The G8 gamechanger

Investors will start to see small,  but significant, changes in world markets this week.

Austerity is now out of style.

Expansionary policies are on the way back.

The US President,  Barack Obama, saw that the austere policies, championed by the German Chancellor, Angela Merkel, were shrinking European economies.

And his view prevailed, at a G8 meeting in Camp David over the weekend.

The Australian Treasurer, Wayne Swan, is taking a sober view of these events.

He warns that “bouts of volatility” like those seen over recent weeks “are likely to be with us for some time to come.”

Predictably, Mr Swan says this is due to “the profound challenges facing Greece and many other parts of Europe.”

That’s hardly encouraging for Australian investors, who lost billions last week, as share prices plummeted.

Acknowledging that pain, though, should not obscure the fact that a corner has been turned.

The new policies, though, won’t appear overnight.

The US economist, Paul Krugman, last week gave a glimpse of what will be required, to set things right – and keep Greece in the EU – as even Dr Merkel now says is desirable.

It’s a big to-do list.

Krrugman says the European Central Bank must “drop its obsession with price stability.”

That would involve several years” acceptance of 3-4 per cent inflation in most of Europe, and more than that in Germany.

This is called reflation.

It’s a shocking idea.

It won’t be sold, easily.

But the world saw, back in the 1930s, what kind of risks come with allowing unemployment levels of 50 per cent  – and more – to persist among the young.

Mr Swan says Europe’s worries were taken into account, in the budget he produced earlier this month.

“The Budget takes a conservative view of Europe’s economic outlook, with the euro area forecast to contract by ¾ of a per cent in 2012,” he said.

Mr Swan also said, once again, that the Australian economy is still among the strongest in the world .

But he, too, would dearly love to see Europe’s problems on the way to resolution, sooner rather than later.

Your super? Some advice and a checklist

Some questions become urgent, as a new financial year approaches.

Are you making the best of your super, for example?

Fortunately, the superannuation industry, itself, has just produced some good advice and a checklist.

It is the work of the Association of Superannuation Funds of Australia.

We are reproducing it  almost in full, below, because it might well be useful to you.

ASFA says: ”….taxpayers need to act now to make the most of initiatives to boost their retirement savings,.

“…there were a number of Government incentives Australians could take advantage of before June 30 to increase their superannuation savings.”

ASFA says these include the Government co-contribution.

“The Government co-contribution scheme is one of the simplest ways for low and middle-income earners to build their super savings to ensure they can afford the lifestyle they desire in retirement,” the association’s chief executive Pauline Vamos, said.

“To get the co-contribution, most employed people will not have to do anything other than make a personal contribution to their superannuation account and lodge their tax return as they normally would.

‘The initiative helps eligible taxpayers boost their retirement savings by the Government matching personal contributions up to $1,000.

Another retirement savings maximiser available to low-income earners is the Low Income Super Contribution (LISC); a super tax refund capped at $500 confirmed in the Federal Budget earlier this month.

“From 1 July 2012, if you earn less than $37,000 a year and your employer makes before-tax super contributions on your behalf, then you can expect a payment made directly to your superannuation account by the Federal Government,” Ms Vamos said.

Incentives are not only offered for those on lower incomes, there are a range of superannuation tax breaks and contribution arrangements to help all Australians save more for their retirement. See ASFA’s end of financial year super checklist for information on how people can get the most out of these incentives.

The checklist

• On less than $61,920 a year?
If you’re a low-income earner, contribute some of your after-tax dollars to your superannuation account to receive a payment from the Government under the co-contribution scheme. For the 2011-12 financial year, after-tax super contributions will be matched at $1 for every $1 contributed up to a maximum co-contribution of $1,000 for those on incomes up to $31,920. The $1,000 limit is reduced by 3.3 cents for each dollar of income over $31,920. The maximum co-contribution phases out at an upper threshold of $61,920.

