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.

Superannuation: Moving the goal posts halfway through the game

Feeling frustrated that the Government has put playing with super rules back on the table?  I have been inundated with calls from concerned clients over the last week asking me what to do.  In particular, one theme of exasperation has come through resoundingly:

“That’s the end for super for me – the Government is playing with the rules to basically take back any advantage when I eventually retire.  I don’t trust this or future Governments to treat me fairly.  Super is a honey pot they will go after.  Why would I lock my money away when the Government will keep changing the rules, keep raising the tax rates.  If they don’t get me now, they will get me by the time I’m 60.”I feel the same way too.  Cheated.  But my advice is not to run for the exits yet.  It is a fact of the superannuation system of the last 30+ years that it consistently outperforms other platforms for passive wealth generation for the risks involved.

The proposed new rules produce unequal results for different citizens based on “wealth”, they are manifestly unjust and frustrating because they fly in the face of the policy platform the Government took to the last election.  But hang in there.  Emotional decisions are rarely the best ones.  The law is not changing yet, may affect only a few, and there should be opportunity to take protective steps before any change if necessary.The most important announcement to be aware of is Prime Minister Julia Gillard’s announcement on 6 February 2013 that she wishes to increase the tax rate on superannuation earnings of the top 1% to a tax rate that could be as high as 30%.  Common sense suggests that ultimately it is unlikely to be that high given this is a change that would cripple people’s long term retirement savings plans.  “Absolutes” such as “top 1%” also tend to produce unintended winners and losers – leaving inequities at the margins.  For example, if my fund balance is $X my tax rate might be 15%, but if I have $X + $1 it might be 30%.  Manifestly unjust.

If the announcement is carried through, there may be no more than 100,000 retirees affected.  However the policy dilemma the Government faces is that taxing so few funds is unlikely to deliver the material revenue increases the Government is looking for.  It will involve great pain for modest gain.  For the tax to really deliver solid revenue outcomes, it would need to apply to a wider range of taxpayers.

From 1 July 2012, the Government increased the contributions tax rate to 30% for people with “adjusted incomes” of $300,000+.  That would be one option.  But the number of these taxpayers still remains limited.  So to really raise decent revenue you would need to tax people around or below $200,000 in income.

So where does that leave Prime Minister Gillard’s policy in terms of its value to society?  Are there now a group of ordinary Australians out there who are distrustful of the superannuation system as a result of the Government’s media campaign? Absolutely.  Certainly, if you want to give the rich a kick in the guts, this is a great way to do it.  But what will those top 1% of retirement earners do?  Increasingly they will look offshore at neighbouring jurisdictions that have more reasonable tax rates and take their earnings out of this country with them.  If they don’t leave, their children certainly might.  You only have to pick up the newspaper to read of people such as Gina Rinehart and Nathan Tinkler shifting their footprint to Singapore to realise that punitive taxation of the rich (or even the threat of it) simply motivates the rich to relocate their wealth to friendlier shores.  Take the example of France, which is far more advanced with draconian taxation rules for the rich.  The country is being crippled in part by investment wealth fleeing the country.  There is presently a generation of French patriots who are leaving France because of these rules.  Gerard Depardieu’s much publicised migration to Russia is an illustration.

Sadly, this is just the type of measure that could gain the support of the Greens and Independents. The Liberals will oppose it. So despite the fact we may have a Liberal government on September 15 2013, there is a fair chance that by budget night such a change might be law. This would then require Tony Abbott to repeal the law ab initio which it appears he is prepared to do. It increases the line of division between the Liberals and Labor.  It sets up the election campaign on terms that will increase Labor’s prospects in its marginal electorates in a campaign of class warfare which in my view ultimately damages Australia’s national interest.

If the Government wants revenue, the best way to do it is to either expand the tax base of the GST or raise the rate.  It is the blatantly obvious thing to do.  The Government must expand its review of the taxation system to include GST.  By the way – wasn’t the mining tax supposed to fill this revenue gap? … Oops.

