by Alan Thornhill
Glenn Stevens says Australians, retiring now, face tougher decisions – and more risk – than those who left the work-force a decade ago.
The Reserve Bank Governor was addressing the Australian Financial Review’s Banking and Wealth Summit in Sydney.
He said:”The key question is: how will an adequate flow of income be generated for the retired community in the future, in a world in which long-term nominal returns on low-risk assets are so low?
“This is a global question.
“Just about everywhere in the world the price of buying a given annual flow of future income has gone up a lot.
“Those seeking to make that purchase now – that is those on the brink of leaving the workforce – are in a much worse position than those who made it a decade ago.
“They have to accept a lot more risk to generate the expected flow of future income they want,” Mr Stevens said.
“The problem must be acute in Europe, where sovereign yields in some countries are negative for significant durations,” he added.
“But it is also potentially a non-trivial issue in our own country,” Mr Stevens said.
by Alan Thornhill
After 24 years of continuous economic growth Australia’s living standards might be considered safe.
However a new report, by the union based Per-Capita think-tank, says that is simply not so.
The report called Paradise Lost? The race to maintain Australian living standards, warns that those standards are now under threat.
In its Executive Summary, David Hetherington says: “nominal wage growth is slowing quickly.
“Real wages have actually fallen.”
He notes that:”two decades of unprecedented prosperity added to the myth of Australian exceptionalism.
“Not only did the Australian economy grow incredibly strongly, it distributed the gains more fairly than almost any other developed economy.
“Lower- and middle-incomes rose year on year.
“The rising tide did lift all boats.”
But, Hetherington adds:”there’s no agreement that this was a good thing.”
He says many business leaders – like Maurice Newman and Gina Rinehart – have suggested that local wages are too high for Australian companies to remain competitive.
“When living standards were rising steadily, the debate was academic,”Mr Hetherington says.
“But now it matters.
“If we don’t get it right, the living standards of working Australians will fall.
“What’s more, Australia’s straitened budget position will deteriorate further as lower wages result in lower income tax receipts for government.”
He said the report explores what has driven rising wages growth, why the gains were more fairly distributed, why it’s come to a halt, and what we can do about it.
“It finds that wages growth was driven by a combination of impressive policy reform and good luck, in the shape of a commodities super-cycle,” he said.
“Our analysis shows that this combination put, on average, an extra $484 each year in the pocket of the median Australian worker from 2001 to 2014.
“These gains were possible because of strong improvements in labour productivity.”
But the author adds:”Newman and Rinehart were wrong.
“Productivity made these wages rises affordable.
They flowed to workers because, unlike in other rich countries, Australia’s collective bargaining system meant workers got a fairer slice of aggregate economic growth.”
The report says, though, that much has changed since then.
“Set against these income gains, we find that workers are commuting an extra 56 unpaid hours per year compared to 2002, and are bearing considerably more employment risk as a result of casualisation.
“Now, as the effects of economic reform and the commodities boom have passed, wage growth has slowed dramatically.
“Nominal wage growth has fallen or remained flat in each year since 2010, and in 2013, real wages actually contracted, taking $118 out of the pocket of the average worker.
“In addition Australia’s collective bargaining framework is weakening, as union coverage diminishes, shifting the split of national income towards profits and away from wages,” the report says.
“Wages’ share has fallen from 65.6 per centat the turn of the century to 59.7 per cent by 2012.
“As Ross Garnaut has warned, Australia must either reform once again or face a dramatic downwards adjustment in wage levels and living standards,” it added.
by Alan Thornhill
Labor would curb tax breaks on superannuation for wealthy Australians.
In a joint statement today, the Opposition Leader, Bill Shorten and Shadow Treasurer, Chris Bowen, said that if elected, Labor will make two changes to Australia’s retirement savings system to ensure it is fair and sustainable into the future.
• Ensure earnings of more than $75,000 during the retirement phase are taxed at a concessional rate of 15 per cent instead of being tax free; and
• Lower the threshold for the 15 per cent High Income Superannuation Charge from $300,000 to $250,000 to better align tax concessions.
In a joint statement, they said these changes would “improve the fairness and sustainability of our superannuation system.
The two leaders said that, in this way, Labor would saving $14.3 billion over 10 years.
“These changes are responsible, they are fair and they are final,” the two leaders said.
They said a fair and sustainable superannuation system would protect living standards in retirement and take pressure off the age pension.
“The recent Financial System Inquiry found that 10 per cent of Australians currently receive 38 per cent of all superannuation tax concessions,” they added.
“In particular, the tax-free status of all superannuation earnings, introduced by the Howard Government in 2006, disproportionately benefits high income earners and is unsustainable,” they added.
“Labor will bring fairness back into the system by ensuring earnings over $75,000 are taxed at a concessional rate of 15 per cent in the retirement phase, instead of being tax free,” they declared.
