The impact of abolishing franking credits

Intelligent Investor

Independent Financial Research

Putting aside arguments over the strengths and weaknesses of Australia’s dividend imputation system, what would be the impact if it was abolished? The franking system was implemented in the 1980s to prevent business profits being taxed twice: once at the company level and then again when shareholders receive dividends. By preventing shareholders from using franking credits to reduce their tax bill, the biggest impact of abolition would be an increase in the general level of taxation in Australia. The after-tax returns from capital investment would decline and there would be less incentive to invest. All things equal, this would result in smaller increases in productivity and a lower standard of living than would otherwise be the case. This article looks at other potential impacts and the flow on effects for a selection of listed companies. (VIEW LINK)


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