Wilson Asset Management

By Eli Greenblat

Veteran fund manager Geoff Wilson has warned that “everything is on the table” when the government looks for ways to pay for its massive spending spree to support the economy in the midst of the coronavirus pandemic. But he cautioned against a second attempted raid on franking credits to pay off the blowout in the national debt.

Mr Wilson, who led the charge against the policy to remove dividend imputation that Labor unsuccessfully brought to the last election, said any policy to help pay off the debt now being accrued had to be logical, equitable and fair. But ending franking credits still wouldn’t make sense as doing so would starve Australian companies of capital and force many investors to send their money offshore, he said.

He said robbing investors of franking credits would also come at a time when Australian companies desperately needed capital to employ Australians and pay tax.

Addressing his shareholders this morning at an investment update for his Wilson Asset Management portfolio of investment companies, which have more than $3 billion of funds under management, Mr Wilson said we were facing an unprecedented leap in government spending which someone would eventually have to pay for.

“The fascinating thing is, and we were doing the numbers the other day, it looks like the federal government is going to spend the equivalent of 10.6 per cent of GDP over a six-month period and that is unprecedented spending,’’ Mr Wilson said.

“Someone has to pay for that.

“Whether it is higher taxes later on or has to be paid in the future at some point in time. Where should that money come from?”

Mr Wilson said he maintained the view that franking credits and dividend imputation was a “logical system” that encouraged companies to pay tax in Australia, employ Australians and encourage people to invest in Australian companies.

He argued that because of this, despite the huge increase in government spending to stop the economy from collapsing due to the coronavirus, estimated to be over $300 billion so far, the dividend imputation system still made sense and should not be raided as policymakers look for savings.

“It still doesn’t make sense,’’ Mr Wilson said.

“Our major concern with franking was the inequitable nature of the Labor proposal, where you could have five individuals all the same age, all in retirement, and getting five different outcomes.

“Now, I would assume from a government perspective everything would be on the table, [but] my view is the franking system encourages the right behaviours and that is what you need.”

In the lead up to the last federal election the ALP went into the campaign with a policy to end dividend imputation, which raised the ire of investors, retirees, CEOs, company directors and funds managers such as Mr Wilson, who led a counter strike against the Labor policy which included public protests.

Coronavirus: Economic bailouts

The groundswell of community opposition grew quickly and when the ALP was defeated at the election in May some of the credit for the unlikely loss by then opposition leader Bill Shorten was given to the dividend imputation policy.

However, now with government debt spiralling towards a trillion dollars some have suggested that policy on matters like franking credits and negative gearing needs to be revisited.

“Whether they [the federal government] look at it, I would assume everything is on the table, in terms of how this will be funded,’’ Mr Wilson said.

“So you couldn’t rule it in or out, all we hope is that if anything is done it is done equitably, fairly and logically, and so to me the previous [Labor] proposal was encouraging people to take their money offshore, encourage Australian companies to invest offshore, encourage individuals to invest offshore. To me that is just illogical.

“In these times where things are difficult you want capital, you want money to be invested in Australian companies and you want Australian companies to employ Australian workers, and pay tax in Australia.”