Archives for March 2013

Could this year’s federal budget really be Swan’s song?

What a difference a week makes in politics.  A little over a week ago the more radical and negative federal budget measures looked to be under containment.  Following the Government’s self immolation last week, atreasure chest of the better performing, experienced and more pro “business and aspiration” ministers went to the back bench and were replaced by less experienced and potentially more left leaning replacements.
The exiting ministers raised concerns over a planned strategy of class warfare, looming policy faux pas and hinted at sinister plans that may be hatching to make an all out appeal to marginal electorates by launching a budget attack on those voters that Labor has already lost to pay for the election pork barrel.It appears now that the first thing the Government must do is survive a no confidence motion in Parliament. Then to succeed with any substantive budget measure, it must align to the Independents and Greens to get the crucial majority to carry its measures through.In this volatile environment, almost anything could happen. We could have an early election, we could have a toothless budget where no substantive measures get through the House of Representatives or we could have a leap to the left and an attack on the wealthy with the gloves off. My bet is for the Government to play for support from the Greens and Independents in a bid to retain legislative power (as for the policy backflip on the Carbon Tax). This means the top end of town and the wealthy (which now includes the middle class) need to brace for impact.Here are some of the possible measures that may emerge in the budget and preparatory action pre- budget night.


Higher taxes for superannuation account balances greater than say $700-$800,000.  There are enough superannuation accounts at this level to raise some decent revenue.  Taxes on accumulation earnings were proposed to raise from 15% to say 30%.  This appears to have been a planned budget measure.  There were leaks to the press which highlighted massive voter resistance to the idea.  The Government appears to have ruled out taxation on superannuation withdrawals but not earnings.  There are suggestions this week that the new “war cabinet” may put the entire issue back on the table because it may only affect voters who have deserted Labor.

Some in the market have suggested cashing out your superannuation prior to budget night if you are in pension phase.  I think you would be foolish to do this.  The Liberals have stated they will repeal this measure in Government.  Even should it get through and stand I suspect leaving the money in super will outperform, you will just get ahead slower.

Deductible superannuation contributions being taxed in the fund at say 30% or the marginal tax rate of the member, or a new  general rate greater than the current 15%.  This one does not appear to have been ruled out.  Presently a 30% rule affects people with adjusted incomes of more than $300,000, but expect this to creep down to $180,000 or a bit lower where such a measure can raise some decent revenue. There have been suggestions contributions should be taxed at marginal tax rates (long ago this was a Hewson Liberal policy, it did not work too well for him).

Bring your deductible superannuation contributions forward to pre budget night if you want to lock in the 15% rate.  It will be hard for the Government to make this retrospective.  If there is no action on this measure on budget night, bringing forward the contribution does not harm you.

Transition to retirement pensions:  At age 60 retirees can access their superannuation benefits.  To assist people in the process of transitioning to retirement, it is possible to commence a “transition to retirement pension” from age 55 which changes the rate of taxation on assets funding the pension to 0%.  The Government could remove this concession, locking in super money at a potentially new higher tax rate for longer.  If you are 55 or over, it might make sense to commence a transition to retirement pension prior to budget night.


The Greens want a war on negative gearing.  A week ago I would have said no Government is foolish enough to remove the benefits of negative gearing, but in a fight for survival to 14 September, perhaps some change of position may emerge to get the numbers.  The Government could introduce loss quarantining for individuals with adjusted incomes of around $180,000 or their higher benchmark of $300,000.  This requirement could for example say that you can have the loss on gearing on a rental property, but only offset it from future income of the same class.  This would destroy the tax timing benefit created by negative gearing.  It would also create a tax fiction, you would have a real cash loss, but the government would not allow this outflow to reduce the tax you pay while gearing produces a negative result.  You may recall the Hawke/ Keating government had a crack at this decades ago and the response was so damaging to property prices and voters, they had to repeal it.  Officially, gearing is on the Governments’ promise list to retain.

My bet is that the Government will attack gearing at the big end of town for international businesses.  It is likely that the Government will further limit tax deductions for interest on borrowings paid offshore – the so called thin capitalisation rules.  Such a move would massively prejudice Australia’s standing as an importer of investment capital and a place to headquarter international business, but it may be a vote winner in the marginals.

It may make sense to bring forward interest prepayments to prior to budget night to lock in a deduction under the existing rules.

