by James Thomson
Fund manager Geoff Wilson, who led a vocal campaign against Labor’s plan to eliminate franking credit refunds, says Bill Shorten’s team badly underestimated the “ripple effect” the policy would have on self-funded retirees and their families.
Mr Wilson is the founder of Wilson Asset Management, which has 80,000 mainly self-funded retiree investors. He pointed to figures showing that the biggest swings against Labor came from voters aged over 65 as evidence of the impact of the franking credit proposal on the election result.
“It was an inequitable and illogical policy that should never have been taken to the Australian people,” he told The Australian Financial Review on Sunday. “And it appears it has been a significant part of their downfall.”
But he said the impact was felt beyond just older Australians. In a survey taken by his firm in the last weeks of the campaign, 47 per cent of respondents claimed their children and grandchildren would vote against the policy.
“I think Labor totally underestimated the inter-generational impact of their retirement tax,” Mr Wilson said.
“If someone has done the right thing all their life, and has worked under a system for 20 years and suddenly gets told they are losing 30 per cent of the income, that not only affects them but has a significant ripple effect on their children and their grandchildren.”
WAM launched its campaign against the changes almost as soon as they were announced by Labor’s shadow treasurer Chris Bowen early last year.
By late September, Mr Wilson had coined the phrase “retirement tax” in his weekly missive to shareholders. This slogan would be picked up by the Coalition as franking became a central election issue.
Mr Wilson said the fact that Labor was forced to revise its policy almost immediately to exclude pensioners suggested it had not been properly formulated.
He argued that given those in industry super funds would still enjoy the benefits of franking credit refunds, this was part of broader attack on self-managed super by Labor.
“Labor thought that people wouldn’t really drill down,” he said.
Mr Wilson said WAM’s research suggested the majority of those hit by the change received relatively modest amounts of income from franking credit refunds. The firm collected more than 2000 stories from investors who would be affected.
“Towards the end, people understood the inequality. Whereas Labor thought they could take from the rich and give to the poor, which isn’t the case.”
Mr Wilson also suggested Labor had failed to consider the impact on their investment intentions of self-funded retirees, many of whom said they would reduce their exposure to local equities if the policy was introduced.
“As an Australian you want capital to be invested in Australia, so Australian companies can employ Australians and pay Australian tax. So playing around with franking is so totally illogical from a capital markets point of view.”
The prospect of a Labor victory led a number of high-profiled companies to bring forward the payment of dividends to release franking credits to investors.
Pioneering listed invested company Australian Foundation Investment Company announced special dividends across its stable in January and last week Fortescue Metals Group announced a surprise special dividend that the company admitted was partly designed to accelerate the release of franking credits.
Mr Wilson admitted he had also been preparing for a Labor victory. Last week he met with senators from Centre Alliance to confirm their opposition for the bid, in the hope that the Senate would stymie the legislation if Labor did win government.
He was already planning further meetings with alternative parties who might also block the policy.
“I was thinking, in Brisbane next week, I am going to have to go to see Pauline Hanson and Clive Palmer.”
Mr Wilson admitted the politics of WAM’s campaign had been brutal at times and in recent months Mr Wilson has been heavily criticised for his stance.
“As it looked as though it was a forgone conclusion that Labor would win, obviously there was a lot of risk in standing up,” he said.
“But our driver in the whole debate was to stand up for our 80,000 shareholders and our focus was always on the policy, not the politics.”
The Coalition’s victory should also be good news for the broader listed investment company sector. Mr Wilson said share prices of LICs had fallen by around 10 per cent since the start of the year due to what he described as a cloud of uncertainty.
“It’s either been a buyers’ strike or people selling. This will be positive for all dividend yielding companies,” Mr Wilson said.
Mr Wilson said the opposition to the franking credits policy had also highlighted how angry investors are with tinkering to superannuation rules, and said politicians would need to heed this in the future.