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September 2022 Newsletter

by victoria

Welcome to our Spring newsletter. September means it’s football finals season and hopefully the beginning of warmer weather despite the recent late winter chill.

In August, the focus was on US Federal Reserve chair Jerome Powell’s speech at the annual Jackson Hole business gathering on August 26, and he was blunt. To hose down talk of interest rate cuts in 2023, he said the Fed was focused on bringing US inflation down to 2% (from 8.5% now), even at the risk of recession. He said this will “take some time”, will likely require a “sustained period of below trend economic growth”, and households should expect “some pain” in the months ahead. The S&P500 share index promptly fell 3.4% and bond yields rose. Economists expect the US central bank will continue lifting rates each month for the remainder of 2022.

In Australia, economic conditions are less gloomy. Australia’s trade surplus was a record $136.4 billion in 2022-23. Unemployment fell to 3.4% in July while wages growth rose to an annual rate of 2.6% in the year to June, the strongest in 8 years but well below inflation. The ANZ-Roy Morgan consumer confidence index rose slightly in September to a still depressed 85.0 points while the NAB business confidence index jumped to +6.9 points in July, well above the long-term average of +5.4 points. Half-way through the June half-year reporting season, CommSec reports ASX200 company profits increased 56% in aggregate while dividends are 6% lower on a year earlier.

The Aussie dollar fell more than one cent over the month to close around US68.5c. Aussie shares bucked the global trend, finishing steady over the month.

How much super do I need to retire?

How much super do I need to retire?

Working out how much you need to save for retirement is a question that keeps many pre-retirees awake at night. Recent market volatility and fluctuating superannuation balances have only added to the uncertainty.

So it’s timely that new research shows you may need less than you fear. For most people, it will certainly be less than the figure of $1 million or more that is often bandied around.

For most people, the amount you need to save will depend on how much you wish to spend in retirement to maintain your current standard of living. When Super Consumers Australia (SCA) recently set about designing retirement savings targets they started by looking at what pre-retirees aged 55 to 59 actually spend now.

Retirement savings targets

SCA estimated retirement savings targets for three levels of spending – low, medium and high – for recently retired singles and couples aged 65 to 69.

Significantly, only so-called high spending couples who want to spend at least $75,000 a year would need to save more than $1 million. A couple hoping to spend a medium-level $56,000 a year would need to save $352,000. High spending singles would need $743,000 to cover spending of $51,000 a year, and $258,000 for medium annual spending of $38,000.i

While these savings targets are based on what people actually spend, there is a buffer built in to provide confidence that your savings can weather periods of market volatility and won’t run out before you reach age 90.

They assume you own your home outright and will be eligible for the Age Pension, which is reflected in the relatively low savings targets for all but wealthier retirees.*

Retirement planning rules of thumb

The SCA research is the latest attempt at a retirement planning ‘rule of thumb’. Rules of thumb are popular shortcuts that give a best estimate of what tends to work for most people, based on practical experience and population averages.

These tend to fall into two camps:

  • A target replacement rate for retirement income. This approach assumes most people want to continue the standard of living they are used to, so it takes pre-retirement income as a starting point. A target replacement range of 65-75 per cent of pre-retirement income is generally deemed appropriate for most Australians.ii
  • Budget standards. This approach estimates the cost of a basket of goods and services likely to provide a given standard of living in retirement. The best-known example in Australia is the Association of Superannuation Funds of Australia (ASFA) Retirement Standard which provides ‘modest’ and ‘comfortable’ budget estimates.iii

SCA sits somewhere between the two, offering three levels of spending to ASFA’s two, based on pre-retirement spending rather than a basket of goods. Interestingly, the results are similar with ASFAs ‘comfortable’ budget falling between SCA’s medium and high targets.

ASFA estimates a single retiree will need to save $545,000 to live comfortably on annual income of $46,494 a year, while retired couples will need $640,000 to generate annual income of $65,445. This also assumes you are a homeowner and will be eligible for the Age Pension.

Limitations of shortcuts

The big unknown is how long you will live. If you’re healthy and have good genes, you might expect to live well into your 90s which may require a bigger nest egg. Luckily, it’s never too late to give your super a boost. You could:

  • Salary sacrifice some of your pre-tax income or make a personal super contribution and claim a tax deduction but stay within the annual concessional contributions cap of $27,500.
  • Make an after-tax super contribution of up to the annual limit of $110,000, or up to $330,000 using the bring-forward rule.
  • Downsize your home and put up to $300,000 of the proceeds into your super fund.
    Thanks to new rules that came into force on July 1, you may be able to add to your super up to age 75 even if you’re no longer working.

While retirement planning rules of thumb are a useful starting point, they are no substitute for a personal plan. If you would like to discuss your retirement income strategy, give us a call.

*Assumptions also include average annual inflation of 2.5% in future, which is the average rate over the past 20 years, and average annual returns net of fees and taxes of 5.6% in retirement phase and 5% in accumulation phase.

i CONSULTATIVE REPORT: Retirement Spending Levels and Savings Targets, Super Consumers Australia,

ii 2020 Retirement Income Review, The Treasury

iii Association of Superannuation Funds of Australia (ASFA) Retirement Standard

How is my insurance taxed?

How is my insurance taxed?

With the cost of living on the rise, it’s more important than ever to have a financial safety net that protects you and your family in case the unexpected happens.

Most Australian employees have some form of life insurance, often through their superannuation fund, but many of us tend to ‘set and forget’.

To make the most of your life insurance policy, it’s useful to understand how it works, and how premiums and payments are affected by tax.

Various types of life insurance

Life insurance is an umbrella term for a range of policies that cover different situations. They include:

  • Life cover, which pays out after your death to someone you have nominated.

  • Income protection covers you if you’re unable to work because of illness or injury.

  • Total and permanent disability (TPD) insurance provides medical and living costs if you become permanently disabled.

  • Accidental death and injury cover pays a lump sum if you die or are injured.

  • Critical illness or trauma insurance pays a lump sum to cover medical expenses for major medical conditions.

  • Business expenses insurance covers ongoing fixed business costs if you’re a business owner suffering serious illness or injury.

Tax benefits and deductions

The premiums for most types of life insurance are not tax deductible, but there are exceptions. Premiums for income protection held outside of super are tax-deductible and inside super for the self-employed. Business expenses insurance premiums are also tax deductible.

The tax treatment of benefits paid out by policies also varies according to the type of policy and your situation, so it’s important to talk to us. Generally, life cover paid to someone who’s financially dependent on you (typically a spouse and children under 18 years) is not taxed. But if the beneficiary isn’t your financial dependent, they can expect to pay tax.

Income protection insurance payments must be declared on your tax return and will be taxed at your marginal rate, just like your usual salary. Business expense insurance payouts also taxable.

Lump sum payments made through other policies are not taxable.

Inside super or outside?

Some of these insurances, particularly life cover, income protection and TPD, can be purchased through your super fund. Most people have a basic level of cover held this way, but you should check to see if it’s adequate for your needs.

If you are aged under 25, have a super balance of $6,000 or less, or your account is inactive, you will need to “opt in” if you want insurance cover.

If you have a self-managed super fund (SMSF), you’re required to consider whether to hold life insurance for each of the fund’s members, although there’s no obligation to buy.

Super pros and cons

You’ll need to do the sums for your circumstances, which is where an adviser can assist, but there may be an advantage to using your super to pay the premiums. The main reason is cost.

Sometimes, the buying power of larger super funds allows them to negotiate competitive pricing for insurance products.i It’s not always the case, so you’ll need to shop around to make sure you’re getting the best deal.

Another potential financial benefit in paying the monthly premiums out of your super account, is that you’re using funds taxed at 15 per cent. Whereas, if you pay the premium from your own bank account, you’d be using funds already taxed at your marginal tax rate, which may be higher. That means your pre-tax dollars are working harder and you’ve still got your cash in the bank.

The main drawback to paying insurance premiums through super is that you’ll be reducing your super balance, which means less for retirement. However, you could choose to boost your balance using salary sacrifice or personal contributions.

Your safety net checklist

  1. Decide on who and what needs to be financially protected if something should happen to you.

  2. Weigh up the best type of life insurance to meet your needs and shop around.

  3. Be clear about any tax implications of an insurance payout

  4. Make sure the policy benefit is adequate and check it annually.

Deciding on the type of life insurance you need can be tricky, so give us a call to discuss your insurance needs.

i Insurance through super – Moneysmart.gov.au

Go on... take a break!

Go on… take a break!

One of the things many of us have been missing over the past few years is holidays, but now that the world is opening up again for travel and destinations that have been pretty quiet are now eagerly welcoming back tourists, taking a break has never been more appealing.

Holidays are not just a lovely way to spend time, they are fantastic for us on so many levels. Having a break from the daily grind gets us out of our usual routine, opens us up to new experiences and is good for us mentally and physically.

However, the stats tell us that for many Australians it’s been a long time between breaks.
In fact, around 8 million Australians have accrued nearly 175 million days of leave over the past 12 months, up from 151 the previous year.i That’s a lot of missed holidays!

Whether you are one of those who hasn’t had much of a break lately or even if you’ve just got back from a trip and are planning your next one – there are a host of good reasons to take a holiday.

Holiday to keep the doctor away

Holidays have been proven to lower stress which has a myriad of benefits including addressing the risk of cardiovascular issues like stroke and heart attack. A study following more than 12,000 middle-aged men at high risk for heart disease, found those who took yearly breaks were less likely to die from any cause, including heart attacks and other cardiovascular issues.ii

It’s not just physical health that benefits, taking a break is unsurprisingly pretty good for mental health with even a short break of a few days having a powerful mood enhancing effect.iii

Travel to broaden the mind

Lifelong learning is not only good for our careers but also important for our personal growth. And travel is a learning experience like no other, whether you are heading to a new country or a different part of your city or state you’ll meet new people and experience a different way of life.

