Well duh!

There is a story in The Australian this morning described with the word “Exclusive”.

OMG! Sounds serious. But no …

The over-distribution of capital through dividends or share buybacks can be a drain on corporate performance over the longer term, according to provocative analysis by a high-powered international firm backed by the world’s biggest asset managers, including Australia’s Future Fund.

Hardly provocative. I seem to remember that being on the second year Business Finance syllabus in the mid-1980s.

So the story was this – if the management of the firm had positive – NPV projects available to them they should re-invest. If not, they should return capital to shareholders via a tax-advantaged mechanism.

Okay – so fast forward some decades.

Her [FCLT Global chief executive Sarah Williamson] comments come after a chorus of Australian chief executives backed Josh Frydenberg’s call last August for companies to prioritise investment over capital returns, ­lamenting the growing pressure on boards to deliver short-term ­results.

Chief executives such as Macquarie Group’s Shemara Wikramanayake, Wesfarmers’ Rob Scott and Seek’s Andrew Bassat backed the Treasurer’s call for business to make productivity-boosting investments rather than returning cash to shareholders in buybacks or special dividends.

Josh, maaaate, there are good reasons why Australian corporates are choosing to return capital to shareholders and not make “productivity-boosting investments”.

The Australian corporate tax rate is too high. The top marginal personal tax rate in Australia is too high. Red tape to too constricting. Electricity prices are too high. Corporate regulators are both arrogant and unaccountable to anyone.

All of these things Josh – all of them – are policy choices within your control.  So rather than bitching that people respond rationally to the very incentive structures that you control maybe, just maybe, you can get off your bum and do something about it.

Cut taxes.

Cut red tape.

Cut green tape.

Bring regulators under democratic control.

Take some responsibility for the policy choices you make.

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17 Responses to Well duh!

  1. RobK

    Indeed.
    Returning capital to shareholders doesn’t destroy it.

  2. TPL001

    Go Sinclair! Cut; cut and cut. Amen.

    And of course, the search for yield, in this alien landscape of close to zero interest rates, is enough of an impetus for them to payout more than they would otherwise.

  3. David Brewer

    Cut taxes
    Cut red tape.
    Cut green tape.
    Bring regulators under democratic control.

    Quite. And do it now before Albo and his mates get in and decide that they can find lots of uneconomic but vote-grabbing uses for this “idle” capital.

  4. Confused Old Misfit

    Cut taxes
    Cut red tape.
    Cut green tape.
    Bring regulators under democratic control.

    We know it works.
    Just ask an American.

  5. Robber Baron

    Cut taxes. Yes, but he will remove allowable deductions to off-set the revenue reduction

    Cut red tape. No, he won’t

    Cut green tape. No, he won’t

    Bring regulators under democratic control. No, he won’t

    Take some responsibility for the policy choices you make. Never, ever

    Josh is slippery. Never to be trusted. Never to be believed. Never to be given power.

  6. Roger

    Cut taxes
    Cut red tape.
    Cut green tape.
    Bring regulators under democratic control.

    Advice “Josh” will never receive from his public service advisers.

  7. The BigBlueCat

    I wonder how many investors really want their CEO’s to reinvest their company’s EBITDA rather than distribute it as earnings. Some projects are riskier than others, and there are many investors who rely on dividend cash flow. If a company is performing well and they have some good projects that need funding, the company can always issue a prospectus for a share issue, and then the investor can decide whether or not they wish to participate.

    Capital returns versus reinvestment is a company’s policy decision, and while the government might well lament the former rather than the latter, basically what a company does with its capital is up to the board of directors.

  8. Squirrel

    “…..according to provocative analysis by a high-powered international firm…..”

    Beyond satire.

    Anyway, it’s all OK, PM-in-waiting Albo will have the mother-of-all spend-ups to lead the planet in the fight against climate change, and that will get our world-beating businesses investing like crazy…..

  9. Spurgeon Monkfish III

    Cut taxes.
    Cut red tape.
    Cut green tape.
    Bring regulators under democratic control.
    Take some responsibility for the policy choices you make.

    Noooooommmmmmmmm

  10. Allen

    Woolworths invest in Masters Hardware
    Westfarmers invest in Bunnings UK
    Onesteel invest anywhere
    And so on

  11. Bruce of Newcastle

    So the story was this – if the management of the firm had positive – NPV projects available to them they should re-invest. If not, they should return capital to shareholders via a tax-advantaged mechanism.

    Exactly why companies have been returning capital.
    In this business environment of humungous red, green and black tape, taxes on top of taxes, and sky high sovereign risk from Canberra, state government bureaucracies and politicians of all stripes, SJW activists and qangos like ACCC and the suddenly very aggressive ASIC, is it any wonder there are no projects with a positive risked-NPV?
    Give it back guys, don’t waste it on stupid money-losing vanity projects.
    We the shareholders are the owners.
    It’s our money.

  12. Russell

    Sadly, it does look like Josh is another Turnbull-like elitist.
    How do we drain this swamp when it keeps filling with more red/green water?
    Why isn’t this the same as landlords being told they should lower their rents and invest more in the property?
    Investments should only be made when positive NPV – anything else is just crooked management.
    And proper Oz business NPVs are only possible in Mining that has a dark shadow at the mo.
    Health and Education have been stuffed for a while and unlikely to recover for 20 years.
    Yep – Josh must be part of the problem rather part of the solution.

  13. Art Vandelay

    All of these things Josh – all of them – are policy choices within your control. So rather than bitching that people respond rationally to the very incentive structures that you control maybe, just maybe, you can get off your bum and do something about it.

    When Frydenberg was the Minister for Deregulation under Abbott, he did absolutely no deregulating. He isn’t about to start now.

  14. RobK

    It’s our money.
    That volume of capital under superannuation bondage is compromised.

  15. Mother Lode

    Josh has the political myopia: he thinks the entire private sector is there to make them look good.

    The same thinking that has them bleed the private sector white and leave it gasping just so they can show they have balanced the governments books while they stand there waiting to be congratulated with the astonished joyful grin of an applauded tard.

  16. Bruce O’Newk:

    In this business environment of humungous red, green and black tape, taxes on top of taxes, and sky high sovereign risk from Canberra, state government bureaucracies and politicians of all stripes, SJW activists and qangos like ACCC and the suddenly very aggressive ASIC, is it any wonder there are no projects with a positive risked-NPV?

    Most of our Lords and Masters are in thrall to their egos. They live in a world where pushing and pulling on the levers of government will deliver the output they think they are putting in.
    Unfortunately, they don’t have a bloody clue as to why the problems keep coming back or remain insoluble.
    Well, I can tell them why.
    The reason the problems keep coming back is because our L&M are nowhere near as bloody clever as they have convinced themselves they are.
    It’s like falling over when you’re half cut – you do more damage if you don’t relax and let the more powerful force (gravity) take over.
    Markets work the same way.

  17. Iampeter

    What about expenses in general? They sure cut into profits!
    Not sure why the focus is just on dividend drain…

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