RBA Cuts Rates August 6, 2013

For the second time this year the Reserve Bank of Australia has today cut official interest rates by 25 basis points to a 1959 low of 2.5%.  Not since 1990 have interest rates been cut during an election campaign and the political grenades have already been launched sparking debate about the relative strength of the Australian economy.

Here’s what the Governor had to say;

Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to lower the cash rate  by 25 basis points to 2.5 per cent, effective 7 August 2013.

Recent information is consistent with global growth running a  bit below average this year, with reasonable prospects of a pick-up next year.  Commodity prices have declined but, overall, remain at high levels by  historical standards. Inflation has moderated over recent months in a number of  countries.

Globally, financial conditions remain very  accommodative, though the recent reassessment by markets of the outlook for US monetary  policy has seen a noticeable rise in  sovereign bond yields, from exceptionally low levels. Volatility in financial  markets has increased and has affected a number of emerging market economies in  particular.

In Australia, the economy has been growing a  bit below trend over the past year. This is expected to continue in the near  term as the economy adjusts to lower levels of mining investment. The  unemployment rate has edged higher. Recent data confirm that inflation has been  consistent with the medium-term target. With growth in labour costs moderating,  this is expected to remain the case over the next one to two years, even with the  effects of the recent depreciation of the exchange rate.

The easing in monetary policy over the past  18 months has supported interest-sensitive spending and asset values, and  further effects can be expected over time. The pace of borrowing has remained  relatively subdued, though recently there are signs of increased demand for  finance by households.

The Australian dollar has depreciated by  around 15 per cent since early April, although it remains at a high level. It  is possible that the exchange rate will depreciate further over time, which  would help to foster a rebalancing of growth in the economy.

The Board has previously noted that the  inflation outlook could provide some scope to ease policy further, should that be  required to support demand. At today’s meeting, and taking account of recent  information on prices and activity, the Board judged that a further decline in  the cash rate was appropriate. The Board will continue to assess the outlook  and adjust policy as needed to foster sustainable growth in demand and  inflation outcomes consistent with the inflation target over time.

2013 Federal Budget Summary May 15, 2013

2013 FEDERAL BUDGET SUMMARY

The 2013 Federal Budget was the 6th Budget delivered by the current Treasurer and incumbent Government. Delivered exactly 4 months out from the next Federal election, it may prove to be their “swan song”.
The announcements made on 14 May 2013 were largely non-surprising with virtually all major announcements (from a financial planning perspective) having been rumoured and confirmed in the days and weeks leading up to this night.
The key Budget measures and announcements are summarised below:

TAXATION

Deferral of changes to personal income tax regime
Deferred from 1 July 2015 until certain requirements met
Announced in the week before the 2013 Budget, the changes to personal marginal tax rates and thresholds has been deferred from their intended start date of 1 July 2015. Funding for these changes was linked to the price for carbon and the revenue expected to be generated from the Carbon Pricing Scheme. As the projected price of carbon is lower than initially expected, the changes in personal tax rates and thresholds will not commence until the price of carbon in a future Budget is estimated to be above $25.40. Based on current projections, this will not be until at least 1 July 2018 and may be later.
The current and future thresholds are shown in the following table:

Whilst not specifically stated, it is expected the previously announced and legislated changes to the low income tax offset will also be deferred until the same thresholds are reached.

Increase in the Medicare levy low income thresholds
Effective date: 1 July 2012

The Government has announced new Medicare levy thresholds that are applicable for the current financial year (ending 30 June 2013). These are $20,542 for individuals (previously $19,404) and $33,693 for families (previously $32,743). The increase on these thresholds for each dependent child or student will be $3,094.
The low income threshold for single pensioners below age pension age has been increased to $32,279 for the year ending 30 June 2013. This will ensure such pensioners do not pay the Medicare levy when they do not have an income tax liability.

