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Federal Budget 2023-24 Analysis
Market movements & review video – May 2023
In the lead up to the Federal Budget, better-than-expected inflation figures were cause for optimism that the lengthy run of cash rate hikes have had an impact.
US stocks in April saw the biggest rally that has been experienced for months, as investors looked beyond gloomy economic data.
Local markets were buoyed by the Wall Street rally, as well as welcome signs of inflation easing, with the ASX200 ending the month slightly higher.
Please get in touch if you’d like assistance with your personal financial situation.
April 2023
Autumn 2023
With Autumn underway, the changing season is a reminder to take stock and prepare for what’s ahead as the financial year heads towards its final quarter and the May Federal Budget.
The gloomy prospects for economic growth, both in Australia and overseas, are occupying the minds of investors, businesses and political leaders.
The Reserve Bank of Australia believes global growth will remain subdued for the next two years and that Australia‘s economy will slow this year because of rising interest rates, the higher cost of living and declining real wealth. The RBA forecasts the unemployment rate, currently at a low 3.5%, to rise by mid year and inflation, which was 7.8% over 2022, to drop to by around 2-3% over coming years thanks to an easing in global prices that will eventually flow through to Australian prices. Oil prices fell almost 3% in February reversing the increase of the previous month.
There have been some economic bright spots recently such as the rebound in retail trade in January of 1.9% after a 4% plummet in sales figures in December. And, Australia‘s current account surplus increased $13.3 billion to $14.1 billion in the December quarter 2022 supported by sustained high commodity prices including $400 billion worth of mining commodity exports during 2022.
That positive news was enough to lift the Australian dollar slightly to just over US67c, halting a slow decline during February.
Australian shares were down by almost 3% during February, while US stocks were down by just over 2% for the month and more than 7% for the past year.
January 2023 Newsletter
As a new year begins, we wish everyone a happy, healthy and prosperous 2023. Many families will be glad to put 2022 behind them and although challenges remain, we look forward to better times ahead.
As 2022 drew to a close, investors remained focused on inflation, interest rates and recession worries. Inflation is running at around 7% to 11% in most advanced economies, including Australia (7.3%). The Reserve Bank of Australia (RBA) lifted its target cash rate by another 25 basis points to 3.1% in December, the eighth monthly rise in a row, up from 0.1% in May. The RBA noted that “inflation is expected to take several years to return to target range (2-3%)”, and most economists expect at least one more rate increase.
High inflation and borrowing costs continued to weigh on consumers in December. The ANZ-Roy Morgan consumer price index was steady at 82.5 points in the run-up to Christmas, 26 points below the same period the year before. Slowing consumer demand and rising costs also dragged the NAB business confidence index into negative territory for the first time in 2022, down to -4.4 points in November.
But it’s not all bad news. Australian company profits rose 18.6% in the year to September, the fastest pace in five years. Unemployment remains low, despite edging up to 3.45% in November and annual wages growth was 3.1% in the September quarter, the fastest pace in a decade. The Aussie dollar lifted slightly to US68.13c in December, down 6% for the year. Iron ore prices lifted 8% over the month but were down 1% for the year, while oil prices (Brent Crude) eased slightly but were up 11.4% in 2022 as war in Ukraine disrupted supply.
2022 Year in Review
Inflation dominated the economic landscape
The year began optimistically, as we finally began to emerge from Covid restrictions. Russia threw a curve ball that reverberated around the world and suddenly people who hadn’t given a thought to the Reserve Bank were eagerly waiting for its monthly interest rate announcements.
2022 was the year of rising interest rates, surging inflation, war in Ukraine and recession fears. These factors created cost-of-living pressures for households and a downturn in share and bond markets.
Super funds suffered their first calendar year loss since 2011. Ratings group Chant West estimates the median growth fund fell about 4 per cent last year.i
The big picture
Even though investors have come to expect unpredictable markets, nobody could have predicted what unfolded in 2022.
Russia’s invasion of Ukraine in February led to a global economy and investment markets shake up. It disrupted energy and food supplies, pushing up prices and inflation.
Inflation sits around 7 per cent in Australia and the US, with the Euro area around 11 per cent.ii
As a result, central banks began aggressively lifting interest rates.
Rising inflation and interest rates
The Reserve Bank of Australia (RBA) lifted the cash rate from 0.1 per cent in May to 3.1 per cent in December,iii quickly flowing through to mortgage interest rates.
Australia remains in a better position than most, with unemployment below 3.5 per cent and wages growth of 3.1 per cent running well behind inflation.iv
Australia’s economic growth increased to 5.9% in the September quarterv before contracting to an estimated 3 per cent by year’s end.vi
Volatile share markets
Investors endured a nail-biting year.
Global shares plunged in October only to snap back late in the year on hopes that interest rates may be near their peak. The US market finished 19 per cent lower, due to exposure to high-tech stocks and the Federal Reserve’s aggressive interest rate hikes. Chinese shares were down 15 per cent as strict Covid lockdowns shut down much of its economy.
Australian shares performed well by comparison, down just 7 per cent.
Energy and utilities stocks were strong due to the impact of the war in Ukraine on oil and gas prices. The worst performers were information technology, real estate and consumer discretionary stocks due to cost-of-living pressures.
Property slowdown
After peaking in May, national home values fell sharply as the Reserve Bank began increasing interest rates. The CoreLogic home value index fell 5.3% in 2022, the first calendar year decline since the global financial crisis of 2008.
