Business News

Henry vs. Wall Street

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by Peter Switzer

Following the Government’s response to the Henry Tax Review, which will rip around $10 billion a year off miners to fund some superannuation and small business generosity, as well as a falling company tax rate, the stock market should fall today. However, it won’t be because Treasurer Swan and his boss, K. Rudd have targeted BHP Billiton and Rio Tinto to fund their pre-election tax bribes.

No, Wall Street had a pretty bad day at the office with the Dow off 159 points or 1.4 per cent, to close at 11,008.61 and the S&P lost 1.7 percent to 1186.69.

The big sell-off was linked to:

A criminal investigation announced for Goldman Sachs. This hit financial stocks.
The debt worries about Greece, Spain and Portugal.
Economic growth for the first quarter was a tad less than expected with real GDP up 3.2 per cent. This is a lot less than the previous quarter, which was 5.6 per cent.
Consumer sentiment fell in April, as well, to complete a pretty ordinary day of news.

As you can see, the Yanks have given us plenty of reasons to expect a falling stock market today.

Computer says no

Now, let’s look local and so what are the main points from the Government’s response to the Henry Tax Review?

In summary, only four of Ken Henry’s 138 recommendations were accepted — this was “computer says no” out of control.

I wonder what Treasury Secretary Henry is thinking today? Probably, he is saying — wait to see what they use from this Review if or when the Rudd Government wins the next election.

Tax review in review

By the way, even if the Coalition won the next election they would certainly avail themselves of the work Henry has put in.

So here are the main points and my comment:

Miners will be hit by resources super profits tax of 40 per cent, which starts on 1 July 2012. It’s a $10 billion slug to the industry but they have had big resource price increases lately. They will cope.
Company tax is to fall from 30 per cent to 29 per cent by 2013-14 and then 28 per cent by 2014-15. This is a good move but a little slow but you can blame the GFC for that.
Small business company tax rate to fall to 28 per cent by 2013-14. This is a nice gift to those businesses set up as companies.
By 2012-13, if a business buys equipment, etc up to $5000, they can claim the lot in the first year. This will help cash flow.
For simple reporting all business purchases such as equipment, furniture, etc can go into one pool and the whole sum will be depreciated. I reckon most business owners will still use an accountant for depreciation calculations.
Small miners will receive a 30 per cent resource exploration rebate and they won’t have to be in profit to get it.
The compulsory Super Guarantee Contribution (SGC) goes up from nine per cent to 12 per cent between now and 2019-20. Good idea but many bosses will see this as a new slug to their costs.
You will be able to work and get the SGC until you are 75 years of age, which is a five year extension.
From 1 July 2012, there’s $500 for employees on $37,000 or less from the Government for your super. This is a good idea for women who miss out on a lot of work having kids, and for young employees and part-timers.
Finally, for people over 50, whose super is less than $500,000, they will be able to throw an extra $50,000 into their super and receive a concessional tax rate, from 1 July 2012. This is good for salary sacrificers who want to bump up their super but once you are over $500,000, your limit for extra super contribution goes back to $25,000.

Mining affect

Clearly, the biggest negative was delivered to the miners and only time will tell how it affects their share prices. Simon Bond, on my special edition of SWITZER on Sky News Business Channel last night, said he won’t be taking our big miners out of his portfolios for his clients after the Government’s new resource rent tax.

For advice you can trust, contact Switzer Financial Services.

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Published on: Monday, May 03, 2010