Confidence levels among the biggest companies in Australia have hit their lowest point since the end of 2012, harming plans for investment and medium-term growth.
That’s the diagnosis from National Australia Bank’s quarterly ASX300 business survey, which found confidence among Australia’s biggest corporations fell 13 points to negative 3 in the fourth quarter of 2014, reaching its lowest point in two years.
Big business’s overall confidence is now below its long-run average and is weaker than confidence levels for smaller companies and in the broader economy.

“Business conditions continue to show a patchwork economy,” NAB chief economist, Alan Oster, said.
The outlook on the economic environment worsened too, with business conditions for the top 300 companies falling 3 points, but remaining overall positive, at 8 points for the final quarter of last year.
While the fall in conditions was attributed to a drop in profitability and a weaker trading environment, the business conditions results were still above their long term average, Mr Oster said.
Capital expenditure rose marginally in the fourth quarter, driven by non-mining investment, but there was a “worrying deterioration” in medium-term capital expenditure plans, with planned investment expected to be lower over the next 12 months.
“Big business in Australia is losing confidence, in turn affecting medium-term growth,” Mr Oster said.
Business confidence fell heavily in the mining industry, which has now replaced construction as the least confident sector in the top 300 companies.
Forward orders among the larger firms deteriorated for the second consecutive quarter, which may also indicate subdued domestic demand over the next few months.
The silver lining of the report was the weakening Australian dollar, which may be providing momentum for higher export sales and orders.
ASX300 firms have also increased their stock levels.
This news story is reprinted from www.businessspectator.com.au
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Australia’s GST red tape is among the most complicated in the world, stifling small business and hampering the economy, a new report says.

Software provider MYOB says administering the GST is an extreme burden on small businesses, costing almost $14 billion across the economy and roughly $7,000 per business.

The current system requires business owners to sift through every single transaction and justify any items that did not attract the GST, using one of eight categories to explain why.

With 44 per cent of goods and services not attracting the tax, that’s a lot of extra paperwork, MYOB chief executive Tim Reed says.

The complicated system is stressful for business owners who usually don’t understand why the information is collected, are paranoid about getting fined for using the wrong category, and are not aware the process has no impact on the amount of tax they pay, he said.

The government should either remove exemptions to the GST so all transactions attract the tax, or alternatively, remove the requirement for each transaction to be allocated to one of the various `No GST’ categories, Mr Reed said.

The latter option has no impact on the amount of tax collected, and is how the system works in New Zealand, where small business owners are spending half the amount of time and money on GST compliance, he said.

Sydney hairdresser Penny Martin said GST red tape became so stressful, costly and time consuming that she scaled back her business, closing her salon, letting go of staff and regularly turning down clients so she could earn less than $75,000 and avoid the GST responsibilities.

“I have purposely scaled down my business for that very reason, because it’s all just too much,” Ms Martin told AAP.

“I do not want to cop the GST, I’d rather earn less, go away and do a couple of days teaching a week and say no to customers and not bother, it’s just not worth it.”

An MYOB survey of 1,000 small businesses found 60 per cent would change their vote at the next federal election if the government significantly simplified the GST reporting process.

Governments have been aware of how onerous the system is but are reluctant to touch the “taboo” topic of GST, Mr Reed says.

“Any change to the GST is a very politically sensitive area and therefore, many governments have shied away from even raising the possibility of touching the GST,” he said.

Small Business Minister Bruce Billson said the government was already taking steps to clear the red tape, committing to reduce compliance costs by a billion dollars per year.

The matter was also being considered through the tax review white paper, he said.

“We recognise that excessive red tape and compliance costs gum up the economy and strangulate entrepreneurship and that’s why our conviction is to reduce that where it’s possible,” he told AAP.

This news story is reprinted from www.businessspectator.com.au

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The Henry Tax Review identified 125 taxes within Australia levied by all levels of government. Of those 125 taxes, just 10 taxes raised 90 per cent of all tax revenue. The company tax is the second largest source of revenue to the Commonwealth. This consideration immediately suggests two points:

• The Australian company tax is a successful tax in that it generates substantial revenue.