Sydney (-12 per cent), and Melbourne (-8 per cent) led the downturn. Bucking the trend, prices edged higher in Adelaide (up 10 per cent), Perth (3.6 per cent), Darwin (4.3 per cent).
Rental returns outpaced home prices, as interest rates, demographic shifts and low vacancy rates pushed rents up 10.2 per cent in 2022. Gross yields recovered to pre-Covid levels, rising to 3.78 per cent in December due to strong rental growth and falling housing values.
Despite the downturn, CoreLogic reports housing values generally remain above pre-COVID levels. At year end, capital cities combined were still 11.7 per cent above March 2020 levels, while regional markets were 32.2 per cent higher.
Looking ahead
While the outlook for 2023 remains challenging, there are signs that central banks are nearing the end of their rate hikes.
Issues for investors to watch out for in the year ahead are:
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A protracted conflict in Ukraine
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A new COVID wave in China disrupting supply chains further, and
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Steeper than expected falls in Australian housing prices which could lead to forced sales and dampen consumer spending.
If you would like to discuss your investment strategy in the light of prevailing economic conditions, please get in touch.
Note: all share market figures are live prices as at 31 December 2022 sourced from: https://tradingeconomics.com/stocks.
All property figures are sourced from: https://www.corelogic.com.au/news-research/news/2022/corelogic-home-value-index-australian-housing-values-down-5.3-over-2022
i https://www.chantwest.com.au/resources/another-strong-month-for-super-funds-as-recovery-continues/
ii https://tradingeconomics.com/country-list/inflation-rate
iii https://www.rba.gov.au/statistics/cash-rate/
iv https://www.rba.gov.au/snapshots/economy-indicators-snapshot/
vi https://www.rba.gov.au/publications/smp/2022/nov/economic-outlook.html
Keeping yourself accountable
At the end of the day, we are accountable to ourselves – our success is a result of what we do – Catherine Pulsifer
It can be both empowering and a little uncomfortable to think that we are responsible for our successes – and failures. Being willing to accept the consequences of our actions, choices or behaviours is not always easy.
We’ve all at some time or another played the “blame game”. It’s so easy to look outward and blame others for our problems, hardships or the obstacles that are getting in the way of us achieving our goals and dreams. For example, it’s the company’s fault that I keep getting passed over for that promotion, my team at work is holding me back, my partner is not being supportive enough of me.
The reality is there are always external forces at play that impact our lives and focussing on these external forces takes away our personal accountability.
What does it mean to be accountable?
Being personally accountable means taking responsibility for one’s own actions (or in some cases – lack of action!). It’s maintaining an ongoing commitment to yourself and what is important to you.
Here are a few ways you can become more accountable.
1. Remove the roadblocks
It all starts with your mindset. Choose to consciously embrace an accountable approach and recognise that you are the architect of your destiny.
That means letting go of the excuses and recognising them for what they are – roadblocks that are holding you back from taking responsibility for your own actions.
2. Set goals
It helps to know what you are trying to achieve – whether that be in your career, relationships or personal life. Take the time to set concrete goals, jot them down, and have a plan of how you will achieve them and in what timeframe.
Start by setting yourself smaller goals as they will be easier to achieve in the beginning. Setting goals (even if they are small ones) and achieving them allows you to prove to yourself and others that you can and will hold yourself accountable.
3. Create your own opportunities
Accountability empowers you to be in control of your actions in your personal life and career. You can create your own opportunities rather than passively allowing life to happen to you.
Being accountable is about fulfilling your obligations to yourself as well as to others, so when you achieve what you’ve been aiming for, take time to recognize these milestones and celebrate them.
4. Take responsibility for your decisions
Embrace the ‘good, the bad – and the ugly’ and accept the consequences of your actions, choices and behaviours, be they positive or negative.
Revel in the positives, but don’t be afraid to admit and own up to your mistakes. One of the most powerful ways we learn is through making mistakes and taking responsibility for them. That means acknowledging that there is a problem, identifying your role in it and proposing a solution to minimise or eliminate the chances of it happening again.
5. Learn from your mistakes
To reach your potential it’s necessary keep extending what you are capable of and taking risks and that means making mistakes. Don’t beat yourself up but think of what you would have done differently and what you’ve learned from the experience.
6. Ask for help
The road to success does not have to be a lonely one. While you are responsible for your own successes, that doesn’t mean you can’t ask for a hand or even better, work with another, or others to get the support and encouragement you need.
An accountability partner can be someone who shares your goals and supports you to keep your commitments or maintain progress on a desired goal.
Having an accountability partner has been proven to increase your chances of success to an astonishing 95% if you have a specific accountability appointment with a person you’ve committed to.ͥ
So, if you are wanting to be more accountable to your own success this year don’t go it alone – make a time for a chat with us and we can work with you to help you achieve your goals and dreams.
i https://www.afcpe.org/news-and-publications/the-standard/2018-3/the-power-of-accountability/
How to plan a gap year for grown ups
It’s not just school leavers who dream of a gap year. Those of us who’ve been working for a decade or two (or more) may also long for a real break from career and commitments.
It does not even need to be a year – just enough of an extended break to reset and to take stock of what’s important to you. There‘s the opportunity to learn new skills or another language, explore different cultures or do a road trip around Australia.
By planning ahead and making sure your break is not going to derail future financial goals, taking an extended period off work can be achievable.
