Winter 2021: Economic News

Winter 2021: Economic News

It’s June which means winter has officially arrived. As we rug up and spend more time indoors, it’s a perfect time to get your financial house in order as another financial year draws to a close. And what a year it has been! The local economic news in May was dominated by the federal Budget, and much better-than-expected economic data.

Australia’s budget deficit is smaller than expected just six months ago, at $177.1 billion in April. This was underpinned by rising iron ore prices, up 22% this year, and higher tax receipts from more confident businesses and consumers.

The NAB business confidence and business conditions ratings hit record highs in April of +26 points and +32 points respectively. New business investment rose 6.3% in the March quarter, the biggest quarterly lift in nine years.

Housing construction is also going gangbusters, up 5.1% in the March quarter while renovations were up 10.8% thanks to low interest rates and government incentives.

Retail spending is also recovering, up 1.1% in April and 25.1% on a year ago. The ANZ-Roy Morgan weekly consumer confidence index rose steadily during May to a 19-month high of 114.2 points, well above the long-term average.

As a result of the pick-up in economic activity, unemployment fell from 5.7% to 5.5% in April.

In response to all this, the Reserve Bank lifted its economic growth forecast to 9.25% for the year to June and 4.75% for calendar 2021. If realised, this would be the strongest growth in 30 years, albeit rising out of last year’s COVID recession.

The major sticking point remains wages. Wage growth was 0.6% in the March quarter but just 1.5% on an annual basis, below inflation. The Aussie dollar finished May at around US77c after nudging US79c earlier in the month.

50% Pension Drawdown Requirements

Prime Minister, Scott Morrison has recently announced that the temporary rule change, reducing the minimum superannuation drawdown by 50%, has been extended until 30th June 2022.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Budget 2021-2022 Focus on Tax

Federal Budget 2021-22: Focus on tax

Budget 2021-2022 Focus on Tax

Federal Budget 2021-22: Focus on tax

Support for Australia’s businesses and our personal finances was at the heart of this year’s Federal Budget as the Morrison Government continues its attempts to strengthen the post-lockdown economy.

Once again Treasurer Josh Frydenberg made tax measures a key part of his Budget speech, announcing extensions to several of the Government’s signature tax support measures, together with new tax incentives and funding for job training and skills. These measures are designed to boost the continuing recovery of small and family businesses, which the Treasurer called the “engine room of the economy”.

LMITO extended again

With a federal election due next year, a key Budget announcement was another one year extension to the low and middle income tax offset (LMITO) for 2021-22. This measure will provide a tax offset of up to $1,080 for individuals and $2,160 for dual income families.

Continuation of full expensing and loss carry-back

The temporary full expensing and loss carry-back measures announced last year are also being extended to help businesses bring forward investment and access tax benefits. Eligible businesses with an aggregate annual turnover of up to $5 billion will be able to deduct the full cost of eligible depreciable assets until 30 June 2023.

Eligible companies can also carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as 2018-19. This tax refund will be available when companies lodge their tax returns for the 2020-21, 2021-22 and 2022-23 financial years.

Patent box

To provide incentive for Australia’s medical and biotechnology companies to commercialise their research, the Government is introducing a new ‘patent box’ from 1 July 2022. Income from patents will be taxed at a concessional rate of 17 per cent, which is significantly lower than the normal 30 per cent corporate rate. The new tax incentive is designed to encourage locally-based R&D and may be extended to the clean energy sector.

Adopting digital technology

As the digital economy continues to change the way we do business, small businesses will be supported to adopt digital technologies through a $12.7 million expansion of the Digital Solutions – Australian Small Business Advisory Service. They will also benefit from further $15.3 million in funding to help with the introduction of e-invoicing.

Employee share schemes reintroduced

To help businesses attract and retain talent, the Budget removes the cessation of employment taxing point for tax-deferred employee share schemes. This means tax on shares received as part of these schemes can now be deferred for up to 15 years.

New apprenticeship funding

The Government announced an additional $2.7 billion in funding for apprenticeships and traineeships. Businesses will be paid a 50 per cent wage subsidy over 12 months for new apprentices or trainees signed up by 31 March 2022.

There will also be an additional $500 million for low-fee or no cost training through the existing JobTrainer program to support training in digital skills and upskilling in industries like aged care.

New tax umpire

The Government is also making it easier for small businesses to pause or modify the collection of debts under dispute with the ATO. They will be able to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal to have an ATO debt recovery action paused until their case is decided.

Removal of SG threshold

Small businesses with low-income or part-time employees will need to revisit their Superannuation Guarantee (SG) contributions. This follows the Government’s commitment to remove the current $450 per month threshold before an employer needs to start making SG contributions for an employee.

Tax cut for brewers and distillers

And finally, it’s cheers all round for our artisan brewers and distillers. From 1 July 2021, those eligible will receive full remission (up from 60 per cent) of any excise paid on alcohol produced up to the new $350,000 cap on the Excise Refund Scheme.

