by David Rogers, Markets Editor
Geoff Wilson is breathing a sigh of relief on the part of his shareholders after the Coalition’s election victory.
The Wilson Asset Management chairman had fought tirelessly to highlight the regressive nature of Labor’s policy to ban cash refunds for excess franking credits paid to self-managed shareholders in pension phase and not invested with the large industry super funds.
“As a fund manager, we try to stand up for our shareholders and what we believe in,” Mr Wilson told The Australian.
In his view, Labor’s policy on franking credits caused far more backlash than its leaders imagined. “The inequality posed by Labor’s policy was just gross,” Mr Wilson said.
“Retirees in industry funds would get their franking credits — close to $11 billion in refunds — whereas if you happened to be in a self-managed super fund or owned the shares in your own name, you would lose the franking credits — worth more than $6bn.”
It was a policy that Labor refused to back away from even as it sparked a fierce debate across the country.
“We didn’t want to get caught up with the politics,” Mr Wilson said.
“Our concern was all about the policy and we were standing up for our 80,000 shareholders, most of whom are self-managed retirees.
“It’s a complex issue and our real goal in the later part of last year was to make sure this was on the agenda.”
Indeed, the franking credits debate was one of the hottest topics in Australian financial markets this year. “The good thing is that it created a debate that allowed people to understand it more fully,” Mr Wilson said.
He believes the debate led younger people to understand how the policy change could unfairly penalise their older family members.
“We got nearly 4000 replies to a survey two weeks ago. Most of them were Liberal voters, some were Labor voters, but the interesting fact is that 47 per cent of them said their children and grandchildren would change their vote because of the franking credit policy,” Mr Wilson said.
“While the biggest swing in the demographic was in people 65 years and over — purely because of the retirement tax — the survey suggested that such a change in policy would have had an intergenerational effect on voting intensions.”
Mr Wilson said the effect on voting intentions of this “grossly regressive” change in tax policy was underestimated.
“Labor kept saying this only affected a very small part of the population,” he said. “What they missed was that it was going to have an impact on their families. Their children were aware it wanted to take up to 40 per cent of their parents’ or grandparents’ income on a permanent basis.”
He now expects a rebound in listed investment companies (LICs), the prices of which were discounted on the sharemarket since late December amid expectations of a change in franking credits policy after a widely expected Labor victory.
Australian Foundation Investment Company (the nation’s largest LIC), for example, swung to a 3.9 per cent discount to its net asset value, after trading at a 5 per cent premium in December.
Mr Wilson said there was a “buyers strike” — either because no one was prepared to buy, or people were selling to reposition their portfolios before the policy change. “So this outcome (the Coalition victory) is very positive for the LIC sector,” he said.
However, there was a “silver lining” in Labor’s plan to change the franking policy in that it encouraged companies to pay out excess franking credits in advance of the election, a trend Mr Wilson said they should continue.
“A lot of companies had paid tax and kept the franking on their balance sheets, so there was close to $50bn in excess franking,” he said. “The positive effect of Labor’s policy is that billions of dollars of franking credits have been paid out.”
Mr Wilson also expects a strong “relief rally” in the broader sharemarket and the dollar.