The long and wind­ing fi­nan­cial road

Three months af­ter the budget and the enor­mous amount of con­tin­ued ire di­rected at the federal govern­ment, Busi­ness First takes a look at what the ex­perts have had to say.

Business First - - CONTENTS -

Like any budget there are pos­i­tives and neg­a­tives, win­ners and losers and the odd protest. Ac­cord­ing to Ken Raiss, man­ag­ing di­rec­tor at Chan & Nay­lor the budget places a dis­pro­por­tion­ate bur­den on mid­dle Aus­tralia who will strug­gle un­der the com­pound ef­fect of in­creased rev­enue gen­er­at­ing costs pro­posed by the Govern­ment.

“Mid­dle Aus­tralia and to a lesser ex­tent Aus­tralian se­niors are the losers from to­day’s Budget, and this may well have a likely knock-on ef­fect on dis­cre­tionary con­sumer spend­ing at a time when the Aus­tralian econ­omy needs a boost,” Raiss says.

“Like a fam­ily budget, an econ­omy can only sur­vive if it spends less than what it earns, thus al­low­ing sav­ings to be rein­vested and over time built into in­come gen­er­at­ing as­sets. The Govern­ment’s fo­cus on rev­enue gen­er­a­tion rather than ex­pen­di­ture cuts may there­fore neg­a­tively tilt the econ­omy.”

With the pen­sion age now con­firmed as 70 from 2035 on­wards, Mr. Raiss be­lieves that there are many mid­dle-aged Aus­tralians in lower paid jobs or tran­si­tion­ing in­dus­tries such as man­u­fac­tur­ing who will now be feel­ing un­com­fort­able about their re­tire­ment fu­ture.

“Build­ing suf­fi­cient funds for a com­fort­able re­tire­ment over the next 20 years may be chal­leng­ing for this group, par­tic­u­larly in view of the in­creas­ing costs as­so­ci­ated with Medi­care, petrol as well as fam­ily ben­e­fit cuts.”

This will be fur­ther ex­ac­er­bated by the ‘smoke and mir­rors’ ef­fect of the 1.5% re­duc­tion in cor­po­rate tax rate, which Mr. Raiss says will re­sult in lower tax cred­its be­ing re­turned to su­per funds. Small busi­ness own­ers will also be no bet­ter off.

“Those that do pay less cor­po­rate tax will have this ben­e­fit off­set by the in­crease paid in mar­ginal tax, and the two thirds of Aus­tralian small businesses who are not in a com­pany struc­ture will be dis­ad­van­taged in re­la­tion to their profit rein­vest­ment strat­egy.”

A pos­i­tive for the Chan & Nay­lor MD is the com­mit­ment to in­fra­struc­ture ex­pressed by the govern­ment.

“This form of in­vest­ment will help re­duce un­em­ploy­ment and boost long-term pro­duc­tiv­ity at a time when the re­sources boom is giv­ing way to the con­struc­tion boom with the added ben­e­fit that ex­pen­di­ture is in Aus­tralia’s con­trol un­like the re­sources boom.”

Con­trary to pop­u­lar opin­ion, Mr Raiss sup­ports the changes to ter­tiary fund­ing.

“The broader fo­cus on diplo­mas and trade based ed­u­ca­tion is vi­tal as the econ­omy needs all of the skilled people it can.”

“Med­i­cal re­search is tra­di­tion­ally the do­main of the pri­vate sec­tor where sig­nif­i­cantly higher sums are in­vested, so it is hard to see this ini­tia­tive as any­thing more than a to­ken legacy un­less a ma­jor profit gen­er­at­ing break­through is made ahead of other in­ter­na­tional play­ers,” said Mr. Raiss.

Alex Parsons is CEO of Rate­City. Parsons be­lieves a neg­a­tive im­pact on dis­pos­able in­come will oc­cur. He be­lieves people need to start im­ple­ment­ing change to al­le­vi­ate fi­nan­cial pres­sures.

“It’s very dif­fi­cult to in­crease your in­come and so the eas­i­est thing to do is look at your ex­penses and one way to do that is re­ally look at your per­sonal fi­nances and try to de­crease your ex­penses in that area.”

While this was sup­posed to be a no tax budget, there are cer­tainly taxes, or levies, call them what you will, that have been im­ple­mented. As for the deficit levy, Parsons says, “De­spite the pre-elec­tion mantra of ‘no new taxes’, the Govern­ment has in­deed come out, as ex­pected, and de­liv­ered a new tax by way of the deficit levy, which aims at

in­creas­ing tax rev­enue from the high­est paid Aus­tralians.

“This of course could have a neg­a­tive im­pact on spend­ing across the Aus­tralian econ­omy, so this is some­thing we re­ally want to be care­ful about.”

Parsons be­lieves a sim­i­lar im­pact will be felt with the fuel tax and re­tire­ment age in­crease.

“On one hand, there will be fewer aged pen­sions and more in­come tax. On the other hand, it will be very dif­fi­cult for some work­ers to work un­til 70-years-old. If you think of a brick layer, or if you think of any man­ual labourer, 70 is get­ting quite old these days.”

One pos­i­tive take has come from Keiran McIl­wain, Head of Tech­ni­cal and De­vel­op­ment at MLC who wel­comed changes to the Su­per­an­nu­a­tion Ex­cess Con­tri­bu­tions Tax rules which he says has pe­nalised in­vestors for go­ing over their con­tri­bu­tion caps.

