Business tourism blow… Surplus bonanza should go to tax cuts?… Reverse mortgage code… Small cap results… Winemaker goes under… Telstra leaps legal hurdle… Market takes a breather
Wednesday, August 22, 2007/
Business tourism blow
Australia is failing to attract big spending business travellers. The number of conventions held in Australia has fallen 31.5% since 2001. And the number of delegates has fallen 11% since 1996, according to the European-based International Congress and Convention Association, reports The Australian Financial Review.
In response to the figures, the Business Events Council of Australia has called for more funding from Tourism Australia.
Should the surplus bonanza be spent on tax cuts?
Business groups are divided over whether the Federal Government should use its bumper $17 billion surplus to cut tax for businesses and individuals.
Federal Treasurer Peter Costello yesterday announced a final 2006/07 budget surplus of $17.3 billion, a result $3.7 billion higher than that predicted in the federal budget in May.
Costello says the Government will put $2.5 billion of the surplus into a new health and medical investment fund, the earnings from which will be used to pay for medical infrastructure. A further $7 billion will go to the Future Fund and $6 billion to the Higher Education Endowment Fund.
Although politically savvy – locking the money away in long-term funds in the lead up to the federal election makes it harder for Labor to use – it also rules out substantial tax cuts for the sector that produced much of the tax windfall; the business community.
Of the extra $3.7 billion the Government has found it has, around $1 billion came from an unexpected increase in company tax receipts.
The Australian Chamber of Commerce and Industry and The Business Council of Australia both argue that the budget bonanza means the Government can now afford comprehensive tax reform to take the burden of business.
ACCI says cuts to the top personal income tax rate to match the company tax rate and a cut in capital gains tax are the changes that would deliver the biggest benefits.
“The arguments for the Government to run such large surpluses are weak. Significant tax reform will enhance the productive side of the economy by encouraging investment and workforce participation,” ACCI chief executive Peter Hendy says.
But Council of Small Business of Australia chief executive Tony Steven says any tax cuts could threaten to overheat an Australian economy already facing significant capacity constraints.
“Tax cuts should be delivered at a time of low economic growth – if they were to do it right now, you might find there would be pressure on inflation and that would seriously tempt the Reserve Bank of Australia to put up interest rates, so cuts need to be carefully timed to the right stage of the business cycle,” Stevens says.
What do you think? Should the Federal Government give some of the surplus back to business in the form of tax cuts, or would that just lead to higher interest rates? Your Feedback will be welcome.
Small cap results
Mortgage Choice reported strong profit growth of 9.7% to $19.6 million for 2006/07, with earnings per share 16.6 cents, up from 15.2 cents. The ASX-listed franchised mortgage broker’s loan book now stands at $29.6 billion, up 15.4% on 2005/06. The results were boosted by strong growth in Western Australia and Queensland thanks to the resources boom.
The company predicts consolidation ahead for the industry, and is looking for acquisition targets. In his results briefing, CEO Paul Lahiff identified the US short term mortgage funding liquidity problem as a cloud on the horizon that will drive a flight to quality, funding cost increases and consumer anxiety over re-drawing from their home loan.
Specialty Fashion Group, the owner of Miller’s Fashion Club, Katies, Crossroads and Autograph, posted a net profit for 2006/07 of $32.1 million, compared with a loss of $13.81 million the previous year. The company, formerly Miller’s Retail, is attempting a turnaround after selling its discount chain. “Trading for the first seven weeks (of 2007/08) was in line with expectations and is showing growth on the previous corresponding period,” CEO Gary Perlstein said.
MYOB Limited announced a fall in net profit of 17% to $8.7 million for the first half compared to the previous corresponding period. The company said the fall was in-line with guidance and it is on track to achieve full year growth in revenue of 12% to 13% at an underlying EBITDA margin of greater than 38%, as previously indicated.
First half revenue grew 14.7% compared to the first half of 2006, and EBITDA grew 17%. The company said the performance was slightly stronger than anticipated following a very robust final two weeks of June in Australia.
Winemaker goes under
Winemaker Evans & Tate has gone into administration after a rescue package was withdrawn by another winemaker, McWilliam’s Wine. The deal fell through because contracts were not in place and finances were not satisfactory. Directors had spent the last 18 months trying to restructure the company. Shares in the company were suspended yesterday.
Telstra leaps legal hurdle
Telstra has taken a further step towards getting its hands on confidential Government documents dealing with Communication Minister Helen Coonan’s decision to award almost $1 billion to an Optus/Elders consortium under the Government’s Broadband Connect program.
Federal Court judge Peter Graham yesterday said he believed there was a case for Coonan to produce documents for Telstra, the only issue being just how much the telco should get, according to an Australian Financial Review report today.
Telstra is trying to build a legal case to challenge Coonan’s decision to award tender to build rural broadband networks to the OPEL joint venture. The matter is scheduled for a full hearing on 13 September.
Market takes a breather
Australian sharemarkets have something taken a break from the massive volatility of recent days, with the S&P/ASX 200 up, recovering from an initial 25 point drop, to be up 0.6% to 6024.5 at 12.15pm.
The Australian dollar has come off slightly after nudging above US80c yesterday to be trading at US79.83c at 12.15pm.
The market wobbles don’t appear to have had much of an affect on the labour market, however. The Department of Employment and Workplace Relations’ Skilled Vacancies index increased by 0.7% in August, driven primarily by a 3.8% increase in vacancies for associate professionals like paralegals and a 1.3% rise in vacancies for tradespeople.
And unless the volatility feeds into the real economy, it appears likely economic growth is only likely to increase in the months ahead, according to the Westpac-Melbourne Institute Leading Index of Economic Activity released today.
The index, which indicates the likely pace of economic activity three to nine months into the future, increased 7.1% in annual terms in June, well above its long term trend of 4.5%.
Westpac chief economist Bill Evans acknowledges the credit crunch may have an impact on economic growth, but even so he predicts that Australia is likely to achieve strong economic growth of 4% to 4.5% in 2007 and 2008.