by Alan Thornhill
Like a little help to get that fancy yacht – fine wine collection – or vintage Maserati – that you have always wanted?
Well, all that’s available, to the rich. It is provided at the expense of other, less fortunate, taxpayers.
However you must be quick.
This nice little dodge, might not last much longer.
Naturally, the rich have known for years, just how this works.
First, you set up a self managed superannuation fund. Then, once you have put enough money into it, you buy that yacht, or exotic car, or whatever as an “investment.”
The idea, of course, is that you sell your acquisition – at a profit – when you retire.
But that’s years away, anyway, isn’t it? There’s still time to enjoy life before you retire.
This little dodge rests on the fact that superannuation is a tax favoured vehicle.
Naturally the average Joe is at a double disadvantage, here.
He would never be able to put enough money aside, to buy that yacht, anyway.
Besides, the tax rate advantage on super is bigger for the rich, anyway.
However, all that may now be about to end.
We can blame Jeremy Cooper if that happens.
The Federal government ordered a comprehensive investigation of Australia’s superannuation system and Mr Cooper is running it.
Naturally, he has been having a quiet look at self-managed superannuation funds.
Broadly, he’s a fan.
“Whichever way we look at it, self managed superannuation funds are here to stay,” Mr Cooper says.
“But we want them to focus more on investing for retirement savings, rather than related party transactions, collectables and leverage.
“Most SMSFs already do this.
“So the vast majority of SMSFs will not be affected by these particular proposals.
“We think this will be treated as good news in the SMSF sector,” Mr Cooper said.
What, though, are these “proposals’ that he is speaking about?
Mr Cooper says these include:-
- prohibiting investment in collectables and personal-use assets, such as artworks, wine collections, exotic cars and yachts
- strengthening the competence and independence of approved auditors
- an online SMSF resource centre to help SMSF trustees build skills and make better decisions
- making the ATO’s penalty regime more flexible to enable more effective and equitable regulation
- tightening the SMSF registration process, including the introduction of member identity requirements, to reduce instances of fraud and illegal early release schemes and
- reducing the potential to benefit illegally from related party transactions by prohibiting the acquisition of in-house assets and imposing restrictions on the way in which an SMSF can transact with related parties.
What a spoilsport.
by Alan Thornhill
The Prime Minister, Kevin Rudd, says his government wants to give Australian businesses a better deal on tax.
He was addressing the Australian Chamber of Commerce and Industry in Sydney, just days before the government plans to release its blueprint for an overhaul of the nation’s ramshackle taxation system.
The long awaited Henry report, on the future of Australia’s taxation system, is to be published on Sunday.
Mr Rudd admitted that the present tax system is both inefficient and unfair.
“Incremental policy change has eroded the bases of even potentially efficient taxes,” the Prime Minister said.
“Australia needs to respond to remain an attractive place to invest and do business,” he added.
“For that reason the Government’s aspiration is to reduce the level of tax faced by the vast majority of Australian businesses,” he said.
“The Government also understands the importance of a having a fair tax system,” Mr Rudd added.
“The Government has made some significant changes to the taxation and transfer systems in recent years to increase the fairness of our tax and transfer system,” he said.
These had helped both pensioners and parents.
“The Government will continue to ensure that Australia’s tax system remains fair – particularly for small business and working families and seniors,” Mr Rudd said.
He admitted, too, that small businesses can be trapped in red tape.
“Smaller businesses tend to bear a higher proportion of the burden of complexity and red tape,” Mr Rudd said.
“Some complexity in the tax and transfer system is unavoidable,” the Prime Minister said.
“But the Government is committed to reducing complexity where we can to give taxpayers more time with their families and cut red tape for business.”
by Alan Thornhill
Australia’s inflation will “remain moderate” in the months ahead, the Federal Treasurer, Wayne Swan says.
We will all have to wait until May 4, though, to find out whether the Reserve Bank sees something more serious, in the latest Consumer Price Index figures.
These show inflation rising 0.9 per cent in the March quarter and by 2.9 per cent in the year to March 31.
The December quarter rise was just 0.5 per cent and the annual inflation rate for 2009 was 2.1 per cent.