Dare to dream
Start by finding an idea that might work for you. There are a host of websites that can help you to plan your adult gap year. They will provide tips and tricks for travel and where to find work (paid or volunteer).
You might consider:
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Setting off around Australia. Taking off on an extended trip you can take the time along the way to really get to know parts of the country you’ve never seen. You could camp, caravan or stay in quirky country motels along the way.
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Chasing the sun. Research affordable countries in warmer climates and set up in a beach shack. You will need to check rules on tourist visas.
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Becoming a backpacker. There are plenty of cheap but comfortable accommodation options around the world to allow you to prolong your time away.
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Taking a long walk. You can find much-loved and ancient tracks in Australia and around the world to expand your horizons. From the Great Himalayan Trail in Nepal – to Spain‘s Camino De Santiago, or one of Australia‘s iconic walks such as the Heysen Trail in South Australia.
The importance of planning
Once you have established what your break will involve, work out a budget that takes account of the costs you will continue to incur (such as mortgage or loan repayments, insurance, utilities, car registration and rates) as well as your best estimates for accommodation, food, travel and spending money for your destination.
Don‘t be daunted by an amount that may appear unachievable at first glance.
Work out how to save on costs when travelling. Some ideas include:
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Living like a local. Try swapping your house with someone in another part of the world. House swap websites match up homeowners looking to live in different places for varying periods of time. Alternatively, you could rent out your home while you are away and/or sign up to a housesitting website.
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Working differently. Your gap year might be more about doing something different than taking it easy. Find organisations and websites – such as workaway.info and wwoof.com.au – that cater for working travellers. You could choose to work on farms around the world in return for food and board for example.
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Becoming a digital nomad. If manual labour isn‘t your thing, you could pack your computer and hook up to one of the many digital work websites – such as digitalnomadsworld.com, upwork.com or fiverr.com. Many countries now encourage this trend by offering digital nomad visas.
Then, with your costs under control, and a clear goal in mind, it‘s time for a savings plan.
You will want to reduce your current living expenses as much as possible to maximise savings and think about setting up a direct debit to a high interest savings account. Check the MoneySmart Savings Goal calculator to see how much you will need to save every month.
If you have more than a few years to plan your gap year, you could look into some longer term savings and investment options such as shares, exchange-traded funds (ETFs), or term deposits.
While a gap year is exciting, planning ahead financially is essential to ensure you don’t fall into debt.
You also need to carefully consider how this could affect your long-term financial goals. You probably won’t be making super contributions, so this may impact your super balance and retirement plans.
If you’d like to take time off in the future, contact us today to ensure that taking a break from earning an income won’t impact your future financial security.
This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.elephantintheboardroom.org or call 02 9098 5055 for more information on our available services.
Summer 2022
It’s December, summer is here and holidays are just around the corner. We take this opportunity to wish you and your family a happy festive season!
The big story on the global economic front continues to be inflation, and how high interest rates will go to tame it. November began with the US Federal Reserve hiking its federal funds target range by another 75 basis points to 3.75-4.00%. There are signs the tough approach is working, with the annual rate of inflation falling from 9.1% in June to 7.7% in October.
In Australia, the Reserve Bank lifted the cash rate another 25 basis points to a decade high of 2.85%. Inflation fell to 6.9% in the year to October, down from 7.3% in September, but remains high and economic signals are mixed. Reserve Bank governor Philip Lowe is keeping a close eye on consumer spending, where higher interest rates are having an impact. Retail trade fell 0.1% in October for the first time this year. And while the ANZ-Roy Morgan consumer sentiment index was up 5.6% to 83.1 points in the last three weeks of November, it remains 22.9 points below the same week last year. But rate hikes are not yet affecting the labour market, with unemployment falling to a 48-year low of 3.4% in October, while annual wages growth rose 1% to 3.13% in the September quarter, the fastest growth in a decade.
The Aussie dollar lifted 3c to around US67c over the month, crude oil prices fell 10% while iron ore lifted 0.5%. Shares remain skittish but positive overall. The ASX200 index rose more than 5% in November while the US S&P500 index was up more than 2%.
Sustainable investing on the rise
Sustainable investing isn’t new and is becoming more mainstream. From climate change to gender diversity, more people are aligning their money with their values.
In 2021, Australia’s sustainable investment market increased 20 per cent to a record $1.5 trillion. The Responsible Investment Association Australasia (RIAA) 2022 benchmark report found sustainable investments represents 43 per cent of total professionally-managed funds.
In addition to traditional shares and fixed interest sustainable investments offer a wide range of assets, including property, alternatives such as forestry, infrastructure, private equity and cash.
Most big super funds offer a sustainable investment option and some offer this as their default option. You can also buy sustainable managed funds, including a growing list of exchange-traded funds (ETFs).
What are sustainable investments?
Focus on people and planet
Sustainable investing is also known as ethical, responsible and ESG (environmental, social, governance) investing, with the focus on people, society and/or the environment.
Sustainable investments are selected using a variety of screening methods, including:
- Positive screening selects the best investments in their class
- Negative screening excludes harmful sectors, companies or activities such as arms, gambling, animal testing, tobacco and fossil fuels
- Norms-based investing screens for minimum standards of relevant business practices
- Impact investing has the explicit intention of generating positive social or environment impacts.i
The term ESG investing is used when a fund or company commits to sustainable investing in these three areas:
- Environmental – air and water pollution, biodiversity and climate change
- Social – child labour and labour standards, ethical product sourcing, gambling and human rights
- Governance – board diversity, corruption, business ethics, corporate culture and whistle-blower schemes.
