Policy surprises rarely welcomed

21/05/2009 - 00:00

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State and federal budgets provide some welcome, but unexpected, outcomes.

Policy surprises rarely welcomed

BUDGET week is a good time to be reminded just how uncertain the policy making process can be.

Many aspects of the federal and state budgets were leaked in advance, but they still delivered a few big surprises.

Canberra's tough new treatment of employee share schemes was one of the biggest shocks.

Apparently motivated by a desire to stamp down on highly paid executives using these schemes to minimise their tax bills, the government has killed off a popular form of remuneration for wage and salary earners.

The federal government will tax shares and options when they are awarded, even though most recipients would not have the cash to meet such a tax bill.

The result is that most companies will cease issuing shares to their employees. This will be a blow for the many companies that wanted to give a slice of equity - and the incentives that come with it - to their employees.

It will be a particular blow for exploration and technology companies, which have traditionally issued shares and options to compensate for their limited ability to pay high cash salaries.

Another surprise was the harsher tax treatment of Australians working overseas.

This will affect many Western Australian businesses, such as engineers, miners and contractors, who post staff to far-flung locations such as Ghana, Laos and Mongolia.

In the past, such workers have gained handy tax breaks that compensate for their foreign posting. That will not apply in future.

The good news in the federal budget included the six-month extension of the first homeowners grant boost, which will be phased out by December 2009.

New tax breaks on capital spending provided a handy outcome for the business sector.

Two days later, state Treasurer Troy Buswell provided a further boost, agreeing to a temporary payroll tax holiday for small

businesses.

The federal government's big spending on infrastructure was also welcomed, specifically the support for the Oakajee port project and the Northbridge Link redevelopment.

The feds will contribute $339 million to common-user infrastructure at Oakajee, matching a state government funding commitment.

Combined with private sector backing for port facilities and the associated rail link to planned iron ore mines in the Mid West - all at an estimated cost of $4 billion - it looks like Oakajee may proceed.

The state government's total spending on infrastructure will be a record $8.3 billion. There have been cutbacks in some areas, affecting utilities such as Western Power and the Water Corporation, but these have been more than offset by increases elsewhere.

Many businesses, particularly in the building and construction fields, can look forward to new commercial opportunities on the back of this record spending.

Similarly, federal government spending on schools, hospitals and other infrastructure will provide a major boost.

The challenge for the business sector is trying to plan with some degree of certainty.

An important step that was designed to provide greater certainty was the Gallop government's decision back in 2005 to develop a state infrastructure strategy.

Peak business groups rate this decision as one of that government's best.

After two-and-a-half years of work, under the guidance of a business reference group chaired by former Clough boss Brian Hewitt, the strategy was handed to then treasurer Eric Ripper last June.

Since then it has never seen the light of day, despite repeated calls from the Chamber of Commerce and Industry WA for its public release.

The document was designed to provide a more transparent planning process and reduces the risk of planning shocks, such as the state budget's exclusion of funding for a planned upgrade of the electricity transmission network to the Mid West.

This investment is critical to the Mid West's future, arguably just as important as the highly publicised funding commitment for the Oakajee port, yet it simply wasn't explained.

That makes life difficult for companies looking to invest billions of dollars in mining and other infrastructure projects.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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