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Your Finances

1. Bring out your old light bulbs, fridges and air conditioners
2. The perils of cashing out your super
3. Swan cautious as economy faces new tests
4. MPs’ superannuation blasted in the Senate
5. Surviving the crisis:what to do
6. Rate cuts:there’s still hope

The latest

Dow Jones index plunges 214.25 points to 8,289.81 as US unemployment rate soars to 9.5 per cent

The $A was fetching 79.44 US cents early today

Australia posts its biggest trade deficit in a decade

Australian leaders vow to raise Aboriginal living standards

Reserve Bank reports on Australian spending habits.  See rba.gov.au

Employers worry about new labour laws See www.acci.asn.au

Many more stories. See the categories==========>

Kevin Rudd has your light bulbs in his sights.

Believe it or not, the old style incandescent light bulb is to be banned from November this year.

That’s a small, but  important, part of the Federal government’s new national strategy on energy efficiency.

The Prime Minister, who announced this new strategy in Darwin yesterday, described it as an ambitious roadmap to accelerate action on energy efficiency.

It’s meant to assist Australia’s transition to a low carbon economy.

Mr Rudd says it will help Australian families and businesses to cut their energy and fuel bills while reducing their carbon footprints.

It won’t all be down to the humble light bulb, of course.

The government also has plans to improve the energy efficiency of Australia’s refrigerators and air conditioners.

The plan is ambitious.

Mr Rudd says those two measures, alone, are expected to reduce Australia’s carbon pollution by 19.5 million tonnes a year by 2020.

He says that’s the equivalent of taking  some 4.8 million cars off  the nation’s roads.

All this will be done through a national effort, adopted by Australia’s Federal, State and Territory leaders, at a meeting of the Council of Australian Governments, in Darwin yesterday.

It will be comprehensive,

Mr Rudd also said there will be a concentrated national effort to phase out inefficient electric hot water systems.

That will start in 2010 and is expected to reduce emissions by another 30 million tonnes of carbon, over the coming decade.

Although retail sales rose in May, the global economic crisis is now making its presence felt in Australia.

Other data, released yesterday, showed building approvals plunging 12.5 per cent in May and manufacturing activity continuing to weaken.

The Roy Morgan organisation, though, produced the most disturbing figures.  These showed Australia’s unemployment rising  by 37,000 in June, to 862,000.

It said, also, that another 967,00 Australians are currently underemployed.

The Treasurer, Wayne Swan, though, described the retail sales figures as “very encouraging.”

“Retail sales in May are up 1 per cent,” Mr Swan told reporters in the Brisbane suburb of Nundah.

“They’re  up something like 5.9 per cent since last November.”

However  big questions remain.

How much of this is due to government stimulation measures and how long can all that last?

The latest round of tax cuts, which went into effect yesterday, might not be all that much help, in the government’s pursuit of economic recovery.

A radio interviewer, Mike Carlton, asked why rich people, like himself and Mr Swan, would be getting cuts of $41 a week, while ordinary wage earners would have to make do with just $2.88 a week.

That’s an important question.  As economists say, the rich have a lower propensity to spend than the rest of us.

So they are likely to save  big slices of their tax cuts, taking that money out of the economy, at least for the time being.

As always, Mr Swan had a ready answer.

He said the new financial year’s tax cuts must be assessed along  with others granted last year.

The two, combined, added up to very substantial tax cuts for Australians on lower incomes, Mr Swan said.

New tax relief, that becomes effective today, will boost incentives for hard work, according to the Federal government.

The Federal Treasurer, Wayne Swan, who made the announcement,  with his assistant, Nick Sherry, said the new tax cuts would also help boost the Australian economy, which has been hit hard by the global economic crisis.

They said it is being directed, particularly, to people on low and middle incomes.

“This will  help stimulate economic activity, supporting Australian business and jobs, in the face of the worst global recession in 75 years,” the two ministers said.

So what relief, precisely, is the government offering?

Well, the government says there will be substantial increases in the low income tax offset.

This will rise from $1,200 to $1,350.

