Financial news highlights you need to be aware of
From: Nine Finance
By 9Finance, 5 March 2019
The headline: RBA holds interest rate steady for record 30th month.
Our thoughts: The official interest rate remains at a record low of 1.5%, where it has been since August 2016. The general consensus for the March decision seems to be; that whilst the economy is generally moving in the right direction, it is moving at a subdued pace – soft property markets, (primarily in Sydney and Melbourne) continue and inflation remained low. In other words; things are not bad, but not also great, so let’s leave the rate where it is and review our position in the coming months while we keep a closer eye on jobs growth, wage growth and inflation before we decide on any future rate decisions.
From: Reuters
By Byron Kaye, Paulina Duran, 8 March 2019
The headline: Australian bank CEO’s tell of struggle to build trust as complaints pour in.
Our thoughts: The banks continue to grapple with the fallout of the recent Royal Commission, with several CEO’s reporting that hundreds of new customer complaints are pouring in every month and they are struggling to regain the trust of their customers. Nothing necessarily new here… banks, (the long detested necessary evil we have to deal with if we want to get ahead) are no doubt just part of our everyday gripes we now almost accept as a part of life, but the Royal Commission has shocked many with its revelations of poor conduct. Given the raft of subsequent recommendations, the slow implementation on self-compliance and the regular parliamentary appearances (scheduled now post commission) maybe a lack of trust at this stage is entirely appropriate… And deserved.
From: The Financial Review
By Joanna Mather, 8 March 2019
The headline: Labour’s franking policy is theft from the politically weak.
Our thoughts: With the 2019 Federal Election looming, a topic of much fervour is potential changes to tax policy, in particular hot debate is Labour’s proposed changes to franking credits and tax refunds on shares. A “loop hole” in labour’s eyes and a “tax grab” in the Coalition’s – this proposal has generated much debate with claim and counter claim levied in all directions. Franking credits, in essence, is when a public company pays tax on its profits on behalf of its owners (the shareholders) at the current company tax rate of 30% before it pays its dividends (earnings) to its shareholders. At the end of the year people add up their earnings, of which dividends from shares contribute to their earnings, and calculate how much tax they have to pay. Remember, tax has already been paid on these shares at 30%, so; if you earn a higher income, you will be in a higher tax bracket than 30% and additional tax payment may be required, however, if you are in a lower tax bracket than the 30% threshold, you are (under the current policy), entitled to a tax refund from the tax already paid on your shares. This is what Labour wants to stop, that entitlement to a tax refund. Labour suggests that only wealthy investors with large share portfolios currently benefit from refunds of franking credits, whilst the Coalition suggest it neglects the fact that many average investors currently receive tax refunds through franking credits, labelling it the “retiree tax”.
Indeed, many parties have come forward and stated how they believe this policy will negatively affect them, SMSF beneficiaries, self-funded retirees etc. as well as large interest groups, that say they believe its much-needed tax reform. Whatever camp you ultimately side with, one thing is certain; it is turning into a complex debate with potential of many unintended consequences. In a tax system supposedly free of bias, it creates a tier of inequity and it changes the rules for those who have spent many years planning for a self-funded retirement and introduces new compliance obligations that didn’t previously exist. Whilst it is not yet policy, it may be well worth your time discussing its potential implications with your professional advisor in order to establish what it could mean for you and review the appropriateness of your current strategy – get a head start on assessing any potential weakness or opportunity that may exist for you and ensure your readiness to adopt changes without adverse effects.
From: ABC News
By Peter Martin, 25 March 2019
The headline: Coalition should call a no-holds-barred inquiry into superannuation because Labour wont.
Our thoughts: Various articles and reports have been circulating for many months discussing the concern and need for a review or inquiry into the superannuation sector. Possibly spurred on by recent scrutiny at the Royal Commission or the approaching increases to compulsory superannuation contributions (of some 0.5% per annum – taking an individual’s super contribution to 12% by 2025), has many industry analysts and pundits (again) discussing the merit of an inquiry. Citing a previous report some years ago, the Henry Tax Review, which stated it found no need to increase compulsory super contributions and the more recent Productivity Commission Report into the efficiency and competitiveness of the industry that specifically calls for an “independent inquiry into the retirement incomes system” – with a much broader terms of reference, it is hard to argue against the validity of such a review. Before increasing the employers obligations to have 12% of an employee’s salary directed to superannuation, many believe we need to look into the efficiency of the superannuation sector – the numerous under-performing funds, the unintended or unknown super accounts that several people end up with over their careers, as well as its legitimacy as an essential tool for funding future retirement requirements and its practical outcomes. What we do know is (as always) you must remain aware of your compliance obligations when planning for your future, as well as the potential for change. Make sure you take an active approach to planning your retirement, because another government financial review is only ever just a mere recommendation away, and the most vested party in funding your retirement is you.