Former Australian treasurer and prime minister Paul Keating has unleashed a withering attack on Australian company managers’ complaints that the dividend imputation system he introduced in the 1980s is hindering investment.
Writing in the AFR this morning, Keating says he is surprised at claims that “dividend imputation is supposedly cruelling foreign investment and how difficult the system makes managing the books of an Australian company with foreign assets”.
Rather he said that while imputation and “the obligation of managers to pay dividends will always sit uncomfortably with the freedom that managers would otherwise enjoy to expend company capital at their whim”, the system he introduced was to “establish appropriate tension between managers and owners, between managers and shareholders, as well as to remove the double taxation of dynamic income”.
“Before I turned up, Australia’s company managers regularly blew the company’s roll on ill-advised takeovers and sub-optimal expansion plans,” Keating says.
His argument is that the discipline needed to continue to pay dividends ensures company management and directors are more cautious with investments.
“Free of any effective discipline to provide dividends, one can only imagine the spending beano that company directors would otherwise engage in,” Keating wrote.
Keating also says an increasing number of companies across the globe are choosing to offer dividends “and have been accordingly rewarded with higher share prices”. Higher share prices than if “those companies gone on to invest indiscriminately”.
Clearly Keating remains confident imputation and dividends remain a health check on corporate investment processes and tells the AFR it should be standing up for “domestic shareholders and the great bodies of institutional funds that represent them” rather than “singing the tune of its constellation of managers and mates”.
You can read the full article here.