Quarterly Economic Update: April – June 2024

1 July, 202427 June, 2024 Updated on27 June, 2024 Economy, Finance, Investing

The economy continues to slow, with inflation remaining sticky, the new federal budget making waves, and global events that may have a significant impact.

Uncertainty at home and abroad

The current outlook indicates uncertainty both domestically and internationally, making it unlikely that inflation will reach the target range of 2-3 per cent in the near future.

May forecasts suggested that inflation would return to the target range by the second half of 2025 and reach the midpoint by 2026. However, recent indicators point to weak economic activity, such as slow GDP growth, an increase in the unemployment rate, sluggish wage growth, and uncertain consumption growth.

Advanced economies are experiencing a slowdown in growth, although there are signs of improvement in the Chinese and US economies, along with increased commodity prices. Nevertheless, geopolitical uncertainties remain high, which could potentially disrupt supply chains.

The Federal Budget focuses on social matters

Treasurer Jim Chalmers presented the 2024-2025 Federal Budget on May 14, 2024. The government aimed to alleviate the cost of living without worsening inflation.

Key announcements included:

tax relief for everyone
cost of living support in the form of energy rebates, an increase in Commonwealth Rental Assistance, and funding for social and affordable housing over the next decade
Investment in the government’s Future Made in Australia initiative, emphasising clean energy and critical minerals

Interest rates remain steady, but the pain may not be over

The Reserve Bank of Australia (RBA) kept interest rates on hold and the cash rate steady at 4.35 per cent throughout the quarter.

At the June RBA board meeting, Governor Michele Bullock stated that the board has not dismissed the possibility of further rate hikes.

Interest rates will stay at this level until the RBA’s next board meeting in early August.

Inflation persists, despite slowing

Inflation remains persistent, with the RBA predicting that it will take some time to consistently stay within the target range of 2-3 per cent.

Although inflation has decreased significantly since its peak in 2022, the rate of decline has slowed. At the same time, economic growth has been limited as households cut back on non-essential spending due to income constraints.

What are we spending on?

Households are continuing to limit their spending on non-essential items. Spending on discretionary goods has shown a slow increase, rising by only 0.6 per cent over the year. On the other hand, spending on non-discretionary goods and services has risen by 5.8 per cent, mainly due to higher fuel and food costs. Household spending on health has significantly increased, showing a 15.7 per cent rise compared to this time last year. Health spending made the largest contribution to the overall 3.4 per cent rise in household spending in April.

China lifts Aussie beef bans

China has lifted bans on most beef and other exporters. The bans began in 2020 when China suspended beef exports from eight processors and imposed official and unofficial trade barriers on barley, coal, lobster, wood, and wine, costing exporters $20 billion Australian dollars ($13 billion) a year.

These measures were viewed as politically motivated actions to penalise Australia, although China claimed they were related to trade issues. With the lifting of these bans, less than $1 billion worth of Australian exports are still being impeded. This marks a significant reduction from the previous $13 billion impact on Australian exporters.

Trump down but not out

Donald Trump’s conviction on 34 felony counts of falsifying business records has not stopped his campaign for President. As the November election looms closer, economists have expressed concerns about Trump’s campaign promise to impose a 10 per cent tariff on all US imports.

If implemented, this and other trade policies could trigger another round of trade wars, disrupt international trade, and impact global growth.

The information provided in this article is general in nature only and does not constitute personal financial advice.

