Small business “giveaway’… Labor’s GST sweetener… Dollar soars… Time to invest globally… Irrigators left dry… House prices up… States’ conditional backing on IR… Economy roundup…

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Small business ‘giveaway’

The latest BizExchange Index has revealed an alarming trend of an increasing number of small business owners selling their businesses for less than a year’s earnings. In effect they are virtually giving the business away.

It is not the first time that a business has been sold for less than it earns in a year, but this had previously been regarded as an anomaly – possibly the result of a forced sale through personal circumstances such as the death or injury of a key person.

The BizExchange team noticed that there was a scattering of businesses offered for sale at less than a year’s profit in the December quarter, but regarded them as outside the normal course of events.

See: Owners ‘give away’ the business in rush to retirement.

Labor offers GST sweetener

A federal Labor Government would consider introducing a new, user-friendly BAS statement system that could lighten the GST paperwork load for 1.4 million small businesses, according to a white paper released by the Opposition spokesman for the service economy, small business and independent contractors Craig Emerson, today.

Under Labor’s “BAS Easy” proposal, businesses with annual turnover between the $50,000 GST registration threshold and $2 million would be able to opt for a lighter GST reporting method that involves less paperwork.

The new system is based on “GST Simplified Accounting Methods” that currently allow small food retailers to estimate their GST payments based an averages calculated by the Australian Taxation Office or by conducting twice-yearly snapshots of their businesses.

Emerson says the method provides a “simpler, faster way” for businesses to comply with their GST obligations and should be extended to all small businesses. Business in health, education and childcare would be the biggest beneficiaries of the change.

The chief executive of the Council of Small Business Organisations of Australia, Tony Steven, says red tape associated with the BAS and GST payments is a huge concern for many small businesses.

“We’re very interested in what Labor has proposed. We look forward to working with the ALP if they’re elected to make it easier for small businesses to process the BAS activity statement and deal with the GST,” he says

But Commerce Queensland president Beatrice Booth does not believe the plan would be enough to change small businesses’ vote. She says the proposal in no way makes up for Labor’s proposal to dramatically wind back small businesses exemption from unfair dismissal laws. “I think most small businesses will feel indifferent about BAS statements, but the feedback we’re getting is they have great concern that unfair dismissal laws could be changed,” she says.

Labor plans to consult business on the BAS Easy proposal before deciding if it will go ahead. Kevin Rudd announced on Tuesday that Labor is also considering raising the threshold for mandatory completion of the BAS from $50,000 to $75,000.

– Mike Preston

Soaring dollar

The Australian dollar hit a 17-year high of US83.86¢ at 8am EST this morning. It has eased slightly over the morning to be trading at US82.52¢ at 11.55 am.

ANZ strategist Sally Auld says the dollar could go as high as US85¢ in coming months. “The Aussie dollar is defining a new trading trend at the moment with US80¢ on the downside and US84–85¢ on the upside,” Auld says.

She says that although heightened M&A activity and expectations of an interest rate rise are significant, the real driver behind the Australian dollar’s strength is the weaker US dollar.

Talk of the Australian dollar reaching US90¢ is the short to medium term is overblown, Auld says. “We can’t see how it will get to US90¢; that would suggest a structural weakness in the US dollar that we just don’t see.”

On the contrary, Auld says, the large amount of speculative money that is currently boosting the Australian dollar means it could drop very quickly from its current heady heights.

Think global, invest global

With many commentators starting to sound just a touch bearish about the Australian sharemarket, it is an interesting time to note that the Australian dollar is stronger than it has been in more than 17 years. It provides greater strength in buying overseas assets than at any time since the Fraser Government was in power.

In other words, it might be time to think “global diversification” in portfolios, using the purchasing power of the strong dollar.

When you invest internationally, you are using Australian dollars to buy overseas assets, so you want the dollar to be as strong as possible, to maximise its purchasing power. With the Australian dollar at US83¢ perhaps its time to go investment shopping overseas!

Why would you invest in global assets – shares and property – anyway? The real answer is diversification. Although many Australian companies generate earnings offshore, these companies earning money offshore are still listed on the Australian Stock Exchange and exist in the Australian economic and political climate. These are factors that result in the share price of such companies “reacting” similarly to other Australian companies, even if they do derive their earnings overseas.

As at the end of February 2007 the seven-year return for the MSCI World Index (dividends re-invested) was 1.73% a year. Most of the poor performance from international shares has been due to currency movements. If you take out the currency movements, global sharemarkets have actually returned 10.45% a year over that same period.

Indeed, the very reason that five-year returns have been generally poor – the rising Australian dollar – now provides an opportunity to use this strong Australian dollar and invest in international assets.

In the long term there is a diversification story in holding some international investments as part of your portfolio. Short term, the Australian dollar is at 17-year record highs. International shares are well worth a look now.

– Scott Francis. A longer version of this article was first published in Eureka Report

No water for Murray-Darling Basin irrigators

A new environmental report commissioned by the federal and state governments has prompted Prime Minister Howard to announce that there will be no water allocated to irrigators in the Murray-Darling Basin in the 2007-08 water year unless there is significant rain in the basin in the next six weeks.

The impact for business in the region will be disastrous.

– Jacqui Walker

Sydney house prices going up

A housing recovery in under way on the east coast, according to a report by Adviser Edge investment research. Sydney house prices are forecast to rise by 10.5% and apartments by 8% in 2007. But Canberra will have the best growth this year, of 12%. Prices in Perth are expected to fall 6% and Darwin’s to fall by 4%.

Total estimated returns from the national office market are forecast to be 18% this year and 11.3% in 2008. The Sydney office market is predicted to be the best performing.

– Jacqui Walker

States back Rudd’s IR… but won’t refer powers

New South Wales and Queensland IR ministers say they will not hand over state industrial relations powers to the Commonwealth, putting a hitch in Kevin Rudd’s plan for a national industrial relations system.

NSW’s John Della Bosca and Queensland’s John Mickel both expressed support for IR proposal’s Rudd announced on Tuesday, but they rejected his proposal for states to cede their power to regulate industrials to the Federal Government.

It would very difficult for a comprehensive national scheme to go ahead without NSW and Queensland. South Australia and Western Australia are yet to announce whether they will refer powers to the Federal Government if Rudd is elected, while Victoria is already integrated into the national system after Jeff Kennett gave up the state’s IR powers in the early 1990s.

Federal IR laws already apply to the majority of businesses across the country that are incorporated. Only businesses not big enough to justify the costs of incorporation or who choose not to incorporate – primarily partnerships in the professional services sector – are excluded from the laws.

But as long as some businesses are excluded from the national system, the states will continue to maintain their own industrial relations systems, with all the potential for confusion (not to mention cost for taxpayers) that entails.

– Mike Preston

Economy roundup

SMEs are optimistic the profits will rise over the next 12 months, despite the fact the business conditions eased slightly in the March quarter, according to the quarterly NAB SME Survey released today.

Fifty-one percent of the 650 SMEs surveyed expect a moderate to strong rise in profit levels over the next year, while just 11% expect a downturn. SMEs in the finance, insurance, health, accommodation and transport sectors are the most optimistic.

SME owners see a lack of demand and shortages of skilled staff as the main constraints on future growth.

Merchandise imports increased by 8.9% in trend terms in March 2007, up strongly from a 3.2% fall in February, according to Australian Bureau of Statistics figures released today.

The S&P/ASX 200 has declined 0.94% on yesterday’s close, to 6178.2 at 12.40 am.

– Mike Preston



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