Month: August 2022

The string of construction company failures across south-east Queensland and nationally over the past year, hastened by surging input prices, has pulled down both giants such as Probuild as well as small home-building franchisees and triggered scrutiny of the risks shared and pricing charged in Australia’s contracting markets.

Many developers underestimate builder’s margins, as they look at a contractor’s published earnings figures – Wiley, for example, made a net profit of just $2.9 million last year, implying a 2 per cent profit margin – but such a figure is not comparable with a project margin, Barron says.

“One number is a reported profit margin on real events inclusive of tax and the other number is a proposed risk margin for the obligation to assume risks relating to the creation of something that does not exist,” he says.

“Starting margin rarely, if ever, matches the finishing margin because the contractor always takes responsibility for at least one risk that crystallises in a negative result.”

But sharing more risks would make it harder to secure finance under the rules many banks use and paying more will push up the price of assets for end purchasers, developers say.

“If you look at the sort of contract financiers typically require, they generally need a fixed price and a fixed time contract with liquidated damages built in,” says Maxwell Shifman, national president of developers’ body UDIA.

There has been some discussion about more openness to different contracting methods, but taking on more risk would be hard to price and more expensive at a time of already-rising costs, Shifman says.

Barron says that in an industry where builders have been conditioned to accept low margins they must think of contracting like a futures contract – to deliver an asset at some point in time – and price the risks around that accurately.

“We’re selling certainty to our client,” he says. “If we’re giving certainty to our client, what’s stopping the client paying for that certainty, or what’s stopping us asking the client to pay for that?”

Contractors should not have to bear risks they cannot control, such as weather or subterranean conditions that could affect progress. This would also help bring an end to the system in which head contractors push as much of their own risk on to the subcontractors they engage, Barron says.

“We’ve been conditioned and trained in this business to accept low margins instead of pricing risk in the appropriate dollars,” he says.

What’s more, Cannon-Brookes’ spokeswoman on Wednesday declined to confirm to us whether any of his super remained in Spaceship (so make up your own mind).

Such was the superficiality of Spaceship’s stated commitment to provide exposure to tech stocks that it was fined in 2018 for misleading members, as 80 per cent of the fund was in boring index-tracking funds. Not to mention the fees were higher than standard My Super funds.

director spaceship Paul Dortkamp was this year banned from financial services for two years for incompetence, and former chief executive Paul Bennett copped a six-year ban for getting a junior employee to attain an Australian Institute of Company Directors qualification on his behalf.

Meanwhile, its superannuation products are burning piles of millennial cash, with GrowthX returning minus 19.5 per cent to the end of June; its investment product Voyager lost 47 per cent.

Spaceship was, and is, nothing but a fetid vehicle serving to vacuously hype the egos of tech bros, all the while (as a for-profit super fund) enriching its staff and founders at the expense of members.

Raising documents circulating readily admit “Spaceship has still not achieved the scale required to be cashflow positive”. If it was a trustee, it would be turfed out of the industry.

Atlassian’s stated core principle, “don’t f— the customer”, sadly does not apply to Grok Ventures.

It’s pure Cannon-Brookes, who stars the Australian Taxation Office of revenue via legally permissible domestic R&D tax credits and foreign-domiciled structures, owns more land than a feudal emperor, and insists that his wife annie is the one who purchased Dunk Island, as if her money is not his, all while competing with Matt Canavan for who can wear the most excruciating trucker hat.

However, Spaceship Super is all care but no responsibility, being the out-sourced promoter and marketer of a sub-fund managed by responsible entity Diversa Trustees. Diversa is the entity that has to decide whether arrangements are in the best interests of members, which perhaps it should.

The business and distribution model Spaceship runs on is so repulsive to regulators that Diversa has shut down similar operations GigSuper, Zuper, GROW Super, Brightday, MYONESUPER, Super Prophets, LEFS Super, McMahon Super and Map Super, to name a few.

But for Grok Ventures, Spaceship, too, would likely be consigned to the trash heaps of superannuation gimmickry.

A trade body has hit out at Australia’s “outdated” spirits tax regime as distillers face the biggest increase in nearly 50 years.

Tax has risen to AU$94.41 per liter of pure alcohol, based on consumer price inflation (CPI) figures, which means Australian distillers will have to pay an extra AU$1 of tax on an average 700ml bottle of spirit at 40% ABV.

“This is effectively a double whammy on spirits,” said Greg Holland, chief executive of trade group Spirits and Cocktails. “It’s the biggest increase in almost 50 years, since our tax figures were updated in 1978, and in that time spirits manufacturers have been slugged with the GST [goods and services tax] and the RTDs (ready-to-drink) tax as well. “

Australia has the third-highest spirits tax in the world, as well as a complex alcohol duty regime, trade body Spirits and Cocktails noted.

“We know all Australians are feeling the pain of inflation but this outdated tax regime means the spirits industry is effectively punished twice,” Holland added.

He noted distillers are paying ‘skyrocketing prices’ for barley, glass and cans, and freight charges that have more than doubled in certain regions.

Spirits and Cocktails cited several cost increases over the past 12 months for distillers, including a 55% increase on freight, a 20%-30% rise on glass, a 50% hike on cereals, and a 16% surge on oak barrels.

Holland noted: “On top of all the other cost of living pressures they’re facing, those millions of Australian consumers will now likely be slugged even more as a result of this excise increase.”

The trade group said the country’s ‘outmoded’ alcohol tax system indexes spirits excise to inflation, and results in increases every six months.

As such, up to 60% of the retail price of an average 700ml bottle of spirit in Australia is now taxed, the group highlighted.

Automatic increases in line with CPI means the government’s average tax take from the distilling sector, which includes pre-mixed spirit production, rises by between AU$100 million to AU$120m every year.

Holland said: “This tax is cannibalizing our industry. It has an insatiable appetite; no matter how hard our distillers and manufacturers work to grow, it keeps taking more.

“We look forward to working with the new federal government to build a more sustainable future for the Australian spirits industry.”

For an in-depth look at the Australian market, check out the August 2022 issue of The Spirits Business.

In December last year, the UK and Australia agreed to a trade deal that will remove tariffs on spirits such as Scotch whiskey and gin.