When an SMSF may be the wrong idea

20 May, 20204 May, 2022 Updated on4 May, 2022 Finance, Investing, Superannuation

Since the Australian Government introduced compulsory employer contributions to people’s superannuation funds in 1992, Australia’s funds invested in super have grown to $3 trillion. In this time, self-managed super funds (SMSF’s) have grown in popularity too. There are currently just over 1 million members with $747 billion in SMSFs across Australia. SMSFs can have between one and four members. While not yet legislated, the government has proposed allowing up to six members in an SMSF. Most SMSFs in Australia have two members (70%), with most other SMSFs having a single member (23%). According to the ATO, the average value of assets in people’s SMSFs is $320,000. The general recommendation is to have a minimum balance of $200,000 in your SMSF. While it can be tempting to see the potential of being in complete control over your super balance, it may not always be a good idea to set up an SMSF. Why set up an SMSF?Many people opt to set up an SMSF to have more flexibility in where they invest their money. Along with more investment options such as residential property and rare asset classes such as art, valuable collectables and physical gold, your SMSF income is taxed at a lower rate of 15%. Compared to the marginal income tax rate for average and high-income earners (usually between 30% to 45%), establishing an SMSF can be an attractive option. However, as with any other type of investing, there are potential downsides and SMSFs can carry significant risks and costs. What are the risks associated with having an SMSF?There are several risks associated with having an SMSF. To establish an SMSF, you are legally required to have an investment strategy. When you have an SMSF, you also need to ensure you get tailored advice from your financial adviser to mitigate the risk of making poor investment and financial decisions. Many SMSFs also choose to invest in one asset, such as residential property. This leaves your super balance overexposed to risk, compared to if you had a balanced portfolio in a super fund. Unlike a traditional super fund, an SMSF has time-consuming administrative tasks and costs. Some of the costs you may incur when you have an SMSF include annual compliance, audit and management costs, investment fees, brokerage fees, wholesale managed fund fees and advisory fees charged by your accountant and financial adviser. If you have an SMSF, it’s important that these fees don’t equate to more than 2% of your super balance. On a balance of $200,000 in an SMSF, the fees would ideally need to be below $4,000 per year. When you have an SMSF, you are in complete control of your investing, which means you are also solely responsible for keeping up to date with your compliance requirements. The legislation around SMSFs is constantly changing. If you don’t have a genuine interest in continually staying updated on these changes, or the fees to seek regular advice are going to push your annual costs over 2% of your balance, you need to rethink whether an SMSF is the right option for you. To summariseWhile establishing an SMSF can offer you flexibility in how you manage your retirement funds, there’s a raft of risks and costs associated with having an SMSF. Further, an SMSF can be a lot of work, so it may not be the right option for you if you’re unsure whether you want to commit to the ongoing financial, legal and administrative requirements associated with having an SMSF. If you are considering establishing an SMSF or deciding whether an SMSF is suitable for you, speak to us to obtain personalised advice for your unique situation. The information provided in this article is general in nature only and does not constitute personal financial advice.