• The integrity of the company tax is particularly important for public finance purposes.

Yet the public debate seems to suggest that the integrity of the Australian company tax system is compromised. Late last year the Tax Justice Network Australia released a report that suggested widespread tax avoidance, if not outright tax evasion. In particular, it claimed:

• The average effective tax rate of the ASX 200 was 23 per cent, and

• If the ASX 200 were paying tax at the statutory rate an additional $8.4 billion could be raised in company tax revenue.

While these claims were well received in parts of the Fairfax press and the Australian Broadcasting Corporation, Australian Treasury officials testifying at Senate Estimates were nonplussed. Referring to the 23 per cent average effective tax rate, Rob Heferen, executive director of the Treasury Revenue Group, told the Senate, “I must confess I was surprised it was so high”.

That comment in turn suggests two things. First, deviations between average effective tax rates and the statutory rate are not unusual and, more importantly, it is very unlikely that $8.4bn could be raised by increased compliance activity.

In short, there is no fiscal free lunch. If government wants to raise more revenue in taxation, it is going to have raise taxes.

When thinking about Australian company tax, the first thing to understand is that financial accounting is very different from tax accounting. The former communicates information to shareholders while the latter communicates information to taxation authorities. There is far more leeway in how firms communicate to shareholders than there is to the tax authorities.

As such, we expect to see differences between effective tax rates calculated from information contained in annual financial statements and the statutory company tax rate. That difference can be calculated from the ATO Tax Statistics.

This news story is reprinted from www.businessspectator.com.au

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Rupert Murdoch’s News Corporation and Telstra Corporation are lending money to their cashed-up pay TV business Foxtel at 12 per cent, claiming tax deductions on the loan and lending the money back to themselves at an interest rate of zero.

An investigation by Fairfax Media has found this irregular transaction helped the Foxtel Partners reduce their tax in Australia, but the ATO seems to have missed out in taxing the interest income. Both companies have responded by saying they comply with tax laws although neither was prepared to address specific questions on the Foxtel transaction.

The $902 million loan appears even more peculiar in light of its high fixed rate and duration, 15 years, and the fact that Foxtel is highly profitable and does not need to borrow that sort of money. Further, Foxtel has refinanced other loans since the Foxtel Partner’s arrangement was struck in 2012 but not this loan. Debt experts told Fairfax Media that Foxtel – a pay TV monopoly acting under government mandate – should be borrowing at less than 4 per cent, one-third of the 12 per cent rate it is paying its parent companies.

News Corp is no stranger to controversy on the tax front. It was awarded a tax rebate of $880 million in 2013 after winning a case against the Australian Tax Office (ATO) in the Federal Court. The large rebate sparked controversy as the Tax Office elected not to appeal the case at a time when the federal election campaign was in full swing, Murdoch’s newspapers were backing Tony Abbott for prime minister and Mr Abbott was ahead in the polls.

Former tax officials have told Fairfax there was angst within the Tax Office following the decision not to appeal the case. Earlier this month, News filed its submission to the pending parliamentary inquiry into corporate tax avoidance. Its executives are likely to be called to appear and testify as to the nature of the company’s tax structures. Along with other multinationals being targeted by the inquiry, News says its activities are legal and independently verified by auditors, Ernst & Young in this case.

“These facts demonstrate that we are incurring and paying substantial tax on our operations in Australia,” said the News submission by chief executive Julian Clarke. This appears to be the case, at least as far as its stated pre-tax profits go. On a deeper analysis however, over the past five years the group’s tax minimisation tactics facilitated $1.24 billion in transfers to other companies within the global group in interest payments on loans alone. News declined to identify which entities made the loans.

“The loan was struck in April 2012 on commercial terms for a subordinated long-term loan, based on external independent advice,” a News statement said.

