24 October 2012
Tax shuffle will cause grief, say employers
The Australian
AN angry business community has rounded on the Gillard government's strategy of slugging business to fill the budget shortfall, warning the move threatens to shackle growth, increase perceptions of sovereign risk and add to the woes of the struggling manufacturing sector.
As companies were yesterday poring over the implications of the government's surprise announcement that will raise $8.3 billion across the next three years by forcing large businesses to pay tax earlier, former BHP Billiton chairman and former National Australia Bank chief executive Don Argus urged the government to apply a "corporate perspective" to running the economy.
"If the expenses exceed your income then you've got grief ahead and that's where the budget is," Mr Argus said.
"You can play around with numbers and do creative accounting adjustments but . . . if we don't start to look at what our forward position is, then we will have grief because the world is on a knife edge."
Manufacturing Australia executive chairman and former Reserve Bank of Australia board member Dick Warburton said the tax move would be a problem for manufacturers.
"It would certainly affect cashflow and right now manufacturing needs as few impediments as possible to at least retain some form of best practice. That is just another impost. It will be a problem, particularly in relation to cashflow," he said. "We are trying to reduce every impediment we can over and above overseas wages and the high exchange rate. And I repeat again, this is just one more impediment."
Top executives and directors lined up to warn against the move to force them to pay company tax in monthly rather than quarterly instalments.
Aussie Home Loans chairman John Symond said the move was "a cheating in the maths", Myer chief executive Bernie Brookes said the change would cost his company about $1 million a year in extra interest costs and Woolworths chief executive Grant O'Brien said it would be an additional cost.
Adelaide Brighton Cement boss Mark Chellew said he was cynical about the exercise and it would cost his company in interest payments and an administrative burden, while AGL Energy's managing director Michael Fraser said it would add to concerns about the levels of sovereign risk in Australia and "quite frankly, that spooks investors".
The former chairman and founder of the Queensland Gas Company, Bob Bryan, said the move "doesn't sound like an expenditure saving to me; that sounds like spin".
Mr Argus said yesterday he did not want to comment on the specifics of Monday's mid-year budget update, but he told the QUT Business Leaders Forum in Brisbane that "if you apply a corporate perspective to the budget, and if your expenses exceed your revenue, then you've got grief ahead or you've got hard work ahead".
The government's move blind-sided companies, which had feared that it would instead target multi-billion-dollar tax concessions identified through the business tax working group process.
Under the change, about two months' worth of tax instalments for the June quarter, which would have been paid on July 21, will be pulled into the previous financial year. In 2013-14, about $5.5bn will be pulled forward, double the forecast surplus of $2.2bn.
Julia Gillard yesterday played down negativity about the budget review while last night the office of Wayne Swan defended the tax measures. "This reform will better align company tax payments with monthly GST payments and will make the tax system more responsive and efficient, better matching tax collections with the economic conditions faced by businesses," the Treasurer's spokesman said.
"The changes will not commence for 14 months for the biggest companies, with a starting date up to two years later for smaller companies, allowing for extensive consultations with the business community about implementation and time for companies to prepare."
ACCI director of economics and industry policy Greg Evans said the change would be "more difficult for vulnerable sectors already facing poor trading conditions, most notably manufacturing industries, which are dealing with exchange rate pressures, a mixed demand outlook and much higher energy prices".
"An additional and entirely unexpected impost on their cash flow will heighten competitiveness and employment concerns in a sector which is already shedding labour," he said.
"It's difficult to believe the government has properly thought this through, yet it could not have been given any clearer indication of the profitability problems facing many businesses in the mainstream economy."
Another executive said: "You have to have taxable income in (the) first place. Not all manufacturers do."
Some companies said they were yet to work out the full impact on their operations. Toyota Australia spokeswoman Beck Angel said: "The introuction of monthly income tax payments will increase Toyota's administrative burden. However, until we are informed of the details of the change, we will not know the full impact."
The situation has sharpened warnings about the sovereign risks involved in investing in Australia, which were thrown into stark relief by the debates over Labor's carbon and mining taxes.
Mr Fraser said there was already a concern about sovereign risk and "the constant changing of the rules that we have".
"Quite frankly, that spooks investors, be they Australian companies, be they foreign investors looking to invest in companies that operate in this part of the world," he said. "Yes, it will have an impact upon working capital, but it just adds to that lack of stability in terms of the investment settings, the policy settings we've got in the country."
Mr Symond said the government should have rolled out wider tax reform to make Australia more productive and reduce the red-tape burden on businesses. "This is going to put pressure on businesses, it's a cheating in the maths. This is not going to increase revenue, it is just pressuring businesses to basically pre-pay their tax."
Mr Brookes said the move would mean a shift of funds from companies to the government's coffers and the government should cut back its spending if it wanted to balance its budget, and not increase taxes.