2024-25 Federal Budget Recap

15 May, 202415 May, 2024 Centrelink, Economy, Superannuation, Tax

In his 2024 Federal Budget speech, treasurer, Jim Chalmers, announced that ‘The number one priority of this government and this Budget is helping Australians with the cost of living’. But what exactly does that mean? Let’s take a closer look at what the 2024 Budget proposes – An average tax cut of $1,888 in 2024-25 The budget proposes significant tax relief for ALL Australian taxpayers to alleviate cost-of-living pressures, including reduced tax rates, adjustments to the income thresholds, and increased low-income thresholds for the Medicare levy. This measure aims to boost disposable income and encourage economic activity by allowing Australians to retain more of their earnings. $300 back in the pocket for ALL Australian Households To combat rising energy costs, the government has allocated $3.5 billion for a one-time $300 energy bill rebate for all Australian households, designed to directly reduce headline inflation by about 0.5 percentage points in 2024-25 without adding to broader inflationary pressures. This initiative also extends to one million small businesses, receiving a $325 rebate. Superannuation contributions on paid parental leave The 2024 budget integrates enhancements to parental leave and childcare into comprehensive support for families. It includes a $1.1 billion investment to extend superannuation contributions to government-funded Paid Parental Leave, improving financial security for new parents. Additionally, the budget boosts childcare support, aiming to make childcare more affordable through increased subsidies, reducing the financial burden on families and supporting parents’ return to work. These measures are part of a broader effort to provide more robust support for families and promote gender equality. $3 billion in student debt… wiped In an effort to alleviate the burden of education costs, the budget proposes a change to the way the government calculates HELP debt indexation, erasing $3 billion in student debt for over 3 million Australians. An investment in education for Australians The budget commits to reforming tertiary education and increasing vocational training funding, aligning skills training with market needs. Specifically, it allocates $88.8 million to provide 20,000 new fee-free TAFE places, including pre-apprenticeship programs relevant to the construction industry. Additionally, the government is introducing Commonwealth Prac Payments to support students undertaking mandatory placements, offering $319.50 per week to more than 73,000 eligible students, which includes those in fields like nursing and social work. This investment is part of a broader effort to align skills training with labor market demands and support sectors critical to economic growth. Supporting small businesses To aid small businesses, the 2024 budget extends the $20,000 instant asset write-off for an additional year, enabling continued investment in necessary business equipment. This extension is designed to enhance the cash flow of small enterprises and encourage further economic activity among local businesses. Additionally, the budget includes investments to support the mental and financial well-being of small business owners, recognising the unique challenges they face and bolstering the resources available to them for sustainable operation. Access to affordable medicines The budget allocates up to $3 billion to reduce the maximum PBS co-payments. This includes a one-year freeze on the maximum patient co-payment for everyone with a Medicare card and a five-year freeze for pensioners and other concession cardholders, ensuring that no pensioner or concession card holder will pay more than $7.70 for PBS-listed medications until 2030. … And an increase to health funding The budget allocates $888.1 million to expand mental health services. This includes funding for new and existing programs that provide critical support for individuals facing mental health challenges. An additional $2.2 billion is directed towards improving the aged care system, and investments are made in strengthening Medicare with a focus on urgent care clinics, reducing hospital admissions, and supporting regional and remote health services. This expansion aims to provide wider access to necessary health services, significantly improving health outcomes and making healthcare more affordable and accessible to more Australians. A 10% increase to Commonwealth Rent Assistance In response to the housing affordability crisis, the budget increases Commonwealth Rent Assistance by 10%, benefiting nearly 1 million households. This follows a 15% increase from the previous year, marking a substantial boost to aid renters, especially given the rising rental market costs. Housing affordability The government is investing $6.2 billion in new housing initiatives to tackle affordability and accessibility. This funding supports the construction of more homes, including affordable and social housing options, addressing critical housing shortages and supporting community infrastructure development. The 2024-25 Federal Budget is strategically focused on alleviating financial pressure through targeted support measures. By understanding and applying these benefits, Australian households can better navigate the challenges of rising living costs. For tailored advice on how to adjust your financial plan in light of the new budget measures, consider consulting with a financial adviser or accountant. They can help you understand the specific impacts on your personal finances and strategise accordingly. The information provided in this article is general in nature only and does not constitute personal financial advice. 

Why seeing a financial adviser could be your best Xmas gift

30 December, 202017 September, 2021 Updated on17 September, 2021 Economy, Investing

The run-up to Christmas is usually a hectic time. Aside from the shopping and Christmas parties, there are deadlines to meet, loose ends to tie up and, for many farmers, the last of the crop to harvest. Whatever Christmas looks like for you, it’s essential you spend your time and money in a way that brings you and others around you joy and deeper connection. This is a time of year where there are rarely work and other commitments that need attention, leaving us with the space to focus on deepening the special relationships around us. Put simply, Christmas is about quality time with loved ones, not overextending yourself by spending too much. Once the big day is over many of us are able to slip into a more relaxed mode, but as your focus turns to leftover turkey and pudding, or lounging on the beach, why not spare a thought for your financial situation? With everyone else relaxing, the Christmas holiday period can be an ideal time to check your finances and start the New Year with everything in order and heading in the right direction. As their clients hit the beach, the holiday period is often a quieter time for the financial advisers who remain on deck. That’ll make it easier to see a busy adviser. And while there’s always plenty to do down on the farm, that post-harvest period may be the perfect time for farmers to sit down with their financial advisers. If a rainy day puts a dampener on your holiday fun, why not dip into the filing cabinet and tidy up the paperwork? You may be able to get rid of old documents you no longer need (make sure you dispose of them securely), find new opportunities, or discover important things that you’ve overlooked. Is your cash working hard enough for you? Has your portfolio become unbalanced? Are your personal insurances all in order? Are you saving enough? So why not make a Christmas resolution, to call us and make an appointment to review your financial situation. You’ll come away well equipped with some New Year resolutions to keep your finances humming along for the year to come. The information provided in this article is general in nature only and does not constitute personal financial advice.

