Table Australian regulators' approaches to the value of imputation credits Regulator Form of adoption Year Distribution rate Utilisation rate Value of imputation credits ESC Price review, greater metropolitan water businesses, final decision 2013 N/A N/A 0.5, based on 2011 guidance QCA Cost of capital market parameters, final decision 2014 0.84, using the financial statements of 20 largest ASX-listed companies 0.56, based primarily on the domestic ownership share of listed equity 0.47 ACCC Fixed line services (telecommunications), final access decision 2011 N/A N/A 0.45, chosen from within the range of possible estimates and with regard to a wide range of evidence, including industry specific factors ERA Review of rate of return estimation for rail networks, draft determination 2014 0.7, using cumulative payout ratio approach 0.35 to 0.55, using SFG and ERA dividend drop off studies 0.3, chosen from within the range of 0.25 to 0.385 IPART Review of imputation credits, final decision 2012 0.7, using cumulative payout ratio approach 0.35, using SFG dividend drop off study 0.25 Source: As specified in table. As noted above, conceptually, the value of imputation credits must be between 0 and 1. The range of values adopted by Australian regulators is from 0.25 to 0.5. This range is narrower than the range of estimates recommended by experts (from 0.25 to 0.84), but it is still quite wide. This highlights the lack of consensus among regulators on the value of imputation credits. Given the lack of consensus among experts, this is perhaps not surprising. Our draft decision value of imputation credits of 0.4 sits within the range adopted by regulators.
In the Guideline, we considered that the equity ownership approach supported a utilisation rate between 0.7 and 0.8. This range was based on: A 2007 feature article by the ABS, in which it was estimated using data from the National Accounts that domestic investors held 71 per cent of Australian equity. A graph in a September 2013 report by Hathaway, which suggested that the domestic ownership share of Australian equity had fluctuated between 75 and 81 per cent over the period 1988 to 2012. The data underlying this graph also came from the National Accounts. Since the Guideline's publication, we have examined more closely the relevant data from the National Accounts. This has allowed us to update and refine our estimates. Moreover, we now express estimates for both all equity and listed equity only, consistent with the approach set out in section A.8.1. Figure 4.2 shows the domestic ownership share of Australian equity on an end-quarter basis between June 1988 and June 2014. Although somewhat variable from quarter to quarter, the share has declined from above 80 per cent in 1988 to around 70 per cent in recent years. The domestic ownership share has been calculated as one minus the share of Australian equity held by the 'rest of world', with unlisted equity issued by 'rest of world' excluded. This calculation methodology is consistent with that employed by the ABS in its 2007 feature article. Figure Domestic ownership share of listed and unlisted Australian equity Source: Australian National Accounts: Financial Accounts (ABS cat. 5232.0), tables 32 and 33. We have considered also the domestic ownership share of just listed equity. Figure 4.3 shows the domestic ownership share of just listed Australian equity. This share has not exhibited a strong trend over time, and has varied mainly between 50 and 65 per cent. Since 2009, the share has tended to remain within the slightly narrower range of 50 to 60 per cent. Figure Domestic ownership share of listed Australian equity Source: Australian National Accounts: Financial Accounts (ABS cat. 5232.0), table 32.
the imputation credit. In this situation, the study typically reports the combined value of the cash dividend and imputation credit together. The minimum value for the imputation credit component of this package will arise if the cash dividend is fully valued, and these estimates are presented in the 'notes' column. Table Estimates of the utilisation rate from dividend drop off studies Authors Pre-2000 results Post-2000 results Notes Dividend drop off study Vo et al (2013) 0.35–0.55 (2001–2012) Range derived from large number of permutations and sensitivity tests. SFG (2013a) 0.35 (2001–2012) Author's point estimate across a number of different regression forms. SFG (2011) 0.35 (2001–2010) Minney (2010) 0.39 (2001–2009) Average of results from 2001–2005 and 2006–2009 sub-periods. For the most recent sub-period (2006–2009), utilisation rate is 0.53. Beggs and Skeels (2006) 0.20 (1992–1997) 0.57 (2001–2004) Several other pre-2000 periods are presented. Hathaway and Officer (2004) 0.49 (1986–2004) Authors suggest that estimate has increased post-2000. Bellamy and Gray (2004) 0.36 (1995–2002) Range of 0.0–0.60 is also presented. Bruckner et al (1994) 0.69 (1991–1993) Also present an earlier period (1987–1990). Brown and Clarke (1993) 0.80 (1988–1991) Source: As specified in table.