Rates on hold – for now

The Reserve Bank has surprised many economists by leaving its marker interest rate on hold at 4.25 per cent.

Another small cut had been widely expected.

However, the Bank’s Governor, Glenn Stevens, said  a “moderate” economic expansion is occurring in the United States.

He said too that  “acute financial pressures” in Europe  had been “alleviated considerably” late last year.

Mr Stevens also said that the two rate cuts, that the bank announced late last year, had left the rates Australia’s borrowers pay close to their “medium term average.”

“With (domestic) growth expected to be close to trend and inflation close to target, the Board judged that the setting of monetary policy was appropriate for the moment,” the Reserve Bank Governor added.

The decision has, at least, postponed a looming stand off between the Federal government and Australia’s big four banks.

The Treasurer, Wayne Swan, had called on those banks to pass on any rate cut in full.

He said that  banks which did not do so would be acting to protect their “huge profitability.”

The banks might well have resisted that demand, if the Reserve Bank had cut its marker rate.

Bank executives, including Westpac’s chief, Gail Kelly, argue that the costs Australia’s banks now incur, raising funds for home and business loans, has risen as a result of the European debt crisis.

The risk of an all out confrontation between the Federal government and the banks eased when the Reserve Bank kept rates on hold.

Mr Stevens did admit that more needs to be done to bring Europe’s debt problems under control,

“Much remains to be done to put European sovereigns and banks on a sound footing, but some progress has been made,” he said.

Mr Stevens admitted, though, that financial market sentiment “remains skittish.”

He also said : “information on the Australian economy continues to suggest growth close to trend,

Mr Stevens admitted, though, that differences between sectors still persist.

“Labour market conditions softened during 2011 and the unemployment rate increased slightly in mid year, “ he said.

However unemployment had been steady over recent months.

Consumer price inflation “has declined as expected,” he added,

Mr Stevens said that had happened as fresh food prices eased, as the large rises resulting  from last year’s floods, passed.

“Year-ended CPI inflation will fall further over the next quarter or two,” he added.

“In underlying terms, inflation is around 2½ per cent,” Mr Stevens said.

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Disability Insurance “aspirational” Abbott

Tony Abbott describes the National Disability Insurance Scheme, recommended by the Productivity Commission, as  “aspirational,” telling journalists at the National Press Club that it would have to wait until Federal budgets returned to surplus.

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Private health fund rebate in doubt

The Federal government is, once again, thinking of  means testing  the private health insurance rebate.

Its Health Minister, Tanya Plibersek, said a new report shows that Australia’s private health insurance sector is “healthy and robust.”

The industry had been struggling when this incentive was introduced in 1997.

The government, then, wanted to encourage Australians to take out private health insurance.

Ms Plibersek said it is no longer appropriate to persist with measures that leavelow and middle income earners “subsidising the health insurance of millionaires.”

The Opposition reacted sharply.

Bronwyn Bishop, Shadow Minister for Seniors, described Ms Plibersek’s announcement as “a deliberate attack on senior Australians.”

Ms Bishop said the government would be making its third attempt to apply a means test to private health insurance.

She said older Australians, who have with private health insurance, would be “hit hardest “ as they are likely to be on fixed incomes and are already under pressure from increased cost of living expenses “led by rising electricity costs.”

“The head of the Private Healthcare Australia, Dr Michael Armitage confirmed to me today that should Labor’s means testing go through, premiums would be forced up 10 per cent…,”Ms Bishop said.

However Ms Plibersek said that if the plan applied now individuals earning up to $80,000 a year – and families on incomes of up to $160,000 – would not be affected, by the proposed change.

“Families would need to be earning around $248,000 or more to lose the rebate entirely,” she added.

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Service sector still weak

Australia’s service industries are still weak, despite some improvement over recent weeks.

That’s largely because consumer spending is still soft.

The weakness shows up in the latest  performance of service index, produced by the Australian Industry Group and the Commonwealth Bank.

Although the seasonally adjusted index was 1.3 points higher in December at 49.0, it remained below the 50 point level.

This indicates a further contraction in activity.

A statement released with the index said “Professional business service sub-sectors appear to have stabilised over recent months with activity expanding in December in finance & insurance and property & business services.

“New orders across services were steady at 50.4.

But it said consumer related areas are still weak

The AIG’s Director of Public Policy, Peter Burn said: “This points to continued wariness on the part of households.”

He said that was partly due to the lack of progress in resolving the European sovereign debt issues.

However soft house prices had also contributed.

And there is little relief in sight.

“The bad news is that this pattern of growth is likely to persist in 2012,” Mr Burn  said.

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Wild weather hits Australia

Wild weather over much of Australia yesterday raised uncomfortable memories of Cyclone Yasi and severe floods some 12 months earlier.

Tropical Cyclone Grant, which is due to hit the Northern Territory coast this morning, caused local flooding but, at last report, is likely to miss Darwin.

Authorities estimated that two tornados, and fierce hailstorms, which hit Melbourne, caused damage estimated to be worth at least $1 billion.

And another cyclone, off the Queensland coast, closed Sunshine and Gold Coast beaches, which were hit with four metre swells.

The tornados hit two outer suburban areas, in Melbourne’s west, during the afternoon.

The weather bureau briefly forecast of a tornado for Melbourne, itself, but later downgraded its warning to that of a severe storm.

Wild winds overturned cars, in the Western suburbs, and hailstones the size of golf balls, hit homes.

An estimated 2,500 Melbourne home owners made urgent telephone calls for help.

Fiskville, near Bacchus Marsh, was hit by one of the tornadoes.

Several flights, due to leave Melbourne airport were delayed and others, due to land there, were diverted to Sydney.