The impact of natural disaster on property values and insurance

4 July, 20235 July, 2023 Updated on5 July, 2023 Finance

Australia’s vast expanses and varied climates make us prone to natural disasters. In recent years alone, we’ve experienced the devastating impacts of bushfires in the southern parts of the country, flooding along the Eastern Coast, as well as significant storm events and cyclones. As you can imagine, the aftermath of a natural disaster typically involves a lot of clean-up and rebuilding for those affected. However, there are also a number of flow-on effects from these events for those not directly affected that are of particular importance to homeowners and first home buyers. Impact on Home Values A natural disaster can drastically reduce the market value of affected properties, as property buyers become deterred by the high risk factor associated with the property or area. This can also make it difficult for owners to sell their homes or vacant land, as the buyer pool willing to take on that risk reduces. In some cases, properties in high-risk areas may become uninsurable, which can further impact value, sometimes causing these properties to become unsellable as purchasers are deterred by the inability to insure the property. Impact on Insurance Following a natural disaster, insurance companies are inundated with claims for damages, which can take months, or even years, to process. Property owners in affected areas may face increased premiums, regardless of whether or not the event directly impacted them, due to insurance companies requiring their underwriters to assess potential future risks to ensure a balanced risk portfolio across their entire insurance pool. For example, in its ‘Report on Home and Contents Insurance Prices in North Queensland’, the AGA reported that North Queensland’s home and contents insurance premium rates had increased by around 80 per cent over the period of its investigation. Throughout that time, North Queensland experienced Cyclone Larry, Cyclone Yasi, and the Mackay Storms. By comparison, premium rates across Australia increased by around 25 per cent for the same period. Underinsurance or uninsurance is often the outcome, with homeowners either unable to afford the cover or justify the cost, presenting a substantial financial risk to homeowners if a natural disaster occurs. Tips for Property Buyers It is crucial to conduct thorough research, especially when considering buying a property in an area prone to disasters. Know the Property History Research the history of the property, including the surrounding area, to understand the risk for natural disasters: Research historical records of property damage in the area. Check with the local council for any risks in the area and any tools they might offer. Be familiar with the environmental factors that create risk for the area. Read the Fine Print Not all insurance policies are created equal, so it’s essential to understand the terms and policy definitions of any insurance contracts, particularly for disaster prone areas: Discuss the appropriate levels of insurance coverage with an insurance agent, Research insurance providers and consider their options. Also, by researching insurance coverage and obtaining quotes during your property due diligence, you can factor the actual cost into your budget to ensure you can afford cover and not be forced into uninsurance or underinsurance. Risk Mitigation & Disaster Management If you’re looking to purchase a property in a high risk area, be aware of risk mitigation strategies to assist with reducing risk. Understanding your property’s building materials and construction methods may help to protect your property. Understanding risk mitigation activities you could take to reduce your exposure. For example, in bushfire prone areas, being aware of hazard reduction activities such as fuel-reduction burning, removal of vegetation and maintaining fire lines. Without appropriate insurance cover or a streamlined disaster management plan, the financial implications of natural disasters can have dire consequences. If you’d like further advice in relation to ensuring you are adequately protected, or if you require assistance with purchasing a home, please reach out to discuss how we might be able to assist. The information provided in this article is general in nature only and does not constitute personal financial advice.

Achieving financial freedom

13 February, 20249 February, 2024 Updated on9 February, 2024 Investing

What does financial freedom mean to you? The ability to travel the world and build a dream home? Or to be able to enjoy a simple but active retirement, and support some good causes? We all have different desires and goals in life, but most of us share the dream that one day we would like to achieve our particular version of ‘financial freedom’. The challenge is that most of us don’t really know what it takes to turn our goals, be they vague wishes or burning desires, into reality. However, with just a little bit of forethought, some expert advice, and by acting on that advice, we are much more likely to reach that goal of financial freedom. Making the list Your key ally in achieving financial freedom is your financial adviser, and amongst the most important things your adviser will need to know is what your goals are. So make a list and prioritise it. Which of your goals are essential, and which ones are you willing to compromise on? Reality check Just as we have different goals, so do we have different financial resources. One of the first things your adviser will do is run a reality check. Given your income and expenditure, job outlook, health and family situation, are your goals realistic and achievable? Your adviser will also check if key goals are missing. For example, life insurance can be an essential tool for protecting your family’s future financial freedom, yet many people overlook it. With the big picture now clear, your adviser can develop strategies that will bring that goal of financial freedom closer to fruition. Perfect timing When’s the perfect time to start your journey to financial freedom? Today. Because the sooner you get started, the sooner your goals will be achieved. So think about your goals and desires. Importantly, write them down. Then make an appointment to sit down with your financial adviser, and take those critical first steps towards achieving your financial freedom. The information provided in this article is general in nature only and does not constitute personal financial advice. 

