Budget bonanza in store… Labor’s business misstep… Wizard turns to franchising… Danger signs in residential investment… Skype surge… Renovation boom… ACCC no to Telstra… Economy roundup…

Rising wages to fuel budget bonanza

Booming wages and record commodity prices should see Treasurer Peter Costello report a massive $13.6 billion surplus for 2007-08 when he brings down the federal budget on Tuesday night.

A new report by Access Economics predicts that rising wages and falling unemployment will mean the Federal Government’s tax take from PAYG in 2007-08 will exceed official forecasts by almost $5 billion.

Both Prime Minister John Howard and Costello yesterday attempted to play down rumours that they will use the huge budget warchest to hand out substantial tax cuts to middle income earners.

But both refused to rule out the cuts, with Howard saying the budget will “contribute downward pressure” on interest rates and Costello committing the Government to “adding to savings rather than borrowing and putting pressure on interest rates”.

Access Economics director Chris Richardson says a big-spending budget could add to inflationary pressure even in a large surplus is maintained. “Please, don’t fall for the line that the budget isn’t expansionary if the surplus remains constant,” he says.

Richardson says Australia is enjoying “the biggest boom you’ll ever live to see”, and that a constant surplus would mean spending that extra revenue and adding to the risk that interest rates will rise.

Don’t miss SmartCompany’s budget wrap to find our what the budget means for your business and you personally, with comment from Australia’s top experts.

– Mike Preston

Labor’s massive misstep with business

Labor’s Julia Gillard does not understand business owners. The one thing business owners crave is certainty.

Yet this morning, she has added more uncertainty to the IR landscape by indicating she might change the party’s hard-line stance.

Labor’s leaders have indicated that Gillard had mishandled detail and delivery of Labor’s workplace relations policy. So she promises up to two months of consultation with business – more uncertainty.

And she has also said she will work with business on the details of transitional arrangements … to give everyone certainty. Feeling certain about all that?

Meanwhile, John Howard’s closest ally, Senator Bill Heffernan, didn’t help the coalition’s cause when he described Gillard as deliberately barren and unfit for leadership, comments that distracted attention from the policy issues.

– Amanda Gome

Wizard moves to a franchise model

Wizard Home Loans today announced that it will move to a franchise model in an effort to kick-start expansion, and add a further 50 branches to its network in Australia and New Zealand by 2010.

Wizard currently licenses independent operators to run its 250 branches, but it is struggling to attract more licensees because they cannot sell their interest as a branch when they choose to exit. Wizard’s director of sales and distribution, Chris Canty, says a franchise model will allow branch operators to devote their efforts to increasing the value of a saleable asset.

A five-year franchise with a further five-year option will cost new franchisees $30,000 plus fit-out and equipment costs. They will not be charged an ongoing marketing levy. Existing branches operating under a licence agreement will be converting to a franchise agreement. He says they are “pretty positive” about the change.

Canty says: “It’s a competitive market and the economy is going well so we need to provide an attractive option to people if we are to build our branch network, and I think the franchise move allows us to do that.”

David Stafford, a senior consultant with franchising consultancy DC strategy, says a key challenge to the strategy will be attracting qualified people to buy and run the franchises.

“There seem to be more and more franchises finding it hard to recruit quality people and, as a mortgage seller, Wizard will be looking for people who not only know the banking side but who can also be great marketers in their area. They need people with an entrepreneurial bent and they can be pretty hard to find,” Stafford says.

– Mike Preston

Danger signs for residential property investors

Residential property does not stack up as investment option and, what’s worse, it’s going to remain flat for years. That’s the view of Simon Ibbetson, the director of investment consulting at the influential global ratings agency Standard & Poor’s.

Ibbetson, who is paid to compare the relative attractions of different asset classes such as shares against property, is convinced property investing is doomed for the near future as low yields and low capital gains combine to crush investors’ enthusiasm.

He says share investments are offering superior returns to property, especially on the basis of yields. Share yields are probably higher than most investors realise and property yields are probably worse than many might realise.

“While yields have not been high for a while it’s becoming more critical now, and the reason that it’s becoming more critical is because there are no longer the capital gains to sustain the growth in this area,” he says.

“We’ve had a period of very low interest rates and a lot of liquidity and, coupled with the tax benefit of negative gearing, it’s encouraged people to borrow more and more. What they’ve done is they’ve released equity from these properties. They’ve geared up very significantly and they’ve relied on the capital growth to make these ventures actually worthwhile.

“Interest rates are starting to ease up. You’ve got liquidity now starting to come down. It’s not actually a credit crunch but they are tightening up on the lending requirements and money’s getting a little more expensive. And there are more competing areas for the money as well.

“If you start to see unemployment go up or the economy slow down then you’re going to have problems – certainly at the bottom end with affordability: they’re not going to be able to pay their mortgage payments.

“We’re not seeing much of it at the moment but we are anecdotally seeing it starting to happen and it happens for individual reasons as well. I think the big catalyst will be if interest rates go up even marginally. That will drive some of these people out of the market.”

Michael Pascoe. A longer version of this story first appeared in the Eureka Report.

IT News: 10 million Skype plug-ins downloaded

Skype says more than 10 million third-party Skype Extras have been downloaded since the arrival of Skype for Windows 3 last December, writes ITWire.

The most popular Extra is Reallusion’s CrazyTalk (freeware), which provides lip-synchronised avatars for video calls. Apart from hiding the caller’s true appearance, CrazyTalk, which has been downloaded 3.5 million times, allows people without cameras to participate in video calls.

The most popular Extra for business use is the Pamela Call Recorder for voice call and video call recording and answering machine, with one million downloads. Skylook provides Skype/Outlook integration including SMS alerts of missed reminders, text-to-speech conversion of emails, and access to Skype voicemail via Outlook’s inbox.

– Jacqui Walker

Renovation heaven

Businesses in the renovation industry have enjoyed a bumper year, with home owners increasing their spending on home renovations by more than 5% over the past 12 months, figures from the Australian Bureau of Statistics show. Queensland and South Australia spent most, while home improvement activity in Victoria and Tasmania was down.

Want to add value to the home and renovate for profit? Add a kitchen and a water tank. Property research consultancy Matusik Property Insights says the majority of people think that while they were two key improvements that would get a return, few mentioned improving the living or dining areas. The AFR reported that a waterwise home attracted not just a premium but could be a major contributor to whether a sales was achieved.

– Amanda Gome

ACCC vetoes Telstra broadband deal

Australia’s competition regulator has vetoed a broadband deal between the Federal Government and Telstra, The Age reports today.

Telstra’s head of public policy, Phil Burgess, told The Age that Telstra chief Sol Trujillo had reached tentative agreement with Communications Minister Helen Coonan on key details of the broadband network, but “the regulator apparently said no”.

The key sticking point is the price Telstra will charge competitors for access to the broadband network. Burgess says Telstra and the Government had agreed to an $80 per month charge.

– Mike Preston

Economy roundup

Australia’s services sector strengthened in April, with the Australian Industry GroupCommonwealth Bank Performance of Services Index rising 1.6 points to 52.8, well above the 50 point level separating expansion from contraction.

The S&P 200 is up 0.3% on yesterday’s close to 6256.0 at 1pm. The Australian dollar is trading at US82.48¢, up slightly on last night’s US82.40¢ close.

– Mike Preston


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