• So the effective tax free threshold,  for people who are  eligible for the full offset, will rise from $14,000 to $15,000.
• The 30 per cent marginal tax rate threshold will rise from $34,001 to $35,001 and
• The 40 per cent marginal tax rate will be reduced to 38 per cent.
• The amount someone eligible for the senior Australian tax offset can earn, before needing to pay tax, will also rise.
• For singles, it will increase from$28,867 to $29,867 and
• For each member of a couple, it will rise from $24,680 to $24,680

The two minister said :-

• A person earning $20,000 will get a 56 per cent tax cut
• Another on $50,000 will get a cut of about 18 per cent and
• Someone earning $80,000 will get an 8 per cent cut.

There will also be increases in education allowances, the baby bonus and child care benefits.

See the full statement on www.treasurer,gov.au

Close to retirement?

Frustrated and angry with your super fund?

Thinking of cashing out your super?

That’s understandable.

The share market crash last September hit Australia’s super funds very hard.

And many people, who are about to retire, have had a rude shock when they looked at their prospective payouts.

But, as we all know, acting in anger can lead to bad decisions.

And there are two things many people are overlooking right now.

The first is the income superannuation funds earn, from dividends, rent and other sources.

The second is likely capital growth.

Investment consultant Russell Dew says that, broadly speaking, that income  is something like 6 per cent a year, for balanced funds and, perhaps 8 per cent a year for a typical growth fund.

Fees might take 1 per cent of that.

So if you have, say, $100,000 in your balanced fund super pot, you would lose a prospective income of $5,000 a year, or some $96 a week, by cashing out your super.

If you are in a growth fund, you would be saying “no” to an income of $7,000 a year, or almost $135 a week, with that decision.

These are not huge amounts, but they would help with the grocery bills.

And there are those likely capital gains to consider as well.

The share market crash, which hit your payout so hard, is already passing.

The market is already up by some 10 per cent from its low point - and likely to go higher - as the global economic crisis passes.

Cool, rational thought is particularly valuable in a crisis.

And those who cash out in haste might well repent at leisure.

Get some good advice.  Be prepared to pay for it.

Australians will know much more about the state of the nation’s economy by the end of this week.

The Statistician is planning a string of important releases this week, starting with July’s economic indicators and new figures on the nation’s social trends tomorrrow.

The really big numbers, though, will be released on Wednesday and Thursday.

The nation’s retail trade figures for May, which are to be released on Wednesday, will show whether Australians kept spending as the first round of the Federal government’s stimulatory measures passed.

The bureau is also planning to release new building approval figures for May and engineering construction figures for March on Wednesday.

Fresh international trade figures, also for May, are also to be released on Thursday.

On Friday, Australians will  also get a much clearer picture of the nation’s job market, with the release of current labour market figures, which will draw together a range of  labour market statistics.

So far, at least, Australia has held up remarkably well  against the ravages of the global economic crisis.

However the Federal Treasurer, Wayne Swan, is warning Australians against excessive optimism, saying the nation still has “a rocky road ahead.”

He said the commodities boom is now unwinding and he warned that would have a “devastating” impact on Australia’s trade.

Mr Swan said the value of Australia’s commodity exports is expected to fall by 18.1 per cent in the new financial year.

He said that would strip $35 billion from the nation’s export earnings over the coming 12 months.

“This will be drive by a sharp decline in  minerals and energy export earnings, which are expected to fall by 22.4 per cent,” Mr Swan said.

Many of Australia’s politicians have superannuation benefits that far exceed anything their constituents can expect.

And that, according to one of them, is part of the reason why politicians are held in such low respect in that country.

So which MP said that?  You are right. It was Nick Xenophon.

So why doesn’t this South Australian independent Senator do something about it?  Especially, as he admits himself, he is a member of one of those privileged superannuation funds.

Well, he has tried, at least.  In the Senate this week, he moved an amendment to the government’s budget bills, that he believed would have brought those privileged funds, known technically as defined benefit schemes, at least a little closer to the funds that the rest of us have.