Travel is also the ultimate experience in mindfulness – you are living in the moment when you are on holiday. A break in routine takes us off autopilot and puts us in charge.

Having a break makes you more productive

If you are worried about the impact a break can have on your career – don’t be! Research by Boston Consulting Group found that professionals who took planned time off were significantly more productive than those who spent more time working.iv Holidays offer time for introspection, goal setting and a chance to recharge your batteries for a new lease on life.

Planning for a wonderful time

Not all vacations are created equal. Just taking any quickly thrown-together escape may not provide all the health and productivity benefits associated with taking a vacation. A poorly planned break can be a source of tension and stress, rather than the opposite.

So how do you get the best out of a break?

Be flexible – While it’s important to plan before you leave, have enough flexibility for discovery – be open to new experiences and willing to change the schedule to accommodate those spontaneous magical moments.

Don’t sweat the small stuff – Things can and do go awry once you are away but don’t let silly little things spoil the break.

Switch off – Don’t be tempted to check your emails or socials every few minutes – stay in the moment. A decent break from work will also reinforce that the office doesn’t need you 24/7 and that life comes first.

Watch the budget but have some allowances to splurge – Focus on experiences and the memories you’ll take home with you rather than what’s on sale at the gift shop or duty free.

And finally, don’t feel that a holiday must be a luxurious destination or for a long period of time to count. A change of scenery can be as good as a holiday – even taking a mini break and heading off for a weekend away to a lovely destination can provide all the benefits of a holiday. So, what are you waiting for? Start planning that next trip. The wide, wonderful world awaits!

i http://www.roymorgan.com/findings/8696-annual-leave-holidays-march-2021-202105170711

ii https://pubmed.ncbi.nlm.nih.gov/11020089/

iii https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5800229/

iv https://hbr.org/2009/10/making-time-off-predictable-and-required

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.

August 2022 Newsletter

by victoria

It’s August and as winter draws to a close there’s snow in the Alps and the wattle is blooming. Many Australians will soon receive a sizeable tax refund, if they haven’t already, which should help ease those rising cost-of-living blues.

Rising inflation and interest rates were the focus of attention in July. The US Federal Reserve lifted its target rate by 75 basis points to 2.25-2.50% to tackle surging inflation of 9.1%. At the same time, the US economy contracted by 0.9% in the June quarter, following a 1.6% drop in the March quarter.

By contrast, Australia is performing relatively well. In his first economic statement, treasurer Jim Chalmers downgraded growth forecasts to a still solid 3.75% last financial year and 3% this financial year. Inflation jumped to 6.1% in the year to June and is forecast to peak above 7% in December. And the Reserve Bank lifted the cash rate by 50 basis points to 1.35% in July, with a similar increase tipped this month and more to come. Governor Philip Lowe said he expects rates to get to ‘at least’ 2.5%. Unemployment fell to 3.5% in June, but rising prices and interest rates dented confidence. The ANZ-Roy Morgan consumer confidence index sits at 82.4 points – below 100 is pessimistic. While the NAB business confidence index fell 5 points to +1.4 points in June.

The biggest hit to inflation has come from housing and construction prices and petrol. But the housing market is cooling due to rising interest rates, with national home values easing 0.6% in June and new dwelling starts down 6.5% in the March quarter. Petrol prices are also easing, down 19c to below $1.93 a litre in late July on falling global oil prices. The Aussie dollar gained a cent to finish the month around US70c.

Guide to aged care at home

Guide to aged care at home

As we get older, most of us want to remain independent and in our own home for as long as possible, but this can be challenging without some help with household tasks and personal care.

Recognising this, the government runs a Home Care Packages program where approved aged care service providers work with individuals to deliver co-ordinated services at home.

Approval for a Home Care Package starts with an assessment by the Aged Care Assessment Team (ACAT). Eligibility for a Home Care Package, or other government subsidised help at home, is based on your care needs as determined through the assessment. You must also be an older person who needs co-ordinated services to help them stay at home or a younger person with a disability, dementia, or other care needs not met through other specialist services.

You can make your own referral via the government’s My Aged Care website or by calling 1800 200 422 and answering some questions.

Financial eligibility

Your financial situation won’t affect your eligibility. But once you have been assigned a package, you will need a financial assessment to work out exactly how much you may be asked to contribute.

There are four levels of Home Care Packages – from Level 1 for basic care needs to Level 4 for high care needs.

The annual budgets for the packages are (in round figures) $9,000 for a Level 1, $16,000 for a Level 2, $35,000 for a Level 3 and $53,000 for a Level 4. The government contribution changes on 1 July each year.

The idea is that a person, using a consumer directed care approach, can decide how they would like to use that money for help which may include equipment such as a walker or services such as household tasks, personal care, or allied health.

Your contribution could be a basic daily fee up to $11.26 a day, as well as an income tested fee up to $32.30 a day or $11,759.74 a year.i These fees are adjusted in March and September each year.

Expect a wait

Demand for packages is high, with a wait of 3-6 months for a low-level package and 6-9 months for a higher level package.
It’s not unusual to be approved for a high-level package but be offered or ‘assigned’ a lower level package as an interim measure.

Once approved for a Home Care Package, you must appoint a provider approved by the government, whose role is to administer, and manage the package for you.

The provider will charge a fee for their services which is deducted from the Home Care Package. This essentially reduces the amount of money from the package that can be spent on services. Administration costs can be 10-15 per cent of the package and case management another 10 per cent, or thereabouts.

The services offered and the way they are delivered can vary between providers, so comparing offers is important.

How much help you get from a package will depend on your care needs and fees, but generally a Level 1 package might provide two or three hours of help a week, a Level 2 about four hours, a Level 3 package about 8 hours and a Level 4 about 12 hours.

A recent Fair Work Commission ruling mandating minimum two-hour shifts for casual home care workers, while improving conditions for low-paid workers, is also expected to lead to increased costs for providers and ultimately Home Care Package recipients.

Self-managed home care

One way to get more hours of help and have a greater say in who delivers it, is to self-manage your Home Care Package. As well as saving the case management fee you can generally negotiate directly with workers the hours worked and the rate of pay.

You still need an approved provider to administer the package, with the fee being about 10-15 per cent.

There are currently five providers offering a self-managed option. One way to find support workers to assist with your care needs is through one of several online platforms where carers register their willingness to help, along with their hourly rates.

If you are weighing up your aged care options for yourself or a loved one, and would like to discuss financing arrangements, please get in touch.

i https://www.myagedcare.gov.au/home-care-package-costs-and-fees

Coming to terms with stagflation

Coming to terms with stagflation

First, we had to brush up our understanding of inflation and what it means for our hip pocket and our investments. Now the term stagflation is being thrown into the economic mix.

For those with long memories, stagflation is a reminder of the late 1970s and early 1980s when the world economy fell into what then-Treasurer Paul Keating called “the recession we had to have”.

The word has raised its head again with the World Bank warning that there is a rising risk of stagflation.i This took the wind out of the sails of global sharemarkets, with Australian shares down 10 per cent in the year to June, although they have since started to show signs of recovery.ii

Despite the term stagflation re-entering conversation, the general belief is that things will not get as bad as last century but they are still likely to be challenging.

So, what is stagflation? Basically, it’s the combination of rising inflation, high unemployment, and weak economic growth. When all three happen at the same time, then the economy and living standards struggle. So let’s look at each of these three markers in turn.

Rising inflation

The definition of inflation is a general increase in prices and a fall in the purchasing value of money.

Certainly, we are experiencing rising inflation right now. It’s currently running at just over 6 per cent in Australia. The war in Ukraine took its toll on commodity prices globally which is contributing to the hike. While prices are off their highs, they are still hurting.

On the local front, floods on the east coast of Australia have damaged crops which will also push inflation higher.

Reserve Bank governor Philip Lowe has pointed to a top inflation rate of about 7 per cent in this current economic cycle which is well above the 2-3 per cent inflation target the Reserve Bank uses in setting monetary policy.

Slowdown in economic growth

Looking next at economic growth, and this is certainly slowing.

The OECD cut its outlook for global economic growth from 4.5 per cent in 2021 to 3 per cent this year and 2.8 per cent in 2023. In Australia, growth is expected to fall from 4.8 per cent to 3.5 per cent this year and 2.1 per cent in 2023.iii

The definition of economic growth refers to the size of a country’s economy over time. It’s measured in real and nominal terms.
Nominal refers to the increase in the dollar value of production over time; real economic growth just looks at the volume produced. Real growth is the figure generally used.iv

Low unemployment

Unemployment, meanwhile, is at the lowest levels in Australia since 1974 at 3.9 per cent.v But despite the low unemployment rate, wage growth is less than half that of inflation, so it is hard to keep pace with the rising prices.

Looking at the three criteria for stagflation, unemployment in Australia is less than 4 per cent, inflation is running at just over 6 per cent and GDP growth is 3.3 per cent. At these levels it seems more likely, but far from certain, that we will experience a recession rather than stagflation. Recession is defined as two consecutive quarters of negative growth.

Stagflation would be a bigger problem than a severe recession because the traditional ways to deal with it are either increased government spending or cutting interest rates. Unfortunately, these solutions are both inflationary and therefore not good tools for the current economic environment.

Big mortgages put brake on rate rises

Back in the 1970s and 1980s, interest rates hit 18 per cent as the Reserve Bank struggled to contain inflation. With mortgages at their current size, increased rates will start hurting much sooner so this will put a brake on inflation well before rates reach double digit levels.

