Your relevant Budget summary: The short, the long or the video version – your choice

Last year I branded the federal budget as boring, I won’t be doing the same this year! It’s a tough budget with all Australians told to bear the burden.

Tony Abbot has dubbed it “pain with a purpose” and according to Federal Treasurer Joe Hockey, “the economy is growing at less than normal speed and the time to fix the budget is now.”

For families, there is a focus on healthcare and education; for high income earners, a new tax just for them; for pensioners – new eligibility rules; and for the rest of us – a little bit of extra super.

For anyone who just wants an absolute bare bones budget breakdown, I’ve prepared a summary of the main points below. At the very least you can pretend to care if one of your friends or family members raises the matter.

And for anyone who would like a more comprehensive look at what this year’s Federal Budget involved, I’ve catered for your taste too by including some links to a much longer report and even a video.

First, the summary.

Personal Taxation

• A levy of 2% will apply for three years to incomes over $180,000 pa, starting in 2014/15. It will increase the top marginal tax rate to 49%.
• The levy will increase the Fringe Benefits Tax rate to 49% for three years, starting on 1 April 2015.
• Tax offsets available for dependent spouses and mature age workers will be abolished on 1 July 2014.
• Income thresholds determining the Private Health Insurance Rebate and Medicare Levy Surcharge will not increase for three years, starting in 2015/16.
• Interest on HELP debts will increase, with a maximum rate of 6% pa from 1 June 2016.

Superannuation

• People who make after-tax (non-concessional) super contributions from 1 July 2013 that exceed the cap will have the option to withdraw the excess amount plus earnings on the excess. Currently these excess contributions are taxed at 46.5%.
• The timeframe for increasing the Superannuation Guarantee contribution rate to 12% will be amended. The next increase, to 9.5%, will occur on 1 July 2014 where it will remain for four years. From 1 July 2018, the rate will increase by 0.5% pa before reaching 12% on 1 July 2022.

Social Security

• The age at which people will be eligible to receive the Age Pension will increase to 70 from 1 July 2035.
• From 1 July 2015, Family Tax Benefit – Part B will only be available to families who earn up to $100,000 pa, down from $150,000 pa. This payment will also be limited to families whose youngest child is under 6.
• The amount of income earned to be eligible for the Commonwealth Seniors Health Care Card will increase each year in line with inflation from 20 September 2014. However, tax-free payments from superannuation pensions will be included in the income assessment from 1 January 2015 for new applicants.
• From 20 September 2014, the Seniors Supplement will no longer be payable to holders of the Commonwealth Seniors Health Care Card. However, cardholders will still receive the Clean Energy Supplement.
• People receiving the Disability Support Pension under age 35 may need to undertake a compulsory workforce participation plan.

It’s important to note that at this stage, the measures announced are proposals only and may or may not be made law. So don’t go acting on them just yet…

If you’d like to hear more of what I have to say on the matter, click here for a recording of my most recent “You & Your Money” radio segment on 98.1FM Radio Eastern and click here for your more detailed Budget report.

And if you’d prefer to watch a 6 minute youtube budget update, click here.

Talk soon,
Caren

Hard not to be bitter…

It’s pretty easy to blame the US for the Global Financial Crisis (GFC). Even if they weren’t completely to blame, their housing slump and sub-prime debacle were a mighty big contribution.
You remember right? All those sub-prime mortgages where banks would loan money to just about anyone, and not only that but some were non-recourse (ie. if the bank forecloses and doesn’t get the full value of the property, there’s no further requirement for the homeowner to pay the balance of their loan). I’m no Julia Childs, but I see a really good recipe there – for disaster! Maybe something like this:

Mix way too many sub-prime mortgages with an over-supply of housing in some areas, and make a well in the middle. Gently fold in rising unemployment and a generous splash of foreclosures due to interest rate hikes. Pour into a tin lined with a collapse in residential housing. Bake at 180 degrees Celsius and test with a skewer and if gross domestic product (GDP) is falling it’s ready. Cool for (let’s face it, about 4 years) and what you have is a perfect GFC yeah?

So it’s a little hard not to be bitter watching their sharemarket screaming towards its highest point in history. In October 2007 the Dow Jones index reached it’s all time high of 14,164 and as I write, it’s at 13,125.

Of course that’s good, I’m not really whinging about their success BUT, in the words of Moving Pictures (or Shannon Noll if you didn’t get to experience the 80s), “What about me?”

In good old Oz, our ASX All Ordinaries index reached 6,854 points in November 2007, and where are we now? 4,348 as of yesterday. Still a long way off our all time high! Seems a tad unfair?

So what should we expect from sharemarkets going forward?

Prior to 2007, business cycles were reasonably long in duration, but it would seem now that they have shortened (eg. 3-5 years) in response to world monetary difficulties (probably euphemistic for some of the European countries). And of course there’s political and religious unrest, not to mention government instability in various geographic regions. So this relatively shorter business cycle began in mid-2009, and economists are forecasting that it possibly has another 12-18 months to run.