• Does your spouse earn less than $13,800 a year?
It might be worth considering making an after-tax super contribution up to $3,000 on their behalf so you can receive a tax offset of up to $540 and increase your spouse’s retirement savings. This tax offset does not appear to be as well used as it should be, with only around 16,000 people making a claim in 2009-10.

You can find out more about the superannuation spouse contribution tax offset on the Australian Taxation Office (ATO) website.

• Have you been making salary sacrifice contributions?
It’s important to remember that salary sacrificed contributions to your super fund form part of your concessional contributions. Concessional contributions are included in the assessable income of your fund and are taxed at 15 per cent. However, there is a cap on the amount of concessional contributions a person can make each income year. If you have contributions to more than one super fund, all contributions will be added together.

Keep in mind that apart from any salary sacrificed contributions, concessional contributions also include:

• your employer’s contributions under the Super Guarantee; and
• any additional contributions your employer makes on your behalf.

If your concessional contributions exceed $25,000 (and you’re aged under 50) you will be subject to additional tax on your contributions. Over 50s also need to be cautious. For the 2011-12 financial year over 50s had a concessional contributions cap of $50,000. However the Federal Budget (8 May) has reduced this in the 2012-13 financial year to $25,000.

It is important that you have a clear idea just how much contributions have been made on your behalf if you are getting close to exceeding your contribution cap. It is also a good idea to make your salary sacrifice contributions and any other contributions at least several weeks before the end of the financial year. Superannuation funds often get a rush of contributions at the last minute and at least some of these may end up being credited to your account in the next financial year.

The ATO website has more information on the contribution caps.

• Likely to receive a bonus from your employer?
You may want to consider salary sacrificing the amount into super rather than receiving it as cash. You can potentially reduce tax on your bonus by up to 31.5 per cent and/or make a larger after-tax investment. If you’d like to take this option, you should speak to your employer and enter into an agreement before the amount becomes payable to ensure you comply with the taxation requirements.

• Have you lost contact with one or more of your super accounts?
There were 2.3 million accounts in unclaimed super held by the ATO in 2010-11, with a closing value of $730 million. If you think one of those accounts might be yours, contact the ATO by calling 132865 (you will need to have your tax file number handy) or use its online search function, SuperSeeker, for any of your accounts that might be listed as lost or unclaimed by the ATO.

Related stories:

1. Super tax breaks “fair:” report
2. More super advice

Australian wages finally outstrip prices

Wages have been rising much faster than prices over the past year.

That is clearly documented in figures just released by the Australian Bureau of Statistics.

These showed that average weekly earnings rose by 4.4 per cent in the 12 months to the end of February, on seasonally adjusted figures.

That includes a rise of 1.1 per cent between November and February.

Price figures are not directly comparable, because they are taken over different periods.

But that is not too important.

The Bureau’s latest figures show Australian prices rising by 1.6 per cent in the year to the end of March.

So wages rose almost 3 times as fast as prices, over the past year or so.

That looks like a big development.

It is.

Especially for families used to wages chasing prices.

So what, really, is going on?

Who is winning?

Who is losing?

To answer those questions, we need to go back to Economics I.

That tells us prices are set by a mix of supply and demand.

Australia’s experience, over recent decades, has mostly  been one of rapidly growing population.

That, in itself, has produced high demand.

So Australians became used to seeing the price of homes, food, cars – and much else beside – rising constantly.

Since the crash of 2008, though, we have become much more cautious, in our spending.

That is largely due to perceptions of job insecurity, in the rumblings that followed the crash.

Europe’s debt issues have been particularly worrying.

So, mostly, we, are saving more and spending less.

Australia has sunk into a multi-speed economy.

Demand for our iron ore and coal is still high, although even in these areas, prices  have passed recent peaks.

The nation’s shopkeepers – and builders – have had some very tough times.

That has led to widespread price cutting.

Signs offering “20 to 50 per cent off” are everywhere in our stores.

Home building, particularly, has slumped.