The general view is that mortgage rates will peak at just over the 5 per cent mark.vi

Concern about the possibility of stagflation has fuelled the recent sharemarket volatility and uncertainty, although it seems unlikely on current evidence. As the future is impossible to predict, it is better to sit tight and wait for the market to recover rather than sell as a kneejerk reaction and realise losses.

If you would like to discuss your overall financial position in these uncertain times, then call us.

i https://www.washingtonpost.com/business/2022/06/07/world-bank-global-growth-forecast-stagflation/

ii https://tradingeconomics.com/australia/stock-market

iii https://www.oecd.org/newsroom/oecd-economic-outlook-reveals-heavy-global-price-of-russia-s-war-against-ukraine.htm

iv https://www.rba.gov.au/education/resources/explainers/economic-growth.html

v https://www.abs.gov.au/media-centre/media-releases/unemployment-rate

vi https://www.ratecity.com.au/home-loans/mortgage-news/high-will-rates-go-here-experts-think-rba-cash-rate

Tech tips to get more hours in your day

Tech tips to get more hours in your day

Life just seems to get ever busier as the years roll by and our most precious commodity is often our time. We could all do with a few more hours in the day and technology continues to play a vital role in bringing efficiencies into our daily lives.

In fact, research indicates that technology saves the average person around two weeks a year – or almost two and a half years of our lifetimes.i The main time savers are the things most of us are generally already using – self-service checkouts, online banking and shopping, and mobile traffic updates. It’s certainly worth ensuring you are making the most of these time savers and spending the least amount of time on mundane tasks by setting up online shopping lists and automating bill paying.

Then to take your time saving efforts even further, there are a myriad of applications that have sprung up to help you create efficiencies in your professional and personal life. Let’s look at the best ways to stop wasting your precious time and then look at specific applications that may be of benefit.

Taming the email beast

Email is certainly nothing new. Once prized as a valuable communication tool, email is now singled out as a black hole for lost time. What is relatively new is the number of email management applications you can turn to for help. Such applications are indispensable if you use multiple inboxes, or if you have so many unread emails that you can’t organise them on your own. A good example is Clean Email which deletes thousands of old emails and organises new incoming messages automatically. It’s also becoming more common to only check and respond to email a few times a day rather than on a continual basis as it can be a constant distraction.

Avoid distractions and stay focussed

When it comes to distractions it can be hard to stay on target 100 per cent of the time, however if you find that you are spending too much time on online diversions, apps like Freedom and the aptly named Selfcontrol block irrelevant content.

There is also a growing trend away from multi-tasking that suggests it’s more effective to focus on one thing at a time, giving each task your undivided attention before moving on to the next. If that’s an approach that you find challenging, there are a number of apps that have sprung up to help you keep focussed. If you find you jump from one thing to another and end up with a stack of half-finished tasks, apps like Focuskeeper provide discipline and the motivation to complete tasks.

Save time by being aware of time

One way of saving time is to become more aware of where your time is being spent so you can reduce wasted time. While it can be a little disturbing to find out how much time you spend checking your social feeds, apps like RescueTime are great for keeping you on target. RescueTime tracks what you’re working on and suggests the best times for uninterrupted work and when you’re losing focus and trying to tackle too many tasks the prompts help you to prioritise.

Get organised and outsource

Making the most of your time is all about getting organised. Apps that help you to break down your hectic life into tasks and ‘to-do’ lists also help you to prioritise and make sure nothing gets dropped. Remember the milk allows users to manage tasks, share lists and allocate them to others so it’s a useful tool to keep your whole household or team at work organised.

It’s important to put a value on your precious time and sometimes that means getting a hand with all the low-value tasks in your life that get in the way of what you really need to do. There are heaps of apps like Fivver or Airtasker that can help you to outsource all sorts of annoying, time-consuming jobs.

Is it time to start exploring how technology can help you to be more efficient and reclaim some of those lost hours? The challenge will then be deciding what to do with all that extra time on your hands!

i https://www.thelondoneconomic.com/tech-auto/modern-technology-saves-brits-the-equivalent-of-two-weeks-every-year-111552/

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 – July 2022

by victoria

Stay up to date with what’s happened in the Australian economy and markets over the past month.

June was a big month in an eventful year for the local and global economy, with inflation and interest rates continuing to dominate.

With inflation sitting at 5.1% in Australia, cost of living pressure is mounting. The Reserve Bank lifted the cash rate to 0.85% in June, with more rises anticipated.

June also saw a global sell-off in shares, with the ASX 200 posting its worst month since March 2020.

Click the video below to view our July 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.

July 2022 Newsletter

by victoria

Welcome to our July newsletter and the start of a new financial year. With winter in full swing, it’s a great time to rug up by the fire, take stock of the year that was and make plans for the future.

June was a big month in an eventful year for the local and global economy, with inflation and interest rates continuing to dominate. The US Federal Reserve lifted official rates by 0.75% to a target range of 1.50-1.75% to combat surging inflation of 8.6% in the year to May, stoking fears of a US recession.

Australia faces similar but less acute challenges. With inflation sitting at 5.1%, the Reserve Bank lifted the cash rate by 0.5% to 0.85% in June and Governor Philip Lowe hinted at more to come in July. The Australian economy is still growing relatively strongly at an annual rate of 3.3%. Retail trade rose 10.4% in the year to May on the back of low unemployment and high household savings. Household wealth rose to a record high of $574,807 in the year to March, but since then there has been a global sell-off in shares, a slowdown in the Australian housing market and cost of living pressures are mounting. The ANZ-Roy Morgan consumer confidence reading remains weak at 84.7 points (100 is neutral).

Australia’s national average petrol price rose to 211.9c a litre in June, the second highest on record, on the back of a surge in global oil prices. Brent Crude rose almost 45% over the past year as the war in Ukraine disrupts supply. Despite a late bounce in shares, the ASX200 fell 9.6% in the year to June, while US shares were down more than 12%. The Aussie dollar lost ground over the financial year to finish below US69c.

A super window of opportunity

A super window of opportunity

New rules coming into force on July 1 will create opportunities for older Australians to boost their retirement savings and younger Australians to build a home deposit, all within the tax-efficient superannuation system.

Using the existing First Home Super Saver Scheme, people can now release up to $50,000 from their super account for a first home deposit, up from $30,000 previously.

Another change that will help low-income earners and people who work in the gig economy is the scrapping of the Super Guarantee (SG) threshold. Previously, employees only began receiving compulsory SG payments from their employer once they earned $450 a month.

But the biggest potential benefits from the recent changes will flow to Australians aged 55 and older. Here’s a rundown of the key changes and potential strategies.

Work test changes

From July 1, anyone under the age of 75 can make and receive personal or salary sacrifice super contributions without having to satisfy a work test. Annual contribution limits still apply and personal contributions for which you claim a tax deduction are still not allowed.

Previously, people aged 67 to 74 were required to work for at least 40 hours in a consecutive 30-day period in a financial year or be eligible for the work test exemption.

This means you can potentially top up your super account until you turn 75 (or no later than 28 days after the end of the month you turn 75). It also opens potential new strategies for a making big last-minute contribution using the bring-forward rule.

Extension of the bring-forward rule

The bring-forward rule allows eligible people to ‘’bring forward” up to two years’ worth of non-concessional (after tax) super contributions. The current annual non-concessional contributions cap is $110,000, which means you can potentially contribute up to $330,000.

When combined with the removal of the work test for people aged 67-75, this opens a 10-year window of opportunity for older Australians to boost their super even as they draw down retirement income.

Some potential strategies you might consider are:

  • Transferring wealth you hold outside super – such as shares, investment property or an inheritance – into super to take advantage of the tax-free environment of super in retirement phase

  • Withdrawing a lump sum from your super and recontributing it to your spouse’s super, to make the most of your combined super under the existing limits

  • Using the bring-forward rule in conjunction with downsizer contributions when you sell your family home.

Downsizer contributions age lowered to 60

From July 1, you can make a downsizer contribution into super from age 60, down from 65 previously. (In the May 2022 election campaign, the previous Morrison government proposed lowering the eligibility age further to 55, a promise matched by Labor. This is yet to be legislated.)

The downsizer rules allow eligible individuals to contribute up to $300,000 from the sale of their home into super. Couples can contribute up to this amount each, up to a combined $600,000. You must have owned the home for at least 10 years.

Downsizer contributions don’t count towards your concessional or non-concessional caps. And as there is no work test or age limit, downsizer contributions provide a lot of flexibility for older Australians to manage their financial resources in retirement.

For instance, you could sell your home and make a downsizer contribution of up to $300,000 combined with bringing forward non-concessional contributions of up to $330,000. This would allow an individual to potentially boost their super by up to $630,000, while couples could contribute up to a combined $1,260,000.

Rules relaxed, not removed

The latest rule changes will make it easier for many Australians to build and manage their retirement savings within the concessional tax environment of super. But those generous tax concessions still have their limits.

Currently, there’s a $1.7 million limit on the amount you can transfer into the pension phase of super, called your transfer balance cap. Just to confuse matters, there’s also a cap on the total amount you can have in super (your total super balance) to be eligible for a range of non-concessional contributions.

As you can see, it’s complicated. So if you would like to discuss how the new super rules might benefit you, please get in touch.

Source: ATO

A Will to give

A Will to give

As baby boomers shift into retirement, Australia is on the brink of the nation’s biggest ever intergenerational wealth transfer. Yet estate or inheritance planning is rarely discussed by families.

Talking openly about how you want your assets to be passed on can help avoid family disputes that take a toll both financially and emotionally. It provides a certain peace of mind for you – that your intentions will be met – and for your family and friends.

Certainly the stakes have never been higher, with growing house prices and healthy superannuation balances contributing to a considerable increase in the wealth of many older Australians in the past two decades.

