Wesfarmers CEO Rob Scott warns against tax on unrealised gains in superannuation

Wesfarmers chief Rob Scott says taxing unrealised gains on superannuation balances over $3m could set a precedent that is deleterious to the national interest.

Wesfarmers chief executive Rob Scott

The Albanese government’s proposed tax on unrealised gains in superannuation accounts sets a bad precedent, according to Wesfarmers chief executive Rob Scott.

Mr Scott also said there were more pressing tax reforms needed in the national interest.

Mr Scott said Labor’s proposal to tax unrealised gains on superannuation balances of over $3m wouldn’t impact his business, whose operations include Bunnings, Kmart, chemicals resources and industrial services, but he was concerned the tax would trigger people to liquidate investments and set a precedent that was deleterious to the national interest.

“It creates a concerning precedent of taxing unrealised gains,” Mr Scott told The Australian on Thursday.

“I’m concerned about the precedent that it sets by adding a tax on unrealised gains.

“So there’ll be a lot of people that will be forced to liquidate portfolios in order to pay tax.

“And if you were drawing up a list of tax reforms that would be in the national interest, I think tax reforms that would encourage investment, tax reforms that are less onerous around stamp duty and payroll tax, they are things that are going to create more value in the in the community than focusing on unrealized gains.”

Mr Scott said there were other reforms needed to drive investment and productivity that was in the national interest.

“Taxing unrealised gains isn’t one of those opportunities.”

Cost of living

Mr Scott said many lower income earners are “still doing it tough” with stretched shoppers putting fewer items in their baskets and that while this week’s cut to official interest rates by the RBA was welcomed it would take time to flow through to investment and spending.

Speaking to analysts for the Wesfarmers strategy day in Sydney on Thursday Mr Scott called out the fragile state of the average shopper and that although some higher income households were loosening the purse strings to spend many Australian families were facing tough choices.

“Many lower income households are still doing it tough, (they) are putting fewer items in the basket,” he said. Wesfarmers sits atop a portfolio of leading retailers such as hardware giant Bunnings, discount department stores Kmart and Target and office supplies chain Officeworks and while they were focused on providing value Mr Scott was witnessing a more cautious shopper.

He said this week’s interest rate cut by the RBA, which lowered rates by 25 basis points, was a “welcome source of relief” for households and businesses but would not immediately translate into rising investment and spending.

The 0.25 percentage point cash rate reduction is the second rate cut following 13 rises since the RBA began lifting rates in 2022.

Turning to the business environment, he said many businesses, large and small, were also struggling under the weight of rising costs and increasingly “onerous and complex” regulations. These regulation hurdles were particularly evident in the building industry.

“Business customers still feel the pressure, big and small, from elevated costs and navigating more onerous and complex regulations particularly in the building sector,” Mr Scott said.

He added we were living through “uncertain and volatile times” in terms of the cost of doing business for companies such as Wesfarmers.

Wesfarmers boss Rob Scott, whose conglomerate owns Kmart, said many households were still doing it tough. Picture: Andrew Henshaw

In a week when Wesfarmers shares traded at all-time highs, closing at a record $84.06 on Wednesday to be up more than 25 per cent in the last 12 months, Mr Scott said investors holding shares in the company today should have confidence in the conglomerate’s ability to deliver superior returns well in the future.

“We are singularly focused on providing products and services that are making life more affordable and more accessible for Australian households and businesses, and I really wouldn’t underestimate the power of that.”

Mr Scott said the conglomerate was interested in merger and acquisition opportunities and believed there was capacity for the company to add a new business pillar to sit alongside its existing divisions of retail, healthcare, industrial services, resources and digital but that the company would be cautious when forging new deals as it looked for earnings accretive opportunities.

“We have capacity to have another division given how well our business are set up at moment, but I must admit it is quite hard to find the opportunities that would be accretive. We have the best businesses in Australia with growth opportunities, we can deliver top quartile total shareholder return without merger and acquisitions (M&A) and if we do (M&A) we want to do that without it being dilutive.”

In his presentation Mr Scott said Wesfarmers is well placed to navigate the current volatile economic cycle thanks to its portfolio of retailers like Bunnings and Kmart that offer value as well as growing investments in healthcare, lithium, data and digital.

“The group’s omnichannel assets and capabilities now provide a source of competitive advantage, with significant growth upside,” his presentation to analysts reported.

“Investments in data and digital have strengthened the group’s omnichannel retail businesses.”

Mr Scott said Wesfarmers had the optionality to deploy and reallocate capital, supported by strong financial discipline.

Bunnings boss Mike Schneider confirmed in his presentation to the strategy day that he believes the hardware giant’s addressable market is around $110bn as the retailer pushes into new categories such as pets products, cleaning and disability and assisted living.

“Our model and addressable market continues to support growth and resilience through the cycle,” he said.

Mr Schneider said it’s addressable market was fragmented and highly competitive across a large range of categories from decor and gardening to electrical, tools and kitchens.

He said strong fundamentals underpin lend long-term growth for Bunnings which included population growth, housing growth, lifestyle and demographic trends and innovation and technology.

Turning to the retailer’s operations Mr Schneider said Bunnings had a strong track record of driving sales growth faster than space growth.

“Over the last decade, Bunnings has grown sales at around 3.7 times faster than space growth

“Targeting average space growth of around 1-2 per cent per annum to fiscal 2029 underpinned by a pipeline of 100 plus projects.”

He said the recent launch of its media and advertising arm, Hammer Media, had seen initial campaign partnerships delivering strong engagement and returns for advertisers.