“This is good news for many people, par­tic­u­larly Aus­tralia’s 5.5 mil­lion Baby Boomers try­ing to in­vest as much as they can into su­per to take ad­van­tage of tax free ben­e­fits af­ter the age of 60.

“The re­moval of the tax will mean they are no longer pe­nalised at a rate of 46.5 per cent. In­stead they’ll have the op­tion of with­draw­ing these su­per­an­nu­a­tion con­tri­bu­tions, with earn­ings taxed at their mar­ginal tax rate.

“The irony was that on the one hand Aus­tralians were be­ing en­cour­aged to save and in­vest in their su­per, and then pe­nalised for in­vest­ing too much. We have a $1 tril­lion su­per­an­nu­a­tion sav­ings gap; a sim­pler, fairer sys­tem should in some way help to bridge that gap.

“From a busi­ness’ per­spec­tive, the re­moval of this tax will re­duce a lot of time and re­sources spent on the ad­min­is­tra­tion.”

As for small busi­ness, for Tim Reed, MYOB CEO says that in­no­va­tion and mak­ing the most of on­line tech­nolo­gies to help boost their pro­duc­tiv­ity, is some­thing they should con­sider for the sake of busi­ness per­for­mance and their con­fi­dence in the econ­omy.

“Fol­low­ing the hand­ing down of the budget, it can be tempt­ing for busi­ness own­ers to bunker down, play it safe and post­pone their plans for growth. There are still op­por­tu­ni­ties to be had for SMEs.

“I’m pleased the govern­ment has set a tar­get of re­duc­ing reg­u­la­tory com­pli­ance costs on businesses, in­di­vid­u­als and the com­mu­nity by $1 bil­lion ev­ery year. Busi­ness own­ers and man­agers will con­tinue to call for tax re­form, dereg­u­la­tion and re­duc­tion of red tape – our lat­est SME re­search shows GST and BAS sim­pli­fi­ca­tion con­tinue to top the list of ini­tia­tives they hope to see. We call on the govern­ment to keep tax re­form on the agenda and to con­sider broad­en­ing the GST to not only ad­dress the needs of health and ed­u­ca­tion spend­ing but to also ease the bur­den of com­plet­ing a BAS on Aus­tralia’s two mil­lion businesses.

“With the re­tire­ment age set to in­crease to 70 by 2035, small busi­ness stands to gain the most from tak­ing up a new $10,000 in­cen­tive pay­ment en­cour­ag­ing em­ploy­ers to hire over 50s. We en­cour­age small and medium businesses to keep this in mind as they hire and in­stall a new step in their hir­ing process to en­sure they cap­ture this ben­e­fit when­ever they meet the nec­es­sary cri­te­ria.

“I hope the rise in the fuel ex­cise rate does lead to in­creased in­vest­ment in roads in­clud­ing high­ways and rail in our cities and re­gions, to help ease the pres­sure of ris­ing fuel prices. Fuel price was once again the top pres­sure point for SMEs this year, and has been since 2011. This change is likely to be the least pop­u­lar part of the budget with SMEs, par­tic­u­larly so with cer­tain sec­tors that will feel more pain – our lat­est re­search shows agribusi­ness and Western Aus­tralian-based businesses felt the most pres­sure from ris­ing fuel prices. 61% of SMEs would wel­come in­vest­ment in trans­port in­fra­struc­ture in our ma­jor states and cities. Adopt­ing on­line and tele­work­ing tech­nolo­gies can also help ease the pres­sure by en­abling busi­ness oper­a­tors to op­er­ate from home or any lo­ca­tion out­side of the of­fice.

“Plans to fa­cil­i­tate in­no­va­tion and self‑re­liance via a new En­trepreneurs’ In­fra­struc­ture Pro­gramme will be well-re­ceived by SMEs. Our re­search shows more than half of SMEs would sup­port in­creased govern­ment fund­ing for in­no­va­tion, R&D and train­ing on how to use the in­ter­net to grow their busi­ness. The ben­e­fits of on­line tech­nolo­gies in­clude the abil­ity to com­pete on a more level play­ing field with lo­cal and global ri­vals, in­creased pro­duc­tiv­ity and less time spent on busi­ness ad­min­is­tra­tion. This means more time for grow­ing the busi­ness, which has the po­ten­tial to make a dif­fer­ence to our econ­omy.

“Fur­ther sup­port for small busi­ness in­clude cre­at­ing a spe­cialised unit to help small businesses gain bet­ter ac­cess to govern­ment con­tracts, which is sup­ported by half of the SMEs we sur­veyed. We strongly en­cour­age as­sist­ing SMEs to gain ac­cess to govern­ment con­tracts and also en­cour­age SMEs to take up these op­por­tu­ni­ties.

“Small busi­ness will feel re­as­sured that the budget has been put on a sound foot­ing for the medium term. While noone likes tax in­creases, and a num­ber of con­sumers will likely feel the pinch, and this may con­strain spend­ing, past be­hav­iour in­di­cates there is a chance that Aus­tralians will be­lieve the worst is be­hind them and that eco­nomic growth will con­tinue un­abated – ful­fill­ing the ris­ing busi­ness con­fi­dence that re­cent sur­veys have shown.”

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