“This measure will affect approximately 60,000 account holders with superannuation balances in excess of $1.5 million and save around $9.2 billion over 10 years,” they said.
It would not affect pensioners or part pensioners.
“Labor will also remove the 10 per cent tax offset for defined benefit income above $75,000.”
That would affect an estimated about 9,500 account holders.
“In addition, Labor will lower the threshold on the High Income Superannuation Charge from $300,000 to $250,000 a year,” they said.
“This measure will better align tax concessions received by those on very high incomes with those on average incomes and will save an estimated $5.1 billion over 10 years,” they added.
“Instead of a 30 per cent tax concession, those earning more than $250,000 a year will receive a 15 per cent tax concession on contributions,” the two leaders said.
“We believe these changes are all that are needed to ensure sustainability at the very top end of our superannuation system,” they added.
“If we are elected these are the final and the only changes Labor will make to the tax treatment of superannuation,” they declared.
The Treasurer, Joe Hockey, was asked later for his response to Labor’s plan.
A reporter asked Mr Hockey: ” what’s your reaction to Labor’s proposed changes to superannuation and specifically, would you support a 15 per cent tax on superannuation earnings above $75,000?”
Mr Hockey replied: “Well, Labor’s default position is always to increase taxes.
“The first major policy announcement from Bill Shorten is about increasing taxes.
“We’re always sceptical of announcements from Labor.
“But I’ll have a look at the details.
” Frankly, last time they tried this they made a mess of it,” Mr Hockey said.
by Alan Thornhill
The Federal government says it is working to put the scandals that have arisen over poor performances by financial advisers firmly in the past.
In a statement today, the Assistant Treasurer, Josh Frydenberg, said the financial services sector had never been under closer scrutiny than it is now.
“We are working on raising professional standards for financial advisers in response to the bipartisan Parliamentary Joint Committee inquiry,” Mr Frydenberg said.
He said that over the last 12 months alone “we have had five inquiries into the sector.”
These had included the Financial System inquiry and the Senate inquiry into the performance of ASIC, and the Scrutiny of Financial Advice inquiry by the Senate Economic Committee.
Mr Frydenberg said ASIC has been conducting its specialist Wealth Management Project since October last year, focusing investigations on the conduct of the ‘Big 4’ banks, plus Macquarie and AMP.
The industry watchdog, the Australian Securities and Investments Commission, ASIC, has itself been criticised for not either acting soon enough, or cracking down hard enough, on abuses in this area.
Mr Frydenberg also said: “We are working on raising professional standards for financial advisers in response to the bipartisan Parliamentary Joint Committee inquiry.
“A public Register of all financial advisers was launched on 31 March.
“Substantial changes to the regulatory regime for financial advisers (known as FOFA) are due to come into full force on 1 July,” he added.
Mr Frydenberg also said: “The Coalition has always supported the core elements of FOFA.
These had included “Imposing a statutory best interests duty on financial advisers, banning conflicted remuneration, and enhancing disclosure,” he added.
Mr Frydenberg said major institutions had already announced that they are taking action to improve their adviser standards.
The Commonwealth Bank, for example, had decided that:-
* All financial planners recruited from July 2014 must hold a university degree in commerce, finance or business. and
* All existing financial planners will be required to hold either an Advanced Diploma in Financial Planning or a relevant university degree by 2017.
by Alan Thornhill
Bill Shorten has now sketched the policies he will take to the next Federal election.
Addressing Labor’s National Policy Forum in Sydney today, Mr Shorten set out several goals, saying:-
“We’ve put forward a costed and tested plan to close tax loopholes and crack down on profit-shifting to make sure that multinational companies pay their fair share.”
He said this would ensure:”…a reasonable, equitable revenue measure, raising more than $7 billion over the next decade.
“We’ve called for a national crisis summit on family violence, and promised to convene one within our first 100 days, as part of our determination to ensure every Australian woman is safe in her home, not at the mercy of a postcode lottery of uncertain support,” Mr Shorten added.
And he said:” we’ve offered a constructive proposal for building the next generation of submarines here in Australia – an investment in our national security and our high-skill manufacturing sector.”
The Labor leader said, too, that:” we’ve offered a way forward for our renewable energy sector –providing certainty for investment and jobs in an industry where we should be using our natural and competitive advantages.
“We’ve worked co-operatively on national security, striking the right balance between the liberty of the individual and the safety of our people.
“We’ve urged faster progress on Constitutional Recognition for the first Australians, including a national gathering of Indigenous leaders to build consensus for change.
“And we have committed to a new community-centred focus on reducing Aboriginal incarceration, including a new justice target in Closing the Gap.”
Mr Shorten said his party had now reached the end of the consultation phase, on its policies.
But it would be calling on its members to think deeply, in the months ahead, on the development of its policies.
by Alan Thornhill
Young Australians – particularly women – are among the most anxious people in the nation.
