The latest VECCI-Commonwealth Bank Survey of Business Trends and Prospects has confirmed that Victorian businesses experienced a difficult start to 2012, and confidence on the outlook for the economy is weak.

In the March quarter 2012, a widespread decline in profitability was reported; manufacturers and retailers continued to experience difficult conditions and regionally-based businesses were particularly concerned about conditions over the year ahead.

With a less than rosy business outlook, the key question is what steps can be taken to at least reverse the trend and get business confidence heading in the right direction?

While there are global and national forces at play which are causing difficulties and uncertainty, it’s important to note that there are steps that can be taken.

The State and Commonwealth Governments must support businesses through practical actions that lower business costs, improve productivity and encourage private sector investment.

We believe that this should include a broad range of initiatives, including:

• Faster progress in reducing red tape for businesses, particularly small businesses, in areas such as waste policy, liquor licensing and a removal of overlap of consumer protection laws
• Continuing support to build new international trade opportunities for Victorian businesses in key markets like China and India.
• More efficient and effective education and training for industry to improve productivity, from a review of current state education curriculum frameworks, to assistance to initiatives to boost employment of people with a disability or chronic illness.
• A commitment to support private sector infrastructure development and the progression of major projects such as the East-West road link, improved links between regional centres and extension of the Melbourne Exhibition Centre.
• Strategic new investment to support Victoria’s regions, and tourism and events industries – including the implementation of natural icon infrastructure projects, to promote the state as a place full of great nature-based experiences.

Business confidence won’t be restored immediately, but practical steps in these areas will reduce the cost and regulatory burden of operating a business, open up new doors to growing international markets, increase the capacity of our workforce and ensure economic benefits are spread across the entire state of Victoria.

After the freeze on tax cuts in the 2009/10 Budget as a result of the Global Financial Crisis, it is time for the Victorian Government’s tax reform agenda to resume.

This is particularly so now that the Federal Government has demurred on the Henry Review’s state taxation recommendations, and when recovering economies and revenues will prompt other States to look at tax cuts – South Australia’s land tax cuts earlier this year are a case in point.

With the economy and taxation revenues recovering, we believe the time has come to initiate a new round of business taxation reform.

Such a commitment would complement the State Government’s ongoing commitment to reducing the regulatory burden and would be timely in light of significant cost pressures faced by business.  These include: 

• Interest rate rises.
• The damaging impact of the Victorian bushfires and drought.
• Higher insurance premiums.
• A high AUD and weaker global demand for key export products and services.
• Persistent wages growth across many sectors of industry.
• Rapidly rising water and energy costs.

In recent times, the introduction of a range of proposed, new or extended taxes and charges has also added to business cost pressures.  These include higher waste levies, new stamp duties on leases, the Growth Areas Infrastructure Contribution and the proposed Freight User Access Charge.

In such an environment, it is highly appropriate that the Government do what it can to demonstrate its support for Victorian industry through practical actions that lower business costs and improve the environment for capital and jobs growth. 

While WorkSafe’s financial performance came under pressure over 2008/09, due to the impact of volatile investment markets, the overall underlying health of the scheme remains robust, with a $600 million half-year surplus recorded in March.

As financial markets have progressively recovered, we expect this will restore the capacity of the Government to deliver renewed premium relief to employers. With model national OHS laws to become operational in 2011 it is crucial that Victoria maintains an efficient, effective and competitive WorkCover system.

The competitiveness of Victoria’s tax regime generally and the operation of our payroll tax (PRT) and land tax systems in particular play an important role in underpinning economic growth, confidence and investment.  In this context, it is crucial that these key tax areas remain competitive against our interstate counterparts.

Key Messages

Business tax must fall because of:

• Need to remain competitive with other States – eg. SA land tax cuts
• Increased business costs: rising interest rates, AUD, energy and water costs
• State taxation revenues are recovering

VECCI recommends: 

• A reduction in the payroll tax rate to 4.85 percent and an increase in the payroll tax threshold to $700,000 (effective from 1 July 2010), with the rate falling to 4.75% by 1 July 2011.
• A 0.3 percentage point reduction in the middle-upper land tax rates (total taxable value of landholdings between $1,800,000 to < $3,000,000).
• That the Government reduce average employer WorkCover premiums by 5 percent from 1 July 2010.