The report found gender diversity and women’s empowerment are also gaining popularity.
Sustainable investing is not all warm and fuzzy. Performance still matters.
Performance gains
Initially, sustainable investing often came at the expense of returns but that is no longer necessarily the case.
The report compared the performance of what it terms responsible investment funds and mainstream investments funds (on average and net of fees) over the past 10 years to December 2021.
Responsible multi-sector growth funds consistently outperformed mainstream funds and their benchmark over 1, 3, 5 and 10 years. Responsible Australian share funds generally outperformed or were on par with mainstream funds. Only responsible international share funds disappointed, underperforming mainstream funds across all timeframes.
Watch out for greenwashing
Increased demand for sustainable investments has led to a rapid increase in the number of products available. The rush to cash in on the trend has sometimes led to what is known as ‘’greenwashing”. The Australian Securities and Investments Commission (ASIC) describes greenwashing as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.
ASIC warns investors to review the product terms. For example, a fund might describe itself as ‘’no gambling” but may invest in companies that earn less than 30 per cent of revenue from gambling.
Look for a clear explanation of how the product will achieve its aims and don’t rely on vague language like “considers”, “integrates” or “takes into account”.
Australian companies lifting their game
It’s not just super funds and managed funds taking sustainable investing more seriously, Australian listed companies are also adapting to changing investor preferences and regulatory environment. A recent analysis of ESG reporting by Australia’s top 200 listed companies, PwC found a 13 per cent increase in companies declaring a commitment to net zero emissions. However, only 55 per cent of those disclosed a transition plan or activities that will enable them to reach net zero.
There was also a 10 per cent increase in companies disclosing climate risks and opportunities, and a 30 per cent increase in companies disclosing a gender diversity policy.
For investors seeking sustainability along with financial returns from their investments, momentum and choice is growing. So please get in touch if you would like to discuss your investment options.
Buying shares for kids: a gift that keeps on giving
Many parents and grandparents worry about how to help the children in their lives achieve financial independence. But the value of long-term investment can seem like a dry and complicated idea for kids to get their heads around.
In fact, many young people would like to know more about money, according to a Young People and Money survey by the Australian Securities and Investments Commission MoneySmart website. The survey found more than half of the 15-21-year-olds surveyed were interested in learning how to invest, different types of investments and possible risks and returns. What’s more, almost all those young people with at least one investment were interested enough to regularly check performance.
One way to introduce investment to children may be to begin a share portfolio on their behalf. The child can follow the progress of the companies they are investing in, understand how the market can fluctuate over the short- and long-term, as well as learn to deal with some of the paperwork required, such as filing tax returns.
How to begin
Setting up a share portfolio doesn’t need to be onerous. It’s possible to start with a minimum investment of around $500, using one of the online share trading platforms. Then you could consider topping it up every year or so with a further investment.
Deciding on which shares to buy comes down to the amount you have available to invest and perhaps your child’s interests.
If the initial investment is relatively small, an exchange traded fund (ETF) may be a useful way of accessing the hundreds of companies, bonds, commodity or theme the fund invests in, providing a more diversified portfolio.
ETFs are available in Australian and international shares; different sectors of the share market, such as mining; precious metals and commodities, such as gold; foreign and crypto currencies; and fixed interest investments, such as bonds. You can also invest in themes such as sustainability or market sectors such as video games that may appeal to young people.
Alternatively, buying shares in one company that your child strongly identifies with – like a popular pizza delivery firm, a surf brand or a toy manufacturer – may help keep them interested and excited about market movements.
Should you buy in your name or theirs
Since children cannot own shares in their own right, you may consider buying in your name with a plan to transfer the portfolio to the child when they turn 18. But be aware that you will pay capital gains tax (CGT) on any profits made and the investments will be assessable in your annual income tax return.
On the other hand, you could buy the shares in trust for the child. While you are considered the legal owner the child is the beneficial owner. That way, when the child turns 18, you can transfer the shares to their name without paying CGT. Your online trading platform will have easy steps to follow to set up an account in trust for a minor.
There is also some annual tax paperwork to consider.
You can apply for a tax file number (TFN) for the child and quote that when buying the shares. If you don’t quote a TFN, pay as you go tax will be withheld at 47 per cent from the unfranked amount of the dividend income. Be aware that if the shares earn more than $416 in a year, you will need to lodge a tax return for the child.
Taking it slowly
If you are not quite ready to invest cash but are keen to help your children to understand share investment, you could consider playing it safe by playing a sharemarket game, run by the ASX.
Participants invest $50,000 in virtual cash in the S&P/ASX200, a range of ETFs and a selection of companies. You can take part as an individual or a group and there is a chance to win prizes.
Another option, for children able to work independently, is the federal government money managed website. This is pitched at teens and provides a thorough grounding in savings and investment principles.
Call us if you would like to discuss how best to establish a share portfolio for your child, grandchild or a special young person in your life.
Celebrating the festive season, the Aussie way
If you’ve ever hosted a visitor from overseas during the festive season you may have seen them a little bemused by the way we celebrate. It’s quite understandable as we do things a little bit differently down under.
Christmas in Australia – while fundamentally a religious festival celebrating the birth of Jesus – is also a melting pot of traditions we have inherited over time, mainly from the northern hemisphere.
