Budget provides mixed news for directors

Last night’s Federal Budget confirmed that the government plans to spend $50 billion on infrastructure by 2020 in a move that is likely to be welcomed by Australia’s director community.

The latest Director Sentiment Index (DSI), conducted from March 31 to April 13 on behalf of the Australian Institute of Company Directors, found that infrastructure was rated by directors as the top priority the federal government should address in both the short and long term.

But the government last night also proposed measures that are likely to disappoint directors if the broader results of the DSI are a reliable guide to their budget expectations. Sixty per cent of directors polled believed the level of personal taxation was already too high while 44 per cent said corporate taxation was too high.

Treasurer Joe Hockey confirmed in his budget speech that a temporary deficit levy is set to become a reality for those who pay the top marginal rate of tax. From 1 July 2014 until 30 June 2017, what will formally be known as the Temporary Budget Repair Levy, will be payable by those with taxable income of over $180,000 at a rate of two per cent on the excess over $180,000.

In other tax measures, the budget revealed the government remains committed to cutting the company tax rate by 1.5 per cent to 28.5 per cent from 1 July 2015 as previously announced, as well as to dumping the mining and carbon taxes.

However, it also remains committed to introducing a 1.5 per cent levy on companies with taxable income of more than $5 million to fund its paid parental leave scheme (expected to start from 1 July 2015).

The government’s tough budget is part of its plan to restore it to surplus as quickly as possible. Its sense of urgency is at odds with the views expressed in the DSI as only 26 per cent of respondents rated reducing the budget deficit as one of the top five issues the government should address in the short term. Only 30 per cent believed the government was having a positive impact on their business decision-making, down from 70 per cent previously.

However, it is too early to tell if the results of the DSI are the first signs of a trend in which directors’ confidence in the government will slide over time. It is not unusual for a government to enjoy a honeymoon period before suffering a dip in popularity.

Indeed, directors’ perception of the Coalition government is still much more positive than it was towards the former Labor government. More than 80 per cent of the directors polled in the DSI this time last year believed the Labor government did not understand business, versus just 32 per cent in the most recent survey.

At a press conference last week to launch the results of the survey, Company Directors CEO, John Colvin, and a panel of senior directors identified the issues the government needs to address to restore the high optimism that accompanied its election win in September last year.

Colvin noted that directors’ sentiment towards the government was still ahead of the previous Labor government “by a country mile” and that the results of the DSI were likely a factor of political and budgetary realities that are often forgotten when a new government comes to power with an ambitious agenda.

President of Company Directors NSW division, Kathleen Conlon, identified several issues that could have dented directors’ confidence in the government, including a lack of progress on its promise to reduce red tape.

“Some of the discussions about moving activities from federal to state means you are likely to have more red tape because you are trying to deal with multiple states,” she said.

She added that there was also an inconsistency in policy, “in what was said during the election versus what has been delivered” and in the vision to make Australia more competitive.

Geoff Brunsdon, the executive chairman of investment bank ICS Advisory, added that directors may have expected much more consultation with the government on its reform agenda than had taken place. And, with all the talk about business contraction and job losses, he believed directors felt that there could be less emphasis on moving to a balanced or surplus budget and more emphasis on stimulating the economy.