“The News Corp entities that made the loan are Australian companies, subject to Australian tax law”.

This news story is reprinted from www.smh.com.au

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INTEREST rate cuts, lower petrol prices and a surging sharemarket have spurred consumer sentiment to a 13-month high in February, says Westpac, predicting more rate cuts are on the way.

The Westpac Melbourne Institute Index of Consumer Sentiment increased by 8 per cent in February from 93.2 in January to 100.7 in February.

“This is a much stronger result than we had expected,” chief economist Bill Evans said.

“It represents the first time since February last year that we have seen a majority (albeit minuscule) of optimists over pessimists,” he said.

“This lift in confidence should allay any concerns that rate cuts, in the current environment of record low rates, can be a negative for confidence,” Mr Evans said.

“The idea that households would be unnerved by the implication that authorities might be responding to a surprise deterioration in economic circumstances seems to be strongly disputed by this result.”

After the federal budget last May, the consumer sentiment index plummeted 6.8 per cent. The index this month climbed 1 per cent above its reading in April just prior to the budget.

The price of petrol has fallen 21 per cent in the last two months, while the share price index has lifted 9.7 per cent since the January survey, Mr Evans said. He added that these two factors helped increase confidence levels in respondents who held a mortgage.

The official interest rate cut at the Reserve Bank’s February board meeting also boosted consumer confidence towards buying a house. The index tracking views on ‘time to buy a dwelling’ jumped by 9.7 per cent to reach its highest level since February 2014, Mr Evans said.

“Similarly, the index of house price expectations jumped by 6.9 per cent to reach its highest level since September 2014.”

Mr Evans said Westpac expects a second official rate cut in March, although he recognised a respectable case for the RBA to pause for a month or two to assess developments in the booming housing market.

“The most important point is that February is not the end of this rate cut cycle with another cut extremely likely over the next three months”, Mr Evans said.

This news story is reprinted from www.theaustralian.com.au

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The number of homes approved to be built has fallen in December, but less than analysts expected, official data shows.

The Australian Bureau of Statistics data showed the number of buildings approved declined a seasonally adjusted 3.3 per cent to 17,753 in December.

The result falls short of forecasts by economists surveyed by Bloomberg, who predicted a 5 per cent fall in approvals during the month.

The figures come after home approvals hit an all-time high in November, when they rose a seasonally adjusted 18,245 approvals in the month. The November approvals were driven by strong numbers in the volatile apartment sector, which have fallen 9.7 per cent in December.

However, over the 12 months to December, building approvals were up 8.8 per cent, the Australian Bureau of Statistics said, far ahead of expectations of an increase of 5.1 per cent.

Approvals for private sector houses were flat in December, and ‘other dwellings’, which includes apartment blocks and townhouses, fell 9.7 per cent after two months of strong gains.

JP Morgan economist Tom Kennedy said a significant fall in multi-unit dwelling was not surprising after gains of 17 and 31 per cent in the previous two months.

“When you look at the composition it was pretty close to what everyone was expecting – quite a high decline in high density approvals,” he said.

Mr Kennedy had expected activity in the housing sector to stay strong in 2015, but now expects only a very mild boost.

But that could be changed by the Reserve Bank of Australia cutting the cash rate.

“You could see some type of resurgence in the property sector and in the construction sector,” he said.

St George senior economist Hans Kunnen was pleasantly surprised by the December building approvals numbers, considering a 7.7 per cent gain in November.

“They’re always volatile, but if you only drop three per cent after an almost 10 per cent rise the month before then you’re getting a heck of a lot of building approvals and that contributes towards jobs and housing activity this year,” he said.

Mr Kunnen said low interest rates are continuing to have an impact on the housing sector.

“It assists the case for not cutting the cash rate but there are a lot of other risks out there that people see and it is hard to know exactly what the Reserve Bank is focusing on,” he said.

This news story is reprinted from www.businessspectator.com.au

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