Anyone who listens to my radio program will have heard me say that “volatility is the new black”. It’s here to stay for at least this cycle. I did some research a couple of months ago and at that particular time our sharemarket had experienced movement of more than 1% in a single day 97 times in the 12 month period. WOW!! (By the way that’s an expression of amazement, not the Woolworths ASX code). Fortunately most of those times were “upward.”

Sooooooo, market volatility will continue for some time and we’re concerned that government stimulation packages haven’t been enough to sufficiently boost flailing economies. Depending upon a number of factors (eg. presidential and congress elections in the US next year, a programmed change to the political leadership in China, a continued thrust to hold the European Union together) there’s the possibility of a world recession in late 2012 – 2013. So my recommendation is to make sure you protect on the downside by taking a more tactical approach to portfolio management. For example, the current circumstances would seem to call for some strategic defensive positioning. In particular, holding enough equity exposure to take advantage of any market rallies over the next 6-12 months, but also putting measures in place to help protect against “downside” risk.

Alright, well that’s as technical as I’m prepared to get, it must be time for some cheese and bikkies (yes that’s my excuse for a glass of wine).

Talk soon.
C

FEEL THE NOISE?

Oh man, it has been a noisy few weeks in sharemarket land. And most of that noise has been coming from the media – bless their often misguided, sometimes completely irresponsible, cotton socks.

This will be a fairly lengthy blog, but I think (hope) well worthwhile for anyone that’s wondering what on earth is going on. More importantly, it will provide some perspective.

But most importantly, there’s a prize offer at the end!!!!!

At my business, The Hendrie Group, our approach to managing finances has always been to identify long term goals and then to develop strategic plans to help meet those objectives.

As with all plans, nothing is set in stone, and there may well be variations along the way, to respond to changes both in your goals and to investment markets.

But we try to keep those changes to a minimum, by having a long term strategy, and filtering out the market “noise” which fills the media on an almost daily basis.

Those of you who regularly read my blog or listen to my radio program (98.1FM Radio Eastern Thursdays after the 9am news), will be accustomed to my periodic harangues about the need to be wary of sensationalism in media headlines and reporting. Not to mention, inaccurate reporting, media focus on “short termism” particularly in relation to investment returns, over-emphasis on the issue of fees, etc, etc ….. and to remain focused on the long term.

So, given the market gyrations of recent weeks, and the associated reports, I was pleased to read two articles which – in differing ways - reflected my philosophy.

In a topical article titled Why the fear industry has moved on from the Greek ‘crisis’ well-known and respected Australian finance journalist Michael Pascoe wrote:

“Is anyone feeling a little sheepish after all the hype about the potential Greek Armageddon last week? Probably not. The fear and worry industry immediately moved on to beating up the importance of China’s manufacturing industry numbers on Friday.

For all the theatre of protesters and police, the whiff of tear-gas in reporters’ constant pieces to camera, the repeated lines about the danger of Greece causing another global financial crisis….nothing much really happened.

…….Meanwhile, back at the headline factory, China’s indicator of manufacturing activity, the purchasing managers index (PMI) came in lower than expected for June. The Australian stock market allegedly saw that as a bad thing, indicating that China is slowing, albeit to a growth of about 9%. The Shanghai market saw it as a good thing, indicating that China is slowing and therefore Beijing won’t have to increase interest rates again. So it goes.”

(Market Perspective, The Sunday Age, July 3 2011, p22)

Jim Stackpool, a leading management consultant to financial planning businesses, says:

“Good financial professionals deliver certainty in a constantly uncertain world. Mining booms will come and go, international markets will fluctuate, countries - and companies the size of continents - will not perform predictably, natural and unnatural disasters will occur, and unforeseen threats will raise their ugly heads. The ramifications of each of these events will affect the assurance people seek, and good financial professionals anticipate this.

… (they) also understand our ‘natural financial wiring’… adversely affects most peoples’ decision making (that is most of us mere mortals tend to buy high and sell low), and they know how this thinking will most significantly affect the attainment of greater financial certainty in our lives.

Even more importantly, they understand their clients well enough to deliver the wealth management services required to reinforce and lead their clients on the financial journey most appropriate to deliver the assurance each and every client seeks.”

(Asset Financial Review, July 2011, p40-41)

(Note: All the bolding is mine for emphasis).
And finally, eminent Australian economist Shane Oliver (so not the media) wrote in his latest issue of Oliver’s Insights:

“A massive increase in economic and financial information flow is adding to investor jitters and driving a shift further away from long term-investing. This is likely to work against investors over time.

Investors should consider turning down the ‘news volume’ and refocus on investing for the long term, remembering the best time to invest is when everyone is gloomy. Averaging into weakness is a good way to go.”

(Oliver’s Insights, Edition 18, 29 June 2011)

So my message remains the same - stick with your long term strategy. Unless you really can’t stand the strain, in which case talk through your issues with your adviser.

Ok, now to the prize offer. If you have a Facebook account all you need to do to enter our draw is “like” our new Hendrie Group page before 31 July. The prize is a 26" Full HD LED Kogan TV with built-in DVD player and PVR. How good is that?

Talk soon,

C