Costello warns money will head offshore if shareholder tax credits changed
FORMER treasurer Peter Costello says changing or ending tax credits for shareholders who get dividends would see investors send their money offshore.
The financial system inquiry (FSI) last year questioned the wisdom of dividend imputations, where shareholders get a tax credit for the profits a firm shares with investors via distributions.
But Mr Costello, who is now chairman of the Future Fund, said changing or ending the system would reduce the appeal of Australian shares.
“If it’s modified, then Australian equities will be less attractive, no doubt about that,” he told a wealth summit in Sydney. “That would lead super funds and other investors, I think, probably to increase their allocation overseas.”
The FSI said dividend imputations, introduced by the Hawke government in 1987, were less beneficial in an era of more open global capital markets.
“The case for retaining dividend imputation is less clear than in the past,” its report said.
Mr Costello also denounced the idea of taxing the super earnings of the wealthy. “… Those who complain about large superannuation balances held by others sometimes don’t know, or leave out the fact, that to get large balances like that, you have to make voluntary contributions which have already been taxed.”
Federal Opposition leader Bill Shorten is proposing to tax superannuation earnings of more than $75,000 at a concessional rate of 15 per cent.
Mr Costello said he stood by a decision he made as treasurer in 2006 to make $150,000 annual super contributions tax-free, even though his Liberal successor Joe Hockey has indicated this could be reviewed. “At the time, it was supported on a bipartisan basis,” Mr Costello said.
A developer for City Tatts
PLANS to redevelop Sydney’s revered City Tattersalls Club in central Sydney into a $200 million hotel and apartment tower are a step closer with the announcement of the project’s developer.
The club yesterday said it had selected ICD Property and Sinclair Brook for the proposed redevelopment of its premises on Pitt St. It follows a failed earlier deal with developer Mirvac, which collapsed last year.
The project will cost around $200 million, and a new development application will be submitted to City of Sydney council.
The proposed redevelopment will be 48 storeys high, and ¬include nine floors of club space, a 100 room hotel and around 250 residential apartments.
$612m Seven share raising
SEVEN West is hoping to take a big chunk out of its $1 billion debt pile by issuing up to $612 million worth of new shares to investors.
Kerry Stokes’ media group, which owns the Seven TV network, West Australian newspaper and various magazines, will offer investors shares at $1.25 apiece.
Investment bank UBS has agreed to underwrite $150 million of the offer, which Seven West hopes will raise up to $612 million.
The move comes after the company in February unveiled a $994 million first-half loss.
The timing of the capital ¬raising helps ensure Seven has a much cleaner balance sheet ahead of any changes to media ¬ownership rules.
Storms to hit profits hard
WILD storms in NSW are to cost Insurance Australia Group $300 million.
The insurer behind NRMA Insurance and CGU expects to take a $250 million hit as it pays out claims to those affected by last week’s storms.
And it expects to pay out another $50 million as a result of the hailstorm that hit Sydney on the weekend.
Meanwhile, IAG has revealed the cost of claims from Tropical Cyclone Marcia, which hit Queensland in February, are set to be double what it expected.
IAG had expected the cyclone to cost it between $60 million and $90 million but now says the bill is likely to run to around $140 million.
The storms have helped blow out the amount IAG expects to pay in natural peril claims this year from $700 million to $1 billion, which is a blow to its full year profit.
New bid for Recall Holdings
RECALL Holdings has recommended shareholders accept a $2.7 billion takeover offer that would bring the data management’s short tenure as a stand-alone company to an end.
The company, which was spun out from Brambles in December 2013, is set to be taken over by US logistics giant Iron Mountain under a deal that will see shareholders receive 0.17 Iron Mountain shares for every Recall share they own or a cash payment of $8.50 per share.
Recall last year rejected a $2.2 billion offer from Iron Mountain.
Bleak outlook feeds into trade
BANK stocks were hit hard yesterday as the sharemarket fell almost two per cent amid a changing outlook for official interest rates.
At close of trade the benchmark S&P/ASX200 index was 109.9 points, or 1.85 per cent, lower at 5838.6, while the broader All Ordinaries index was down 103.3 points, or 1.74 per cent, at 5818.2.
“With recent domestic economic data surprising to the upside, and the mini revival in the price of iron ore, the probability of an interest-rate cut next month has diminished to now be less than 50:50,” said CMC Markets sales trader Will Leys.
Financials pushed 2.29 per cent lower collectively. ANZ lost 1.86 per cent to $34.75, Commonwealth Bank retreated 2.17 per cent to $90.57, NAB lost 2.4 per cent to $37.46 and Westpac shed 2.58 per cent to $37.40.
IAG tumbled 4.07 per cent to $5.65 after cutting its full-year insurance margin guidance following storms in NSW last week and an increased estimate for cyclone damage earlier in the year.
Healthcare stocks lost 2.62 per cent. ResMed shed 1.35 per cent to $8.02, while CSL gave up 2.91 per cent to $91.00.
Consumer staples gave up 1.19 per cent. Woolworths lost 1.95 per cent to close at $29.22, while Wesfarmers lost 0.35 per cent to finish at $43.00.
Energy stocks also fell, giving up 1.31 per cent. Oil Search retreated 2.18 per cent to $8.07. Santos slipped 0.24 per cent to $8.28, while Woodside Petroleum gave up 1.1 per cent to $35.19.
Overnight, the iron ore price strung together its ninth consecutive positive session, lifting to $US59.20 a tonne.
Mining giant BHP Billiton dropped 1.17 per cent to $32.04, while Rio Tinto lost 1.84 per cent to $57.71.