Look no further than our Christmas carols, many of our festive songs and imagery reference snowflakes and cosy nights by the fireside. Think of how many of our songs are about chestnuts roasting on an open fire, riding in one-horse sleighs, and building snowmen – even though this kind of imagery is not so appropriate in Australian on a scorcher of a day.
Warm weather traditions
Santa would be much more comfortable in Australia in a pair of board shorts and a t-shirt than his fur trimmed red robes and warm hat. In fact, he has been spotted at Bondi Beach on a few occasions hitting the surf, in the lead up to his busiest time of year.
Instead of playing in the snow, we are playing in the waves, with those who live near the coast hitting the beach for a picnic or game of beach cricket during the festive season.
Prawns on the barbie at lunch
While many still opt for the roast with all the trimmings, Australians have embraced the seafood platter or something they can throw on the BBQ – or better still – seafood on the BBQ. Pavlova and trifle are common alternatives to Christmas pudding. And with no eggnog or mulled wine in sight, a refreshing drink of something icy cold is the Aussie way.
As opposed to the European tradition of having dinner on the 25th of December, we Aussies tend to have a big, long Christmas lunch (preferably with a snooze on the couch after opening all the presents).
Christmas street parties
In the suburbs, entire neighbourhoods organise street parties, getting council permission to close streets to traffic. Barbeques are pulled out onto the asphalt and tables set up with goodies. Kids roam around with water pistols and inflatable wading pools are set up if it’s warm enough, with games organised. Tug of war between the odd and even house numbers anyone?
Carols and pageants
Even though we are singing about snow falling gently and jack frost nipping at our toes, we are usually watching carols on a balmy evening with bats flying overhead in the Botanic Gardens if we are in Melbourne or the Domain Gardens in Sydney.
In Adelaide and Perth millions of kinds have grown up watching annual street parade pageants which liven up the festivities with a carnivale atmosphere and floats, music, and dancing.
Boxing Day sales and the cricket
While the various origins of Boxing Day are not universally agreed upon, the day is traditionally a day of rest after the excesses of Christmas day. It is said to have its origins in England when the wealthy gave their servants a day off and sent them home to their families with boxes of gifts and leftover food from their celebrations the day before.
We don’t tend to have much of a rest on Boxing Day. If we are not hitting the Boxing Day sales or packing up the car to head off on holiday, we are at the cricket. The Boxing Day test is one of the most attended and watched games in the country since its inception in 1950.
The start of summer holidays
Christmas in Australia comes at the start of the summer holidays so the lead up to the festive season also involves workplace break ups and celebrations with colleagues.
Then after the festivities on the 25th are done and dusted it is time to take off for what will hopefully be a nice relaxing break.
Of course, there are many ways to celebrate at this special time of year. We are blessed to live in a vibrant multicultural nation, feeling the influence of other cultures and traditions from all over the globe.
However you choose to mark the occasion, we wish you much joy and happiness in your celebrations.
This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.elephantintheboardroom.org or call 02 9098 5055 for more information on our available services.
Federal Budget 2022-23 Analysis
Budget October 2022: sign of the times
In his first Budget, Treasurer Jim Chalmers emphasised the three Rs – responsible budget repair and restrained spending, right for the times.
For good measure, resilience also got a mention with spending targeted at building a more modern economy to deal with the challenges ahead.
This is the first budget from a federal Labor government in almost a decade, barely five months since Labor was elected and seven months since the Coalition’s pre-election budget in March, so it was bound to be a little different. The Treasurer used the opportunity to update the shifting economic sands and reset spending priorities to align with the new government’s policy agenda.
For Australians wondering what the Albanese Labor government will mean for them and their family, this is the first piece of a puzzle that will be completed over the next three years.
The big picture
The Labor government has inherited an improving bottom line, with the deficit for 2022-23 expected to come in at $36.9 billion, an improvement of more than $40 billion on the pre-election forecast. This was due to high commodity prices for our exports and higher tax receipts from a strong labour market and robust corporate profits.
The deficits of $224.7 billion previously forecast for the next four years have shrunk to $182 billion. The difference of around $40 billion will go towards funding the government’s election promises and budget repair.
Labor has also found $22 billion in savings by cancelling or redirecting programs planned by the previous Coalition government, and a further $3.6 billion in cuts to external consultants, marketing, travel and legal expenses. Savings will also come from clamping down on tax avoidance by individuals and foreign corporations.
But as the Treasurer is fond of saying, storm clouds are looming, and he singled out inflation as the biggest challenge.
Economic challenges ahead
Inflation is forecast to peak at 7.75% by year’s end, before returning to 3.5% in 2023-24. Despite low unemployment currently at 3.75% it is tipped to rise to 4.5% by 2023-24, the surge in inflation means wages are unlikely to grow in real terms until 2024 at the earliest. Wages growth is forecast to be 3.75% in 2023-24, overtaking inflation of 3.5%.
With more interest rate hikes expected to tame inflation, debt is also set to climb from $895.3 billion last financial year to a forecast $927 billion in 2022-23 and upwards over the forward estimates.
With global economic headwinds building to gale force, Australia’s economic growth is expected to slow as cost-of-living pressures bite into household budgets.
While Dr Chalmers does not expect Australia to slide into recession like many of our trading partners, economic growth is already slowing. Real gross domestic product (GDP) is forecast to be 3.25% in 2022-23, down from 3.9% last financial year, and 1.5% in 2023-24, 1 percentage point lower than predicted in the March Budget.
