed ALP policy could also encourage investors to shift out of Australian equities and place their money into riskier assets such as property and overseas shares.
“It doesn’t apply to everybody, but it does apply to a certain few,’’ Mr Millner said.
“It might make franked dividends less attractive for some people, and if people think they aren’t going to get those refunds, those people have relied on those refunds might put their capital to work somewhere else.
“If they do decide to exit equities, do they put it into property? Or do they go overseas?”
Current ALP policy is to close down a concession that gives cash refunds for excess dividend imputation credits. Most industry funds and some retail funds could still harvest franking credits because of the dominance in these funds of workers still in accumulation phase, rather than pension phase of their policies. Franking credits wouldn’t offset the whole tax liability for accounts in accumulation phase, effectively making industry funds exempt.
Opponents of the ALP scheme, led by the government, have accused shadow Treasurer Chris Bowen of allowing this loophole, which greatly protects industry funds – many of which are run by trade unions.
Mr Millner said this created an unfair advantage for one group of investors, and gave more power to the unions.
“Why should they have the benefit and no one else?” he asked.
“I think what will happen, if we do get a change of government, is that we could get a divide in the community.
“Obviously the unions are speaking out on what they would like to be doing, but not everybody likes to be in the union.’’
Mr Millner’s family is worth more than $1 billion, accrued over more than 100 years of association with its publicly listed family business, Washington H. Soul Pattinson, valued at more than $6.15bn, and its controlling stake in Brickworks, which is Australia’s biggest brick maker and valued at more than $2.4bn.
In Milton’s half-year review for shareholders, Mr Millner also argued the ALP policy on refundability of franking credits was inequitable and could ramp up the cost of capital in Australia.
“Milton notes and remains vigilant about the policy proposal from the ALP to end the refundability of franking credits to a certain group of investors,” he wrote.
“We believe the policy to be inequitable, likely to reduce the attractiveness of equity investments and increase the cost of capital for all Australians. Milton will continue to advocate on behalf of shareholders and encourage concerned shareholders to highlight the issue by contacting their local political representatives.’’
Over the last two weeks leading investment funds such as BKI Investment, Mirrabooka, Amcil and Australian Foundation Investment Co have criticised the ALP policy and acted to protect their own shareholders by dumping more than $120 million worth of shares in blue-chip miners BHP and Rio Tinto to pay for special dividends. They have rushed out these dividends to beat any ALP policy applicable from July 1, assuming the ALP win the upcoming election.
Mr Bowen has previously argued that Australia’s dividend imputation system was introduced by former ALP Treasurer and Prime Minister Paul Keating to eliminate double taxation on dividends from company profits.
But under Coalition Prime Minister John Howard and Treasurer Peter Costello, a concession was created that allowed some individuals and superannuation funds to receive a cash refund from the ATO if their imputation credits exceeded the tax they owed.
“Because of this change, Australia is the only OECD country with a fully refundable dividend imputation credit system – a concession which has grown at a rapid rate and now costs the budget more than $5 billion dollars a year,” Mr Bowen said.
“Failing to reform this unfair revenue leakage puts a greater tax burden on low and middle income working Australians. A Shorten Labor Government will close down the concession created by Howard and Costello, and return to the arrangement first introduced by Hawke and Keating – so that imputation credits can be used to reduce tax, but not for cash refunds.”
Closing down this concession will save the budget $11.4 billion over the forward estimates from 2018-19, and improve the budget bottom line by $59 billion over the medium term, Mr Bowen has argued.