Correpondence: Car manufacturing, Gen Ys, and governance.

Car manufacturing and salary packaging, Gen Y’s conservatism, a governance index.

Car manufacturing and salary packaging

I am interested in your views regarding salary packaging providers such as McMillan Shakespeare and the potential impact upon them of the demise of the Australian car manufacturing industry.

One of the prime reasons given by the Coalition for reversing Labor's unfavourable changes to the FBT treatment of salary packaged car leases was its negative impact upon Australian car manufacturers.

As all three remaining car manufacturers have announced that they will be closing down, and given the Coalition's impending budget savings measures, there must be a temptation for the Coalition to backflip and keep Labor's announced changes after all, if not now then once all local car manufacturing has ceased in 2017.

Surely the risk has now increased for these salary packaging companies?

George Sclauzero

John Abernethy’s response: Thanks for your question. There is no doubt that Australia’s taxation policy will be subject to significant review across a whole range of sectors in the coming year. The Government has pledged to put any proposals from its review to the electorate at the next election.

The range of changes is unknown but common sense suggests that the superannuation industry (with its immense tax breaks) and the GST rate are more likely to change then say salary packaging benefits. Indeed an increase in the GST would make salary packaging more attractive and it could be targeted to those sectors that are of clear public benefit.

Salary packaging allowances benefit low and middle income workers across the “non for profit”, public service and “healthcare” areas. The focus is on the employee and not the automotive industry. The proposed Labor change to log books was an administration issue that affected the novated market as it applied to both salary packaging and corporate car fleets. The issue of logbooks was settled by Treasury a few years ago and the proposed changes were done without consultation or investigation.

The healthcare sector is looking at immense cost increases in coming years. A change to FBT and salary packaging allowances would significantly add to the costs of this sector that would be borne by the whole community in social and private healthcare costs.

One issue that may be reassessed is the creation of an income test. Clearly salary packaging could and should be directed to “key service sectors” and/or with “low income” brackets. Where there is concern is where salary packaging is accessed by high income earners. However, this mainly occurs in healthcare where private practitioners allocate time to the public sector.

I note that MMS has declared that its business in January this year was trading ahead of January 2013 and is on the road to recovery, as I said back in December. The business has returned and MMS is actively diversifying its business to mitigate risk.

Car manufacturing’s wider impact

Hi Brendon, I read your Eureka articles always with interest. I wonder what your take is on the impact of recent closure announcements in the car manufacturing sector on AMA Group in particular, but also the likes of ARB, Metcash and Super Retail, given recent share price action?

Julie Tayles

Brendon Lau’s response: The loss of the manufacturing jobs is terrible news, but at least investors do not have to stress too much about it. Listed companies like AMA have little if any direct exposure to Australian car manufacturing. The same is true for ARB and SUL. You can read more about AMA in today’s Eureka Report edition looking at consumer discretionary stocks in general.

Gen Y’s conservatism

In regards to the article Meet the risk-averse generation, I don’t think that their investment outlook is purely driven by conservatism. Rather, I believe young family or individuals today are more interested in life and living it rather than accumulating wealth.

This generation is a lot smarter than we were; they have seen through the illusion that we fell for. We chased long hours at the office or in our businesses, taking few holidays, rarely seeing the family and generally "sacrificing" for our future retirement. Many of us did not "make it", many of us went through divorces and family break-ups, so in the end it wasn't worth it. Living life with your family, experiencing the world and making do with a lot less assets is probably a much better way to live, especially when you realise that we only get one shot at it. Seems stupid in retrospect to spend most of one's best years harnessed to the machine.

Bob Fantozzi

A “governance index”

I recently discussed issues of governance in a company directors’ discussion group. We know from several sources that well-governed nations recover from natural disasters better than poorly-governed ones. I believe the same applies to businesses. Any business or government agency can run into headwinds or unexpected issues. Good governance practice should buffer the effects of these. Perhaps a governance index can be created?

Steve Flecknoe-Brown

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