By Lucy Dean

Fund manager Geoff Wilson has accused the Labor government of breaking an election promise with its changes to off-market share buybacks, claiming it marks the start of a plan to “dismantle” Australia’s franking credits system.

The federal budget, released in late October, included a $550 million crackdown on off-market share buybacks, designed to cut the “streaming” of franked dividends to shareholders.

During a heated exchange with Assistant Treasurer Stephen Jones at The Australian Financial Review Super and Wealth Summit, Mr Wilson said the budget policy was a “clear backdoor attempt to dismantle the franking system” set up by former Labor treasurer Paul Keating in the 1980s.

Mr Wilson, founder of fund manager Wilson Asset Management, which has about $5 billion under management, is considered the de facto leader of a political movement of self-managed superannuation funds and retirees.

The lobbying helped to persuade Labor to dump its proposed crackdown on franking credit refunds after the party lost the 2019 federal election.

“The change that you’re proposing, of how companies distribute franking credits now breaks that [2022 election promise],” Mr Wilson told Mr Jones after the minister’s speech.

“You talked about … investing in Australia, how important that is, and that’s what the franking system does. Do you understand the importance of the dividend imputation system in Australia? And why are you breaking a promise and starting to dismantle it?”

After quipping that Mr Wilson did “not need a mic” to ask questions at the summit, Mr Jones defended the plan. He described it as “closing loopholes” rather than breaking promises.

“It is the right thing to do when you’ve got … $1 trillion worth of debt and you’ve got a budget in structural deficit,” Mr Jones said.

“We will keep our promise to the Australian people to ensure that that proposition that went to the 2019 election is not going to be resurrected.

“But we are going to close some loopholes, and it does get to this issue of, what is the most effective spend or the most effective use of our taxation concessions.”

In a separate measure, Treasury is also consulting on stopping franking credits being paid that are funded by equity capital raisings.

Mr Wilson said it would leave billions of dollars of franking credits trapped on the balance sheets of companies for corporate tax paid. This is because of businesses that did not pay out all their earnings due to reinvesting returns in new investments.

Mr Wilson said the only way companies could distribute the franking credits would be to “gear up” with debt, if the government stopped capital raisings funding the distribution.

Mr Jones conceded that making the policy retrospective to 2016, when it was originally announced by then-treasurer Scott Morrison, was “clearly a mistake” which will be resolved when the legislation comes before parliament.

“I will make one concession that when the consultation paper went out, it adopted the date of effect, which was flagged in the previous government’s consultation, and that was probably mistaken making it retrospective.”

Beyond ending retrospectivity, Mr Jones stuck by the policy.

Licensed by Copyright Agency. You must not copy this work without permission.