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.
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. com.au. 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.”