Horror $47,000 cost blows up the owning vs. renting debate: ‘More expensive’

14 November, 202414 November, 2024 Budgeting, Education, Finance

Financial advisor Robert Goudie has warned Aussies about the extra costs involved in owning a home and that renting isn’t always dead money. You might have heard the phrase that renting is “dead money” or that you’re just “paying off someone’s mortgage”. When you’re forking out hundreds of dollars a week to keep a roof over your head, that idea can seem fairly depressing. But Consortium Private Wealth financial advisor Robert Goudie wants Aussies to change their mindset when approaching rental payments. He told Yahoo Finance that while property ownership should still be a major goal for Aussies, it’s not always the most ideal situation and you shouldn’t rush into it without understanding what you’re paying. “From what I’ve seen, sometimes it’s more expensive to own the property because no one thinks about the cost of ownership, which is your rates, and your insurance, and your water and service charges. and any maintenance that might be applicable,” he said. He wanted to set the record straight and did the calculations for how much you can save when you rent. Goudie gave an example of Person A who was spending $500 per week on a house worth $750,000 and Person B who bought a $750,000 house and lived in it. Person A would have spent $26,000 in a year on rent. However, the other person, who stumped up an impressive $100,000 deposit and had a 6.5 per cent interest rate on their loan, would have paid $42,250 just on the interest for the mortgage. When you add on rates and insurance costs, the annual bill rises to $47,250, or just short of $910 per week. That means Person A will be able to save $410 more per week than Person B. “People say rent is always dead money. Is interest not dead money? Paying money to a big corporation making billions… I think it is,” Goudie explained to Yahoo Finance. “If rent is dead money, then interest should be considered dead money as well.” Buying might not be the best idea right now The financial advisor wants this general advice to be a warning for Aussies to do the calculations themselves to work out if buying a property is going to be the best financial move for them. “I don’t blame young people for wanting to get on the property ladder… there is that feeling of, ‘If I don’t get in now, [property prices] just keep going up’,” Goudie explained to Yahoo Finance. However, he gave an example of a client who has a home, but the mortgage repayments are so much higher than the rent he used to pay that he now feels “guilty” about having a coffee at a cafe. “That’s not living,” Goudie said. What about capital growth? Yes, there is the very real elephant in the room about the big difference between renting and owning a property. When you have bought a home, you will hopefully be able to live in it when it’s fully paid off. In that case, it’s far cheaper than renting. You can also use it as equity to buy another property or you could sell it for more than what you paid for. Goudie pointed out that not every home that is bought benefits from capital growth and can sometimes go down in value, which is what is being seen in parts of Melbourne this year. But even if it does go up in value, you can’t use that capital growth in the short term to pay for your food or keep the lights on. The financial advisor said his weekly cost comparison was designed purely to compare “apples to apples”. Many Aussies think property ownership is out of reach Goudie admitted that while you might save hundreds of dollars a week by renting, it’s not a long-term and secure way to look at accommodation. “I can’t imagine myself at age 85 renting with the threat of being kicked out at a moment’s notice, because in Australia, we do not have long-term lease or rental agreements,” he said. “There needs to be changes in that space.” But for many Aussies, the idea of owning a home is a distant or even completely out-of-reach concept. According to new research by Australian Housing and Urban Research Institute (AHURI), three in five renters expect they will never own their own home. “This shows a significant shift for Australian renters,” lead researcher Professor Emma Baker of the University of Adelaide. “Whereas previously anyone who desired home ownership believed they would be able to move into that tenure, now more Australians are conscious that this dream may not be a possibility for them.” Property prices have been soaring in cities across Australia at the same time that inflation and stagnant wage growth have impacted many peoples’ wallets. But this isn’t just a young Australian issue either. AHURI’s research found the proportion of people renting in the private market has increased across all age brackets from people in their late teens to their 80s and above. “The rise of renting in Australia is a multigenerational phenomenon,” Professor Baker said. Source: https://au.finance.yahoo.com/news/horror-47000-cost-blows-up-the-owning-vs-renting-debate-more-expensive-053110244.html The information provided in this article is general in nature only and does not constitute personal financial advice. 

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