Support for families
Childcare and improved parental leave are a priority area for the new government, in an effort to support families, reduce cost-of-living pressures and improve women’s workforce participation.
Already, $4.7 billion has been earmarked for childcare over the next four years, with families earning less than $530,000 to receive extra childcare subsidies from 1 July 2023. An extension of paid parental leave from the current 18 weeks to 26 weeks is also set to be phased in from next July, so neither initiative will add to the current Budget.
Health and aged care
Pressures on the federal health and aged care budget are mounting in the wake of COVID and an $8.8 billion blowout in the NDIS budget which will reach $166.4 billion over four years. An extra 380 staff will be hired at a cost of $158.2 million to speed up claims and make the system more efficient.
$750 million will be spent strengthening Medicare and $235 million over four years to roll out Urgent Care Clinics to reduce pressure on public hospitals.
Following revelations from the Aged Care Royal Commission and lessons learned during the pandemic, the government has pledged to fund an increase in aged care workers’ wages.
And the cost of subsidised prescription medications will be cut from $42.50 to $30 from January 1, at a cost of $756 million over four years.
More affordable housing
A centrepiece of the Budget to improve housing affordability and chronic shortages is a new Housing Accord to build 1 million new houses in five years beginning in 2024.
The new $10 billion Housing Australia Future Fund will provide a sustainable funding source to increase housing supply, including 20,000 new social housing dwellings, 4,000 of which will be allocated to women and children impacted by family and domestic violence and older women at risk of homelessness.
The plan paves the way for significant public and private investment in new housing across the country, following an historic agreement between the federal government, the states and private investors including superannuation funds.
Jobs, skills and education
Federal, state and territory governments have committed to a $1 billion one-year agreement to deliver 180,000 fee-free TAFE and community-based vocational education places from January 2023. Support will be targeted to priority groups, including First Nations people, and priority areas such as care sectors.
The government will also create 20,000 more subsidised university places over 2023 and 2024. The initiative will be targeted at disadvantaged groups to study courses where there are skills shortages.
Nation building and future-proofing
As part of its budget review, the government will ‘’realign” $6.5 billion of existing infrastructure spending. It will spend $8.1 billion on key infrastructure projects including the Suburban Rail Loop East in Melbourne, the Bruce Highway and other important freight highways.
The government has also committed to at least $40 billion in new borrowing to set up funds and companies to invest in policy promises. These include the $20 billion Rewiring the Nation Corporation to invest in the electricity grid, $15 billion National Reconstruction Fund for local manufacturing and the $10 billion Housing Australia Future Fund to invest in social housing.
In an acknowledgement of the increased frequency and severity of natural disaster, up to $200 million per year will be set aside for disaster prevention and resilience.
Climate change
A more comprehensive approach to climate change is also back on the agenda, with total climate-related spending of $24.9 billion over 2022-23.
As many of the nation’s largest emitters are in regional areas, the government will establish a $1.9 billion Powering the Regions Fund to help transition regional industries to net zero. And $345 million will be made available to increase uptake of electric vehicles.
Superannuation, pensioners and tax
What’s not in the Budget is also important. There was little new spending to help retirees and welfare recipients, but pensions and payments will increase due to indexation.
As previously announced, the amount Age Pensioners can earn before they begin to lose pension entitlements will temporarily increase from $7,800 to $11,800 this financial year.
While most superannuation fund members will welcome the lack of tinkering to the super rules, the investment potential of the new affordable housing initiatives should provide a valuable source of income to super funds and their members.
Women’s safety
The Treasurer pledged a record investment of $1.7 billion to support implementation of the new National Plan to End Violence Against Women and Children. This will include funding for 500 new frontline service and community workers to support women in crisis.
The Government is also legislating 10 days of paid family and domestic violence leave for all types of employees.
Looking ahead
The next 12 months are likely to be challenging for the economy and for households trying to budget for rising prices and interest rates, including higher mortgage repayments, at a time when home values are falling and real wages are going backwards.
The Treasurer has tried to walk a fine line between budget repair and responsible spending with long-term economic benefits for individuals and the nation.
Coming just months after the federal election, this Budget should be seen as laying the groundwork for the three Budgets to follow.
Information in this article has been sourced from the Budget Speech 2022-23 and Federal Budget Support documents.
It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.
This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.elephantintheboardroom.org or call 02 9098 5055 for more information on our available services.
October 2022 Newsletter
It’s October and the footy finals are almost over, depending on which code you follow. In Canberra though, Treasurer Jim Chalmers is warming up for his first Budget on October 25 against a background of mounting economic pressures.
In September, persistently high inflation and aggressive rate hikes by the world’s central banks put global share and bond markets under pressure. The US Federal Reserve has lifted rates seven times this year, but US inflation remains at 8.3%. There is now growing fear that central banks may push the world into recession. In a surprise twist, the Bank of England (which has also lifted rates seven times this year) was forced to switch back to Quantitative Easing, buying government bonds to support the British pound which crashed to a record low in response to a stimulatory mini-Budget released by the new Conservative Party leadership. This led to a late relief rally on global sharemarkets and a fall in the US dollar and global bond yields. Even so, major global sharemarkets finished the month down 6% or more.