We also recommend significant infrastructure expenditure to improve business efficiency and provide a platform for growth.

These initiatives will improve business cash flow positions and make it easier for employers to not only maintain existing employment and investment levels, but confidently expand their operations into the future.

VECCI’s Pre-Budget submission covers a range of Budget-related issues including economic management, taxation, infrastructure, skills, regional Victoria and tourism/major events. The abolition of the Long Stay Car Park Levy (Congestion Levy).

The Rudd Government’s announcement that it will delay consideration of an emissions trading scheme to the end of 2012 comes amid increasing public scepticism of the cost and impact of the scheme on reducing carbon, as well as the slow or non-existent pace of adoption of such schemes by other countries.

VECCI considers that sustainability and carbon reduction are in the long-term interests of Victorian business, the broader community and the environment. We also remain of the view philosophically that market mechanisms are the most efficient policy tools to encourage and leverage investment in sustainability.

The move to push back emissions trading, in the face of lower than anticipated global commitment and continuing fallout from the financial crisis, will be viewed as a setback by some investors and businesses in Victoria but will also be welcomed by many businesses faced with higher power costs.

However, this delay should not be viewed as a reason to halt action on sustainability and sensible responses to climate change.

This development does not change the fact that we still need frameworks to deliver strategic, planned investment to commercialise low carbon energy technologies, build smart networks (where cost-effective) and encourage appropriate use of distributed generation.

VECCI’s view is primarily that action on sustainability makes business sense, and that businesses should be encouraged and supported in taking action.

The take-up of VECCI’s sustainability products and services, such as Grow Me The Money, show that pragmatic support can make a real difference. By taking actions individually, businesses demonstrate that embarking on a sustainability journey actively contributes to saving money, cutting emissions and helping the environment. 

Sustainability is in the long-term interests of business, the broader community and the environment and VECCI remains committed to supporting all Victorian businesses and advocating for business-friendly policy responses on climate change. 

*with contributions by Bridget Ryan, Megan Stuart, Steven Wojtkiw and Chris James

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Grow Me The Money is a 12 month online program designed to help small-to-medium sized businesses like yours become more sustainable and save money. Grow Me The Money has been developed in partnership with the Victorian Employers’ Chamber of Commerce and Industry (VECCI) and Environment Protection Authority Victoria (EPA Victoria) under a Sustainability Covenant.

UPDATE (2:45pm, 02/03/10) - “Reserve Bank raises interest rates by 25 basis points to 4pc” [The Australian]

As Australia continues its climb towards economic stability and growth, each interest rate announcement from the Reserve Bank has been greeted with its fair share of coverage and commentary.

Today, many keen “rate watchers” are expecting that the Reserve Bank to raise interest rates:

Reserve Bank chief Glenn Stevens sent an upbeat economic message on the eve of the meeting expected to raise interest rates. Mr Stevens said Australia’s government finances were “in terrific shape” and economic stimulus from interest rate cuts had “worked a treat” [Herald Sun]

In addition, some suggest that the Reserve Bank’s interest rate rises are vital part of restoring Australia’s economy. However, VECCI’s Steven Wojtkiw and Jodie Wickham believe that this issue must be considered within a wider context.

Steven: “Where is the economy overheating to warrant an increase in interest rates? Job recovery has been fragile, investor confidence – outside the housing market – is fragile, and Federal Government finances are hardly ‘in terrific shape’ with significant debt that now needs to be retired. The effects of the fiscal stimulus are fading – from where will the impetus come?”

Jodie: “The National Accounts are due for release tomorrow and will provide further evidence regarding the state of our economy. The results for the September quarter at national level were positive (0.2%), but modest, and below expectations. While public sector investment and household spending contributed to growth over this period, exports and business investment declined.

These results line up with the VECCI – Commonwealth Bank Survey of Business Trends and Prospects which indicates that while business conditions and confidence are experiencing some improvement, growth in employment and profitability is modest, and business investment levels remain low.

Despite the improvement in confidence, this has not yet converted into significant private sector investment. This could be put at greater risk if interest rates were to increase.

We hope the Reserve Bank will consider this data in concert with other relevant factors to inform interest rate decisions moving forward.”