The 2012 federal budget was not disastrous for Australian business – it was a great disappointment. While there were the obvious touch points like the absence of a reduction in the company tax rate and lack of new taxes on the resources industry, business was distressed that in tough times it received no support in favour of vote-winning tactics and wealth redistribution.
There is some solid reasoning for the government’s stance. As KPMG chief executive Geoff Wilson says, there are four structural shifts in the government’s tax base. Capital gains revenues are down as asset prices stagnate or fall, losses across the economy from the global financial crisis have to be carried forward and will affect future revenue streams, the consumption tax is down as households save and revenue increase in boom sectors like mining have yet to flow through in volume.
So, a fiscally conservative government could have justified a tight budget had it applied across the board. However, the largesse handed out to low and middle class earners is akin to the stimulus witnessed during the depth of the financial crisis to ward off recession. The economy is well past that tipping point and it’s hard to see the measures as anything other than vote buying at the expense of the broader economy. Overall the government created a near balanced budget but welfare is up nearly $5 billion.
The government hopes its largesse to selected segments of the economy will be stimulatory – as it was during the financial crisis. For retailers however, the fear is that this relief – like the handouts of 2009 – will bring a brief few months of reprieve followed by another prolonged slump once the cash is spent.
Retail’s concern is easy to understand. Although the overall economy is forecast by government to grow at between 3 per cent to 3.5 per cent over the next few years, it is the mining sector’s growth at 9 per cent that is offsetting the lower 2 per cent growth forecast for the rest of the economy.
Other sectors are also suffering and there’s little incentive for business to invest until the global landscape looks more secure. Europe’s sovereign debt issues remain a pall over the global economy and business wants proof that China can maintain a soft landing, and will not get dragged down by Europe.
PwC says we are in a holding pattern despite expectations Australia will continue to outperform other advanced economies. And it notes the dollar is expected to stay high, keeping pressure on retailers and manufacturers.
Australian Industry Group chief executive Innes Wilcox says business does not believe it is understood by either side of politics: “Australia’s current business tax system is uncompetitive. The share of our GDP paid as business income tax is high and second only to Norway’s among OECD countries. And our 30 per cent company tax rate is well above the OECD average. The disappointment (from no corporate tax cut) is all the greater because this move . . . with the Opposition’s decision not to support the originally proposed tax cut, shows that business tax reform is not being given adequate priority.”
With Australia now a higher cost nation for business and with falling productivity, Innes says something has to give: “What is giving right now can be seen in business closures, job losses and cutbacks in non-mining businesses that compete with imports or [exports].”
These businesses desperately need to invest, innovate and help train their workforces. Business tax reform should be given top priority. At the moment, however, it is a fair way down the pecking order and certainly is not given the priority needed in an increasingly globalised economy.”
KPMG’s Wilcox says the impact of the budget will be felt unevenly across the economy, but he has a more optimistic outlook on what may yet be achieved than many business leaders: “A number of key business issues such as productivity, federal-state relations, regulation and infrastructure remain under discussion and will be the subject of the prime minister’s Economic Forum in June. No doubt business tax reform will be added to the Forum’s agenda. The Business Tax Working Group’s review into the future direction of business taxes will now take on greater importance.”
His view would no doubt be supported by Westpac boss Gail Kelly, who has called on business leaders to put aside animosity towards the government and get some dialogue going.