That is schemes, as we have learnt all too painfully over recent months, that can develop big holes in their payouts, if you are unlucky enough to retire shortly after a stock market crash, like the one that occurred last September.

In the May budget this year, the Rudd government cut deeply into the concessions it offers Australians, to encourage them to save for their retirements, through superannuation.

The Treasurer, Wayne Swan, said he had been forced to do that, to make up some of the revenue shortfall that the government will suffer this financial year as a direct result of the global economic crisis.

Those cut backs, though, did not affect the privileged few, who are in defined benefit schemes.  That is people who know, in advance, precisely how much their superannuation funds will pay them, when they retire.

Senator Xenophon said their benefits should be curtailed too.

Politicians, who entered one of Australia’s parliaments before 2004, are mostly in defined benefit schemes, of this kind.

Senator Xenophon, who was in the South Australian parliament, before he became a Senator is among them.

The government, though, rejected his proposed amendment.

The former superannuation minister, Nick Sherry, reminded Senator Xenophon that many people, besides politicians, are also members of defined benefit schemes.

He said these included Qantas pilots, many public servants, judges and members of Australia’s military forces.

But most private defined benefit schemes closed their books to new members, many years ago, Senator Sherry said.

People joining the Federal public service today generally don’t have defined benefit schemes available, these days,  either.

Coalition Senators, too, voted against Senator Xenophon’s amendment.

In fact, it won only two votes.  That of Senator Xenophon himself and his cross bench colleague, the Family First Senator, Steve Fielding.

There’s been an extraordinary surge in consumer confidence, according to a new survey.

But the OECD has forecast that the Australian economy will shrink by 0.4 percentage points this year.

However the Treasurer, Wayne Swan, said the OECD report also confirmed that the Australian economy is “outperforming” every other advanced economy, “in the face of a savage global recession.”

Mr Swan said the OECD report also confirms that Australia has lower debt and deficit levels than other advanced economies.

The survey, conducted by Sensis, shows consumer confidence rising by a record 18 per centage points.

The results, released today, show that almost six out of ten Australians are now confident about their financial prospects, over the coming 12 months.

The report’s author, Christena Singh, said the Sensis consumer confidence index now stands at 39 per cent.

That is its highest level since February last year, when the incicator stood at 44 per cent.

However this measure is still below the record level of 61 per cent, seen in December 2007.

Even so, the current level is still remarkable, when set against the current global economic crisis.

Especially as the World Bank has tipped, only this week, that the global economy will contract by 2.9 per cent over the coming year.

Mr Singh said the survey showed that Australians, who have jobs, are taking a rosy view of the future.

“Employment is the key driver of consumer confidence in Australia at the current time,” Ms Singh said.

“Having a secure job is the key reason for being confident, while umemployment is the key reason for being worried,” she added.

But the survey revealed a touch of realism, too.

“It is interesting to note that while Australians are increasingly optimistic about their financial prospect, they (also) believe the Australian economy is contracting,” Ms Singh said.

Australia’s big four banks are still turning  in strong performances, despite the global economic crisis.

They chalked up average profits of 30.6 per cent last year.

The Australian Prudential Regulation Authority also reported yesterday that the total assets of the nation’s big  - and small  - banks rose by 22.1 per cent last year, to almost $3.3 trillion.

APRA also reported that the banks gathered $46.4 billion in interest income last year.

They also charged their customers another $20.9 billion in fees and commissions.

The banks have their critics,  though.

The most notable was the Treasurer, Wayne Swan, who recently called the Commonwealth Bank “selfish” after it had raised a key home loan interest rate by 0.1 percentage points.

However the Commonwealth bank did not retreat, saying it had to cover the higher cost of the funds it now lends.

Other banks later followed its example, in different ways.

Public complaints about the “greed” of Australia’s banks are common, too.

Australia’s banks, though, mostly resisted the trap that US banks fell into, with sub-prime housing loans.

And their strength has been a key factor in Australia’s relatively good performance, at least so far, in the global economic crisis.