If gearing is “grandfathered” to pre-budget night investments, planned investments may best be locked in prior to budget night.


The top end of town will lose concessions and smaller enterprises may have access to an innovation fund.  We are short on the detail, but expect to see more in the budget and a lot of noise about this.  Smaller enterprises may be unexpected winners, but the pool of real available funds looked small in the announcement, so you may need to get in quick.


The so called Division 7A rules which tax amounts owing by shareholders or their associated family trusts to a private company as unfranked dividends have been largely criticized as punitive and ripe for reasonable reform this year.  In a normal year, sensible reform would be a great positive to introduce to ease the pain on small business.  I cannot see this getting up this year, as such favorable reforms are likely to be seen as concessions to the “wealthy” and therefore unlikely to win votes in the right seats.


In a moment of budget surplus desperation (several Assistant Treasurers ago), legislation was created to massively expand the general tax anti avoidance provision.  The motivation was that the tax office was losing too many big cases to the taxpayer and Treasury lobbied that this was a threat to the budget.  The draft legislation is a monster.  It may force you to look at the simplest way you could have effected a transaction, ignoring how you actually effected the transaction, and force you to take the less favourable tax result of the transaction you did not do.  Yes, read that sentence again.  It is self evidently ridiculous and is testimony to the state of Government in this country.

This may re-emerge packaged as a Robin Hood weapon against evil wealthy wrong doers threatening marginal voters.  These measures could really mess up typical, legitimate and appropriate planning techniques and change the way you invest in the future paying more tax. 


You have heard the rhetoric.  Google, Apple etc don’t pay much tax in Australia because they are structured to locate the taxable source of profits in low tax jurisdictions.  Expect a tax measure to get these “baddies”.  You may not have picked this up from the media reports, but they have not done anything wrong.  They are simply applying the tax rules and often with the ATO’s sanction.  The problem is that this is not just an Australian issue, it is a global issue.  These businesses are eminently capable of turning on a coin to change operations for any change in tax laws across the globe.  Why set up your server in high cost Australia when you can set it up anywhere in the world.

The top end of town have the resources to adjust/ defend against the impact of a new tax.  My fear is that small Australian IT start ups and IP commercialisation businesses may find that the tax rules that helped larger competitors become globally great may not be available to them.  At the end of the day, if Australians bring the money home, Australia will eventually be in a position to tax it.  If the Government frightens all our innovators into relocating offshore, another country will be the long term winner. 


The mining tax was a disaster.  They are not off the hook yet.  Expect new lines of attack to raise more revenue from miners.  Options are reductions in the diesel fuel rebate, which will be popular with the Greens.  Further tweaks to depreciation rules to make them less favourable may also be fertile ground.

Stephen Cribb is a Director of Prosperity Advisers Group.  

Is your staff productivity reduced by financial stress?

What can you do to turn it around?

Recent statistics have shown that when your staff face personal financial stress, your business could suffer from poor productivity.

A recent survey reviewed over 450 organisations and found that employees under financial stress can spend up to 20 hours per month of their working time trying to resolve their personal financial problems.

It is a terrifying statistic for employers hoping for increases in staff productivity in these challenging economic times.

By bringing clarity and simplicity to your employees financial life, you can accelerate their financial success and assist them to obtain that extra measure of freedom that smart financial advice and wealth building deliver.

What can you do as an employer to reduce this drain on your business?

1.  Seek out financial education.  As an employer you could offer financial education to your employees, providing training to help them understand topics such as budgeting, the importance of saving, the difference between ‘good’ and ‘bad’ debt, insurance and superannuation.  There are a handful of firms nationwide that will come into your office and run tailored education programs.  These short courses provide education in financial literacy helping staff to understand their finances better and make improved financial decisions.

2.  Put in place a benefits package.  Depending on your industry, there are a range of benefits staff can access ‘before tax’, or in a way that can be supported by the employer.  If you put in place an Employee Benefits Package, staff might be able to access significant savings on superannuation fees, motor vehicle expenses, computers, life insurance and even meal expenses. In a corporate super plan as part of an Employee Benefits package, the fees and insurance premiums are often lower.

3.  Promote the benefits available to staff.  Many staff of companies with benefits programs are often unaware of the benefits scheme on offer.  But you can change this, helping your staff and increasing morale and productivity simply by promoting the benefits available.

