Retailers join backlash over monthly tax collection

Glenda Korporaal and Andrew White
October 24, 2012
The Australian

AUSTRALIA’S biggest retailers will now be looking to the Reserve Bank for a lift in sentiment through interest rate cuts on Melbourne Cup day as they joined to criticise the Gillard government’s surprise move to change corporate tax collection to a monthly basis.

Just as some business leaders in Australia’s $200 billion retail sector were seeing green shoots, the changes announced in the mid-year economic update this week prompted yet another wave of criticism about the federal government wrong-footing business and damaging investment sentiment.

While the changes are designed to kick in for businesses with annual revenues of more than $1 billion, accountancy groups and business leaders also warned a switch to monthly tax payments would have flow-on effects to payments to small suppliers from big firms.

Myer chief executive Bernie Brookes yesterday said the move, slated from July 1, 2014, would cost his company about a $1 million a year in extra interest costs.

He said the change would mean a shift of funds from publicly listed companies to the government’s coffers, which was “not necessary or desired in the current economic environment”.

He said the government should cut back its spending if it wanted to balance its budget and not increase taxes.

“The government’s job is to ensure that they have got fiscal responsibility, and that fiscal responsibility includes firstly ensuring they have looked at all areas of costs and reduced them,” he said.

Woolworths chief executive Grant O’Brien said the federal government should not be “constantly coming back to business to balance shortfalls in the budget”.

He said the new demand for companies to pay their tax on a monthly basis would be an added burden on business, both in terms of cashflow and administration costs.

“We will have to make allowances for the cashflow that has now changed as a result of what the Treasurer has announced,” he told a lunch hosted by the Australian Institute of Company Directors in Sydney yesterday.

“It is more burden from an administrative and a cost point of view.”

He said the government should not be “shackling business” with new obligations.

“The growth of this country, and the environment which is going to be most favourable for long-term prosperity, is for businesses to be doing well,” he said.

“If you are shackling business, you are tying the hands of the things that are going to lead to growth in the long term.”
The move is designed to raise a further $8bn but comes at the expense of further undercutting investor sentiment in Australia, others warned.

“It’s really damaging the investment climate and that does concern us,” said Jerry Maycock, chairman of energy company AGL after the company’s annual meeting yesterday.

He said he struggled to see what was being achieved through the move, announced in the mid-year economic review, adding that it was another illustration of the rules continuing to change around the industry.

“Fundamentally, our concern is there are so many changes and so many contradictory signals, apparently missing any public policy objective, on the way through.”

And he too warned of a change in cashflows for companies.

“It’s just a value transfer from large corporations to the government and it is hard to see what is being achieved through that move,” he said. “It’s another illustration of the rules continuing to change around the industry.”

“When you add it to the regulatory issues, the whole process of introducing the carbon tax and the debate about the renewable energy target, it makes it hard for investors to be sanguine about the climate for investing in Australia.”

Aussie Home Loans chairman John Symond said the move was an effort to make the budget bottom line appear healthier than it was. “It’s just a shuffling of the deck chairs,” he said.

“This is not going to increase revenue, it is just pressuring businesses to basically pre-pay their tax. All it is doing is bringing forward the payments. The whole philosophy of this is wrong.”

Mr Brookes criticised the move to impose further costs on business. He said he was not sure why there was a “paranoia” about delivering a budget surplus in the current economic environment.

“Most companies run with a degree of leverage and run successfully with a degree of leverage,” he said. “You have to make the decisions that are right for the time. You are going to get peaks and troughs both in the social and economic impact.

Sometimes having a degree of borrowing works particularly well to do that.”
ADDITIONAL REPORTING: SARAH-JANE TASKER, SCOTT MURDOCH