Adele Ferguson Business columnist May 14, 2013
Budget tough on business
Businesses are hard hit in the federal budget with cut backs on interest, exporation deductions and toughening thin capitalisation rules, says business columnist Malcolm Maiden.
If politician Benjamin Disraeli was alive today and reading the 2013 federal budget, he might well have revised the third part of his saying from: "There are three kinds of lies: lies, damned lies, and statistics" to damned budgets – particularly government budgets posted weeks before an election.
The brutal reality is Treasurer Wayne Swan's “stronger economy, smarter nation, fairer society” 2013 budget is predicated on politics rather than economics and that means the numbers have been bent to fit the spin.
This is clearly demonstrated by its $24 billion infrastructure spending pledge, which Swan pitches as a key to boosting productivity, building capacity, relieving congestion (which will cost the economy $20 billion by 2020 if not addressed) and improving the quality of life.
Swan says: "That's why we have committed more to urban public transport infrastructure than all our predecessors since Federation combined”. What he doesn't say is the headline $24 billion emanates from the nation-building program, which has become available since the last one expired this year, and it is a massive 33 per cent lower than the last one.
In addition, the key projects have strings attached. For instance, a promise to allocate $1.8 billion to Sydney's $8 billion M4 and M5 road extensions project on the condition there are no tolls. This means the project has $8 billion in unfunded conditions that sit on it, which makes the economics of the project tricky, given that the private sector's interest would rest on its earning revenue through tolls.
Given the state of the NSW budget, this is a big ask, but politically it looks better than the Coalition's offer of $1.5 billion to build the extensions, with tolls attached.
In Victoria it has allocated $3 billion to build the $8 billion Melbourne metro project, which consists of a nine-kilometre underground railway from west of South Kensington to east of South Yarra. The condition is that Victoria has to match its $3 billion equally, which is in doubt given it is keen to keep its credit rating.
New infrastructure spending in 2013-14 adds up to $559 million, dropping to $467 million in 2014-15.
If this year's budget was designed to restore some of the government's diminished credibility, it failed. If it was designed to wedge the Coalition, it fared somewhat better.
Either way, like all Swan's previous budgets, this one was always going to be taken with a pinch of salt, given the number of times budget estimates and forecasts have changed due to changes in revenue sensitivities.
On Tuesday night the government delivered an $18 billion deficit for 2013-14 as tax receipts fell $17 billion.
Over the four years it forecasts a $60 billion revenue shortfall. According to the papers, company tax was the single biggest contributor to the writedowns. Lower than expected capital gains and mining taxes compounded the fall in company tax receipts.
But if the dollar remains high, the revenue shortfall could rise to more than $150 billion over that period.
If the polls are anything to go by, the chances of this budget or most of its individual announcements being implemented are low.
The government also hasn't learnt from previous mistakes in terms of using overly optimistic forecasts to help tart up its revenue estimates. For instance, an original forecast carbon price of $29 a tonne came unstuck in this budget and has been revised down to $12 a tonne, cutting $2.5 billion from its revenue. But at $12 a tonne it could be argued it is still too high, given that it recently traded at a third of that price. It is a similar story for its mining tax, which has been revised down from an original revenue estimate of $2 billion in 2013, to $800 million, to the latest revision of $200 million.
In a bid to fill the revenue shortfall caused largely by dwindling tax collections, the government has gone softly in an election year and targeted multinational companies to raise more than $4 billion in extra taxes over the forward estimates period. It intends to do this by changing the “thin capitalisation” rules, clamping down on transfer pricing, closing a loophole to stamp out dividend washing, addressing non-resident CGT arrangements, concessions for mining exploration expenditure and the offshore banking unit regime.
But its actions won't be enough and it is a matter of time before more significant policies are introduced to tackle the problem. The quickest way to do this is to tackle personal taxes, change capital gains tax or target company taxes. But in an election year, both sides of politics will steer clear of anything meaningful and will instead tinker around the edges.
The most useful thing about this document is the size of the revenue slippage over the forward estimates. It is these figures that will give the investment community an idea of where interest rates and the dollar are heading along with the severity of future policies for raising revenue and reducing costs.