The Reserve Bank board will meet next Tuesday 4 to review Australia’s interest rates.
The bank has already warned that Australians cannot expect interest rates to remain below normal levels indefinitely. And it has raised those rates at five of its last six monthly meetings.
Mr Swan is clearly right about one thing. Some increase in Australia’s inflation rate was to be expected, as the nation’s recovery from the global economic crisis gathered strength.
However, a 6.1 per cent rise in house prices, over the past year, will still worry the bank.
It was less worried yesterday, though, by a new ripple on the global scene, the reduction of Greece’s debt to junk bond status.
The bank is regarding that, so far, as a purely European problem, even though it has already rattled world share markets.
Higher health and education bills are also putting strong upward pressure on Australia’s inflation rate.
Australia’s surging coal and iron ore booms, though, remain the most dangerous inflationary forces, on Australia’s economic horizons.
Oddly, though, Australia’s underlying inflation rate appears to be easing.
On a measure known technically as the “weighted median,” underlying inflation fell from a revised annual level of 3.5 per cent, at the end of December to 3.1 per cent, at the end of March.
The Reserve Bank takes underlying measures of inflation, like these, into account, rather than the raw Consumer Price Index, or “headline” figures, when it sets rates.
It aims to keep Australia’s underlying inflation in a 2-3 per cent range, over the course of a business cycle.
The bank’s marker interest rate is now at 4.25 per cent. Economists say the “normal” rate is somewhere between 4.5 and 5 per cent.
Mr Swan said measures of underlying inflation had eased, over the past year, as the global economic crisis made itself felt.
“Inflation moderated substantially over the course of 2009, with the global recession resulting in a substantial reduction in aggregate demand pressures,” the Treasurer said.
“The outlook is for inflation to remain moderate in the near term,” he added.
by Alan Thornhill
Soaring house prices helped to push Australia’s headline inflation rate to 2.9 per cent over the past year.
The Australian Bureau of Statistics reported today that the nation’s consumer price index rose by 0.9 per cent in the March quarter.
This was well above the 0.5 per cent rise in the December quarter, which left Australia with a 2.1 per cent annual inflation rate at the end of last year.
However, the bureau also reported today that Australia’s underlying inflation rate, on a weighted median basis, fell from a revised 3.5 per cent last year to 3.1 per cent now.
The Reserve Bank aims to keep Australia’s underlying inflation rate within a 2-3 per cent annual range, over the course of a business cycle.
It has warned that Australians can’t expect interest rates stay below normal levels, where they have been since the global economic crisis struck, late in 2008.
Its current marker rate, at 4.25 per cent, is still below the 4.5 to 5 per cent range most economists regard as normal.
The bank’s board will meet again, to review rates, on the first Tuesday in May.
The bureau’s figures show that housing prices rose by 1.5 per cent in the March quarter and 6.1 per cent in the 12 months to the end of March.
This was the biggest price rise Australians have faced, over the past year.
However education costs have risen sharply, too. They leapt by 5.6 per cent in the March quarter, at the start of the new scholastic year, and by 5.7 per cent in the 12 months to the end of March.
The bureau also reported that health costs have been rising sharply, jumping by 4.7 per cent in the March quarter and 5.1 per cent over the year.
The price of pharmaceuticals, alone, leapt by 13.3 per cent in the March quarter.
by Alan Thornhill
Ever feel overwhelmed by the pace of change?
If so, you are not alone.
Many accountants do, too.
They also know, all too well, that rushed changes, in public policy, can leave nasty – and expensive – messes in their wake.
That is why the National Institute of Accountants is urging the Federal government to proceed slowly and carefully with the slew of financial reforms it is now considering.
- An overhaul of Australia’s taxation system, based on the Henry report, which is to be published on Sunday.
- A proposal for a much simpler, low cost default superannuation, proposed by the Cooper Review and
- A ban on many now common fees charged by financial advisers, that would apply from 2012.
The Institute says these measures are important – and should not be rushed to meet the government’s timetable for the Federal election due later this year
Its chief executive officer Andrew Conway said accountants are already “under siege” as a result of other changes, made recently.
Problems had arisen from the Tax Office’s change program.
