Traffic lights for investors?

A ”traffic light” warning system is now likely to protect Australians buying frozen fish and other packaged food at their local supermarkets.

A green mark for safe products, an amber light for doubtful ones and a red light for the risky.

Much heartache, over investment losses, might be avoided if  there was a similar system of classification  for retail investment products.

Pauline Vamos, Chief executive of the Association of Super Funds of Australia, says investors across all financial services need to  fully understand the nature of risk.

Memories of the global financial crisis – and its impact on superannuation balances – are still raw in Australia.

And the superannuation industry, in particular, is well aware that many of its members are not sophisticated investors.

So the industry knows, only too well, that it needs to do all it can to rebuild member confidence.

Ms Vamos has not commented, directly, on  a ”traffic light” classification for retail investment products.

But she has been thinking very hard about what needs to be done.

“We need to recognise that,  particularly in superannuation and retirement, we have a large number of retail consumers,” she said.

“These include self managed super fund trustees and people in retirement who have spent a lifetime saving for  a moderate or comfortable lifestyle.”

We all know now that, once invested, superannuation money is subjected to at least some degree of risk.  The now receding global financial crisis gave us that wake up call.

So what can we do, to prevent similar losses in future?

The first step towards that goal, probably, is setting up what Ms Vamos calls ”any easy way to differentiate, recognise and be warned against risk.”

”Ultimately, what we need is  move towards standard labelling for products,” she adds.

Easily said, eh?

”This is a complex area, but one that is worthwhile pursuing,” Ms Vamos admits.

She says, though, that the Federal government is already working on it.

She also notes that one product, called contracts for difference, is presently being scrutinised by the Australian Securities and Investments Commission.

This highly complicated, high risk product would be a prime candidate for a ”red light” classification.

It has  been at the centre of some particularly painful cases.

Like to know more?  Go to the Super Guru website at www.superguru.com.au.

So what’s the  good news?

Well, the independent Super Ratings organisation reports that there have been  ”positive” results for super over the past year.

It says those with a median balanced option in their super would have enjoyed 4.6 per cent growth, over 2010, with 7 per cent growth in the second half of the year and 1.7 per cent growth in December itself.

Jeff Bresnahan of Super Ratings admits that this option ”continues to lag the standard CPI + 3 per cent option over five years.”

But he says recovery of all GFC losses is ”certainly possible”  if markets, supported by strong earnings growth and a a global economic recovery ”remain optimistic.”

Swan defends the levy

The Federal Treasurer Wayne Swan said the Federal  government had to keep the needs of  Australia’s patchwork economy in mind as it drew up its response to the nation’s disastrous  floods.

He said the budget had to be kept strong, so that Australia could deal with future emergencies as they arise.

Mr Swan told business executives in Brisbane that this was why the government had not put the entire weight of its reconstruction program on the budget.

The Opposition Leader, Tony Abbott, is arguing that there is no need for the flood levy  as the budget should be able to bear the cost of a reconstruction program, in prosperous times like the present.

Mr Swan presented the most detailed rebuttal that the government has yet offered to the opposition’s arguments.

“….it is crucial that when we’re rebuilding Queensland we’re doing it in a way that recognises we have broader responsibilities to the broader economy,” he said.

”We cannot, and will not, lose sight of the broader challenges of our economy as boom conditions return to other parts of the country.”

I raise these points about our broader economy because it is crucial that when we’re rebuilding Queensland we’re doing it in a way that recognises we have broader responsibilities to the broader economy too.

”We cannot, and will not, lose sight of the broader challenges of our economy as boom conditions return to other parts of the country.

”Like me, you’d be struck by just how much Australia’s story right now is the story of a patchwork economy.

” As one part of the country rides high, another struggles.

”The mining boom caused by the rise of China and India has led to much faster growth in some places than others,” Mr Swan said.

”Not just by chance but by choice, Australia has been making the most of this ,” he added.

Mr Swan said this had seen Australia become a standout performer in an uncertain world economy.

Floods:soaking the rich

Julia Gillard is making no secret of the fact that her government targeted the rich as it designed its one-off, one year levies to help meet the cost of rebuilding after the latest floods.

The Prime Minister told the National Press Club in Canberra that the government is:”….deliberately putting a bigger burden on high income earners.”

So how much you will pay will depend entirely on how much you earn.

If you earn less than $50,000 a year, you will not pay the levy at all.

Those earning $50,000 to $100, 000 a year will pay 0.5 per cent of their taxable income, above $50,000 and

People earning above $100,000 will pay 0.5 per cent of their income above $50,000 and 1 per cent of taxable income above $100,000.

The levies will apply from July 1.

So how will all that work out in practice?

.         Someone earning $60,000 a year will pay 96 cents per week.

·         Someone on average annual adult full-time total earnings of $68,125 will pay $1.74 a week.

·         Someone earning $100,000 a year will pay $4.81 per week.

