29 September 2020

The University of New England’s Michael William Blissenden has a proposal for more effectively penalising corporate crooks — hit them in the franking credits: “Westpac’s record A$1.3 billion fine for breaching anti-money-laundering laws … didn’t bother the market. Westpac’s share price ended the week 7% higher. … If the biggest fine in Australian corporate history doesn’t make a difference to a company’s share price, it’s hard to see how that fine serves as a deterrent. … What doesn’t matter to investors won’t matter much to the board either. There could be a way, though, to use the tax system to give corporate fines more bite, by making shareholders feel more of the pain. … Franking credits on dividends allow shareholders to cut their tax bills… Where a company has not followed the rules relating to franking credits, the tax office can debit the company’s franking account, leaving less to distribute to shareholders as tax credits.  A similar mechanism could be used to impose fines. Instead of the company writing a cheque, the government would debit the value of the fine from the bank’s franking account. This would directly affect the bank’s capacity to ‘impute’ tax it has paid on profits. Though the same amount of money imposed as a fine might have little impact on a company’s operations or profits, the loss of franking credits is something shareholders are likely to notice.”