Welcome to the Firstlinks Newsletter Edition 306
Graham Hand
We start our final election coverage with a reprise of Mark Ellem's article explaining the differences in investing and superannuation policies of the two major parties. Then we move on to fresh insights into Labor's proposals:
* Colin Lewis explains why the extra contributions tax will impact more people than is commonly understood. Do you know how to calculate the cost?
* Tony Dillon says members in pension phase should not assume the trustees of large funds will refund excess franking credits, and he quantifies the impact of the policy on capital gains tax.
* Rodney Brown believes the loss of franking credit refunds may increase corporate tax evasion.
* Finally, we bring together seven strategies to manage the impact of the loss of franking credits.
(There are no new Coalition superannuation policies proposed in the election campaign).
Regardless of whether you are for or against the basic principle of Labor's franking policy, it's a strange outcome when wealthier people are not affected. Trustees with large, diversified SMSF portfolios where the amount in accumulation will always exceed the pension tranche can use the credits to pay tax. I also have a friend who is a tenured university academic with healthy retirement savings held by Unisuper. Their website says: "Based on our current understanding, we expect to continue to use franking credits to offset our income tax liability."
These people, including myself, are unlikely to be adversely affected, yet Labor's motivation is 'fairness' and a move against 'the top end of town'. Meanwhile, a Centrelink pensioner who established an SMSF in the last year loses the franking refund. It's likely the policy will not survive in its current form in the face of Senate opposition. Expect a minimum allowed refund of say $5,000 to satisfy the cross-benchers, which will dent the number at the top of this list.
When Cuffelinks surveyed its readers on franking credits, over half the 2,000 respondents said they would change investments or super structure if Labor's policy is adopted.
Implementation of these policies has major consequences for the budget as the revenues finance new spending on cancer treatments, child care, dental care and infrastructure. By 2030, franking credit refunds alone are worth $7 billion a year.
If it's correct that industry funds will not be affected, their power will multiply across all sectors. For example, within five years, AustralianSuper expects its funds under management to double to $300 billion, and it will bring more management in-house to reduce its costs.
Moving right along ...
If you're tired of the election coverage (and yes, franking credits), let's check some research on ways to drive better investment outcomes.
Jack Gray and Steven Hall describe 10 'rules of thumb' often used by professionals to help make decisions during uncertain times.
Shane Shepherd explores with David Laibson how investors make irrational decisions, and changing their environment can be more effective than changing their behaviour.
Michael Collins looks at the ethical issues of Artificial Intelligence, or AI. We're only just starting to appreciate the consequences while AI is off and running. We're all being watched.
This week's White Paper below is a review of global ETFs from BetaShares, showing good growth while 'mutual funds' face outflows, and the rising popularity of fixed income ETFs. In Australia, the sector is close to $50 billion, a doubling in only two-and-a-half years.
The 'Additional features' section below carries a wide range of reports on hybrids, ETFs and LICs.
Congratulations to Sydney-based Andy Kuper of Leapfrog Investments, who recently closed the largest ever private equity fund by a dedicated impact fund manager. The $1 billion raising will invest in healthcare and financial services to reach 230 million people in emerging markets.
Graham Hand, Managing Editor
For a PDF version of this week’s newsletter articles, click here.