Information in this article has been sourced from:

- The Budget Speech 2021-22 - https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/ speeches/budget-speech-2021-22

- and Federal Budget support documents - https://budget.gov.au/

It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


What’s to do when interest payments on your cash are worth so little?

What’s to do when interest payments on your cash are worth so little?

Cuts in interest rates are welcomed by homebuyers and other borrowers. But for retirees and others who depend on interest payments for their income, falling interest rates can be disastrous.

For them, a drop in interest rates from 3% to 1% meant a massive 67% drop in income. And with rates falling again from 1% to 0.5% they’ve suffered a further 50% reduction in income.

And sadly, that’s not the end of the story. There’s inflation to consider too!

Right now, the headline inflation rate, as measured by the Australian Consumer Price Index, is running at approximately 1.3%. That means, the real value of your money, i.e., the purchasing power of your cash, has fallen by 1.3% over the last 12 months.

With interest rates sitting at around 0.4%-0.5%, the interest you can accrue from your cash is not enough to cover for that 1.3% loss from inflation.

So, the harsh reality right now is, if your money is sitting in cash it’s actually costing you to keep it there!

If you’re not a retiree the story gets even worse, because there’s tax on interest to consider too!

What Are The Alternatives?

The big challenge for a retiree when looking for alternatives is acquiring cashflow that carries acceptable risk.

Aside from the term deposits favoured by many retirees, annuities are worth considering. An annuity effectively exchanges an up-front lump sum for regular income payments. They are generally considered to be low risk. However, as an interest-producing investment, returns are low when interest rates are down.

High dividend yielding shares have also been a traditional source of income for retirees, offering not just income but also the prospect of capital growth. However, shares can also fall in value, and the economic uncertainty precipitated by COVID-19 saw many companies cut or cancel their dividends as their profits fell.

Hybrids offer attractive middle ground between regular shares and bonds

Hybrids such as convertible shares, preference shares and capital notes have elements of debt and equity (share) investments. Their prices are usually more stable than ordinary shares, and they pay either a fixed or floating rate of interest, often as a fully-franked dividend, above a particular benchmark, usually the Bank Bill Swap Rate.

Lately at House of Wealth, we’ve been helping a lot of retiree clients take advantage of Convertible Notes issued by some of the major Australian banks. These offer security of your principal along with the potential to participate in share price gains.

For retirees preferring a less hands-on approach to managing their portfolios as well as diversification away from individual securities, a vast range of managed funds are available that suit all risk tolerance levels, and can provide regular income over and above the insulting rates of interest currently on offer.

Portfolio Balancing Can Help You Go the Extra Distance

With interest rates at unprecedented lows, many retirees will have no choice but to dip into their capital to meet their cash flow needs. If the portfolio contains a reasonable allocation to growth assets and depending on market conditions, then capital growth may be sufficient to cover cash withdrawals.

A long-term perspective

In abnormal economic times it’s important to keep some perspective. Economic upheavals are often short term. Retirement, on the other hand, can last for decades.

To ensure your retirement portfolio is optimised to weather the current interest drought, contact us today.

And if you’ve not already done so over the last 12 months, feel free to book in for a free financial health check, where we can discuss your options.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Economy and Market Update Feb 2021

Economy and Markets Overview: February 2021

Economy and Market Update Feb 2021

Economy and Markets Overview: February 2021

It’s February, the kids are back at school and the nation is getting back to business. It’s still not business as usual, but with the vaccine rollout about to begin there is a growing sense of optimism.

International Markets

There was a sense of relief on the global economic front in January as Joe Biden was sworn in as US President.

Financial markets rallied on expectations of more US government financial stimulus and a stronger focus on containing the COVID-19 health crisis.

There were also positive economic signs from our other major trading partner, China where a V-shaped recovery is underway.

China’s economy grew by 2.3% in 2020, the best performance of any major economy even though it was China’s slowest growth since 1976.

Australian Markets

Here in Australia, there were also signs of a cautious economic recovery. Consumer confidence hit a 14-month high in January, due to our success in dealing with the pandemic and supporting jobs.

The ANZ-Roy Morgan consumer confidence rating hit 111.2 points, just below its long-term average of 112.6.

Unemployment fell from 6.8% to 6.6% in December, a time when businesses typically hire casual staff for the Christmas-summer holiday rush.

Retail trade fell 4.2% in December but was still up 9.4% over the year. Inflation remains weak, with the consumer price index (CPI) up 0.9% in the December quarter and also up 0.9% in 2020 overall.

The exception is house prices, up 3% in 2020. This was reflected in the value of new home loans which rose 5.6% in November due to record low interest rates and government policy initiatives. The Aussie dollar finished the month slightly lower at US76¢.