Ms Gillard said the levies would be paid through tax taken out of regular pay, in the same way the Medicare levy is paid.

She said, though, that flood victims would not be expected to pay these levies, which she described as “modest.”

So you might escape the levy, either because you are on a low income, or because your house was flooded.

But you will, almost certainly, still be making a contribution, in some way, to flood recovery expenses.

That’s because the government will also be making savings to programs it had already planned.

So you might contribute by waiting longer for a local, bumpy road to be fixed, or hanging on to your old ”clunker’ car a little longer.

Spending on some green programs will also be cut, deferred or capped.

The Prime Minister said the Government will also deliver:-

·         $2.8 billion in spending cuts, including removing industry assistance and cutting back other green programs by abolishing the Green Car Innovation Fund and the Cleaner Car Rebate Scheme and making other cuts.

·         $1 billion in delaying some infrastructure projects – which will free up funds and skilled workers at a time of skilled labour shortages around the country.

Ms Gillard said: ”Every cent raised through these measures will go directly to flood-affected regions across Australia.”

Equal pay:still a myth

Years after the great battles were fought, equal pay for Australian women is still largely mythical.

This is confirmed in figures just released by the Bureau of Statistics.

These showed that the average weekly earnings of men working full time last May, when the survey was conducted, was $1,404.40 a week.

The comparable figure for women, also working full time, was just $1,167.70 a week.

The difference appears to be largely due to  two factors:-

• the kind of work women do
• and the higher proportion of women working part, rather than full time.

Men dominate the the workforce in mining, for example, which is highest paid group in Australia”s workforce.

The bureau reports that the average weekly earnings of the nation’s miners was a truly impressive $2,206.90 last May.

Women, though, make up a much bigger proportion of Australia’s workforce in relatively low paid areas such as sales, the accommodation and food industries and community and personal service work.

The average  earnings of  all sales workers, at that time, was just $578.60 a week.

The nation’s community and personal service workers had to manage on $648.70 a week, while labourers did little better at $650.90 a week.

At the other end of the scale, though, one Australian worker in 10 earned $1,856 a week, or more.

Managers, then, were earning an average of $1,848.90 a week, while professionals earned an average $1,248.80 a week.

Volunteers:a nation says thanks

Australia paused – on its national day yesterday – to say thanks to its volunteers.

The Federal government estimated that the value of – unpaid – work done by Australia’s volunteers at $15 billion a year.

But, at a time of a national catastrophe, a Victorian farmer acknowledged that the value of their work goes well beyond cash.

Willing hands were needed, he said, to replace fence posts washed away in the recent floods.

The Minister for Social Inclusion, Tania Plibersek, spoke for the Federal government.

“On behalf of the Gillard Government, I would like to thank volunteers who have rolled their sleeves up and picked up a shovel – to start helping flood affected people back to their feet,” she said.

The Prime Minister announced that the government would also be granting an award, on Australia days in future, for people who had helped others, at times of natural disasters.

Australia has no shortage of those.

It is still, as the poet Dorothea MacKellar, observed so famously, a land of “drought and flooding rains.”

Not to mention bushfires.

Ms Plibersek told the stories.

“On January 14, at the height of the disaster, volunteers at Lifeline took 1,600 calls from distressed Queenslanders, the most ever in one day for the organisation.”

“The Australian Red Cross has been assisting since the first evacuation centre opened in December, with around 3,000 volunteers deployed to Queensland and Victorian disaster areas.”

She  said the spirit of mateship and the belief in putting others before ourselves were part of what we celebrate on Australia Day.

“In the face of great adversity and hardship, it is heartening to know that Australians have an unwavering ability to pull together and meet the challenges that confront them,” Ms Plibersek said.

Food prices soar

Australians got their first taste of what is to come in the December quarter when fruit and vegetable prices soared.

The Australian Bureau of Statistics reported that fruit prices leapt by 15.5 per cent in the quarter, while vegetable prices jumped by 11.4 per cent.

These figures helped drive up the nation’s consumer price index by 0.4 per cent in the quarter and 2.7 per cent over 2010.

However, after revisions, the nation’s underlying inflation rate rose moderately  again in the final three months of last year.

It rose by just 0.5 per cent in the quarter and 2.3 per cent over the year.

The Treasurer Wayne Swan acknowledged that these figures show inflation at lower levels than expected.  But he added a warning.

”…we do know that the next quarter figure, the March quarter will see a spike particularly in vegetable and fruit prices.

”and that will have an impact on the March quarter.

” So the impact of these disastrous floods in Queensland through January will be felt by Australian families at the checkout because of the impact particularly on fruit and vegetable prices,” Mr Swan said.

The Reserve Bank board will focus – mainly – on the latest  figures for underlying – when it meets next Tuesday to review interest rates.

Most analysts believe the board will keep rates on hold then, to avoid adding to the woes of Australia’s flood victims.

