Medici Capital > Articles > Pharmacy Federal Budget Briefing 2006

Article By:

Frank Sirianni

Pharmacy Federal Budget Briefing 2006

Tuesday, 3 October 2006

On May 10 Medici Capital hosted a Pharmacy Briefing Dinner in Melbourne with Guest speaker Kos Sclavos (National Guild President). The night was attended by a large select group of individuals ranging from Pharmacy associations, and media to prominent pharmacists as well as senior executives of the major Banks, wholesalers and generics manufacturers. The evening, held only one day after the federal budget was released, was to address the Impact of the Federal Budget on Pharmacy, and Generics in Pharmacy. In addition to Kos's presentation Frank Sirianni provided a formal introduction and briefing before presenting the Pharmacy Economic Update.

Medici Capital is the major valuer of pharmacies throughout Australia and the analysis andinformation we release is sought after by banks and other pharmacy service providers. Ouranalysis and method of valuing has become the cornerstone upon which many Banks have builttheir lending policies. Our focus on risk assessment is fundamental to the stability ofthe community pharmacy industry.

With over 26 years of data and analysis, Frank Sirianni is able to quantify and support the valuations we produce, not just second guess the market or the brokers.

An objective of the Medici Capital Pharmacy Functions is to provoke discussion on criticalstrategic issues as well expose pharmacy to viewpoints on the climate in which it operates.More importantly, they provide valuable insights for development and planning as well asrelease of Medici Capital research.

BACKGROUND:
In an environment of a significant budget surplus, the Federal Budget focuses on tax reform.

At the recent Medici Capital Pharmacy Dinner held in Melbourne on May 10, Kos Sclavos(National President, The Pharmacy Guild) and Frank Sirianni (Medici Capital) presented afew important facts about pharmacy.

The 2006 Federal Budget notably includes sweeping changes to superannuation. Anotherform of tax reform.

The overall message for pharmacy is an economy with a continued growth outlook of 3.25%and inflation estimate of 2.75% with unemployment maintained at 5.25%. A steady as she goes budget.

Other key estimates implicit in the budget include:

A slight increase in real GDP growth
Wages growth to slow down notwithstanding the shortages of skilled staff
Continued increases in commodity prices and further business investment

For pharmacy, the Budget confirms that PBS growth, evident in Treasury's budget estimates,has fallen to its lowest level for two decades: 2.1% in 2005/06 compared with 2004/05.

Recent Government measures to rein in the cost of the PBS are working and now is not the timeto be contemplating further drastic measures to cut the cost of the PBS.

GENERAL BUSINESS MEASURES:
Superannuation:

Lump sums, benefits and superannuation pensions Tax free from July 2007
Removal of RBL
Self-employed gain full tax deduction
Less complexity in Superannuation

Australia is one of the few countries in the world where an apolitical area such assuperannuation, designed to reduce the burden on the economy of retirees, is taxed3 times - 1) contributions tax; 2) earnings; and 3) on withdrawal.

Taxation Measures:

Tax cuts for all with marginal rates reduced at all levels and maximum rate (now 45%)at $150,000 per annum
Small business tax based initiatives
Accelerated depreciation on plant and equipment for business from 150% to 200%
Capital Gains Tax simplified for small businesses
Tax exempt investment vehicles for innovation

Pharmacy Related Measures:

Extra $4.2 billion for Health and Ageing
$1.9 billion for mental health
$905 million in Health and Medical Research resulting in big gains for Pharmacy
$250 million for Australian Better Health Initiative
$250 million to train more doctors and nurses
$214.1 million to combat illicit drug use and drug and alcohol services
$136.7 million for Aboriginal and Torres Strait Islander health services
$51.7 million for access to mental health services for people in rural and remote areas
$25.2 million for a media campaign to discourage abuse of alcohol
$15.5 million for pregnancy counselling services

It is apparent that despite the overall strong budget position, the Government (and Treasury)see no particular priority for health spending. The 2006-07 Budget sees Health Outlays decliningrelative to overall Budget Outlays with a reduction from 18.3% of total budget spending to 18.1%.

As with previous years, many of the health related initiatives have been announced prior to the budget.

CONCLUDING COMMENTS:
In many ways the budget maintains a relatively stable economic environment with a slightstimulus to spending. This stimulus has been offset by the fuel price and interest rate rises.

The net affect may be seen as neutral.

Similarly for pharmacy, the budget was relatively neutral. However, the regulatory and policyissues being determined by both Health and/or Treasury are setting the scene for major andcontinued attacks on the PBS.

Despite PBS spending being under control, and perhaps in decline in real terms, Abbott seeks tofurther reduce the PBS.