Around $1.5 trillion was transferred in gifts or inheritances between 2002 and 2018. In 2018 alone, some $107 billion dollars was inherited while $14 billion was handed out in gifts.i

The importance of planning

With so much at stake, having an estate plan in place helps to protect the interests of those you care about and to fulfil your wishes. It takes careful thought and professional advice, but that is no excuse for putting the task aside for later. If something happens to you in the meantime, your assets may not be distributed as you would like and there could be tax implications for your beneficiaries.

An estate plan includes a Will and, in some cases, funeral arrangements and instructions for the care of children and animals. Without a Will, your assets will be distributed according to state inheritance laws which may not be what you intended.

A plan may also include instructions for a testamentary trust to hold assets that are then distributed in a tax-effective way to your beneficiaries. And don’t forget your ‘digital will’, a list of any online accounts and passwords that may be important.

Meanwhile, to protect your interests in case you are incapacitated in some way, an enduring power of attorney and a medical power of attorney nominate the people you would like to handle your affairs until you are better.

Complex families

Estate planning is even more important in the case of blended families or for those with complex family relationships, especially where the emotional issue of the family home is concerned.

Disputes often centre around who gets the house when there are children from a previous marriage, but your new spouse is living in the family home. You could allocate other assets to the children and leave the home to your spouse or require that the house be sold and the proceeds distributed to all. Alternatively, your Will could grant lifetime tenure in the home for your spouse with it passing to your children after your spouse dies. Having conversations early about your intentions, can help alleviate possible conflict.

If you are concerned about protecting the interests of a family member with mental health or addiction issues, a testamentary trust can help to look after your assets and distribute funds in a controlled way. A testamentary trust is also often used to provide for young children, holding the assets until they reach adulthood.

Dividing it up

When it comes to deciding how best to allocate assets among children, some prefer to hand out equal shares no matter their individual financial circumstances, while others prefer to give extra to one who may be struggling. Given that Wills are frequently challenged by family members or others who believe they are owed a share or an even bigger share, it’s wise to make your intentions clear in your Will including reasons and documentation.

While people who receive inheritances are usually well into middle age – on average 50-years-oldii – and perhaps comfortably well-off, you could choose to bypass the next generation. Instead, you might consider leaving your estate to grandchildren, to help set them up with a deposit for a home or covering school fees.

Another option is to begin distributing your estate while you are alive and can share the enjoyment of the benefits the extra financial help might bring.

What’s not covered?

It is important to note that some assets are not covered by your Will. These include assets jointly held with someone else (such as a bank account or a house), super benefits and life insurance.

In the case of jointly held assets, ownership generally passes to the surviving partner and life insurance is paid to the beneficiary named in the policy. For super, it’s vital to complete a binding death benefit nomination to ensure the funds are paid to the person you choose.

With so much to consider, expert advice is critical when preparing an estate plan, so call us to begin the discussion.

i https://www.pc.gov.au/research/completed/wealth-transfers

ii Wealth Transfers and their Economic Effects – Commission Research Paper – Productivity Commission (pc.gov.au)

Your investing style - as unique as you

Your investing style – as unique as you

As interest rates start to increase after a lengthy period of historical lows, it’s a good time to think about how your money is working for you and whether your investing style and strategy is still in line with your goals.

Higher interest rates don’t just send a ripple through the economy, aside from the obvious impact on the property market, they often impact stock prices. There are a myriad of other factors that contribute to market movement and portfolio performance and trying to navigate all the things that need to be considered can be challenging but being aware of your preferred investment style and having a considered and appropriate strategy can help.

The benefits of style and strategy

Just as we are all unique individuals, our goals and approach to investing will also be different to our family and friends and it pays to be familiar with your own style and preferences.

It can be common for those new to investing to take the plunge without any real plan, let alone an investment strategy that’s likely to align with their current circumstances, future requirements, and investment goals.

Even those who have been investing for some time can be guilty of a ‘set and forget’ approach that might mean hanging on to a strategy that does not meet their present or future needs.

Having the right investment strategy – the one that’s right for you – improves the likelihood of your investments meeting your goals and allows you to sleep at night.

Your tolerance for risk at the core of your style

While approaches to, and styles of investing are many and varied, your comfort with risk is often the primary driver of any approach you may choose to take. There is of course a trade-off between risk and return that needs to also be considered. Your comfort with risk will determine the right mix of asset classes in your portfolio.

An aggressive investor, commonly someone with higher risk tolerance, is willing to take on greater risk for the possibility of better returns than a conservative investor. This type of investor will be comfortable with a higher proportion of growth assets like shares or listed property that offer higher returns over the long-term that may come at the expense of less stable returns.

A conservative investor will employ a larger proportion of defensive assets in their portfolio to provide long-term stable returns with lower volatility and exposure to risk. Defensive assets are fixed interest investment options including fixed income bonds and cash investment options.

Hands-on vs hands-off approach

Investing strategies can be further separated into two distinct groups: active and passive.
Passive investing, as the name implies, focuses on benefitting from the overall increase in market prices over time. One of the benefits of passive investing is that it minimises the mistakes investors can make when they react emotionally to stock market movement.

Active investing involves a more hands-on approach, with more frequent buying and selling to take advantage of short-term price fluctuations and is generally undertaken by a portfolio manager.

Changing your strategy over time

Most investors find that their investment style shifts as they age. Younger investors have a longer time horizon, so they may feel more comfortable making riskier investments as they have time for the market to recover from market falls. Mature investors may be more focused on preserving their savings for retirement, so they may be more interested in diversification and dollar-cost averaging.

For investors nearing or at retirement, a shift from asset growth and capital gains to a focus on income may be something worth considering and is often desired. The advantage of an income focussed strategy is that investments can produce some of the cash flows needed when you’re no longer working. Dividend stocks are a common way to achieve this goal, with companies showing stable and growing dividends providing the most value.

To ensure you are employing the right strategy to meet your objectives, it pays to be aware of your options and revisit your comfort with risk and your overall investment goals. We can ensure your investment portfolio meets both these elements throughout your various life stages.

If you are interested in exploring the options available to you, please get in touch. We can work closely with you to review your strategy or if you are new to investing, find the right mix for your unique circumstances.

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 – June 2022

by victoria

Stay up to date with what’s happened in Australian markets over the past month.

Cost of living pressures, inflation and interest rates were major concerns in the lead-up to the May federal election.

The Reserve Bank of Australia (RBA) lifted the cash rate for the first time in over 11 years from 0.1% to 0.35%, as inflation hit 5.1%.

This followed the US Federal Reserve’s decision to lift rates by 50 basis points, the biggest rate hike in 22 years as inflation hit 8.5%.

Click the video below to view our June 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.

Winter 2022 – Super Evolution Pty Ltd

by victoria

June has arrived and so has winter, as the financial year draws to a close. Now that the federal election is out of the way, it’s time to focus on planning for the future with more certainty.

Cost of living pressures, inflation and interest rates were major concerns in the lead-up to the May federal election. The Reserve Bank of Australia (RBA) lifted the cash rate for the first time in over 11 years from 0.1% to 0.35%, as inflation hit 5.1%. This followed the US Federal Reserve’s decision to lift rates by 50 basis points to 0.75-1.00%, the biggest rate hike in 22 years as inflation hit 8.5%. Global pressures are largely to blame, from war in Ukraine and rising oil prices to supply chain disruptions and food shortages. The price of Brent Crude surged a further 27% in May.

As a result, the RBA has cut its growth forecast for the year to June from 5% to 3.5% and raised its inflation forecast from 3.25% to 4.5%. On the ground, the economic news is mixed. New business investment fell 0.3% in the March quarter but still rose 4.5% on the year. The NAB business confidence index fell from +16.3 point to +9.9 points in April, still above its long-term average. Adding to inflationary pressures, labour and materials shortages and bad weather saw building costs rise 2.8% in the March quarter, while retail trade rose further in April to be up 9.6% over the year.

On the positive side, unemployment fell further from 4% to 3.9% in April, the lowest rate since 1974, while annual wages growth rose slightly in the March quarter from 2.3% to 2.4%, still well below inflation.

How to manage rising interest rates

How to manage rising interest rates

Rising interest rates are almost always portrayed as bad news, by the media and by politicians of all persuasions. But a rise in rates cuts both ways.  

Higher interest rates are a worry for people with home loans and borrowers generally. But they are good news for older Australians who depend on income from bank deposits and young people trying to save for a deposit on their first home.

Rising interest rates are also a sign of a growing economy, which creates jobs and provides the income people need to pay the mortgage and other bills. By lifting interest rates, the Reserve Bank hopes to keep a lid on inflation and rising prices. Yes, it’s complicated.

How high will rates go?

In early May, the Reserve Bank lifted the official cash rate from its historic low of 0.1 per cent to a still low 0.35 per cent. The reason the cash rate is watched so closely is that it flows through to mortgages and other lending rates in the economy.

To tackle the rising cost of living, the Reserve Bank expects to lift the cash rate further, to around 2.5 per cent.i Inflation is currently running at 5.1 per cent, which means annual wages growth of 2.4 per cent is not keeping pace with rising prices.ii

So what does this mean for household budgets?

 

Mortgage rates on the rise

The people most affected by rising rates are likely those who recently bought their first home. In a double whammy, after several years of booming house prices the size of the average mortgage has also increased.

According to CoreLogic, even though price growth is slowing, the median home value rose 16.7 per cent nationally in the year to April to $748,635. Prices are higher in Sydney, Canberra and Melbourne.

CoreLogic estimates a 1 per cent rise would add $486 a month to repayments on the median new home loan in Sydney, and an additional $1,006 a month for a 2 per cent rise.

The big four banks have already passed on the Reserve Bank’s 0.25 per cent increase in the cash rate in full to their standard variable mortgage rates which range from 4.6 to 4.8 per cent. The lowest standard variable rates from smaller lenders are below 2 per cent.

