Payroll tax changes… Coles suppliers turbulent times ahead… Red tape rife in NSW… Labor housing shared equity pressure… Agri tax breaks end?… Bennelong navel-gazing…

NSW and Vic to harmonise payroll tax rules

Harmonisation of New South Wales and Victorian payroll tax rules is a positive development, tax experts and business groups say, but the real problem remains: payroll tax rates are too high.

A drag on business growth and a barrier to creating jobs, the business community’s distaste for payroll tax is well known. NSW businesses bear the biggest burden, where the NSW Government’s annual $5.5 billion payroll tax take is the biggest in the country.

“The main challenge for business is getting payroll tax relief,” NSW Business Chamber spokesman Paul Ritchie says. “The harmonisation initiative is worthwhile, but in the scheme of what the Government should do for payroll tax, it’s minimal.”

NSW’s 6% payroll tax rate is the highest in the country, compared to 5.15% in Victoria and 4.75% in Queensland.

The harmonisation plan means NSW and Victorian tax rules will be brought into line, involving changes to both including:

• Victorian employers will have to start paying payroll tax on employee share benefits.
• Maternity leave pay for NSW employees will no longer be assessable up to 14 weeks.
• Overnight accommodation allowances paid to Victorian employees will now be exempt up to $195, up from $130.

“We’re a long way from were we need to be, but it’s an important step forward,” says Sue Prestney, spokeswoman of the Institute of Chartered Accountants in Australia spokeswoman and MGI Boyd principal.

She says while initial harmonising changes to tax definitions and rulings will be helpful, the biggest benefits will come once a “one-stop shop” is established to allow businesses that operate in both states to make just one consolidated payroll tax payment.

Taxation Institute of Australia Senior Tax Counsel Dr Michael Dirkis says the changes mean it will be easier for small businesses to expand across state borders without falling foul of unfamiliar payroll tax rules.

“The changes will make a big difference to companies that operate across state borders who will now be able to get economies of scale through payroll because they won’t need people familiar with very discrete rules across different states.”

National harmonisation of payroll tax rules would reap the biggest benefits for business and the economy, he says.

— Mike Preston

Coles suppliers — get ready for big changes

Trade buyers are emerging for the pieces of a broken up Coles. Melbourne billionaire Solomon Lew is reportedly interested in the 250-store discount chain Target, while international retailers Tesco, Carrefour and Wal-Mart are potential suitors for the $15-billion supermarkets and liquor division. But a debt-fuelled offer from private equity consortium Kohlberg Kravis Roberts, CVC, Carlyle Group and Texas Group is still possible.

Whoever is the new owner of Coles, Bi-Lo, Target, Officeworks and the other Coles Group businesses, Coles suppliers are likely to face big upheavals over the next 12 months to two years.

If the experience of other private equity buyouts of retailers is any guide, small suppliers are likely to be dropped, and all suppliers will have to re-negotiate terms of trade, cut costs, introduce new IT systems and spend more on promotion. Even if the retail giant is broken up for sale, suppliers are likely to face similar pressure from new owners keen to squeeze more costs out of the businesses.

Woolworths’ Project Refresh supply chain reforms, which are about three or four years ahead of Coles, have been widely credited for widening the gap between the two retail giants’ performance.

Coles’ supply chain arrangements have been more notable for the controversy surrounding the sacking of former supermarket merchandise manager, Peter Scott, last November. Scott breached a code of conduct in his dealings with a fresh-meat supplier to Coles; the matter has been referred to the Victorian Police.

— Jacqui Walker

Red tape stifles enterprise in NSW

Time is running out for the NSW Government to put forward a meaningful policy for business before the election on March 24. The Australian Industry Group has made a last minute attempt to wrestle some promises out of a Government not known for its enterprise focus.

Demands include overhauling red tape, providing industry incentives and vocational training. Reforms to NSW’s occupational health and safety laws are essential with the Government recently reneging on promises to reform the act, which deals very strictly with employers but offers little leeway for defence.

To combat the skills shortage, AIG also called for greater links between TAFE and employers and more flexibility in the training market. AIG also wants taxes and fees to be benchmarked with other states.

— Amanda Gome

Labor scheme could push house prices higher

Labor is considering making a shared equity housing scheme part of its housing policy for this year’s federal election. Such a scheme would be likely to boost house prices, economists say.