Even so, the Federal government felt impelled, earlier this year, to guarantee Australia’s bank deposits.

It did that to prevent a possible panic, which might have produced a run on the nation’s banks, in the wake of the global economic crisis.

That crisis, clearly, still has some way to run.

The World Bank is now predicting that the global economy will shrink by 2.9 per cent over the coming year, rather than the 1.7 per cent retreat that it forecast earlier this year.

Reverse mortgages can be very useful.

But new research suggests that these products, which are usually used by people over 60 are not always well understood.

And one big question hangs over them.

Are they right for you?

The Australian Securities and Investment Commission has a new publication which might help you decide

Its called “Thinking of using the equity in your home? A new independent guide to reverse mortgages and other equity release products.”

It was launched jointly yesterday by the Chairmen of the Australian Securities and Investment Commission and the Australian Government Financial Literacy Board.

They are, respectively, Tony D’Alosio and Paul Clitheroe.

Mr D’Alosio said taking out products like these is a big step.

The family home is often people’s biggest asset, he added.

He said, too, that these products can involve “significant risks.”

The guide provides important information on:-

• the risks
• the alternatives
• whether equity release is right for you
• what to look out for
• where to get more information

If you would like a copy of the guide, you can go to www.fido.gov.au or call 1300 300 630

Need more business?  Having trouble with your debts, because of the global economic crisis?

Help is available on both fronts.  It’s just a matter of knowing where to look for it.

The Federal government’s stimulus package is the biggest game in town right now.  Especially for trades people.

Where, though, do you go to find out what work is available, and whether it would suit you?

Senator Mark Arbib, the Minister for Employment Participation, has some good advice on that.

He says businesses interested in work, or tradespeople interested in subcontracting should visit

australia,gov.au/economicstimulus and follow the links in State and Territory websites.

Then click on work opportunities.

That should give you a good idea of the work that is available in your area.

Senator Arbib said more than 280 primary school projects have already begun, under the latest stage of the government’s stimulation package.

That’s just the start.  There are also new projects, involving defence housing, road upgrades and much else besides.

What, though, if you have lost your job - and the debts are piling up, uncontrollably?

That is a grim situation for any person or family to face.

The earlier it is faced, though, the better.

And, once again, help is available.

The Treasurer, Wayne Swan, says Australia’s building societies, credit unions and banks have all signed up now to a set of principles meant to help borrowers who are in distress.

The options available will include:-

• postponing repayments
• longer contracts with smaller repayments
• interest only breaks on repayments and
• fee waivers.

Contact your lender first.

You can stop worrying about inflation.

That message emerges very clearly from a new survey that was conducted jointly by the Westpac Bank and the Australian Chamber of Commerce and Industry.

Many Australians are, indeed, worried about the prospect of inflation surging, as a result of the Federal government’s three stage stimulation package, which involves heavy borrowing and big sepnding programs.

Those programs, essentially, are the government’s response to the threat of recession - or worse - arising from the global economic crisis.

These matters, of course, are highly sensitive, politically.

They are at the heart of the debate between the government and the opposition, over Australia’s response to the challenges the crisis is presenting.

The survey partners, clearly, didn’t want to be seen to be seen standing  either on one side, or the other, in that debate.

So they chose their words carefully.

But their assessment was unmistakable.

The survey partners said that although business confidences has improved, activity levels remain weak and unemployment is likely to rise.

“Both prices and costs are expected to fall,” they added.

“Contrary to the commonly quoted inflation scare, the greater risk is deflation.”

They said that risk would emergee as excess capacity and rising unemployment, both in Australia and overseas, contained any inflation pressure.

There is good news for homebuyers, too, in comments the bank made on  the results of the survey.

“Westpac is surprised by current market pricing which is pointing to rate increases of around 150 basis points by the end of 2010,” the bank said.

“It is far more likely that rates can fall further rather than rise in the current environment,” it added.

West Australians are a resilient lot.

New research shows that their coffee shops and cafes are still doing well - even though  small business profits and sales in the West have hit new lows.

