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The Dale Carnegie Budget

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by Peter Switzer

This year’s Budget is what I would call a Dale Carnegie Budget — one designed to win friends and influence people! But clearly if you’re a bigger business, if you have some serious income or you want to build up your super, you are friends Labor can do without.

Add this anti-business sentiment to the negative reaction Wall Street has had to developments in Greece and you don’t have to be Warren Buffett to predict that our stock market will head south today.

The Dow lost 76.44 points or 0.59 per cent to finish at 12,932.09 while the S&P 500 lost 5.86 points or 0.43 per cent to end at 1363.72.

This is two-month low territory for the index and we’re now looking at the buying opportunity I’ve been talking about but I’m holding fire before I dive in. Note the Wall Street sell-off still isn’t like last year’s 300-point disasters, which shows what’s different about 2012 compared to 2011, at least for the moment!

Budget overview

Back to the Budget and let’s look at the plus for stocks — the $3.6 billion for low-income Aussies and small business is expected to be a boost for retailers. Let’s face it, the $820 and $410 basically directed at families with high school and primary school kids will be spent by lots of families, though some could easily use it to save more.

Two small business measures were pretty good. The first is where you can use profits on which tax has been paid to create tax rebates when losses occur. This has merit but you won’t be able to access this one until 2014 because you have to make a loss first in 2012-13, but who wants that? Also you can fully claim all the expenses of equipment, etc. up to $6500 per item in the first year, which will help cash flow.

So, if you bought 10 items under $6000 in any one year, then you could claim $60,000 in one go.

Against this, the promised one per cent company tax cut has been scrapped.

On super, those on $300,000 income will pay 30 per cent tax on any new contribution and if you have investment losses via negative gearing, you will have to add these back to your taxable income! And anyone who is 50 years of age or higher — the $50,000 cap has been taken away for everyone until 1 July 2014, meaning the $25,000 cap applies to all, even if your super balance is under $500,000.

The forecasts, which were wrong last year look more achievable this year with economic growth set at 3.25 per cent instead of four per cent. That said, this budget relies on the Reserve Bank continuing to cut interest rates and we’d need to see 0.5 per cent to one per cent worth of cuts to see growth of 3.25 per cent. You would also need the mining boom, which was worse than expected this year, to really kick in strongly bringing with it the business investment stuck in the so-called “pipeline”.

That said, this Budget does encourage Australians to pocket the income bribes and spend it, which should help consumption but the middle class with mortgages could save the budgetary booty.

Watch Europe

And the above could easily be determined by the madness prevailing in Europe and its impact on the global economy, which means this fiscal dream of Julia Gillard and Wayne Swan to turn around their disastrous popularity polls by winning friends and influencing people is on shaky foundations.

But what’s new with these guys?

One final point — the drive for a Budget surplus will be attractive to foreign investors, as it makes us look fiscally responsible and if the RBA does come to the party and Europe eventually settles down, it could be good for stock prices down under! But of course there are a few “ifs and coulds” in that analysis.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Wednesday, May 09, 2012