Still, it’s believed most homeowners should be able to absorb a 2 per cent rise in their repayments.iii

The financial regulator, APRA now insists all lenders apply three percentage points on top of their headline borrowing rate, as a stress test on the amount you can borrow (up from 2.5 per cent prior to October 2021).iv
 

Rate rise action plan

Whatever your circumstances, the shift from a low interest rate, low inflation economic environment to rising rates and inflation is a signal that it’s time to revisit some of your financial assumptions.

The first thing you need to do is update your budget to factor in higher loan repayments and the rising cost of essential items such as food, fuel, power, childcare, health and insurances. You could then look for easy cuts from your non-essential spending on things like regular takeaways, eating out and streaming services.

If you have a home loan, then potentially the biggest saving involves absolutely no sacrifice to your lifestyle. Simply pick up the phone and ask your lender to give you a better deal. Banks all offer lower rates to new customers than they do to existing customers, but you can often negotiate a lower rate simply by asking.

If your bank won’t budge, then consider switching lenders. Just the mention of switching can often land you a better rate with your existing lender.

The challenge for savers

Older Australians and young savers face a tougher task. Bank savings rates are generally non-negotiable, but it does pay to shop around.

By mid-May only three of the big four banks had increased rates for savings accounts. Several lenders also announced increased rates for term deposits of up to 0.6 per cent.v

High interest rates traditionally put a dampener on returns from shares and property, so commentators are warning investors to prepare for lower returns from these investments and superannuation.

That makes it more important than ever to ensure you are getting the best return on your savings and not paying more than necessary on your loans. If you would like to discuss a budgeting and savings plan, give us a call.

i https://www.rba.gov.au/speeches/2022/sp-gov-2022-05-03-q-and-a-transcript.html

ii https://www.abs.gov.au/

iii https://www.canstar.com.au/home-loans/banks-respond-cash-rate-increase/

iv https://www.apra.gov.au/news-and-publications/apra-increases-banks

v https://www.ratecity.com.au/term-deposits/news/banks-increased-term-deposit-interest-rates

A super end to the financial year

A super end to the financial year

As the end of the financial year approaches, now is a good time to check your super and see what you could do to boost your retirement nest egg. What’s more, you could potentially reduce your tax bill at the same time.

There are a handful of positive changes to super due to start next financial year, but for most people, these will not impact what you do before June 30 this year.

Changes ahead

Among the changes from 1 July, the superannuation guarantee (SG) will rise from the current 10 per cent to 10.5 per cent.

Another upcoming change is the abolition of the work test for retirees aged 67 to 74 who wish to make non-concessional (after tax) contributions into their super. This will allow eligible older Australians to top up their super even if they are fully retired. Currently you must satisfy the work test or work test exemption. This means working at least 40 hours during a consecutive 30-day period in the year in which the contribution is made.

But remember you still need to comply with the work test for contributions you make this financial year.

Also on the plus side, is the expansion of the downsizer contribution scheme. From 1 July the age to qualify for the scheme will be lowered from 65 to 60, although other details of the scheme will be unchanged. If you sell your home that you have owned for at least 10 years to downsize, you may be eligible to make a one-off contribution of up to $300,000 to your super (up to $600,000 for couples). This is in addition to the usual contribution caps.

Key strategies

While all these changes are positive and something to look forward to, there are still plenty of opportunities to boost your retirement savings before June 30.

For those who have surplus cash languishing in a bank account or who may have come into a windfall, consider taking full advantage of your super contribution caps.

The annual concessional (tax deductible) cap is currently $27,500. This includes your employer’s SG contributions, any salary sacrifice contributions you have made during the year and personal contributions for which you plan to claim a tax deduction.

Claiming a tax deduction is generally most effective if your marginal tax rate is greater than the 15 per cent tax rate that applies to super contributions. It is also handy if you have made a capital gain on the sale of an investment asset outside super as the tax deduction can offset any capital gains liability.

Even if you have reached your annual concessional contributions limit, you may be able to carry forward any unused cap amounts from previous years if your super balance is less than $500,000.

Once you have used up your concessional contributions cap, you can still make after-tax non-concessional contributions. The annual limit for these contributions is $110,000 but you can potentially contribute up to $330,000 using the bring-forward rule. The rules can be complex, especially if you already have a relatively high super balance, so it’s best to seek advice.

Government and spouse contributions

Lower income earners also have incentives to put more into super. The government’s co-contribution scheme is aimed at low to middle income earners who earn at least 10 per cent of their income from employment or business.

If your income is less than $41,112 a year, the government will contribute 50c for every after-tax dollar you squirrel away in super up to a maximum co-contribution of $500. Where else can you get a 50 per cent immediate return on an investment? If you earn between $41,112 and $56,112 you can still benefit but the co-contribution is progressively reduced.

There are also incentives for couples where one is on a much lower income to even the super playing field. If you earn significantly more than your partner, ask us about splitting some of your previous super contributions with them.

Also, if your spouse (or de facto partner) earns less than $37,000 a year, you may be eligible to contribute up to $3000 to their super and claim an 18 per cent tax offset worth up to $540. If they earn between $37,000 and $40,000 you may still benefit but the tax offset is progressively reduced.

As it can take your super fund a few days to process your contributions, don’t wait until the very last minute. If you would like to discuss your super options, call now.

Source: ATO

Preparing for the next chapter

Preparing for the next chapter

Retirement means starting a new chapter of your life, one that gives you the freedom to create your own story, as you decide exactly how you want to spend your time. While retirement may not be part of your immediate plans, there are advantages to giving some thought as to what retirement looks like for you and how to best position yourself, well before you leave the workforce behind.

A time of profound change

Even setting aside the huge financial implications of leaving a regular salary behind, retiring from work represents one of the biggest life changes you can experience.

For most people, the freedom of being able to do whatever you want to do, whenever you want to do it, is pretty enticing. However, it is quite common to have mixed feelings about retiring, particularly as you get closer to retirement. What we do for a living often defines us to some extent and leaving your job can mean a struggle with how you perceive yourself as well as how others view you. Coupled with the desire for financial security in retirement and the need to make your retirement savings last the distance, you have a lot to be dealing with.

So, let’s look at the things you need to be thinking about sooner rather than later, from an emotional and practical perspective, to ensure your retirement is everything you want it to be.

Forge your own path

Don’t be tied to preconceptions of what retirement is all about. Retirement has evolved from making a grand departure from the workplace with the gift of a gold watch to a more flexible transition that may unfold over several years. Equally, if the idea of a clean break appeals to you then that’s okay too and you just need to plan accordingly.

The same applies for your timeframe for retirement. The idea that you ‘have’ to retire at a certain age is no longer relevant given advances in healthcare and longer lifespans. If work makes you happy and fulfilled, then it can make sense to delay your departure from the workforce.

Planning how to spend your time

It sounds obvious but you’ll have more time on your hands so it’s important to think about what you want to devote that time to. A study found that 97 per cent of retirees with a strong sense of purpose were generally happy and satisfied in retirement, compared with 76 per cent without that sense.i Think about what gives your life meaning and purpose and weave those elements into your plans.

If you are part of a couple, it’s critical to ensure that you are both on the same page about what retirement means to you. This calls for open and honest communication about what you both want and may also involve some degree of compromise as you work together to come up with a plan that meets both of your needs.

Practical considerations

There’s a myriad of practical considerations once you have started to plan how you’ll spend your time.

Here are a few things you may wish to consider:

  • Where do you want to live? Do you want to be close to a city or are you interested in living in a more coastal or rural area? Are you wanting to travel or live overseas for extended periods?

  • What infrastructure and health services might you need as you age? Are these services adequate and accessible in the area you are thinking of living in?

  • What hobbies and activities do you want to be involved in. Do you need to start developing networks for those activities in advance?

  • Who do you want to spend time with? If you have children and grandchildren, think about what role you’d like to play in their lives upon retirement.

The best laid plans…

Of course, with all this planning it’s also important to acknowledge that the best laid plans can go astray due to factors beyond your control. It’s important to keep an open mind and be adaptable. While redundancy or poor health can play havoc with retirement dreams, it’s still possible to make the best of what life throws at you.

And of course, we are here to help you with the financial side of things to ensure that retirement is not only something to look forward to, but a wonderful chapter of your life once you start to live out your retirement dreams.

i https://www.inc.com/magazine/201804/kathy-kristof/happy-retirement-satisfaction-enjoy-life.html

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 – May 2022

by victoria

Stay up to date with what’s happened in Australian markets over the past month.

The economic event that overshadowed all others in April was the increase in inflation.

The release of the March quarter Consumer Price Index (CPI) showed inflation up 2.1% in the quarter and 5.1% on an annual basis. This was the biggest increase since 2001 and well above the Reserve Bank’s target of 2-3%.

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.

May 2022 Newsletter – Super Evolution

by victoria

Welcome to our May newsletter, and while the weather is cooling the economic and political landscape is heating up. All eyes are on interest rates as the federal election campaign shifts into top gear ahead of the May 21 polling day.

The economic event that overshadowed all others in April was the release of the March quarter Consumer Price Index (CPI), which showed inflation up 2.1% in the quarter and 5.1% on an annual basis. This was the biggest lift in prices since 2001 and well above the Reserve Bank’s target of 2-3%. The biggest increases were for fuel, housing construction, and food as the war in Ukraine pushes up global oil prices and the cost of transporting food and other goods. Most economists now agree that the Reserve will lift official interest rates on Tuesday from their current historic low of 0.1%. The question now is by how much. Any rate rise will be passed through to variable mortgage rates, putting more pressure on household budgets during an election campaign where cost of living is a major theme.