Despite that, the latest Sensis Business Index reports that the State’s small business owners are still among the nation’s most confidence, sharing second place, on that measure.

The report’s author Christena Singh said the State’s small to medium sector’s sales and profitability had both hit the lowest levels on record, over the past three months.

Surveys of this kind  were first conducted in 1993.

Ms Singh said the sector’s sales, over the past three months, are now 45 percentage points below those of the same time last year.

“…and the profitability indicator is down 35 percentage points,” Ms Singh added.

But West Australians never fail to surprise.

“Despite  recording the nation’s smallest rise in business confidence for the quarter, WA had the equal second highest level of business confidence,” Ms Singh said.

The  confidence of the State’s small to medium business owners rose by 1 percentage point in the quarter.

The survey also showed, though, that they had continued to shed staff during the quarter.

However Ms Singh the rate at which staff shedding is occurring had eased during the quarter.

The State’s farmers, though, are optimistic.

The survey showed a surge in small business confidence, outside the Perth metropolitan area, during the quarter.

The Prime Minister and the Reserve bank are both offering some hope of further rate cuts, despite the present pressures on bank margins.

This is clear from statements they made yesterday.

“We are facing a much more difficult set of economic circumstances,” Kevin Rudd admitted in Federal parliament yesterday as

he was  comparing the impact of the current  global economic crisis, with those which had accompanied previous economic downturns.

And Mr Rudd has previously said that Australia’s unemployment will get worse before it gets better.

He was  speaking shortly after the Reserve Bank released the minutes of its board meeting earlier this month, at which  it had decided to keep interest rates on hold. They showed that the bank’s board is still very cautious about rates, noting that monetary policy had already been eased “significantly.”  However the minutes also contained one statement, which really stood out.

That was:-”…there was still thought to be a possibility of further easing in the months ahead.”

Put the Mr Rudd’s remarks - and those of the Reserve Bank - together and they add up to a real chance that Australia’s interest rates will, in fact, be cut at least once more, later this year- even though Mr Rudd also said that the nation’s interest rates are already “at a 40 year low,”

The Reserve Bank  noted some positive signs.

It said the latest information suggests that the global economy is finally “stabilising.”

The bank said that is happening after “two very weak quarters.”

“Members judged that the most likely outcome, over the next year or two, would be subdued global growth overall, as households and financial institutions in many major countries would be repairing balance sheets for some time…

“This suggested that spare capacity would be increasing and inflation tending to decline for some time ahead.”

The bank added that “downside risks” had lessened.

In short, things are likely to get better, slowly.

Most Australians, who are still working, have  not yet adjusted the investments they have in their superannuation accounts.

However new research shows that retired people, who have superannuation pensions, have moved sharply to conservative cash investments.

Superratings reported that only 3.3 per cent of the money working age Australians have in their superannuation accounts was shifted from shares, to more conservative investments, after last September’s share market crash.

However the move, among retired people, has been marked.

The research also showed that the percentage of superannuation pension fund members’ money invested in cash options had jumped from 3.7 per cent in 2008 to 14.5 per cent in 2009.

The share market crash last September hit many newly retired Australians very hard.

They found shortfalls of up to $100, 000 - and in some cases  more - in their superannuation accounts when they retired.

The research organisation, Superratings, has just published its findings.

But the company’s managing director, Jeff Bresnahan, said it left one critical question unanswered.

That was whether the fact that there was little change in the supersnnuation investments of working age Australians - between last year and this year - is the result of conscious decisions, or lassitude.

Mr Bresnahan said many fund members seem to believe that the crash had affected everyone but them.

“That’s not to say that Australians have got it wrong,” Mr Bresnahan said.

“In fact the general apathy has probably assisted most through not providing them with the temptation to switch…”

After all, the share markets had risen by 25 per cent over the past three months.

Mr Bresnahan said, though, that superannuation fund members, who are still in the workforce, could  be in for nasty surprises, in the near future.

When the June 30 statements hit their  letterboxes, between July and Spetember, “the reality might just start to kick in,”Mr Bresnahan said.