Swan gorges on low-hanging fruit

The Treasurer's revenue grab in yesterday's MYEFO won't be hard to sell to voters, and if Swan didn't go for it Abbott would have.

The elegance of Wayne Swan's $8.1 billion revenue grab in yesterday's MYEFO statement, is that it will hardly dent company profits and hurt neither shareholders nor consumers to any considerable degree, despite all the hysteria to the contrary.

It was the lowest of low hanging fruit, and it would have proved just as irresistible to an incoming Abbott government as it did to revenue-hungry Swan.

First the inconsiderable cost. Nobody has yet seemed to notice that the true cost to business is not $8.1 billion over four years, or even the whopping $5.5 billion in the first year – the magic number that the government claims will help it scrape home with a budget surplus.

The real cost is the financing costs of $8.1 billion.

That's because under the quarterly instalment system for company tax payments brought in by Peter Costello (before which it was an annual system), there was lazy money sitting around between quarters. Companies owed it to the ATO, but didn't have to hand it over straight away.

That money was therefore available to fund cashflow shortfalls and other operational costs, meaning that collectively, Australian businesses did not have to raise capital to cover those same activities.

At a conservative financing cost of 10 per cent per annum (most companies WACC would be considerably lower), the impost on Australian business, when the four year 'revenue grab' is done, would be $810 million a year.

Put that alongside carbon tax receipts to see what it's really worth. The carbon tax revenue listed in MYEFO is virtually unchanged, at around $10.7 billion over this and next financial years. Recent reports put the net effect of that tax at less than the one-off CPI increase of 0.7 per cent modelled by Treasury.

So a back-of-the-envelope caluculation would suggest that if the carbon tax took $20 billion over forward estimates (and that figure could be higher), Swan's revenue grab, costing $810 million, won't cause too many waves.

In the first year, companies with revenue over a billion dollars will be hit by the additional financing costs. The big four banks, Woolworths and Coles will pass it on to consumers easily enough, and the big miners, being price takers in commodity markets, will pass it on to shareholders.

And neither consumer, nor shareholder, will be able to see that 70 cents per capita, per week, in their bank statements or dividends.

Yes, it's a straightforward fiddle, but that low-hanging fruit was bound to be noticed by one side of politics or the other eventually.

Had Peter Costello made his tax collection move in a time of plunging revenues, he might have swallowed hard, before fronting journos to say he'd switched from annual to monthly, rather than annual to quarterly.

Instead, he surfed into MYEFO and federal budget media conferences on a wave of mining tax revenue – the first phase of the mining boom had set up a lovely fiscal swell, even if the tides of structural deficit were running the wrong way.

We are now deep into the era in which those structural deficits become manifest. As I have argued many times, if voters demand baby bonuses (which were cut in this MYEFO from $5,000 to $3,000), super tax concessions, family tax benefits payable to middle-income as well as lower-income households, and so on, then somebody has to pay some tax.

As Emma Alberici correctly pointed out in her interview with Joe Hockey last night on Lateline, while the coalition never announced plans to switch tax collections from quarterly to monthly, it has a well established policy of increasing tax for large corporations – by 1.5 per cent to fund its generous paid parental leave scheme.

That really would be an impost on the private sector.

Tony Abbott, should he get to move into the Prime Ministerial office some time next year, will be secretly thanking Swan for yesterday's tax collection move. His spending promises, made alongside the abolition of the carbon tax and mining tax (which, as expected, slumped another billion or so in the MYEFO forecasts), so far look even more outlandish that Labor's.

There is no doubt the 'revenue grab' is an impost on Australian businesses, but a small one – given the conservative figures I have presented above, probably well south of $810 million. And it is much smaller than the tax the coalition proposes to use to fund its paid parental leave scheme, which would also need to be passed through to the economy.

Put in context, Swan has once again proved he's the luckiest Treasurer in the world. Had he not swooped on the politically easy-to-sell one-off revenue boost, he would have handed it to an incoming coalition government on a platter – and they would have taken it, simply through necessity.

This MYEFO statement has all the hallmarks of a government clearing the decks for an early election and Swan's revenue grab is not hard to sell to voters.

And if the election is held before the next full budget in May, as has been rumoured, Swan will be able boast of budget surplus going into the next election, knowing that the other surpluses across the forward estimates are going to be much, much harder to deliver.

The last of the low hanging fruit has been eaten.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles