Labor franking policy slammed

AUSTRALIA’S biggest listed investment company has renewed its attack on federal Labor’s proposed changes to the franking credit system, saying small-scale investors will lose out.

Australian Foundation Investment Company chief Mark Freeman says the proposal “is one of the biggest issues facing smaller investors in Australia”.

Labor has proposed ending the concession allowing some individuals and superannuation funds to receive a cash refund from the Australian Taxation Office if their imputation credits exceed the tax they owe.

Mr Freeman said yesterday that, in talking with AFIC’s retail shareholders, it was clear many would be hit hard if the policy became law.

The proposal would affect smaller-scale investors in particular, including those investing for retirement, as they were more likely to pay less tax and therefore have excess franking credits, he said.

“We travel a lot — we go around the country and we see a lot of investors who put faith in the superannuation system,” Mr Freeman said.

“We have seen some people who would be $10,000 worse off with their income. That is substantial.

“These are just average mums and dads and retirees with a view that the system would be constant.”

Someone with $500,000 in super might earn a yield of $20,000 a year, and franking credits could provide an extra $8000, he said.

“That is not a lot to live off,” Mr Freeman said. “This is either not understood — or if it is — it is being ignored.”

Labor says its policy will make the tax system fairer, and Australia is the only country in the Organisation for Economic Cooperation and Development with a fullyrefundable dividend imputation credit system. Pensioners would be exempt from the change.

Mr Freeman has previously criticised Labor’s plan as flawed. He was talking yesterday after AFIC, Australia’s oldest listed investment company, posted a $279 million profit for the year to June, up 13.7 per cent on the previous year.

The company has kept its final dividend at 14¢ a share, fully franked, bringing the total payout for the year to 24¢ a share — the same as last year.

AFIC’s portfolio return was 10.8 per cent after costs, compared with a 13 per cent return for the ASX 200 Accumulation Index.

Including franking, those numbers clock in at 12.7 per cent and 14.6 per cent respectively.

The company is a long-term investor and over 10 years, its return has averaged 6.5 per cent a year compared with 6.4 per cent for the index.

Adding in franking benefits, the returns are 8.5 per cent and 8 per cent respectively.

Investment income over the year to June increased $31.5 million due mostly to a lift in dividends across a range of companies, particularly in the resources sector. Among changes to its portfolio over the year, AFIC pulled out of fertiliser maker Incitec Pivot, soft drink company Coca-Cola Amatil and Japara Healthcare.