Only multi-storey construction projects are showing any signs of life, in most Australian capitals.

Demand for workers, though, has remained relatively strong.

At 4.9 per cent, Australia’s current inflation rate is just a fraction of those seen in many other advanced western countries.

The mining boom has, effectively, put a floor under the nation’s job market, so far.

Widespread perceptions of job insecurity, though, are not entirely misplaced.

The Federal public service, for example, once seen as a lifetime employer, is now planning to cut more than 4,000 jobs.

The Federal government’s determination to get its budget back into surplus hastened that process.

So while most Australians like to see wages outpacing prices, many are not advantaged by the kind of economy, in which that can happen.

Times are still tough, for many.

That must be remembered.

Related stories:

1. The forgotten people, who struggle on short wages
2. Profits – and wages – rise

Watchdogs rapped over Trio collapse

A parliamentary committee has criticised official watchdogs over the collapse of Trio Capital, saying that they had been too slow to act.

The collapse is being described as the biggest superannuation fraud Australia has seen.

Trio’s clients lost an estimated $176 million as a result of the collapse.

More than 6,000 Australians lost money in the collapse.

One of the company’s former directors, Shaun Richards, has been jailed.

But neither the Federal Police nor the Australian Crime Commission are currently investigating the collapse.

The  Parliamentary Joint Committee on Corporations and Financial Services  said the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) must take some of the blame for the slow response.

It has recommended the AFP and the regulators investigate the fraud as a matter of high priority.

It also says the Government should assist some of the investors.

Related stories:

1. Fraud costing almost $500 million
2. Wall Street snaps back as world trade talks collapse

Confidence still “weak” despite good figures

Consumer confidence in Australia is still weak despite a big rate cut, higher family payments lower unemployment, moderate inflation  and higher wages.

Westpac’s Chief Economist, Bill Evans, described a bare 0.8 per cent rise in the Westpac Melbourne Institute index of consumer confidence as “a disappointing result” in these circumstances.

“It follows a surprise 0.5 per cent cut in the official cash rate by the Reserve Bank and extensive media coverage that the unemployment rate had fallen from 5.2 to 4.9 per cent, Mr Evans said.

However he admitted that “other factors appear to have offset these positives.”

But another survey, published by the Roy Morgan produced a more positive result.

It showed Consumer Confidence had jumped 5.4 points to  its highest level for three months

The organisation said the biggest boost to confidence, reflected in its survey, had come from more people who now expect better times ahead.

Mr Evans noted  that home loan rates had fallen by an average of just 0.37 per cent and there had been “increasingly disturbing” news from Europe.

The Bureau of Statistics reported that home lending dropped by 0.3 per cent in March from the February level.

It also reported that hourly wage rates, measured on the Bureau’s wage price index, rose 0.9 per cent in the March quarter and 3.6 per cent in the 12 months to the end of March.

Prices, measured on the Consumer Price Index, rose by just 0.1 per cent in the same quarter and 1.6 per cent over the year.

The Bureau also reported today that, on original figures, the value of Australia’s imports fell to $18.8 billion in April from $20.8 billion in March.

However, worries over Europe increased overnight, Australian time, when Greek political leaders again failed to reach agreement on a new government for the country.

Fresh elections are now likely in Greece, probably next month.

And Greece might well be forced off the Euro.

Related stories:

1. Inflation:our last good figures?
2. Confidence falls, despite rate cuts

Increased family payments to start now

Almost 1.7  low and middle income families will start receiving increased payments from today, to offset  the new carbon tax which starts on July 1.

Families Minister Jenny Macklin said about $325 million in household assistance will be going out to them.

Those on Family Tax Benefit Part A will start receiving Clean Energy Advance payments of up to $110 for each child.

Those on Family Tax Benefit Part B would get up to $69, Ms Macklin said.

“This payment will be paid straight into families’ bank accounts over the coming few weeks,” she added.