Under the scheme, similar to one announced by the West Australian Government two weeks ago, a federal Labor government would assist low and middle income earners break into the housing market by taking an equity share in the home and providing a low-interest loan for a deposit.

HSBC chief economist John Edwards says “Labor would have to look at it very hard to convince itself that this is the right way to spend the limited money available for lower income housing”. Edwards says such a scheme could leave a government exposed to the vagaries of the property market.

“It would probably mean a very long-term loan with a variable or uncertain outcome, and just as the private schemes have some problems in financing them, I think that this one would have some similar problems,” he says.

Labor housing spokeswoman Tanya Plibersek said her party was considering adopting the policy in a speech last week.

— Mike Preston

Government to decide on agribusiness tax break

The Howard Government is expected to make a decision after Cabinet met on Monday on whether it will allow a transition period before abolishing tax breaks on investment in certain agricultural businesses.

Agitation from Coalition backbenchers has forced the Government to reconsider its original decision to allow the tax office to withdraw the up-front tax break on investment in non-forestry agribusinesses such as nut and olive growing without any transition period.

— Mike Preston

Your say

The media might be working itself into a frenzy over the news that TV presenter Maxine McKew will run against John Howard in his seat of Bennelong. But how about the good folk of leafy Bennelong? Are they likely to vote in a left-leaning journalist over a long serving prime minister? Will the seat be a cliff hanger? Or is this merely the navel-gazing media loving and promoting its own? Have your say and let SmartCompany know what you think.

Small cap wrap

Julian Tertini’s Fantastic Furniture experienced tough trading conditions, which limited same-store sales growth in the December half to 1%. New stores in Queensland helped sales grow 15.8% to 135.6 million in the half. Vitamin and health-food company Blackmores posted sales up 14.5% to $84.9 million for the half and a record interim profit of $14.8 million, fuelled by growth in Thailand.

RCG Corp, formerly Retail Cube, which owns franchise chains The Athlete’s Foot, Amazing Paints and King of Knives, had a busy half. Amazing Paints went into administration, and a new board cut costs, including executive salaries. Sales fell 22.8% to $24.9 million for the December half.

Skateboard and surfwear company Globe International is getting ready to move out of its shiny polished concrete and glass headquarters in Port Melbourne for more modest digs, making way for Pacific Brands, the new owner of Globe’s streetwear division, including Mossimo and Mooks, to move in. Globe has shed 500 staff since 2003, and now employ less than 100.

ITNews

Talks between Microsoft, Apple, Yahoo! and other technology companies with EMI Music over digital rights management (DRM) are reported by Bloomberg to have broken down. The tech companies are refusing to make payments to the record industry. EMI wants extra compensation for the piracy that is expected if music is sold on line in mp3 format — which is easier for users to copy and share.

Economic round-up

Two important pieces of data will be released this week and could give business a better idea about the likelihood of an interest rate rise.

The first looks at business investment, the main driver of output growth in the last three years, and the second is the December quarter balance of payments, which reveals the growth of export volumes.

RBA Governor Glenn Stevens said last week that the high rates of growth of recent years is over and output growth in 2007 depends on export volumes rising as business investment volume falls.

But as HSBC points out, every year for the past five years Treasury has expected a markedly strong export performance. The HSBC opinion? “Given the long decline in housing construction, the beginnings of a downturn in business investment, the long postponed and still not apparent upswing in export volumes, and the modest growth in retail sales, we doubt demand or output growth will be sufficient to rationalise another rate increase.”

But then, HSBC points out, it is Stevens’ finger on the button and he is concerned if domestic demand proves stronger than the modest increase expected.

Australian businesses grow — new stats

The number of actively trading businesses increased 1.3% to 1,963,907 in the 2005-2006 financial, according to figures released today by the Australian Bureau of Statistics.

Almost two million businesses employ 20 or less people, accounting for 96% of the total, and 94% of businesses have annual turnover of less than $2 million.

Most businesses are in the property and business services (25%), construction (16%) retail trade (11%) and agriculture, forestry and fishing (11%) sectors.

Two-thirds of businesses that were operating in 2003 were still operating three years later. Of the businesses that did not survive, 43% exited during 2003-04, 33% during 2004-05, and the remaining 24% during 2005-06.