Financial planners had also been intruding into tax matters, on which accountants had the necessary expertise.
Reforms now proposed include possibly preventing accountant giving their clients advice and administrative help with their
self managed super funds, Mr Conway said .
“Last year we had accountants helping the Government roll out the $900 tax bonus,” Mr Conway said.
“This year accountants are bearing the brunt from the delays caused by the ATO’s change program.
“Every time there is regulatory change affecting our sector, or some government program to roll out, accountants are at the front-line ensuring their clients, many of which are small businesses, are informed and ready for the changes,” Mr Conway said.
“The accounting profession is not calling for a halt to government reform,” he added.
“Rather we are asking for a coordinated and considered effort to reduce the regulatory burden.
“The Government should take into account the real impact caused by the pace and sheer volume of reform on those expected to comply,” Mr Conway said.
“The ATO Change Program is a wakeup call that even regulators need time to get their systems right before going to market.
“Small business people and the accountants advising them need time to assess and implement change.”
The NIA’s message to the Government is simple, Mr Conway said.
“Let’s ensure we maintain strong lines of communication so that decision makers understand the direct impact they have on the lives of Australia’s small business people and those who advise them.”
by Alan Thornhill
The Federal government’s financial reforms are gradually becoming clearer.
Private Briefing can now, confidently, tell you that:-
- Financial advisers are in for as big a shakeup at the nation’s superannuation industry and
- The Federal Treasurer would like you to fill out your own tax return, once again, in future.
Wayne Swan is even hinting that he is planning to simplify the system, so that you can do that safely.
Ignoring public holidays, the Financial Services Minister, Chris Bowen, has also been hitting the nation’s airwaves, to sell his plan to overhaul Australia’s financial advice industry.
From 2012, he wants to ban the commissions that now, so often, come as part of the arrangements that accompany the financial advice Australian investors receive.
That was, perhaps, inevitable. Financial advisers haven’t always performed well, as the Storm Financial, Opes Prime and Westpoint fiascos have shown, all too well.
Often undeclared commissions have become a major problem in Australia’s superannuation system, too.
The government is poised to tackle that, as well, under the simplified, low cost MySuper option, that the Cooper Commission has recommended.
In both cases, sweeping reforms now seem inevitable..
Huge as the reforms seem likely to be, they will, in all likelihood, be cast into a deep shadow, by reforms the Treasury Secretary, Ken Henry, is proposing, inn his long awaited report on Australia’s hideously complex, and ramshackle, taxation system.
The Coalition has already launched its scare campaign on this subject, suggesting that the Henry report, which is to be released next Sunday, will simply be a “Trojan horse” for higher taxation.
In an election year, that seems highly unlikely.
Sir Humphrey Appleby would, undoubtedly, be prepared to call the decisions the government has already flagged, on financial advice and superannuation , “courageous.”
That is either of them could easily cost the government the next election.
Raising taxes, even on a particular group, would be even more dangerous for the government.
So far, debate on the likely changes to super and financial advice has been relatively moderate.
The National Institute of Accountants, for example, has welcomed the stronger consumer protection, flagged in the financial advice sector.
So have Australia’s superannuation funds.
All that, though, could change very rapidly, once an election campaign gets under way, as it will, very shortly.
by Alan Thornhill
The Federal government is to ban a wide range of commissions which could lead financial advisers into conflict with the best interests of their clients.
“These reforms will see Australian investors receive financial advice that is in their best interests, rather than being directed to products as a result of incentives or commissions offered to the financial adviser,” , the Financial Services Minister, Chris Bowen, said.
He said most of the reforms he proposed would take effect from 2012.
Mr Bowen’s announcement, essentially, is the government’s response to abuses exposed by high profile collapses, such as those of Storm Financial, Opes Prime and Westpoint. It also follow the findings of an inquiry conducted by a Joint Parliamentary Commisttee into financial products and services in Australia.
In it, Mr Bowen said;”The Rudd Government is today announcing reforms to financial advice that will improve the trust and confidence of Australian retail investors in the financial planning sector.”
He said the proposed reforms were designed to tackle conflicts of interest that have threatened the quality of financial advice that has been provided to Australian investors.