Pensioners, students and other eligible payment recipients would also get increases in their support payments before the end of June.

“And in July Australian workers will benefit from new tax cuts,” Ms Macklin said.

“Labor understands the pressures on working families – that’s why we’ve cut taxes, increased family payments and child care assistance and delivered Paid Parental Leave,” she added.

“And from next year we’ll be delivering even more to help families balance their budgets.

That would include:-

• A new Schoolkids Bonus for more than 1.3 million families – $410 a year for each child in primary school and $820 a year for each child in secondary school to help with education costs and

• A boost to Family Tax Benefit Part A for all 1.5 million eligible families – for families on the lowest incomes with two or more children an increase of $600 a year, and $300 a year for one child families.

Families can find out more byvisiting  the australia.gov.au/householdassistance  website or calling 13 24 68, Ms Macklin said.

Related stories:

1. Family Assistance boost
2. Family tax “win”

Greece headed for fresh elections

The leader of the Socialist Pasok party, Evangelos Venizelos says Greece is likely to go to the polls again after days of talks failed to produce agreement on a new government.

The BBC says a final round of those talks, overnight Australian time, broke up without a deal.

In elections on 6 May, a majority of Greek voters backed parties opposed to austerity plans demanded by the EU and IMF in return for two bailouts.

The Greek president will appoint a caretaker government on Wednesday.

President Karolos Papoulias will meet all political leaders on Wednesday (Greek time) to appoint an interim government.

Fresh elections could be held on 10 or 17 June.

“Unfortunately, the country is heading again toward elections,” Mr Venizelos told reporters after the talks on Tuesday.

The euro fell sharply on the news, tumbling from $1.2842 to $1.2771 shortly after 13:15 GMT – its lowest value since 18 January.

Greek shares also fell before recovering slightly.

The leader of the right-wing Independent Greeks Party, Panos Kammenos, said: “The pro-bailout parties would prefer a government which will further torment the Greek nation, rather than finding a solution.

But he added: “They have offered a proposal that is too rigid for me to accept”.

Related stories:

1. Greece on the edge
2. Fresh doubts spook market

Job security worries curb spending

Australians, worried about job security, have curbed their spending.

They have also become particularly apprehensive about signing up to buy a new home.

The Reserve Bank noted both trends, in the minutes of its Board meeting, held earlier this month.

Accompanying comments, that the bank made, strongly suggest that the 50 basis point rate cut it announced then might not be the last, even though Australia’s unemployment has now dropped to 4.9 per cent.

In the minutes, which have just been published  the bank said consumer spending had eased in the final three months of last year.

“…and recent indicators suggested that consumption growth was a little below trend in early 2012, with consumers evidently concerned about their personal finances and job security,” it added.

It noted, too, that home prices had fallen, relative to incomes.

However, the bank warned that that there is still little prospect of a recovery in the nation’s housing construction industry.

“Information from liaison suggested that households were unwilling to commit to contracts for new dwellings because of concerns about job security and declining dwelling prices,” it said.

“Information from liaison suggested that households were unwilling to commit to contracts for new dwellings because of concerns about job security and declining dwelling prices,” the bank added.

It said Australia’s domestic economy had been growing modestly in early 2012.

However  “…the pace of activity had continued to vary significantly across industries.

“ The mining sector remained exceptionally strong, with work progressing on the very large pipeline of committed projects and capital imports rising strongly.

“Mining production had, nevertheless, been disrupted by adverse weather, industrial action and a shortage of explosives.

“Conditions faced by many firms not exposed to the mining sector remained weak, with the high level of the exchange rate continuing to weigh on import-competing and exporting firms.

“Conditions remained particularly difficult in parts of the building, construction and manufacturing industries, as well as for many retailers. Survey measures also pointed to a softening in conditions in the business services sector, consistent with weakness in property markets and the non-mining sectors more generally,” the bank said.

Related stories:

1. Job worries rise
2. The security package blitz