The board aims to keep Australia’s underlying inflation rate between 2 and 3 per cent over the course of the business cycle.

It also tries to ignore the impact of one off events, like floods, in its calculations.

However the present floods, which have now hit five of Australia’s six States may prove too big to overlook, this time.

So there might well be further rate rises later this year.

The floods have washed away crops, market gardens and fields in some of the nation’s most productive agricultural areas.

Analysts agree that this is certain to produce more shortages, which will send fruit, vegetable and other food prices much higher, as this year progresses.

The big supermarket chains, like Coles and Woolworths, have already started preparing to import fruit and vegetables that they would normally buy in Australia.

There were some offsets to the higher food prices already evident in the Bureau’s figures.

Clothing and shoe prices, for example, fell by 1.9 per cent in the final three months of last year and by 4.8 per cent over 2010 as a whole.

That happened as hard pressed storekeepers cut prices, to maintain their sales.

The bureau reported that Australia’s pharmacists also cut their prices in the December quarter.

It said, too, that the price of new cars had  also fallen in this time, along with the prices of TV sets and computers.

House prices ”to fall”

House prices are expected to fall – slightly – over the coming year.

This – surprising – conclusion is reached in the results of a new survey, just published by the National Australia bank.

Another survey, also published today, shows that at least 3.7 million Australians are already suffering from “significant cost of living pressures.”

The insurance company, Suncorp, which conducted the second survey said fresh price pressures, confirmed in today’s inflation figures, could be a tipping point for millions of Australian families.

Expectations of rising house prices have dominated the financial plans of young Australians over many generations.

But conditions, throughout the world, have changed dramatically over recent years.

In the United States, for example, house prices collapsed, after years of property booms suddenly came to an end.

The NAB’s survey does not speak of anything like that happening here.

But it does suggest that important changes are in store.

”Conditions in the Australian residential property sector are expected to weaken considerably over the next 12 months,” the bank says.

Its Residential Property Index fell to 27 points in the December survey.

That was down from 44 points in the previous survey.

” National house price expectations have now turned negative,” the bank adds.

”Australian house prices are tipped to fall by 0.5 per cent over the next 12 months, with small increases in Adelaide, Canberra and Sydney offset by declines in Brisbane and to a lesser extent Perth and Melbourne,” it says.

The survey was conducted before the recent floods.

”Tight credit conditions and rising interest rates continue to be identified as the main impediments to new residential developments and existing property sales,” the bank says.

Suncorp said the sharp rises that have already occurred in electricity prices, with  the further rises that are still expected, are a particularly sharp threat to Australian family budgets.

Savings:the new vehicle

A fuel sipping city car might well boost your weekly budget, by helping you spend less each week on the petrol your present gas guzzler is  consuming, right now.

Those weekly savings would  be enhanced, too, if you could buy that little marvel more cheaply than you  expected.

Interested?  If so, the Statistician has some good news for you.

Where?   In the producer price index figures that the bureau has just released, of course.

These show that the price of imported goods, like those cars, fell by 4.4 per cent in the September quarter, to a level 2.4 per cent below those we saw just 12 months earlier.

Small city cars are not made in Australia, not yet, anyway.

Australians would have once scorned them, because they were not suitable for the long journeys they like to take, with their families, in their annual holidays.

So why did the price of fully finished imports, like city cars, fall some dramatically, over recent months, especially when the price of everything else seemed to be rising?

Especially as the price of  fully finished, domestically produced goods, like Australian made cars,  rose by 0.7 per cent in the September quarter, to a level 3.5 per cent above those seen 12 months earlier.

We can thank Bill, largely, for that.  Our Aussie dollar Bill.

It’s been quite strong, over the past year, because our exports of iron ore, coal and agricultural produce have been booming.

That, in turn, has helped to restrain Australia’s inflation rate, over that time, because it made the goods we import cheaper, when we pay for them in Aussie dollars.

The price of both the raw materials we import – as well as  the semi finished goods we order overseas, also tumbled, also, in the three months to the end of September.  That, too, was largely as a result of the stronger $A.

Lower inflation, of course, also helps to keep interest rates in check – and that – too – is a major item in Australian family budgets.

We can thank Bill for that, too.

The Aussie dollar has been riding high in world currency markets,  over recent months.  It has even topped the value of its old rival, the US greenback, at times.

Economics, too,  moves in mysterious ways, at times.

Never more so, either, than in the months and years following a catastrophe, like the global financial crisis.

Australia’s strong, but still patchy, recovery, over the past year or so, is based squarely on our sales of raw commodities to rapidly expanding nations, like China and India.

OK.  This was a sneaky economics lesson.

But the example above shows just one of many ways in which national prosperity can  spread, quickly and quietly, throughout the community, touching even those who believe they have no connection, at all, with our great resource industries.

Equally, if those industries should fail in future, without being replaced by others, just as powerful, we will all pay a price for that.

Just as the Irish – and Greeks – are doing right now.