In as radio interview, though, Mr Bowen also admitted that much detailed drafting of the new measures still has to be done.
He refused to say whether the cost of financial advice would be made tax deductible.
Mr Bowen reminded his interviewer that the results of the Henry Review of Australia’s taxation system would be released next Sunday, along with an initial response from the government.
In his his announcement, Mr Bowen said:”Australia is facing the challenge of an ageing population.
“Access to quality advice remains an important part of planning for the future,” he added.
Mr Bowen also said the authorities, including the Australian Securities and Investments Commission, would be given more power to protect investors.
“ASIC’s powers to act against unscrupulous operators will also be strengthened and professional standards for advisers will be reviewed by an expert advisory panel,” Mr Bowen said.
He said the reforms would include:-
- A prospective ban on conflicted remuneration structures including commissions and volume based payments, in relation to the distribution and advice of retail investment products including managed investments, superannuation and margin loans. The measure does not initially apply to risk insurance.
- The introduction of a statutory fiduciary duty so that financial advisers must act in the best interests of their clients, subject to a ‘reasonable steps’ qualification, and to place the best interests of their clients ahead of their own when providing personal advice to retail clients.
- Increasing transparency and flexibility of payments for financial advice by introducing ‘adviser charging’ that will help align the interests of the financial adviser and the client; is clear and product neutral; and where the investor will be able to opt in to the advice in response to a compulsory, annual renewal notice.
- Percentage-based fees (known as assets under management fees) will only be charged on ungeared products or investment amounts and only if this is agreed to with the retail investor.
- Expanding the availability of low-cost ‘simple advice’ to provide access to and affordability of financial advice.
- Strengthening the powers of the Australian Securities and Investments Commission (ASIC) to act against unscrupulous operators.
- The examination of a statutory compensation scheme by Mr Richard St John, who has significant corporate law experience.
“The majority of these reforms will commence from 1 July 2012 and the Government will consult with industry on the implementation of the reforms,” Mr Bowen said
“The expansion in the provision of low-cost, simple advice will be of particular benefit to individuals and families who may not currently have access to financial advice
Furthermore, the Government’s progress on simple disclosure for investors and financial literacy will better enable individuals to understand, and therefore benefit from, the advice they receive,”Mr Bowen said .
“I welcome the significant efforts of industry, including the Investment and Financial Services Association (IFSA) and the Financial Planning Association (FPA) to remove commissions and improve professional standards. These reforms clearly support their efforts.”
by Alan Thornhill
Australians should not expect “unusually low” interest rates, the Reserve Bank Governor,
Glenn Stevens, says.
Speaking in Toowoomba, Mr Stevens admitted that the Australian economy had recovered from the global economic crisis faster than his bank had forecast.
He delivered a detailed account of that recovery, then said:” Given all of the above, one would not expect the setting of interest rates to be unusually low.
“If the economy is growing close to trend, and inflation is close to target, one would expect interest rates to be pretty close to average.
“The Reserve Bank has moved early to raise the cash rate to levels that deliver interest rates for borrowers and depositors more like those that have been the average experience over the past 10 to 12 years.
“Those interest rates are now pretty close to that average,” Mr Stevens said.
The RBA’s marker interest rate is now 4.25 per cent and the bank, itself, has signalled that this rate might be raised to 4.5 or even 5 per cent, quite soon.
Mr Stevens also explained the task he believes the bank now has before it.
‘Our task…. is now to manage a new economic upswing.
“This will be just as challenging, in its own way, as managing the downturn.
“But it’s a challenge plenty of other countries would like to have,” Mr Stevens said.
He admitted, though, that some areas of retail sales in Australia have been “quite soft.”
However Mr Stevens said the outlook for resource driven investment in Australia is quite strong.
And he said investment, both public and private, is likely to drive demand to a greater extent in future than it had in the past.
“Even before the downturn, the relative share of consumer spending in total demand was tending to diminish and that of investment spending to increase,” Mr Stevens said.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
Thursday May 23
The Dow Jones Index fell 80.02 points to 15,307.60
Man, believed to be a British soldier, hacked to death in the London suburb of Woolwich, in an apparent terrorist attack
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