On a positive note, unemployment fell below 4% in March, its lowest since 1974 as the economy continues to recover from COVID-related disruptions. As a result, businesses are more confident, with the NAB business confidence index lifting to a five-month high of 15.8 points in March, well above its long-term average of 5.4 points. Consumers are less confident, with the Westpac-Melbourne Institute consumer sentiment rating down 0.9% in April to a 19-month low of 95.8 points.

The Aussie dollar fell from US75c to around US71c over the month, adding to cost pressures on imported goods. Oil prices eased slightly, with Brent crude down 6% in April but up 48% on the year.

The road ahead for shares

The road ahead for shares

Trying to time investment markets is difficult if not impossible at the best of times, let alone now. The war in Ukraine, rising inflation and interest rates and an upcoming federal election have all added to market uncertainty and volatility.

At times like these investors may be tempted to retreat to the ‘’safety” of cash, but that can be costly. Not only is it difficult to time your exit, but you are also likely to miss out on any upswing that follows a dip.

Take Australian shares. Despite COVID and the recent wall of worries on global markets, Aussie shares soared 64 per cent in the two years from the pandemic low in March 2020 to the end of March 2022.i Who would have thought?

So what lies ahead for shares? The recent Federal Budget contained some clues.

The economic outlook

The Budget doesn’t only outline the government’s spending priorities, it provides a snapshot of where Treasury thinks the Australian economy is headed. While forecasts can be wide of the mark, they do influence market behaviour.

Australia’s economic growth is expected to peak at 4.25 per cent this financial year, underpinned by strong company profits, employment growth and surging commodity prices. Our economy is growing at a faster rate than the global average of 3.75 per cent, and ahead of the US and Europe, which helps explain why Australian shares have performed so strongly.ii

However, growth is expected to taper off to 2.5 per cent by 2023-24, as key commodity prices fall from their current giddy heights by the end of September this year.

Commodity prices have jumped on the back of supply chain disruptions during the pandemic and the war in Ukraine. While much depends on the situation in Ukraine, Treasury estimates that prices for iron ore, oil and coal will all drop sharply later this year.

Share market winners and losers

Rising commodity prices have been a boon for Australia’s resources sector and demand should continue while interest rates remain low and global economies recover from their pandemic lows.

Government spending commitments in the recent Budget will also put extra cash in the pockets of households and the market sectors that depend on them. This is good news for companies in the retail sector, from supermarkets to specialty stores selling discretionary items.

Elsewhere, building supplies, construction and property development companies should benefit from the pipeline of big infrastructure projects combined with support for first home buyers and a strong property market.

Increased Budget spending on defence, and a major investment to improve regional telecommunications, should also flow through to listed companies that supply those sectors as well as the big telcos and internet providers.
But there are other influences on the horizon for investors to be aware of.

Rising inflation and interest rates

With inflation on the rise in Australia and the rest of the world, central banks are beginning to lift interest rates from their historic lows. Australia’s Reserve Bank is now expected to start raising rates this year.iii

Global bond markets are already anticipating higher rates, with yields on Australian and US 10-year government bonds jumping to 2.98 per cent and 2.67 per cent respectively.iv

Rising inflation and interest rates can slow economic growth and put a dampener on shares. At the same time, higher interest rates are a cause for celebration for retirees and anyone who depends on income from fixed interest securities and bank deposits. But it’s not that black and white.

While rising interest rates and volatile markets generally constrain returns from shares, some sectors still tend to outperform the market. This includes the banks, because they can charge borrowers more, suppliers and retailers of staples such as food and drink, and healthcare among others.

Putting it all together

In uncertain times when markets are volatile, it’s natural for investors to be a little nervous. But history shows there are investment winners and losers at every point in the economic cycle. At times like these, the best strategy is to have a well-diversified portfolio with a focus on quality.

For share investors, this means quality businesses with stable demand for their goods or services and those able to pass on increased costs to customers.

If you would like to discuss your overall investment strategy don’t hesitate to get in touch.

i https://www.commsec.com.au/market-news/the-markets/2022/mar-22-budget-sharemarket-winners-and-losers.html

ii https://budget.gov.au/2022-23/content/bp1/download/bp1_bs-2.pdf

iii https://www.finder.com.au/rba-survey-4-apr

iv https://tradingeconomics.com/united-states/government-bond-yield

Sowing the seeds of succession

Sowing the seeds of succession

Succession planning can be difficult at the best of times without dealing with the added pressures farmers have recently faced with droughts, fires and floods.

And that’s why it is even more important to plan early and get it right when you are on the land. You are not just dealing with a business, but invariably also with a home.

Some 99 per cent of the 134,000 farms in Australia are family owned with the average age of farmers being 52.i It is believed that farmers are five times more likely than other Australians to be working beyond the age of 65. There are a variety of reasons for this, from a reluctance to relinquish control, to a lack of family willing to take over the reins and financial necessity.

Given the physicality of farming, it would seem to make a lot more sense to start thinking about succession planning well before that stage.

Often such planning is put into the too hard basket because there are so many variables to consider. But this will not solve the problem, so it’s better to get good advice and get it early.

Start talking

The first thing you need to do is open the doors of communication. Arrange a time to talk with your family to discuss:

  • Who wants to inherit and work on the farm and who wants to leave the property

  • Whether they agree each child should be treated equally or accept that the one inheriting the farm should receive preferential treatment

  • How everybody feels about splitting the property between siblings, or

  • The way forward if none of your children wants to stay on the land.

These are all considerations that need to be addressed and revisited over time to ensure they meet with everybody’s wishes.

If just one of the children wants to remain on the property, will they need to find the finance to pay out the other siblings? If so, then the next decision is how that finance will be found.

Perhaps the answer is to transfer the property before you die. If that is the case, then where will you live in retirement and what will be your source of income once you retire? Again, you need to examine the options. Perhaps you may receive an ongoing income from the property, or maybe find income from other investments. Importantly, you also need to revisit these options over time to ensure they still work for you.

One danger of not having a succession plan and working well beyond your best years, is that you can run the farm into the ground and make it a far less attractive property to sell.

Structure your plans

There are so many questions to ask and what is right for one family, may not be right for another.

But once you determine how you want to move forward, you then need to examine the best structures to put in place to make the process as efficient as possible. Some of the key advice you may need is on tax, trusts and land ownership and the intersection of all three.

Tax is particularly important as you want to avoid or at least minimise capital gains tax (CGT).

If you are 55 years of age or more and retiring and have owned your property for at least 15 years, then you may qualify for the small business 15-year CGT exemption on your entire capital gains. Other concessions may apply if you don’t qualify the 15-year exemption.

For couples where the family farm is held in their own name, perhaps you might want to consider a joint tenancy agreement as it leads to automatic transfer of ownership if one dies.

Or you might consider putting the farm into a family trust or perhaps holding it as an asset in your self-managed super fund.
There are so many what-ifs to consider when it comes to rural properties. If you want to discuss how to move forward on your estate and succession planning and what will work best for you, then give us a call.

i https://www2.deloitte.com/au/en/pages/consumer-business/articles/succession-family-farm.html

Thriving on social connection

Thriving on social connection

The phrase ‘no man is an island’ is from a poem written by John Donne and expresses the idea that humans need to be part of a community to thrive. That’s certainly true, by nature we are social creatures and connection is a core human need. So why do some many of us feel alone and what can we do to feel more connected?

The last few years have highlighted the importance of social connection on our mental health and physical well-being, as our movements were restricted to varying degrees. The need to connect socially is as basic as our need for food, water, and shelter, with studies showing that it reduces the incidence of heart disease and stroke.i

You’re not alone in feeling alone

While we all need social connection, so many of us are feeling that it’s lacking in our lives. Feeling isolated is pretty common and happens to us all at one time or another, although loneliness appears to be particularly prevalent at the moment. A 2018 survey revealed that one in four of us are lonely and this increased to around half of us during the pandemic.ii,iii

So, what measures can we take to feel more connected?

Think about what you need

Everyone has different social needs. If you’re used to spending a lot of time with colleagues, friends and loved ones, you might feel isolated or lonely with just a few interactions per week, while for someone who likes their own company that might be simply fine.

On that note, it’s important to be able to enjoy your own company and sometimes periods of being alone can provide inner peace and time for introspection, making those moments of connection all the more precious.

Your social needs also change over time and under different circumstances. A life change like becoming a parent or retiring from the workforce can prompt a shift in your need to connect with others.

Quality can be more important than quantity

It’s important to consider the significance of meaningful connections rather than just social interaction, for the sake of it. Often the intimacy of a deep and meaningful discussion with a close mate can be much more enjoyable than a dinner with people you barely know.

Foster good social skills

Social connection is a two-way street so there are things you can do to improve the quality of your social interactions. You can forge deeper connections by talking about things that matter to you and to the other person, developing good listening skills and demonstrating real interest in what they have to say.

Seek out new people and experiences

It can be hard to foster new social connections. One effective way is to join a group to be with people who have similar interests. This growing need has led to apps being built for this purpose, with one of the most popular being meetup.iv Meetup has groups for everything, whether you are interested in bike riding, cinema, salsa dancing or dining. If you can’t find a group that’s of interest you can always create your own.

When looking to meet new people, try to open yourself up to try new experiences. Not everything you try your hand at will open doors to friendship, but you can always learn from the experience and hopefully have some fun along the way.

Dust off old friendships

Friendships need nurturing and many of us have been guilty of neglecting old buddies – particularly of late. Have a think about the people in your life and the relationships that may have fallen by the wayside and reach out, even if it’s just to grab a coffee.