Stephen Cribb is a Director of Prosperity Advisers
photo credit: betta design via photopin cc

Using cloud accounting to keep your finger on your business pulse

Increasing numbers of our clients are moving to cloud based accounting packages, and are asking us to assist with the rollout.   Others are approaching us for insight and information on why they should consider the change.  So this week we take a look at the benefits of cloud accounting systems and give you a snapshot of the major players in the industry. 

Existing methods of dealing with the transfer of data files between client and advisor all bring their own deficiencies – issues with file sizes, duplicate or out of date file versions, remote access limitations and restrictions on bank downloads. Cloud accounting software gives you accounting as it happens.  It streamlines the bookkeeping and allows for real time understanding of your business’ financial position.  It also makes the interaction with your external advisor far simpler.

Whether you choose one accounting system or another comes down to the level of sophistication of your business and the skill level of the team. Having worked with a range of businesses adopting cloud software, I urge you to take your time when considering the system you will use because every business’ requirements are unique and as you will see below, every system has slightly different capability and user interface design.

There are many measureable benefits in moving from a desktop program to the cloud.  Most systems interface with daily bank feeds that itemise your transactions, cutting down on data entry and vastly improving the reconciliation process.

[Above: Prosperity Director, Stephen Guthrie talks about Prosperity’s migration to Cloud Technology]

Dashboard views of key business metrics, such as profit and loss, accounts receivable, accounts payable and cash balances, give you a quick snapshot of real time performance. As web-based applications, many have interface capabilities with other applications such as CRMs, business productivity suites and online retailing systems giving you much more power than you may have had before in your desktop package.

In addition to this, accounting in the cloud makes managing your business remotely and collaborating with external advisers easier than ever.  Both you and your accountant can log into your portal through separate logins from anywhere with internet access and look directly at an invoice, report, process or issue.  Gone are the days of transferring large datafiles back and forth and trying to keep records in sync.

The current major players in the Australian cloud-based accounting software landscape are Saasu, Xero, MYOB, and Quickbooks.  We take a quick look at each:

Saasu is a Sydney-based provider of cloud-based accounting solutions for small and medium businesses. The Saasu application includes capabilities that align with the desktop offerings of accounting suites including purchases, inventory management, sales, payroll, ecommerce, CRM, point of sale, document and workflow management.  Saasu includes full inventory and payroll functionality in its “medium” business package as well as including automatic bank feeds from most Australian banks directly within the application.

Saasu also goes beyond the basics by providing full tax and superannuation calculations for Australian businesses alongside complex inventory and a lightweight customer relationship manager (CRM) that should meet the needs of most small businesses.

Saasu is well known for its strong online accounting API that enables connection to hundreds of web applications, software products, payment services plus thousands of banks.

  • Cost: AUD $9 – $60 per month
  • Strengths: Strong online accounting API that allows online retail and other web applications to interface.
  • Weaknesses: More complex dashboard than Xero
  • Web:

With an exponentially growing customer base, Xero must be doing something right.  A simple, browser-based accounting package, Xero doesn’t offer the complexity of Saasu.  It does however offer fully integrated payroll and bank feeds.

Xero is one of the larger cloud based accounting vendors. Publicly listed on the New Zealand stock exchange, they have invested heavily in both product design and marketing channels. Xero has 50,000 customers around the world and country-specific versions for the UK, Australia, New Zealand and the US.  All data is located in the US and Xero uses a content delivery network to overcome speed issues caused by geographic distance from users.

Last year, Xero purchased Australian payroll provider PayCycle providing complete financial/payroll functionality to customers. Xero has built in automatic bank feeds with over 5,000 banks internationally including all major Australian banks.

