Welcome to Finance and Fury

There is a saying that goes hoping for the best but planning for the worst. With the election around the corner, for those wanting to make it for themselves and create financial security may be in for a bit of a shake up

Today I want to recap proposed policies, breakdown of the economy and strategies to avoid pitfalls from election results.

Recap of policies:

  • Minimum wages and penalty rates reintroduction has an impact on small business sector
  • Taxes has one of the biggest effects
    • Income tax – more tax from the average income tax payer
    • Capital gains – reducing the discount to 25% from 50% impacts risk/return ratio for those investing in capital growth investments
    • Negative gearing – only on new properties impacts investing decisions
    • Family trusts – higher tax on distributions at minimum of 30% rather than the beneficiaries marginal tax rate
    • Franking credits – still in place, but the rebates will go. This still helps to offset tax, but lower incomes for self-funded retirees

State of the economy

  • Retail and hospitality – restoring penalty rates will force small business to cut staff or go out of business
    • Australian Retail Association – competing with online retailers means lower profit margins
    • Higher wages – leads to costs of running a business and administration bankruptcy
      • Why you see surcharges on holidays or reduced hours
    • Retailers and hospitality going out of business, retail employs 10% and hospitality 8% of the working population
  • Business – they just want stability
    • Frequent PM changes are bad for consumer spending and confidence
    • Fears of looming uncertainty increase the longing for political continuity and stability
    • Market Focus showed 77% of small businesses expect to be adversely affected by the results of the federal election
    • What do you do if you think something bad will occur?
  • Taxpayers – Bill Shorten uses “top end of town” to defend additional tax on income earners, investors and self-funded retirees
    • 10% of taxpayers to pay $32 billion more
    • 400,000 voters earning more than $180,000 a year
    • Policy suite will hit medium to high income earners
  • Individuals – reversing $285 billion in tax cuts proposed by the Morrison government will deliver $13.6 billion extra revenue by 2022
    • 1 million workers earning more than $120,000 paying 45% of Australia’s tax
    • Earners of more than $90,000 a year MTR 5% higher by 2022
      • This group accounts for 88% of net income paid already and 52% of Australians don’t pay any net tax
    • Inequality won’t change – Gini index – Labor’s is 0.36, and Coalition is 0.37
    • 5% of taxpayers will pay 30% on superannuation contributions rather than 15% like the rest of Australia
  • Family trusts – tax on distributions goes to 30% is the next part of Labor’s plans to redistribute wealth
    • ABS says 93.2% of the value of trusts is held by the wealthiest 20% of households
    • Holding wealth isn’t the only thing Family trusts are used for
    • 1 million family trusts in Australian, 250,000 small businesses operate using trusts
    • Used to distribute income to beneficiaries and asset protection
  • What about big business? They will make up 5% of the extra tax from $32 billion of increased tax over 4 years
    • Small businesses will feel the squeeze further, impossible to compete with higher wages and higher tax
    • Plus additional regulation costs, $25k of licensing costs is a lot for small business

The issues:

  • Low growth economy leads to an underperforming share market
  • People’s perception has a lot to do with marker performance
  • RBA slashed its forecasts for economic growth as subdued household income and real estate price corrections
  • Weakening household consumption is a key risk to the economy
  • RBA slashes the GDP growth forecast for the year to June to 1.7% from 3.25% just 6 months ago
  • Our exports are mostly owned by foreign companies, so it doesn’t help the economy very much
  • Lower disposable incomes for a few million Australians
  • Household consumption is forecasted to grow at nearly 2% this year, and it represents nearly 60% of the economy
  • Investment in building new homes is expected to be down 6.7% this year, and construction accounts for nearly 10% of jobs. It is expected to create more job losses.

 

Where to invest?

  • Salary sacrifice becomes more attractive if taxes increase and investing for the future
    • Can bolster your retirement savings, save more in tax on investments too
    • You won’t be able to access funds until the preservation age of 60
  • An investment strategy can be passive and are long term holds
    • Risk reward will go down but doesn’t matter if less than 12 months
    • Midterm sell strategies may not be worth it
  • Unit trusts may be an option to replace family trusts but aren’t an exact replacement
    • Still provides asset protection and won’t attract the same 30% minimum tax
    • Won’t have the flexibility of distributions as units are fixed to members

Types of Assets

  • This is all speculative
  • International shares and looking for growing markets
    • Countries like Indonesia, India, China, Thailand
    • USA country direction, the largest companies in the world
    • Brazil and Bolsonaro is turning the country around after his recent election
    • Australian Shares avoiding retail and property and some near future pain and slow market growth
    • Property only new properties can get negatively geared, and prices bottoming out in a lot of major cities

 

I will do a full breakdown of each of these after the election:

  • One on the property market – apartments and houses and their locations
  • One on the share market compared to other markets
  • And one on the state of the economy

 

Thank you for listening, if you want to get in touch you can do so here.

 

 

 

 

Will negative interest rates come to Australia?

Welcome to Finance and Fury, the Say What Wednesday edition. This week’s question comes from Cameron. “Do you think that negative interest rates will come to Australia?” Today – look at what would trigger a negative interest rate policy (NIRP) – exchange rates,...

Goals for the New Year

Welcome to Finance and Fury Welcome to the new year, depending on when you listen it may be new year’s eve or the new year  Hope you are in for a good night, or not recovering from one. Starting off with a question; looking back on the year, are you in a better...

The opportunity cost of home ownership

Welcome to Finance and Fury, The Say What Wednesday Edition - Where every week we answer your questions Today's question is from James Hi Louis, Just a question regarding owning your home. Me and my partner would like to eventually own our own home but we are worried...

Is your money safe in the banks?

 Welcome to Finance and Fury, the Say What Wednesday edition. This week, two questions – both from John’s about banking system security  -   First John: I know you’ve spoken about this before, but would be interested to hear about if you think there could be liquidity...

Furious Friday: What are the 4 Cons for Supply-side Economics?

Welcome to Finance and Fury, the Furious Friday edition. We are continuing the series on supply-side economics. Today we will focus on the down-side of supply-side economics. Remember, supply-side economics believes that governments should remove barriers to...

Furious Fridays: What should the government be involved in?

Hi Guys and welcome to Finance and Fury the Furious Friday edition. This is part 7, the last episode of the miniseries about all things politics. Sorry it took a while to cover, I wanted to do this topic justice and explain all the steps and outcomes instead of...

The Cash Bill – stabilising the financial system for negative interest rates, Bail Ins and more, all at your expense

Welcome to Finance and Fury Last Monday's ep – Cash Restrictions Bill – Went through black economy and outline of regulations Today – Go further into implications of this – along with other considerations such as bail-ins and negative rates why bill needed – not for...

Stop procrastinating and start investing!

Welcome to Finance & Fury, today we’re going to be looking at what stops people from investing. The common reasons I see; Fear and misconceptions Not knowing what to invest in Not knowing how to invest Not knowing the benefit Not having enough to invest The last...

Debt recycling & leverage

Say What Wednesdays Debt Recycling & Leverage Welcome to Finance & Fury, the 'Say What Wednesdays' editions! Today’s question comes from Dale: “My question refers to a point you and Jayden made a few times about recycling debt or using good, specifically using...

Is there any proof that having more millionaires per person is better for the poor?

Welcome to Finance and Fury, The Say What Wednesday edition. Where every week we answer your questions. Question from Anton - In your recent podcast you mention countries that have more millionaires and billionaires have more gdp and a higher quality of life. I am...

Pin It on Pinterest

Share This