It can take a little time and effort, but it’s always possible to reach out and strengthen existing connections or forge new ones. The benefits of having those social connections in our lives are profound. Keep in mind that you’re not the only one out there in search of connection and your efforts are not just helping yourself but also benefitting those you are reaching out to.

i https://www.heartfoundation.org.au/media-releases/Loneliness-link-to-heart-disease-in-older-Australi

ii https://psychweek.org.au/wp/wp-content/uploads/2018/11/Psychology-Week-2018-Australian-Loneliness-Report.pdf

iii https://www.blackdoginstitute.org.au/news/what-is-loneliness-and-how-can-we-overcome-it-during-these-times/

iv https://www.meetup.com/en-AU/

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.

April 2022 Newsletter

by victoria

Welcome to an early Federal Budget edition of our April newsletter. As the Morrison Government clears the decks ahead of a May election, Australians will be weighing up the impact on their household budgets.

The war in Ukraine added a major new source of uncertainty to the local and global economic outlook in March. Economic sanctions against Russia have cut its oil exports, sending crude oil prices surging 6% over the month to more than US$111 a barrel. This puts further pressure on inflation, already on the rise as global economies recover from the pandemic. In the US, inflation is at a 40-year high of 7.9%. The US Federal Reserve lifted official interest rates in March for the first time since 2018, by 0.25 basis points to a range of 0.25-0.50.

In Australia, the lead-up to the Federal Budget added to the uncertainty. The Reserve Bank is taking a “patient” approach on interest rates for now, but with inflation at 3.5% and tipped to go higher it is expected to begin lifting rates later this year. Australia’s economy grew by 3.4% in the December quarter, the strongest gain since 1976 as the nation emerged from lockdowns. Unemployment fell from 4.2% to 4.0% in February, but rising prices are putting pressure on household budgets. Petrol prices hit a high of $2.12 a litre in March, costing the average motorist an extra $66.20 to fill their tank since the start of the year. Consumer confidence is at an 18-month low, with the Westpac-Melbourne Institute index down 4.2% in March to 96.6 points. And a 20.6% lift in home prices in the year to February has pushed the average mortgage on established homes to a record $635,000.

Rising commodity prices – iron ore and wheat were both up almost 5% in March – pushed the Aussie dollar to around US75c.

Sharing super a win-win for couples

Sharing super a win-win for couples

Australia’s superannuation system is based on individual accounts, with men and women treated equally. But that’s where equality ends. It’s a simple fact that women generally retire with much less super than men.

The latest figures show women aged 60-64 have an average super balance of $289,179, almost 25 per cent less than men the same age (average balance $359,870).i

The reasons for this are well-known. Women earn less than men on average and are more likely to take time out of the workforce to raise children or care for sick or elderly family members. When they return to the workforce, it’s often part-time at least until the children are older.

So, it makes sense for couples to join forces to bridge the super gap as they build their retirement savings. Fortunately, Australia’s super system provides incentives to do just that, including tax and estate planning benefits.

Restoring the balance

There are several ways you can top up your partner’s super account to build a bigger retirement nest egg you can share and enjoy together. Where superannuation law is concerned, partner or spouse includes de facto and same sex couples.

One of the simplest ways to spread the super love is to make a concessional (after tax) contribution into your partner’s super account. Other strategies include contribution splitting and a recontribution strategy.

Spouse contribution

If your partner earns less than $40,000 you may be able contribute up to $3,000 directly into their super each year and potentially receive a tax offset of up to $540.

The receiving partner must be under age 75, have a total super balance of less than $1.7 million on June 30 in the year before the contribution was made, and not have exceeded their annual non-concessional contributions cap of $110,000.

Also be aware that you can’t receive a tax offset for super contributions you make into your own super account and then split with your spouse.ii

Contributions splitting

This allows one member of a couple to transfer up to 85 per cent of their concessional (before tax) super contributions into their partner’s account.

Any contributions you split with your partner will still count towards your annual concessional contributions cap of $27,500. However, in some years you may be able to contribute more if your super balance is less than $500,000 and you have unused contributions caps from previous years under the ‘carry-forward’ rule.

If your partner is younger than you, splitting your contributions with them may help you qualify for a higher Age Pension. This is because their super won’t be assessed for social security purposes if they haven’t reached Age Pension age, currently 66 and six months.iii

Recontribution strategy

Another handy way to equalise super for older couples is for the partner with the higher balance to withdraw funds from their super and re-contribute it to their partner’s super account.

This strategy is generally used for couples who are both over age 60. That’s because you can only withdraw super once you reach your preservation age (currently age 57) or meet another condition of release such as turning 60 and retiring.

Any super transferred this way will count towards the receiving partner’s annual non-concessional contributions cap of $110,000. If they are under 67, they may be able to receive up to $330,000 using the ‘bring-forward’ rule.

As well as boosting your partner’s super, a re-contribution strategy can potentially reduce the tax on death benefits paid to non-dependents when they die. And if they are younger than you, it may also help you qualify for a higher Age Pension. These are complex arrangements so please get in touch before you act.

A joint effort

Sharing super can also help wealthier couples increase the amount they have in the tax-free retirement phase of super.

That’s because there’s a $1.7 million cap on how much an individual can transfer from accumulation phase into a tax-free super pension account. Any excess must be left in an accumulation account or removed from super, where it will be taxed. But here’s the good news – couples can potentially transfer up to $3.4 million into retirement phase, or $1.7 million each.iv

By working as a team and closing the super gap, couples can potentially enjoy a better standard of living in retirement. If you would like to check your eligibility or find out which strategies may suit your personal circumstance, get in touch.

i https://www.superannuation.asn.au/ArticleDocuments/402/2202_Super_stats.pdf.aspx?Embed=Y

ii https://www.ato.gov.au/individuals/income-and-deductions/offsets-and-rebates/super-related-tax-offsets/#Taxoffsetforsupercontributionsonbehalfof

iii https://www.ato.gov.au/Forms/Contributions-splitting/

iv https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/transfer-balance-cap/

Budgeting for success in 4 easy steps

Budgeting for success in 4 easy steps

With all eyes on the Federal Budget and balancing the nation’s books, it’s a good time to review your personal balance sheet. If it’s not as healthy as you would like, perhaps it’s time to do a little budget repair of your own.

Just as governments need to set policy objectives and budget for future spending commitments, households need to feel confident they can meet their current and future financial commitments.

So no matter how much you earn, it’s always a good strategy to check that your spending doesn’t exceed your income. It’s also important to think about how much you need to save today to pay for all the things you want to achieve in the future.

Before we look more closely at your personal finances, it’s worth understanding how you may be affected by the big picture.

Cost of living pressures

The big economic issues for everyone right now, from the federal government and the Reserve Bank to businesses and households, are inflation and interest rates.

While economists talk about inflation, individuals experience this as an increase in their cost of living. Inflation increased by 3.5% in the year to December, with the price of fuel and the cost of buying a new home the biggest contributors. Prices of food, transport, health and insurance are also rising.i

Rising prices also put pressure on the Reserve Bank to lift interest rates to dampen demand. Lenders respond by increasing interest rates on mortgages and other loan products. While the Reserve Bank has indicated it is unlikely to lift rates before late 2022, homeowners and investors need to be prepared for an inevitable increase in mortgage repayments.

While higher prices are not a major concern if your income is growing faster than inflation, annual wages growth is lagging inflation at just 2.3 per cent.ii In other words, unless you’re lucky enough to secure a big wage rise your finances could be going backwards in real (after inflation) terms.

Given these challenges, what can you do to get ahead?

Start at the beginning

Money may not buy you happiness, but having enough to afford the life you want to lead certainly helps. So how much is enough?

A recent survey by Finder found 25 per cent of Australians wouldn’t feel affluent unless they earned at least $500,000 a year.iii Not only is this almost nine times the average income of around $60,000, many of today’s rich listers started out with far less.iv

There’s nothing wrong with dreaming big but you are more likely to achieve your goals by being realistic and to start with, making the most of what you already have.

Before you can build wealth, you need to understand what’s coming in, where your money’s going and where you could make savings, by following these four steps:

  1. Add up your annual income from wages, investments and government benefits.

  2. Add up your spending on essential living expenses including mortgage or rent, groceries, utilities, transport and insurances; and discretionary spending on the fun stuff like clothes, dining out, entertainment and holidays. If you don’t have receipts, try tracking your spending over three months or so using one of the many free online budgeting apps.

  3. Subtract your total spending in step 2 from your total income in step 1. If you spend more than you earn or barely break even, then look for areas where you could save. Things like cutting back on takeaways, impulse spending online, and streaming services you rarely use. Ring your mortgage lender to negotiate a better interest rate and when insurances come up for renewal, shop around.

  4. Draw up a budget to track your spending and put a savings plan in place to achieve your goals. Even a simple plan will help with discipline and make regular saving automatic.

Putting it all together

Some of the most popular budget strategies take a bucket approach, with separate money buckets for needs, wants and savings.v Most aim to set aside around 20 per cent of your income as savings and paying yourself first by setting up regular debits to a savings account. If you have debts or don’t have an emergency fund, then these should be attended to before you direct savings to investments or other goals.

To be successful, a budget needs to be one you can stick to, tailored to your personal goals and financial situation. If you would like us to help plan your personal budget strategy, get in touch.

i https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release

ii https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release

iii https://www.finder.com.au/average-aussie-needs-330000-to-feel-rich

iv https://www.abc.net.au/news/2021-06-20/are-you-middle-income-see-how-you-compare/100226488

v https://www.finder.com.au/best-budgeting-strategies

Scams to beware (and be aware) of

Scams to beware (and be aware) of

There is a saying ‘a fool and his money are often parted’ but with scammers becoming ever more devious and sophisticated in their methods, it pays for everyone to be aware of the latest tricks being employed.