In Australia, the picture is a little brighter. Economic growth was up 3.6% in the year to June. Company profits are also strong, up 28.5% in the year to June, and unemployment remains low, at 3.5% in August. While inflation eased from 7% in July to 6.8% in August, due to falling petrol prices, it is still well above the Reserve Bank’s 2-3% target. Aussie consumers continue to spend at record levels, pushing up retail spending by 19.2% in the year to August, and petrol prices are set to increase by at least 22c a litre after the reinstatement of the fuel excise. Both will put upward pressure on inflation and interest rates.
The Aussie dollar fell more than 3c against the surging US dollar in September, to US65c.
Mortgage vs super
With interest rates on the rise and investment returns increasingly volatile, Australians with cash to spare may be wondering how to make the most of it. If you have a mortgage, should you make extra repayments or would you be better off in the long run boosting your super?
The answer is, it depends. Your personal circumstances, interest rates, tax and the investment outlook all need to be taken into consideration.
What to consider
Some of the things you need to weigh up before committing your hard-earned cash include:
Your age and years to retirement
The closer you are to retirement and the smaller your mortgage, the more sense it makes to prioritise super. Younger people with a big mortgage, dependent children, and decades until they can access their super have more incentive to pay down housing debt, perhaps building up investments outside super they can access if necessary.
Your mortgage interest rate
This will depend on whether you have a fixed or variable rate, but both are on the rise. As a guide, the average variable mortgage interest rate is currently around 4.5 per cent so any money directed to your mortgage earns an effective return of 4.5 per cent.i
When interest rates were at historic lows, you could earn better returns from super and other investments; but with interest rates rising, the pendulum is swinging back towards repaying the mortgage. The earlier in the term of your loan you make extra repayments, the bigger the savings over the life of the loan. The question then is the amount you can save on your mortgage compared to your potential earnings if you invest in super.
Super fund returns
In the 10 years to 30 June 2022, super funds returned 8.1 per cent a year on average but fell 3.3 per cent in the final 12 months.ii In the short-term, financial markets can be volatile but the longer your investment horizon, the more time there is to ride out market fluctuations. As your money is locked away until you retire, the combination of time, compound interest and concessional tax rates make super an attractive investment for retirement savings.
Tax
Super is a concessionally taxed retirement savings vehicle, with tax on investment earnings of 15 per cent compared with tax at your marginal rate on investments outside super.
Contributions are taxed at 15 per cent going in, but this is likely to be less than your marginal tax rate if you salary sacrifice into super from your pre-tax income. You may even be able to claim a tax deduction for personal contributions you make up to your annual cap. Once you turn 60 and retire, income from super is generally tax free. By comparison, mortgage interest payments are not tax-deductible.
Personal sense of security
For many people there is an enormous sense of relief and security that comes with having a home fully paid for and being debt-free heading into retirement. As mortgage interest payments are not tax deductible for the family home (as opposed to investment properties), younger borrowers are often encouraged to pay off their mortgage as quickly as possible. But for those close to retirement, it may make sense to put extra savings into super and use their super to repay any outstanding mortgage debt after they retire.
These days, more people are entering retirement with mortgage debt. So whatever your age, your decision will also depend on the size of your outstanding home loan and your super balance. If your mortgage is a major burden, or you have other outstanding debts, then debt repayment is likely a priority.
All things considered
As you can see, working out how to get the most out of your savings is rarely simple and the calculations will be different for everyone. The best course of action will ultimately depend on your personal and financial goals.
Buying a home and saving for retirement are both long-term financial commitments that require regular review. If you would like to discuss your overall investment strategy, give us a call.
i https://www.finder.com.au/the-average-home-loan-interest-rate
ii https://www.chantwest.com.au/resources/super-members-spared-the-worst-in-a-rough-year-for-markets
Getting the balance right in decision making
We all approach decision making in our own way, making a multitude of decisions every day: ‘Should I hit snooze again on the alarm?,’ ‘Do I take the train to work, or do I drive,’ ‘What should we have for dinner?’
In fact, researchers estimate that the average adult makes 35,000 decisions every day.i While most of these are fairly insignificant, we also constantly make complex decisions that may support us in many areas of our lives – from navigating a change of career, handling a new project at work, or even managing the complexities of interpersonal relationships.
Having some knowledge of the decision-making process can help you to be more self-aware when faced with those larger, more complex decisions.
The biology of thought
The human brain is an intricate organ. It contains about 100 billion neurons and 100 trillion connections, and controls our emotions, thoughts, and actions. Our brains appear wired to work in complex ways to enable us to make the best decisions possible with the information we’re given. In very simple terms the process is a little like a court trial. Our brains register sensory information like sights and sounds and then act as a jury to weigh each piece of ‘evidence’ to make a judgement or decision.
Thinking fast and slow
Nobel laureate Daniel Kahneman in his hugely successful book Thinking, Fast and Slow – suggests that there are two distinct and different ways the brain forms thoughts.ii
‘Fast thinking’ is automatic, intuitive, and used for most common decisions. It is our brain conserving energy by making the bulk of its decisions on some degree of autopilot. This style of thinking uses cognitive shortcuts to let us respond quickly and instinctively to a wide range of fast and ever-changing inputs, like discerning emotions from facial expressions, ducking when something is thrown at us, reading words on a billboard, or driving a car on an empty road.
On the other hand, ‘slow thinking’ is more thorough and logical but also takes more time and is resource intensive. It kicks in when you focus on a task or problem, monitor and control your behaviour, formulate an argument or do anything that causes your brain to exert itself.