Offering a structured financial Employee Benefits package to your staff will reduce their financial stress, make life transitions easier and help you to achieve a more productive, creative and effective work environment.

Article by Mark Sablatnig, Manager, Prosperity Wealth Advisers Pty Ltd.  Mark provides solutions about corporate super, group insurance and employee benefits to our clients from offices in Brisbane, Sydney and Newcastle.


Doom and gloom or the roaring bull?

While interest rates may need to fall a bit further, green shoots of recovery suggest we are at or near the low and more importantly, point to an improvement in economic and profit growth over a 12 month horizon, according to Dr Shane Oliver, Chief Economist from AMP.

“All I hear is doom and gloom… All is darkness in my room”

Dr Shane Oliver opened his Economic Update for our Sydney office last week with a riff from the new Rolling Stones song “Doom and Gloom” released this year.

His pragmatism was clear, despite the recent rise in equity markets that has occurred since December 2012, he wants investors to retain cautious optimism and look forward to more growth.

Many of the worst-case scenarios that economists predicted for 2012 didn’t happen:

  • Italian and Spanish bond yields fell when many expected them to rise,
  • The US didn’t have a double dip or fall off the fiscal cliff,
  • The Australian dollar traded within a narrow range all year; and
  • The world didn’t end on December 21, the end of the Mayan calendar.

Many of the issues that people were concerned about last year can now be seen receding and Shane Oliver himself says he is feeling more sanguine with the world’s economic prospects.

In 2012, listed REITs were the star performers, enjoying a return of 30% in Australia and 27% globally.  Cash on the other hand achieved only a 4% return.

In 2013, he expects the world to grow steadily.  He predicted that China will grow 7.5-8% and that the tail risks in Europe will continue to recede.  “Europe is still in recession right now, but the economy is showing signs of growth,” he said.  “All is starting to look OK in the US, with retail sales motoring along, the fiscal cliff now resolved, and housing starts are picking up.  We are also impressed to see that US debt to GDP ratios has fallen from 11% at the height of the GFC to 6% today.”

According to Dr Oliver, Japan finally seems to be getting it right too with the election of new Prime Minister Abe who has won the election on inflation friendly policies that make it look like it will go down the same recovery track as the USA.

Australia, he says is showing signs of green shoots, despite our determination as a Country to be pessimistic.   Retail sales were up in January, job ads were up in January, and new home sales and auction clearances are looking up too.

“Mining is moving into a cyclical decline, which will force our economy to be more dependent on the non-mining sectors over coming years for stability.  Whilst this presents concerns, the reserve bank is supporting growth and consumer confidence is rising, with it up over 15% in the last year.  Political risks remain and are likely to hang around until we have removed the hung parliament and returned certainty to our Government in September.

He believes that the seven cuts in interest rates we have seen over the last eighteen-month period are starting to be felt right across the Australian economy and that we may now be nearing interest rate lows.

“I believe interest rates are near the bottom of the cycle.  With Banks offering 4.99% on fixed term loans, it simply cannot get much better.”

Dr Oliver was optimistic that the equity market has entered another cyclical bull market.  Our equity market in Australia has been rising since November 2011, about 18 months.  But research by AMP shows that most cyclical bull markets last approximately 47 months, leading him to suggest that there should be more good times ahead.

Equity markets are up 22% in the year to February, primarily due to some growth in company profits.  This has driven up price earning multiples making some of the equities in our market look a little expensive, or indicating potentially that profits might be about to rise as often happens at this point in a cyclical bull market.

What makes him think it can go higher?

“When cash rates get below about 6% people usually start moving out of cash and seeking out risk.  There is about 14% of our Superannuation system currently sitting in cash at the moment in Australia, giving us a strong pool of money that may be tempted to enter the market given a continued improvement in confidence.”

To finish off the evening, Dr Oliver highlighted the risks, which looked a lot less threatening than recent years:

  • Instability in Europe, with many watching Italy for any distress after their recent elections;
  • Any slippage in Chinese growth;
  • Any further ratings downgrades for the US; and
  • Continued softness in Australia’s non-mining economy which we will become more and more dependent on.

Article by John Manuel, Director, Prosperity Wealth Advisers Pty Ltd.  John and our other Advisers provide Financial Planning and Family Office services to our clients from offices in Brisbane, Sydney and Newcastle.