BUDGET 2013: Fiddles play a two-part tune

A lethal kick to small enterprises in this year’s budget is combined with measures that set the scene for a superannuation revolution.

The last Gillard government budget before the election opens the way for one final but deadly kick at small enterprises. But it also sets the scene for a sharp lift in economic activity under an Abbott government and a new set of rules for superannuation funds.

The Gillard government will be remembered for its relentless attack on small enterprises. It is these attacks that have contributed so much to its unpopularity (Seven deadly Gillard sins).

The budget sets the scene for a new attack. First it repeats that the government plans to drain the working capital from large enterprises by making them pay PAYG tax monthly. The drainage starts next January for those with turnover over $1 billion but by January 2016 large entities will be defined as those with a turnover of $20 million or more. This working capital drainage (my words) raises $1.4 billion over the forward estimates.

But then come the ominous new words in the budget documents, which say the working capital drainage will cover “trusts, superannuation funds, sole traders and large investors”.

The next step is clearly to extend this to smaller enterprises with turnover under $20 million and also drain them of their cash. Abbott must assure small enterprises that this will not happen under his government.

The economic revival under Abbott will come not just from the lift in confidence arising from stability in Canberra plus the reduction in regulation, but from a major program of infrastructure investment.

And here the Swan-Parkinson budget is particularly helpful. If you set aside the fact that the Coalition and the Gillard government have different ideas about which projects to support, the foundations for an Australian infrastructure boom to at least partially replace the 2015 mining investment run-down, has been laid in the 2013-14 budget.

The government says it is “looking to utilise new funding and financing arrangements to help attract private sector involvement” in big projects.

The government has decided to appoint a new advisory function within Treasury to provide “guidance on the most appropriate funding and financing structures to bring complex infrastructure projects to market”.

On the plus side we are talking about tapping the vast amounts of money in superannuation funds and encouraging them to invest in infrastructure. The first obstacle is explaining to users of rail, road, hospitals and the like that fares, tolls and hospital charges must be adjusted for the fact that capital in the new environment now has a cost – it is not just taxpayer funded. There is limited understanding of this in the community.

But why set up a Treasury offshoot? Treasury has limited understanding of infrastructure investment and superannuation funds. What Treasury would understand is making infrastructure investment virtually compulsory for superannuation funds.

On the plus side, currently superannuation funds are chasing yield and boosting bank shares higher and higher. Well-structured infrastructure investment can provide that yield.

The problem is that many large funds are frightened to commit too much for longer-term investment because of liquidity issues. The answer is to attract self-managed funds that have no liquidity issues and are funding half the pensions paid out of superannuation.

There is no shortage of capital for infrastructure from superannuation, provided the users are prepared to pay the costs.

The Coalition is reckoning that the combination of deregulation, Canberra confidence and infrastructure will give the Australian a big boost.

A lower dollar would put icing in the cake.

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