Shorten franking announcement - Hybrid Securities

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    Labour May Abolish Franking Credit Refunds From 2019

    Various media outlets are reporting that the Australian Labor party would, if elected at the next election, abolish the net repayment of franking credits received in excess of an individual’s tax liability from 1 July 2019.
    By Labour’s own calculations, this would affect 200,000 of the 600,000 people using self-managed superannuation funds as well as an additional 1.2 million taxpayers.  None would pay more tax overall but obviously the ability to receive cash payments for excess franking credits from the ATO would cease.  The budget savings are estimated at between $5 and $8 billion annually over the medium term.
    Whilst many countries operate dividend imputation systems, which are designed to prevent the double taxation of dividends, Australia is the only OECD country that has a fully refundable system.
    We are of course a long way from an election but should these proposals come into effect, there would likely be detrimental effects to the valuations of ordinary shares (particularly high dividend, 100% franked payers like the banks) as well as, to a lesser extent, hybrids where Banks may choose to refinance these offshore.
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