  • Cost: Xero costs between $29 and $64 per month.
  • Strengths: Automated bank feeds, integrated payroll, very intuitive user experience and dashboard.
  • Weaknesses: The lack of inventory is a barrier to product companies.
  • Website:

MYOB Live Accounts
MYOB LiveAccounts is a first generation cloud accounting software pitched at small businesses and individuals wanting a simple double entry system.  Similar to Xero and Saasu, MYOB LiveAccounts can be set up to pull bank feeds in automatically, and includes payroll functionality.

Business owners looking for functionality akin to their existing desktop version of MYOB will need to wait for the new MYOB AccountRight Live which is expected to launch in the last two months of 2012.

  • Cost: Live Accounts costs $25 per month
  • Strengths: Automatically create and allocate transactions via bank feeds, integrated payroll, easy BAS preparation,
  • Weaknesses: No inventory management, time billing, or multi-currency
  • Website:

MYOB AccountRight Live
From November 8 this year, MYOB will make available AccountRight Live, which adopts a hybrid model – user access will be via a locally loaded MYOB application which will then access a cloud based data file. The data file can be used locally in periods without internet access and then synchronised later to the cloud. This product therefore differs from other cloud based systems, where all the necessary software is available via a web browser session.
AccountRight Live will allow your accountant, bookkeeper, or other members of your team to all connect to the same data file and receive automatic updates of all records in real time on their desktop record of accounts. 
It is not yet clear whether AccountRight Live will offer the connectivity to other applications promoted by Xero and Saasu. The ability to import automatic bank feeds is currently available in beta stage.

  • Cost: From $23 per month to $59 per month
  • Website:

Quickbooks – Hosted or Online
Quickbooks offer the opportunity to leverage their existing strong desktop products into the cloud using two alternate approaches.

Quickbooks Hosted
The hosted version of Quickbooks offers the same feature set that is available on the desktop application. The application itself, together with your datafile, is hosted on a remote server and is accessed via your web browser (in a similar manner to Saasu and Xero).

If you also own a desktop version of Quickbooks, you will be able to download a copy of the data file to work on offline and then re-sync it later.

Quickbooks Online
Quickbooks Online does not have the feature set of the desktop version or the hosted version and is therefore not suitable for all business types. It is a different product, designed specifically for internet access, which brings both benefits and disadvantages to the use experience.

  • Cost: Quickbooks Hosted is priced on a per user basis from $310 per annum. Quickbooks Online is priced from $25 – $55 per month.
  • Strengths: Bank feeds and multi-currency features can be handled within the package by the $40/month offering.
  • Weaknesses: The Online Australian edition does not at this stage offer payroll, time tracking and inventory tracking.  Payroll can be set up manually in the chart of accounts but is not as simple as Saasu and Xero.
  • Website: Hosted –; Online –

Our experience
The above outline is just a quick overview of the options available. Our team works with all of the systems in this lineup and is happy to give you further insight if you are thinking of moving from the desktop to the cloud.

Having migrated our own computer environment from locally based servers into a secure hosted cloud based system, we understand the concerns around data security and have also experienced the benefits such a move creates for the mobile business owner.

Article by Stephen Guthrie, Director, Prosperity Advisers. Stephen and our other Advisers provide Business, Tax and Family Office services to our clients from offices in Brisbane, Sydney and Newcastle. 

Is the Australian Mining Boom Over?

Reading the newspaper, one could be forgiven for thinking that the Australian Mining economy had stopped cold.  Just a week ago, the Reserve Bank came out with their minutes from the September meeting that spoke of weakening commodity prices and more general concerns around the mining sector.  This was the key reason behind the central bank’s decision to cut rates.
“It seemed likely that mining investment would peak a little earlier and at a somewhat lower level than had previously been forecast,” the RBA said.

But is the mining boom over, or are the dynamics of the mining boom just changing?

Over the last two years, the cost of mining construction has skyrocketed throughout Australia as miners charged in willy-nilly looking to confirm production figures, build facilities and lock in supply contracts before their competitors.  High commodities prices across the board for over a decade led a race to production that has caused many companies to get a little carried away.  We can see this in their willingness to pay way over benchmark prices for unskilled labour and supply.  This didn’t matter too much while commodity prices remained high.   But recent weakness in the price of iron ore and coal, both of which fell over 30 per cent in August and September before recovering slightly, has led firms to review their costs, operations and plans for viability.

