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Businesses miss out on resources boom benefits

Wednesday, 09 May 2012
By Print 21 Online Article
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The fifth budget delivered by Treasurer Wayne Swan this week was promoted as a budget suitable for the prevailing economic times. Returning the budget to surplus is viewed as appropriate given the strong economic fundamentals and an economy that is expected to return to trend growth.

Printing Industries’  National Manager Policy and Government Affairs,  Hagop Tchamkertenian (pictured), said that despite a $150 billion reduction in revenue in the five years to 2012-13 since the GFC, the 2012-13 budget unveiled by the Treasurer forecasts a $1.5 billion surplus during 2012-13.

“But the budget outcome for the current financial year is now expected to be a significantly larger deficit of $44.4 billion. The savings made to the budget bottom line amounts to $34 billion or nine per cent of total government expenses,” he said.

“The Government hopes that by returning the budget to a surplus it will provide a buffer against future economic uncertainty and provide flexibility for monetary policy to respond to economic developments.

“The fiscal consolidation of three per cent of GDP represents some risk if economic growth comes in at below trend. It could even be argued that given the patchy economy, the Government’s commitment to delivering a budget surplus may prove to be sub-optimal policy,” he said.

Tchamkertenian said that the  economy was forecast to expand by 3.25 per cent during financial year 2012-13.

“Despite anticipated stronger growth, the budget predicts that the unemployment rate will rise to 5.5 per cent as sectors not servicing the resources sector are expected to continue shedding jobs. Inflation is also expected to rise to 3.25 per cent due to stronger economic growth and the introduction of the Carbon Tax.

“With one eye firmly on the next election, the 2012-13 budget also represents a typical “Labor budget” with assistance to low and middle income households forming part of a multi-billion dollar package designed to spread the benefits of the resources boom,” he said.

Tchamkertenian believes that if the Australian economy returns to trend growth as is being forecast by the budget papers, then that should provide some positives for the printing industry.

“However, while traditionally the industry has benefited from strong rates of economic growth, the structural changes facing it means that the correlation between general economic growth and printing industry growth is not as strong as it used to be.

“Paradoxically, household consumption, a key driver of economic activity in the printing industry, is forecast to weaken from 3.25 per cent to 3.00 per cent over the next two financial years,” he said.

The printing industry would also face challenges given the anticipated rise in inflation and stronger wage growth, said Tchamkertenian. Hebelieves it may receive some relief from rising levels of unemployment, which may partially offset some of the skills shortages being experienced by segments of the industry.

Key policy measures

Specific measures announced in the budget that can have a positive impact on the printing industry include:

  • Modest tax cuts arising out of the tripling of the tax free threshold from $6,000 to $18,200 may provide some limited stimulus to economic activity.
  • The Government will introduce loss carry‑back to support businesses to return to profit. From 2012‑13, companies will be able to carry back tax losses of up to $1 million so they get a refund against tax previously paid. From 2013‑14 companies will be able to carry back tax losses for two years. This provides a tax benefit of up to $300,000 per year.

“For example, a printing business makes a profit in 2011‑12 and pays $300,000 tax but in the following year it records a loss due to depreciation on new investment; they qualify for loss carry-back and are able to get up to $300,000 back,” Tchamkertenian said.

“The Government hopes that this will help companies to finance the investments, training and restructuring that is needed to improve their competitiveness,” he said. “More than 110,000 companies are estimated to benefit from the loss-carry back provisions, potentially including several hundred printing companies.”

In other parts of the Budget:

  • The planned reduction in the corporate tax rate from 30 per cent to 29 per cent has been axed.
  • From 1 July this year, all small businesses—whether they are run by sole traders, partnerships, trusts or through companies with turnover of less than $2 million—will be able to immediately write off each eligible business asset they buy costing less than $6,500 per asset.
  • Assets costing $6,500 or more will be depreciated in a single pool at 30 per cent (15 per cent in the first year).
  • Small businesses will also be able to claim up to $5,000 as an immediate deduction for new or used motor vehicles acquired from 1 July.
  • Funding to implement the e-Health agenda will impact printing businesses operating in this space.
  • Recently qualified tradespeople who want to set up their own business will be eligible for up to $5,000 in business skills training. Printing Industries will discuss this measure with the Government to ensure that it does not result in new businesses being established in areas suffering from excess capacity and low returns.
  • From 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their contributions cut from 30 per cent to 15 per cent.
  • Additional funding will be provided to the Australian Taxation Office (ATO) to manage tax debt. If the extra funding is used efficiently it may help lower the proportion of printing businesses becoming insolvent. There could also likely be a cash flow impact on the printing industry if the ATO reduces its level of tolerance on outstanding tax liabilities.

Tchamkertenian said  that overall the business community did not fare well out of the budget.

“In return for the decision to abandon the company tax cuts worth $4.7 billion, business gets the loss carry back provisions which are worth $714 million over a four year period,” he said. “Based on government estimates, some 750,000 businesses were going to benefit from the company tax cut compared to an estimated 110,000 that are now expected to benefit from the loss carry back provisions. Australia-wide some 640,000 businesses will now miss out on tax relief.”

According to Tchamkertenian, this budget, like previous ones, was essentially full of economic assumptions and forecasts.

“The projected budget surplus does look vulnerable to changing economic circumstances. Even a modest economic event or change in circumstances could wipe out what is clearly a wafer thin budget surplus,” he said.

One Response to “Businesses miss out on resources boom benefits”

  1. May 09, 2012 at 4:47 pm,

    said:

    Planning for a budget surplus, is tantamount to an anouncement that the government intends to over-tax us.
    We all know that they already do, but now they are bragging about it!

    When will they learn the budgeting for a small economy is not the same as budgeting for a household on a fixed income – their target should be zero and the difference in any direction is an absolute measure of how well they govern.

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