Different thinking for different situations
Of course, both styles of thinking have their place. It’s important to be able to make fast decisions when required – in fact, fast thinking comes from the most primal part of our brain to help us make the kind of snap decisions integral to survival. However, there are times when you need to analyse and think through all the implications of a complex decision like whether to accept that new job offer interstate or buy that new car.
Amongst the multitude of small decisions we face every day, it can be hard to find the time and energy for the big ones. Steve Jobs famously explained that he wore the same outfit every day to have one less easy decision to make so that he could focus his energy on the more complex decisions he was dealing with.
Minimising mistakes
If you find you rely heavily on fast thinking in your life, making choices based on gut instinct with little research or consideration, it may be time to consciously slow it down.
While that may not mean wearing the same outfit day in, day out, you might be able to have a few things in your life on autopilot, like putting together a weekly meal plan so thinking about what’s for dinner is one less decision to make in your busy day.
Slow thinking takes discipline and effort. It’s important to approach critical decisions in a measured way and give yourself the time and head space to think things through, rather than being swayed by emotion or the cognitive biases associated with fast thinking.
Good decision-making, either financial or otherwise also benefits from having a sounding board to talk things through with, and of course we are here to assist with any important financial decisions you may be faced with.
i https://iise.org/details.aspx
ii https://en.wikipedia.org/wiki/Thinking,_Fast_and_Slow
Guide to concession cards for seniors
The excitement of heading towards retirement and a new stage of life can be tinged with concern over how to manage finances. For many people, seniors’ concession cards are a good way to help make ends meet.
While discounts on goods and services are always welcome, they’re even more valued right now as living costs continue to climb.
Concession cards for seniors provide significant discounts on medicines, public transport, rates and power bills. Many private businesses – from cinemas to hairdressers – also offer reduced prices to concession card holders.
There are different types of concession cards offered by federal, state and territory governments. While some are for those receiving government benefits, others are available to almost anyone aged over 60.
The cards are free and should not be confused with commercial discount cards that require an upfront fee or ongoing subscription.
Seniors Card
The Seniors Card is offered by all state and territory governments when you turn 60 (64 years in Western Australia) and are no longer working full time. This card is offered to everyone, regardless of your assets or income.
The Card will allow you to claim discounts on things like public transport fares, council rates and power bills. Thousands of businesses across Australia also offer reduced prices to Seniors Card holders. In some states, a separate card is offered to access discounts provided by private businesses and another card is provided for public transport.
For eligibility requirements and the range of services offered in your state or territory, click on a link below:
Victoria
South Australia
Western Australia
Northern Territory
Queensland
New South Wales
Australian Capital Territory
Tasmania
Federal Government concession cards
If you’re receiving a government pension or allowance, you’re a self-funded retiree or you’re a veteran, you may be eligible for one of several cards issued by the Federal Government.
The Pensioner Concession Card is automatically issued to people receiving pensions or certain allowances.
The card provides discounts on most medicines, out-of-hospital medical expenses, hearing assessments, hearing aids and batteries, and some Australia Post services.
In most states and territories, card holders receive at least one free rail journey within their state or territory each year.
Commonwealth Seniors Health Card
If you’ve reached the qualifying age for an Age Pension (currently 66 years and 6 months) but you’re not eligible to receive a pension, you may be entitled to the Commonwealth Seniors Health Card.
You can receive the card if you:
- Are Age Pension age or older
- Can meet residence rules
- Are not receiving a government pension or allowance
- Can meet identity requirements
- Can meet the income test
- Provide a Tax File Number or are exempt
While there is an income test, no assets test applies. You will receive similar benefits to the Pensioner Concession Card.
Low Income Health Card
For those on a low income but not yet at Age Pension age, the Low Income Health Care Card can be a big help. If you meet the income test, you’ll get cheaper health care and medicines and other discounts.
Your gross income, before tax, earned in the eight weeks before you submit your claim is assessed and must be below certain limits.
The types of income included in the test includes wages and any benefits you receive from an employer, self employment income, rental income, super contributions as well as pensions and government allowances.
Other types of income are also counted including:
- Deemed income from investments
- Income and deemed income from income stream products such as super pensions
- Foreign income
- Distributions from private trusts and companies
- Compensation payments
- Lump sums such as redundancy, leave or termination payments.
Veteran Card
The Department of Veterans’ Affairs has a concession card for anyone who has served in the armed forces and their dependents.
Like other government concession cards, the Veteran Card provides access to cheaper medicines and medical care as well as discounts from various businesses. The Veteran Card is a new offering, combining the former white, gold and orange cards. There is no change to entitlements or services with the new card.
As you can see, the potential savings from seniors concession cards can be significant so be sure to check your eligibility. If you would like help working out your income and other eligibility requirements, give us a call.
This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.elephantintheboardroom.org or call 02 9098 5055 for more information on our available services.
Market movements & review video – September 2022
Stay up to date with what’s happened in the Australian economy and markets over the past month.
In August, the focus was on US Federal Reserve chair Jerome Powell’s speech, during which he reinforced the focus on bringing US inflation down, even at the risk of recession.
In Australia, economic conditions are less gloomy, with a good results recorded on our trade surplus and annual wages growth.
The ASX 200 showed resistance to US and global falls, performing more steadily over the month.
Click the video below to view our September update.
Please get in touch if you’d like assistance with your personal financial situation.
This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.elephantintheboardroom.org or call 02 9098 5055 for more information on our available services.