According to Australian Competition and Consumer Commission (ACCC) data, last year was the worst year on record for the amount lost to scammers, with a record $323 million lost during 2021. This represents a concerning increase of 84% on the previous year.i

And with Australians spending more time online than ever before, predictably the area of most growth is cybercrime.

Incidences increasing

Cybercrime increased over 13% during the 2020-21 financial year, with data revealing one attack occurs every 8 minutes. ii

Police records indicate that as the number of house break-ins and burglaries decreased through COVID, the amount of digital scams increased as criminal activity found an alternative outlet and moved online.iii Scammers also exploited the pandemic environment by targeting an increasing reliance on online activity and digital information and services.

Most common scams

Phishing, where scammers try to get you to reveal information that enables them to access your money (or in some cases steal your identity), is one of the most common scams. Last year Scamwatch, a website run by the Australian Competition and Consumer Commission (ACCC), received more than 44,000 reports of phishing, costing Australians $1.6 million.iv While some phishing scams are obvious, like free give-aways, you can also be directed to sites that masquerade as financial providers or government departments and they can look pretty official.

The trick to not be taken in is to be very wary of clicking on a pop up or unknown site and do an independent google search or verify the site is secure. Before submitting any information, make sure the site’s URL begins with “https” and there should be a closed lock icon near the address bar. It’s also a good idea to keep your browser and antivirus software up to date.

Scams that cost us the most

Investment scams are becoming ever more sophisticated and the amounts associated with these scams are significant. Investment scams accounted for $177 million in 2021.v

In one of the most disturbing trends of the year, the Australian Securities and Investment Commission (ASIC) said some investment scammers were presenting impressive credentials, including their funds ‘association’ with highly regarded domestic and international financial services institutions.

Those doing their diligence on the funds were met with professional-looking prospectuses offering very high returns and claiming investor funds would be invested in triple A rated or government bonds, offering protection under the government’s financial claims scheme. Scammers even cleverly honed in on those most likely to be tempted by these investment products by gathering the personal and contact details potential ‘investors’ entered into fake investment comparison websites.

While the rise in, and increasingly compelling nature of investment scams is certainly of concern, we are here to help if you have any opportunities you’d like to explore that need thorough investigation.

Staying scam-proof

  • Be alert, not alarmed – always consider the fact that the ‘opportunity’ you are being presented with or the fine or fee you are being asked to pay may be a scam. Don’t be swayed by the fact that it looks like it is coming from a well-known company or source.

  • Keep your personal details and passwords secure. Be careful how much information you share on social media and be wary of providing personal information.

  • Beware of unusual payment requests. Scammers will often ask for unusual methods of payment which are untraceable like iTunes cards, store gift card or debit cards, or even cryptocurrency like Bitcoin.

The best way to avoid scams, is to be aware of the tactics being employed and maintain a sceptical frame of mind. If something seems too good to be true, or if your alarm bells are ringing take your time and do your due diligence before taking any action.

i, v https://www.savings.com.au/news/scamwatch-2021

ii https://www.cyber.gov.au/acsc/view-all-content/reports-and-statistics/acsc-annual-cyber-threat-report-2020-21

iii https://www.abc.net.au/news/2021-09-22/financial-crimes-increasing-as-burglars-switch-to-fraud/100473828

iv https://www.scamwatch.gov.au/get-help/protect-yourself-from-scams

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

by victoria

A balancing act

Billed as a Budget for families with a focus on relieving short-term cost of living pressures, Treasurer Josh Frydenberg’s fourth Budget also has one eye firmly on the federal election in May.

At the same time, the government is relying on rising commodity prices and a forecast lift in wages as unemployment heads towards a 50-year low to underpin Australia’s post-pandemic recovery.

While budget deficits and government debt will remain high for the foreseeable future, the Treasurer is confident that economic growth will more than cover the cost of servicing our debt.

The big picture

The Australian economy continues to grow faster and stronger than anticipated, but the fog of war in Ukraine is adding uncertainty to the global economic outlook. After growing by 4.2 per cent in the year to December, Australia’s economic growth is expected to slow to 3.4 per cent in 2022-23.i

Unemployment, currently at 4 per cent, is expected to fall to 3.75 per cent in the September quarter. The government is banking on a tighter labour market pushing up wages which are forecast to grow at a rate of 3.25 per cent in 2023 and 2024. Wage growth has improved over the past year but at 2.3 per cent, it still lags well behind inflation of 3.5 per cent.ii

The Treasurer forecast a budget deficit of $78 billion in 2022-23 (3.4 per cent of GDP), lower than the $88.9 billion estimate as recently as last December, before falling to $43 billion (1.6 per cent of GDP) by the end of the forward estimates in 2025-26.

Net debt is tipped to hit an eye-watering $715 billion (31 per cent of GDP) in 2022-23 before peaking at 33 per cent of GDP in June 2026. This is lower than forecast but unthinkable before the pandemic sent a wrecking ball through the global economy.

Rising commodity prices

The big improvement in the deficit has been underpinned by the stronger than expected economic recovery and soaring commodity prices for some of our major exports.

Iron ore prices have jumped about 75 per cent since last November on strong demand from China, while wheat prices have soared 68 per cent over the year and almost 5 per cent in March alone after the war in Ukraine cut global supply.iii,iv

Offsetting those exports, Australia is a net importer of oil. The price of Brent Crude oil prices have surged 73 per cent over the year, with supply shortages exacerbated by the war in Ukraine.v Australian households are paying over $2 a litre to fill their car with petrol, adding to cost of living pressures and pressure on the government to act.

With the rising cost of fuel and other essentials, this is one of the areas targeted by the Budget. The following rundown summarises the measures most likely to impact Australian households.

Cost of living relief

As expected, the Treasurer announced a temporary halving of the fuel excise for the next six months which will save motorists 22c a litre on petrol. The Treasurer estimates a family with two cars who fill up once a week could save about $30 a week, or $700 in total over six months.

Less expected was the temporary $420 one-off increase in the low-to-middle-income tax offset (LMITO). It had been speculated that LMITO would be extended for another year, but it is now set to end on June 30 as planned.

The extra $420 will boost the offset for people earning less than $126,000 from up to $1,080 previously to $1,500 this year. Couples will receive up to $3,000. The additional offset, which the government says will ease inflationary pressures for 10 million Australians, will be available when people lodge their tax returns from 1 July.

The government will also make one-off cash payments of $250 in April to six million people receiving JobSeeker, age and disability support pensions, parenting payment, youth allowance and those with a seniors’ health card.

Temporarily extending the minimum pension drawdown relief

Self-funded retirees haven’t been forgotten. The temporary halving of the minimum income drawdown requirement for superannuation pensions will be further extended, until 30 June 2023.

This will allow retirees to minimise the need to sell down assets given ongoing market volatility. It applies to account-based, transition to retirement and term allocated superannuation pensions.

More support for home buyers

A further 50,000 places a year will be made available under various government schemes to help more Australians buy a home.

This includes an additional 35,000 places for the First Home Guarantee where the government underwrites loans to first-home buyers with a deposit as low as 5 per cent. And a further 5,000 places for the Family Home Guarantee which helps single parents buy a home with as little as 2 per cent deposit.

There is also a new Regional Home Guarantee, which will provide 10,000 guarantees to allow people who have not owned a home for five years to buy a new property outside a major city with a deposit of as little as 5 per cent.

Support for parents

The government is expanding the paid parental leave scheme to give couples more flexibility to choose how they balance work and childcare.

Dad and partner pay will be rolled into Paid Parental Leave Pay to create a single scheme that gives the 180,000 new parents who access it each year, increased flexibility to choose how they will share it.

In addition, single parents will be able to take up to 20 weeks of leave, the same as couples.

Health and aged care

One of the Budget surprises in the wake of the Aged Care Royal Commission findings, was the absence of spending on additional aged care workers and wages.

Instead, $468 million will be spent on the sector with most of that ($340 million) earmarked to provide on-site pharmacy services.

The Pharmaceutical Benefits Scheme (PBS) is also set for a $2.4 billion shot in the arm over five years, adding new medicines to the list. PBS safety net thresholds will also be reduced, so patients with high demand for prescription medicines won’t have to get as many scripts.

A $547 million mental health and suicide prevention support package includes a $52 million funding boost for Lifeline.

And as winter approaches, the government will spend a further $6 billion on its COVID health response.

Jobs, skills development and small business support

As the economy and demand for skilled workers grow, the government is providing more funding for skills development with a focus on small business. It will provide a funding boost of $3.7 billion to states and territories with the potential to provide 800,000 training places.

In addition, eligible apprentices and trainees in “priority industries” will be able to access $5,000 in retention payments over two years, while their employers will also receive wage subsidies.

Small businesses with annual turnover of less than $50 million will be able to deduct a bonus 20 per cent for the cost of training their employees, so for every $100 they spend, they receive a $120 tax deduction.

Similarly, for every $100 these businesses spend to digitalise their businesses, up to an outlay of $100,000, they will receive a $120 tax deduction. This includes things such as portable payment devices, cyber security systems and subscriptions to cloud-based services.

Looking ahead

With an election less than two months away, the government will be hoping it has done enough to quell voter concerns about the rising cost of living, while safeguarding Australia’s ongoing economic recovery.

The local economy faces strong headwinds from the war in Ukraine, the cost of widespread flooding along much of the east coast and the ongoing pandemic.

Much depends on the hopes for the rise in employment and wages to offset rising inflation, and the timing and extent of interest rate rises by the Reserve Bank.

If you have any questions about any of the Budget measures, don’t hesitate to call us.

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.

i https://tradingeconomics.com/australia/gdp-growth-annual

ii https://www.abs.gov.au/media-centre/media-releases/annual-wage-growth-increases-23

iii https://tradingeconomics.com/commodity/iron-ore

iv, v https://tradingeconomics.com/commodities

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.