For investors … A pleasant surprise

The government intends to spend more than expected in the years ahead – for investors that can only be good news.

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For investors, the question about this budget that matters most is: what does it mean for next year and the year after – for the economy, the dollar, interest rates, property values and, above all, company profits?

Answer: not much, partly because the polls tell us the Labor Party is going to lose in September and the new mob will come in and change it all.

But leaving that aside, the budget doesn’t end negative gearing or increase taxes on superannuation, beyond what has already been announced.

It doesn’t increase company taxes beyond the futile attempt to get multi-nationals like Google to actually pay some tax at least, although the requirement to pay monthly pay-as-you-go income tax for large enterprises has quietly been extended to superannuation funds, sole traders, trusts and large investors.

It doesn’t risk Australia’s credit rating or put upward pressure on interest rates.

And, most of all, it doesn’t cut spending, at least next year. And as for the so-called spending cuts of $44 billion over the forward estimates, I have two words: smoke, mirrors.

Despite all the forecasts of a tough austerity budget, government spending actually increases in 2013-14, so if anything it may boost the economy, not drag it down.

So what does the budget do? Nothing more than get Julia Gillard and Wayne Swan through budget week with their skin on, by announcing an unsurprising deficit for this year and next, and a half-believable surplus in 2015-16, while launching the big increase in spending on disability and education on which they will be hanging their bid for re-election.

The past six months have seen a pretty good effort of spin doctoring and manipulation by the embattled Gillard Government.

As last year drew to a close they were faced with a horrendous set of circumstances, largely of their own making. The optimistic forecasts in last year’s budget were, inevitably, blowing up and the budgeted revenues were evaporating.

But they were locked into surpluses for 2012-13 and 2013-14 as well as the NDIS and Gonski school reforms. Something had to give.

Happily, it was the surplus that gave, not superannuation taxes or negative gearing, as some were demanding. Good decision.

Meanwhile Treasury has now had an attack of conservatism, winding back its forecast for GDP growth in 2013-14 from 3% to 2.75%. Along with the failure of the mining tax and the carbon tax, that led to a write-down in revenue for 2013-14 of $16.6 billion from last year’s forecast and a cash deficit of $18 billion.

But the situation is far from disastrous. Government spending is still forecast to grow by 4.3% in real terms next year, or 6.8% nominal, but receipts are expected to grow 7.3%. It’s true that these forecasts are always wrong, especially in recent years, but unlike last year’s forecast of an 11.8% increase in corporate tax receipts, this one doesn’t seem wildly optimistic.

Company tax receipts are expected to decline in 2012-13 and then rise 8.5% next year. The same increase is projected for super funds and income tax. That’s still pretty robust, mind you – just not as “out there” as last year.

As for the extension of PAYG monthly tax to super funds and trusts – it only applies to those with turnover of more than $20 million from January 1, 2017.

So if your SMSF earns interest, rent and dividends of $20 million a year, you’ll have to start paying tax monthly in four years.

If that’s the worst thing that comes out of this budget for investors, we’ve done OK.

For investors, the question about this budget that matters most is: what does it mean for next year and the year after – for the economy, the dollar, interest rates, property values and, above all, company profits?

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