Behind the boom
Let’s look at the facts that sit behind the boom.

It is just over a year since resource commodities prices peaked in the second half of 2011, around a decade since the resource boom began.

According to the September 2012 report from the Bureau of Resources and Energy (BREE), the latest forecasts of volumes and prices show two distinct trends. Firstly, the prices of many resources have moderated from historic highs in 2011 and further declines are expected over the medium term in US$ terms. Second, Australian export volumes, especially in terms of bulk commodities, have grown rapidly and are expected to hold these levels for several years to come. The net result is that the value of resource and energy exports in 2011–12 are expected to be 8 per cent higher than in 2010–11 and to total $193 billion.

The projection for the value of resources and energy exports in 2012–13 is for a year-on-year decrease of about 2 per cent, with the total value of resources and energy exports expected to total $189 billion.

“Is mining investment approaching its peak? Yes. But mining investment still has some way to run”.

“The first phase of the mining boom, the sustained rise in commodity prices that boosted growth in national income, probably has ended,” suggest the JP Morgan economists in the International Times this month. “But the more durable and arguably more important volume phases of the mining boom have much further to run”.

In other words, data shows China has grown very rapidly to a point and is now plateauing. This means that while China initially demanded more and more iron ore, copper, and coal, now it is expected China will settle at a more consistent demand level.

At the same time, the development of our mining and energy industry projects are now well underway, with the value of resource projects currently under development in Australia worth $264bn to the construction pipeline.  According to a range of economists, advanced minerals project construction is expected to peak in 2013-2014.  But the really interesting point of note is that of this project construction pipeline, two-thirds is represented by “very major” LNG projects, the National Bank economists note, and their development extends though to 2017.

What comes after production is the period of operation, where many of our mines and facilities are expected to operate at near capacity for ten to twenty years, depending on their mine lifecycles.  During this phase, the large capital expenditure budgets of initial engineering and construction go away, but the export impacts and economic benefits continue to be reaped as we extract our natural resources and continue to contribute to our nations Gross Domestic Product (GDP), although at a lower level to the period in which the engineering pipeline is at its strongest.

The impact on labour forces
The estimated capital expenditure on the rollout of resources projects amounted to about $32 billion in 2010-11, rising to $56 billion in 2011-12 and $78 billion in 2012-13. The estimates suggest that spending will peak in 2013-14, at about 6 per cent of GDP committed projects. But, as the projects are completed, capital spending is estimated to fall by 80 per cent to about $17 billion by 2016-17. Construction employment on these projects, as inferred from the project totals specified by the companies, is expected to peak at about 80,000 in 2013-14 but to fall sharply after 2014-15.   What will happen to this labour force after the construction boom is over?  Will we have other industries for our workforce to move to or will we face a classic case of Dutch Disease that has been known to occur in other countries when natural resource exploitation increases the currency and punishes industries like manufacturing that are dependent on competitive export rates. For this, only time and our currency will tell.

Deferrals and deletions of projects
The market is somewhat panicked by the number and level of recent project deletions or deferrals, but CommBank notes such deletions do not actually make up a large proportion of all projects. Data suggests the value of all projects deleted over the past 13 months (including Olympic Dam and Outer Harbour but not, as yet, the FMG final phase) adds to $51bn or 11% of all advanced and less advanced projects.  The impact of this is expected to add up to a 2% decrease in mining exports in the financial year to June 2013.

The deletions and completion of the construction phases will undoubtedly take the pressure off costs in coming months and years, allowing the labour market to settle down and provide a bit of natural selection to the projects that are indeed the most financially viable.  But a 2% fall in export values does not signify the end of the mining boom… not yet anyway.

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.