This is revealed in the results of a new “well-being” survey, conducted by the National Australia Bank.
The survey, for the first three months of this year, showed that the Bank’s Well-being Index remained unchanged at 63 points in that time.
But there were sharp differences in the well-being levels of different groups.
It rated Tasmanians, widows, the over 50s, high income earners, professionals and those living in rural areas among the top people in the nation for well-being.
“In contrast, well-being declined heavily in Queensland and for young Australians – particularly women – who continue to report the lowest well-being of any demographic,” the bank said.
The bank’s Chief Economist, Alan Oster, said that: “While perceptions of happiness, life worth and life satisfaction were all rated lower, overall well-being was supported by a reduction in personal anxiety.
” Despite this promising improvement however anxiety is still the biggest detractor of personal well-being for a significant proportion of Australians, with more than 1 in 3 Australians still rating their anxiety “very high”.
The survey also found:-
· Well-being improved solidly in Tasmania, but fell sharply in Queensland, which is now lowest of all states and – to a lesser extent – in WA.
· Well-being also fell heavily among younger Australians, especially young women due to much lower levels of life worth and happiness.
· Young women continue to report the lowest levels of overall well-being.
· Well-being improved in rural towns and in the bush but fell elsewhere.
· Widows report a big increase in well-being and rate highest in all demographic categories – by some margin.
by Alan Thornhill
Poverty levels are rising in Australia, according to a new report.
Cassandra Goldie, Chief Executive Officer of the peak welfare group, the Australian Council of Social Service, says that’s unacceptable in a wealthy country like ours, after 20 years of economic growth.
The report, called Poverty in Australia 2014, was prepared by ACOSS.
It found that 2.55 million Australians – including 603,000 children – now live in poverty.
The report was the third in a series on poverty, that ACOSS began producing in 2007.
It uses two standards to identify and measure poverty.
The more severe concludes that people are in poverty if they are living on less than half the median income in Australia.
The median level, for the broad community, is the mid-point in Australian incomes.
That is the point at which half of the community gets more and half gets less.
This definition puts the poverty line for a single adult at $400 per week.
For a couple with 2 children it was $841 per week.
The less severe standard was set at 60 per cent of median incomes.
The latest ACOSS report estimates that the risk of poverty increased from 13 per cent in 2010 to 13.9 per cent in 2012.
It notes that we don’t do so well on international comparisons, either.
The OECD, which is often called “the rich nations’ club, found that poverty levels in Australia are about one third higher than the average for all of its members.
So who, exactly, are we talking about?
The ACOSS report produces no surprises, there.
It tells the story of poverty in Australia in 2011-12.
It noted that while median incomes continued to increase, a substantial proportion of the population was locked out of paid employment.
Youth unemployment was particularly high.
And it said that it remained difficult for people who were more disadvantaged in the labour market, to gain a foothold in the employment market.
These included Aboriginal and Torres Strait Islanders, people with a disability and the long term unemployed.
ACOSS said that – importantly – its report includes stories and written text from those who experience poverty as part of their day to day lives.
That’s because “ultimately poverty is about the real experiences of those who are in it,” ACOSS added.
It concluded “In 2012, one in seven people, including one in six children, lived below the most austere poverty line widely used in international research.”
That is 50 per cent of median income.
by Alan Thornhill
Anxiety levels among Australian shoppers have risen again, causing consumers to cut their purchases of many “non-essentials.”
This is reflected in the latest issue of the National Australia Bank’s quarterly Consumer Anxiety Index.
Its findings, for the first three months of this year, show that worries about government policy are now the prime cause of anxiety among shoppers.
This follows a short-lived easing in anxiety levels in the final three months of last year.
The bank said worries over government policies have now overtaken the cost of living as the single biggest cause of consumer stress.
But it said concerns had risen in all categories except health.
The NAB’s Chief Economist Alan Oster said: “Government policy is now the single biggest cause of anxiety for consumers, just ahead of cost of living, while job security continues to cause the least stress.”
The NAB’s study also found:-
* Anxiety rose and was most pronounced among self employed, lower income earners and consumers living in Victoria and Queensland.
* The anxiety gap between young women and men closes.
* Professional workers reported a significant fall in anxiety.
* Consumers living in Tasmania, NSW, the ACT, rural towns and the bush and part time workers were the only other groups to report lower anxiety.
The bank said that with overall anxiety increasing, consumers are allocating a bigger share of the household budget to paying off debt, utilities and medical bills, while cutting back on many “non-essentials.”
These include entertainment and many household items.
“In terms of their overall household financial position, however, not having enough to retire, being able to provide for the family’s future and meet medical costs were causing the greatest concern” Mr Oster said.
Weathercoast by Alan Thornhill
A novel on the murder of seven young Anglican Christian Brothers in the Solomon Islands.
Available now on the iTunes store.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
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