ANZ Bank chair David Gonski has made a huge call for the Government to extend Australia’s dividend imputation system to tax paid offshore, saying that it is a barrier to Australian companies investing overseas and would provide “enormous benefits” to the economy.
The Australian reports this morning that he told a private conference:
I believe this is an area that needs to be looked at, and would be a clear indication to boards of directors as to whether our government wants us to invest and grow overseas, which I believe has enormous benefits.
This is a big call because he is asking for the Australian Government to recognise tax paid overseas which it doesn’t receive. Equally “Australia and New Zealand are the only two OECD countries to operate dividend imputation systems”, according to the Henry Tax Review.
In suggesting that local shareholders get a benefit for tax paid in other jurisdictions and that this would be an indication to Boards as to whether the Government wants them to invest offshore, Gonski’s idea seems to fly in the face of research quoted in the tax review which found that when it comes to the testing imputation credits on the cost of capital (put simply the cost of a company’s mix of debt and equity):
…only 13 of the 77 companies that responded to the survey made adjustments for imputation credits in project evaluation, including in respect of company estimates of their cost of capital (Truong, Partington & Peat 2005). Only three respondents attached a value of more than 50 per cent to imputation credits.
But Gonski said: “If (companies) are getting bigger and bigger offshore, how do they keep up (franked dividend) yield for investors?”
To be sure, it is an interesting question and Australia will be well-served economically if in the long run it is home to an increasing number of profitable global companies. But at first blush, it feels like a government subsidy for business to head overseas.
But that may not be a bad thing in the long run.
You can read more here.