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An extra $108,00 for Tom! Super

A thirty year old salesman like Tom Smith – who now earns $70,000 a year – can expect an extra $108,00 in his superannuation pot when he retires, the Federal government says.

The Federal Superannuation Minister, Bill Shorten, says that will flow from changes to the law, that he has just proposed in Federal Parliament.

The industry welcomed his announcement – and urged Federal members and Senators to vote for the planned changes.

Mr Shorten, too, was confident.

“These changes will start on 1 July 2013,” he said.

The most important are a gradual increase in the compulsory superannuation guarantee levy, from its present 9 per cent to 12 per cent and the removal of a current cap on contributions.

The levy would be increased gradually, over seven years.

“Australians should not have to work hard and retire poor,” Mr Shorten said.

“Nine per cent super is simply not enough.”

The Association of Superannuation Funds of Australia (ASFA) says the plan to increase the levy “is an historic moment for the country.”

It said the government’s plan would secure increased retirement savings for most Australian workers.

The plan to move gradually to the higher levy is popular.

ASFA says a recent survey showed that it had 67 per cent support.

Mr Shorten was also upbeat.

“In the biggest change to superannuation in 20 years,” he said.

“Around 8.4 million Australians will have their superannuation savings boosted as a result of the superannuation guarantee rate legislation introduced into the Parliament today,” he added.

However his plan is not absolutely certain to pass parliament.

The move is to be funded in part by the Federal government’s new mineral resource rent tax.

A bill, to introduce that tax, was also introduced into Federal parliament Wednesday.

However, Julia Gillard’s minority Labor government did not appear, then, to have the numbers it would need, to have that tax made law.

Mr Shorten also said: “I have decided there will be no age limit for superannuation guarantee contributions.”

At present, workers can only receive superannuation guarantee levy contributions to their super until they turn 70.

This cap is to be abolished.

The Age Discrimination Commissioner, Susan Ryan, hailed the decision.

Ms Ryan, a former Labor Senator, said: “This amendment sends a strong and positive message to older employees.”

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Lenders slammed over credit insurance sales

Australians have been getting some bad deals on consumer credit insurance.

That warning has come from the Australian Securities and Investments Commission, which is commonly known as ASIC.

It follows a review of the way 15 Australian banks, credit unions, building societies and other financial institutions sell this kind of insurance.

Consumer credit insurance is designed to protect consumers if something happens to them that affects their ability to meet their credit repayments.

Typically, it covers consumers in the event of death, permanent disablement, or loss of income due to injury, illness or involuntary unemployment.

However ASIC Commissioner Peter Boxall warned that some of the ways in which consumer credit insurance has been sold produce poor results for consumers.

He said the study had identified several risks, including:-

• consumers not being made aware that they have purchased this kind of insurance or that it is optional

• consumers not being asked whether or not they wish to purchase it

• consumers not being eligible to claim on all parts of the insurance policy they have purchased

• the potential for consumers to be pressured or harassed by sales staff and

• consumers not understanding the cost or the duration of a policy.

The key message is that this type of insurance is optional, Dr Boxall said.

People should ask themselves ‘what would I be able to claim for’ and ‘what would the cost’, Dr Boxall said.

”Consumers should be aware that consumer credit insurance usually only covers some repayments on the insured debt.

“They should consider whether or not they already have insurance that would cover them in the same circumstances,” he added.

The institutions which took part in the study have agreed to review their sales practices.

Dr Boxall said some had already made “the necessary changes.”

He did not name the particular institutions.

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Super reforms “super” Industry funds

Superannuation fund members can expect bigger payouts on retirement, if planned new curbs on commissions become law, according to industry insiders.

The planned curbs are part of the Federal government’s MySuper reforms, which will soon be debated by Parliament.

Australians have invested more than $1.2 trillion in superannuation.

An exposure draft of the proposed legislation has just been released.

The union based Industry Superannuation Network (ISN) welcomed the proposed changes, saying that – if the bill becomes law it “will bring an end to costly commissions on compulsory superannuation.”

Private funds also welcomed the government’s plan to give the Australian Prudential Regulation Authority power to regulate the industry.

This, too, is part of the proposed reforms.

However the Australian Superannuation Funds Association (ASFA), which represents the private funds, make no specific comment on commissions in its statement.

?The ISN’s Chief Policy Adviser, Matt Linden, said the planned ban on the financial inducements that private super funds once traditionally offered to the financial planners, who bring them new business, would have been “unthinkable” just a few years ago.

But that had changed.

??”Now there is virtually unanimous agreement that financial inducements from product providers to planners must end,” Mr Linden said.
?
“This is a giant step forward for the professionalisation of the industry,” he declared.

“Industry Super Network looks forward to working with the Government on the fine detail of the legislation released today to ensure it achieves all of the intended policy objectives,” Mr Linden added.

ASFA chief executive officer, Pauline Vamos, said her association had supported APRA having a standard making power for the superannuation industry for some time.

“So we are pleased to see the beginning of the consultation period,” Ms Vamos said.
 
“The superannuation system is an important delivery mechanism for both social and economic policy,” she added.

” It is right at this time, with the growth of the sector and its responsibility for delivering in post-retirement, that its regulatory framework has a similar footing to the banking and insurance industries.
 

While standards of governance and disclosure are already high in the superannuation sector, the new prudential standards will both formalise – and document – what fund trustees should be doing.
 
“Current disclosure requirements can make it difficult for trustees to provide simple, open disclosure – it is time to revisit this area,” Ms Vamos said.
 
“We will be carefully reviewing the Discussion Paper in consultation with our members over the coming weeks, looking in detail at what is specifically being proposed,” she added.?

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