company profits - bonanza

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    Boost in profits makes room for windfall
    David Uren, Economics correspondent

    COMPANY profits are delivering a revenue bonanza, giving the Government the money it needs to finance further tax cuts.

    Pre-tax profits have jumped by $15billion to $98.3billion over the past year, giving the Government an estimated $5billion in additional revenue.

    The surge was led by the mining industry, with profits rising $5.1billion to $17.5billion.

    But many other sectors, including manufacturing and construction, are also showing healthy profit growth.

    Commonwealth Bank chief economist Michael Blythe said profits were being driven by the strength of export prices, while the cost of imports was falling.

    "One of the reasons the budget surplus has been so high is because company profits have been ahead of expectations. That still looks to be the case.

    "Some of that profit is flowing into company tax payments, which gives the Government the money to return in tax cuts to the household sector."

    Profits were particularly strong between March and June, and most economists now expect the national accounts, out tomorrow, will show the best GDP growth since the last days of the housing boom in late 2003.

    The strength of the economy is unlikely to have shifted the thinking of the Reserve Bank board, which met yesterday to consider interest rates, as there is still no sign of any outbreak of inflation.

    HSBC chief economist John Edwards said the profit share of the economy was likely to exceed 27per cent in the June quarter, the highest level since records began in 1959.

    He said the high level of foreign ownership of resource companies meant the Government kept a larger share of their profits, as domestic company profit tax is refunded to shareholders as franking credits.

    Mr Edwards said the budget would also be helped by the continued growth of employment, with total salaries rising by 6.2per cent last year. "Over the last 11 months, we've had unprecedented employment growth, and the bulk of it has been full time. That goes directly into personal income tax."

    The total salary bill reflects wage increases and higher employment. Economists estimate actual wage levels rose by only 0.8 per cent in the June quarter.

    Total salary bills are rising most rapidly in the mining industry, increasing $1.1 billion to $7.8billion last year.

    The latest business indicators show that small unincorporated businesses are starting to recover after sharp falls in their profits.

    Macquarie Bank senior economist Brian Redican said economic growth in the June quarter could reach 1.2 per cent.

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