Thursday 14 May 2015 by William Arnold Company updates

Budget 2015: impact for FIIG-originated bonds

Small business, childcare, and foreign aid were among the sectors targeted by the Federal Government in the 2015 budget delivered this week

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Below, we discuss the FIIG-originated bonds most likely to be affected by the proposed changes should they be implemented: Dicker Data, G8 Education, Coffey International and Silver Chef. 

Dicker Data

The budget should be beneficial for Dicker Data given small businesses will be able to claim an unlimited number of immediate tax deductions for equipment related to their business up to $20,000.

However, Dicker Data founder and chief executive David Dicker said that while some of the offerings for small business and tech companies were positive it was too early to tell if it would have a substantive impact. “Obviously, the government thinks that it is going to provide a substantial stimulus. We would certainly like to see an uplift in hardware sales and the like, but you just can’t predict it. You can never know what people are going to do.”  

G8 Education

The country's largest, for-profit childcare operator G8 Education should benefit from an extra $3.5bn in funding for subsidies, effective 1 July 2017. Under the new system, high-income families earning about $185,000 or more will have their 50% childcare rebate capped at $10,000 a year, which is $2,500 more than the current subsidy, while families earning $65,000 or less will have 85% of their costs covered.

Coffey International

The foreign aid budget will be reduced by $980m to $4.1bn.  In addition to the $11bn in reductions over four years announced last year. This will have an effect on Coffey’s International Development business over the medium term.  However, revenues from the Australian Government make up only 35% of International Development revenues or 9.2% of its total revenue (FY14). So, any impact would be manageable. Further to this the UK is increasing it’s aid budget which should provide some offset. 

Silver Chef

The budget should be positive for small business lender Silver Chef, given it is designed to drive small business growth. Businesses with less than $2m in turnover will see their tax rates cut to 28.5% from 30% and sole traders will also get a 5% tax discount of up to $1,000.

Against this, the immediate tax deduction for each and every item purchased up to $20,000 could be a threat to the equipment lessor as enterprises have been given incentive to buy these items outright. However, we believe the impact is likely to be minimal given the importance of cashflow to small business owners which drives their preference to lease in the first instance. Silver Chef chief executive Allan English agrees, he said, “Put it this way, we are not altering our strategy or our earnings forecasts,’’ he said.

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