Let them… smoke cigars?
We have long believed (and written) that the risk to changes to the Fringe Benefits Tax (FBT) in the budget were non-existent. The share price decline of McMillan Shakespeare (ASX: MMS) over recent months however, suggested the rest of the market believed otherwise.
There were few positives in last night’s federal budget. Somehow raising the pension age to 70 in 2035 is going to help the budget deficit this year, but we’ll leave you to do the math on that one.
One of the more interesting developments was the admission from treasurer Joe Hockey to political commentator Laurie Oakes that he was dancing to the tune of Best Day Of My Life in his office, minutes before delivering a “painful” budget for elderly, disabled and pensioner Australians. During the interview, Hockey initially feigned ignorance, before offering inconsistent reasons for doing the jig. A difficult time for the treasurer who must try and sell the budget’s merits to the opposition just days after being caught puffing on a cigar outside Parliament House with finance minister Mathias Cormann. It’s safe to say that the “common man” camouflage will be pounced upon by the Opposition – which may produce a positive outcome for genuinely hard-working Australians.
You can watch the interview below.
A far more tangible ‘positive’ (and the real subject of this blog post) was that the budget was an outstanding outcome for MMS.
The budget delivered no regulatory change. The market had previously retained concerns that FBT exemptions for novated leases would be removed. In fact, we understand that for the health and charity sector there’s an added incentive because FBT caps are being increased so that high income earners do not circumvent the higher tax rates associated with the Deficit Levy – a tax on successful Australians to pay for the fiscal ineptitude of unsuccessful politicians.
While we aren’t in the business of predictions, we think it reasonable to expect the price of McMillan Shakespeare to ‘re-rate’.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Laurie T Gordon
:
To any person under the age of 18 is illegal to sell tobacco products.
Fine cigars, frustrated and desperate Australian connoisseurs of quality cigars in Australia on a group of early access to a limited selection, can be traced back to 2009 and finally lost their patience. To import the contact information they grouped themselves together and cigar and began to cultivate quality suppliers.
Andrew Legget
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Not surprisingly, the budget backed up the very good analysis done by Montgomery in relation to MMS. Another investment case study of investing on sound analysis rather than noise and sometimes hysteria.
As for the budget, a few things in they probably had to do, some thing that don’t concern me too much and a few things i really disagree with.
One area of concern, I am not seeing any plan for youth unemployment. In fact i am seeing the opposite with incentives (or penalties, choose your own term) for older people to stay in and work for longer whilst at the same time cutting education funding and allowing unis to raise the cost of fees of attending uni. I fear we will end up with a whole bunch of young unskilled workers which i believe will be a bigger structural issue than any raise in the pension age would be especially as we can’t compete worldwide on low skilled roles which can be easily outsourced and move to a more specialised economy.
Won’t get too much into it as this isn’t a political blog so i have kept it to what i believe a more economic issues.
The GP visit fee makes sense at an economic level, however like many financial and economic theories, i expect this to cause a few problems when you introduce the real world into the equation with people delaying their visit to see a GP when unwell and there for missing the best chance of treating the underlying condition successfully. This means people will get sicker before seeing medical help and increase the probability of needing hospital treatment as general bugs and flus turn into chest infections which could turn into pneumonia etc. Also, people will not take the day off work when sick to avoid needing to see a Dr and get a certificate for taking the day off to recover which increases the chance of co-workers being infected with bugs and hitting a general productivity level.
Finally, i am yet to hear any real vision or blueprint to tackle the fact that we can’t survive on exporting rocks and dirt to other countries forever and that the time this stops being a key driver of the economy is fast approaching. Where are the incentives for tech, medical, financial services businesses to start up and call australia home or for big companies overseas to set up shop in Australia.
All in all, i will say it was a budget very high on politics and left a lot to be desired.
I am already expecting a reduction in the defecit either next year or the final budget before the next election but this is more due to the fact that i expect the $8b given to the RBA which they didn’t ask for will be stripped out as a dividend back to the governments coffers.
Roger Montgomery
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Thank you once again Andrew for sharing your carefully considered thoughts. They add terrifically to the conversation here at the insights blog and over at Montgomery too.
gary chin
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Roger,
I read some interesting commentary on the background of some of the proposed budget exemption in a Thompson Reuters tax newsletter that sets out how structural some of the FBT concessions are:
“The cash value of benefits received by employees of public benevolent institutions and health promotion charities, public and not-for-profit hospitals, public ambulance services and certain other tax-exempt entities will be protected by increasing the annual FBT caps (currently $17,000 and $30,000).
The benefits in question have ranged from payments for meals and accommodation to school fees, mortgage repayments, house rates, electricity and gas bills, etc under salary packaging arrangements. The exempt benefits caps were originally introduced to assist organisations like public hospitals etc obtain and retain good staff as they did not have the funds to compete with the private sector, but concern has grown over the years that the exemption was not being used in the manner originally intended, nor in the spirit of the law. The ability to utilise the exemption more than once where employees (eg medical specialists) worked for more than one employer was also a concern.”
Keep up the entertaining posts.
Gary
david.keel.3597
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Roger, thanks to yourself and the team for sharing such an in depth analysis of MMS over the previous months.
Hopefully you are correct about the re-rating but do you think there is an ongoing regulatory risk for MMS that the market will take into account? Going forward, it seems to be a bit of a gamble on whether politicians will keep their promises which is something that I would prefer not to bet on! Call me cynical, but I can see them doing a complete backflip like they have with tax increases and calling their stance on the FBT legislation a “non-core” promise or something like that.
Regardless, I have very much enjoyed the analysis on this company so thanks to you and the team.
Cheers
Dave
Roger Montgomery
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Three years of safety?
michael yeh
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I understand why Joe may been up beat about delivering his first Budget.
What I and I’m not sure about is the co payments on medical services. I can tolerate a lot of the bad news and cuts in the budget. I have a good job and I will be ok.
I don’t feel comfortable making parents having to pay to take young children to doctors and or to get blood tests. 7 dollars is not much but it can multiply and early prevention can be vital in saving peoples lives.
I would have liked to seen a consession for children under 16 to receive free doctors visits and maybe a top end for elderly over 75 to receive free doctor vists.
Paul
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This is a bit of a nasty post, Roger. Joe hockey dancing with his wife/spending time with family is private. So too is joe hockey smoking a cigar with his colleague.
An investment blog (which I read refularly, by the way) should not be making personal attacks. Focus instead in the substance of the budget please.
Roger Montgomery
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Thanks for the advice Paul. Our team had failed to publish the substance of the blog post (which should now be up) about the impact of the budget on MMS.
Wayne A
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This is not a nasty post at all. Joe Hockey has shown himself to be so out of touch with “ordinary folk” that he struggles even to feign otherwise.