Increase in the Medicare levy for DisabilityCare Australia
Effective date: 1 July 2014
As announced in the lead up to the Federal Budget, the Government will increase the rate of the Medicare levy by 0.5% from 1.5% of taxable income to 2.0% of taxable income with effect from 1 July 2014. This increase will be used to fund DisabilityCare Australia (previously known as the national disability insurance scheme or NDIS).
This increased levy will apply to all taxpayers who are subject to the Medicare levy based on their taxable income, and will result in a reduction of after tax income. The following table shows the additional amount of overall tax that will be payable on certain levels of taxable income:

Net Medical Expenses Tax Offset
Effective date: 1 July 2013
After making significant reforms to the Net Medical Expense Tax Offset (NMETO) in the 2012 Budget (including the proposed introduction of means testing and a reduction in the amount claimable), the Government has now decided that from 1 July 2013 the NMETO will be phased out completely.
Whilst the NMETO will continue to be available until 30 June 2019 for out of pocket medical expenses related to disability aids, attendant care or aged care expenses, it will only be available for the year commencing 1 July 2013 if a claim is made for the current year (i.e. the year ended 30 June 2013). If a claim is made in the year commencing 1 July 2013, then it will also be available in the year commencing 1 July 2014, but not thereafter.
Importantly, any claims to be made in the years commencing 1 July 2012, 2013 or 2014 will still be subject to means testing thresholds introduced in the 2012 Budget.

Limitations on deductions for work-related self-education expenses
Effective date: 1 July 2014
Announced on 13 April 2013, an annual cap on the deduction for work-related self education expenses will apply from 1 July 2014. Deductions will be limited to $2,000 per annum.
This change applies to individuals seeking to claim such deductions, and may have a significant impact on self employed people running their own businesses. It may lead to a trend to corporatise such businesses so as to not limit the deduction. This is because where the expense is paid by an employer on behalf of an employee, the benefit is exempt from fringe benefits tax (FBT) and the employer is entitled to a full deduction.
However, the Government has indicated that where an employee now chooses to salary sacrifice towards these forms of education expenses, the FBT exemption will no longer apply.

Changes for non-resident taxpayers on sale of Australian property
Effective date: 1 July 2016
With effect from 1 July 2016, where a non-resident sells a property located within Australia, a new (non-final) withholding tax regime will apply. This measure is designed to ensure that the appropriate amount of tax is recovered by the Australian Government on taxable capital gains that arise when such properties are sold.
These measures will apply to all Australian taxable property, other than:
• where the property is owned and sold by an Australian resident (ie it applies to non-resident taxpayers only)
• residential properties valued at less than $2.5 million.
Under this measure, the purchaser of the property will need to withhold 10% of the purchase price and forward it to the ATO as a form of withholding tax. As a result, the vendor will only receive 90% of the sale proceeds up-front. They will need to lodge a tax return if they want to receive any of the remaining 10%.

Targeting dividend washing arrangements
Effective date: 1 July 2013
The Government intends to legislate to close an existing loophole in the dividend imputation rules that may currently be targeted by “sophisticated” investors.
Whilst the Government has indicated it will consult on the development of the relevant legislation, the intent is to prevent a “dividend washing” arrangement whereby an investor sells a parcel of shares ex-dividend and then immediately purchasing an identical parcel of shares cum-dividend (i.e. still carrying the right to a dividend). This practice currently enables some investors to qualify for a doubling of their franking credit entitlements. Under the proposed measure, only one set of franking credit entitlements may arise.
Whilst intended to only apply to “sophisticated” investors, the actual qualification criteria indicated by the Government is that it will apply to investors with franking credit entitlements in excess of $5,000 on a single stock parcel. As a result, its application may be wider than first anticipated.

Removal of discount for early HELP payments
Effective date: 1 July 2014
Currently discounts are available for up-front and voluntary payments made under the Higher Education Loan Program. These discounts currently are:
• 10% for students electing to pay their student contribution up-front; and
• 5% on voluntary payments to the ATO of $500 or more.
From 1 January 2014, these discount arrangements will be removed.

SUPERANNUATION
No extension of draw-down relief for income streams
Effective date: 1 July 2013
Conspicuous by its absence, the Government has not announced any further extension of the minimum draw down relief for superannuation income streams. In recognition of the constrained markets at the time, over the last few years the Government has granted relief on minimum pension payment drawdowns, with a 25% reduction applying to the current financial year.

In the absence of any subsequent announcements, minimum pension drawdowns will return to their standard level from 1 July 2013 as shown in the following table:

Higher tax on concessional contributions for high income earners
Effective date: 1 July 2012Previously announced in the 2012 Budget and recent the subject of draft legislation released for consultation, individuals with “total income” in excess of $300,000 will be subject to an additional 15% tax on their concessional contributions into superannuation up to their relevant concessional contribution cap limit.
In this year’s Budget, the Government has announced some minor technical amendments to the measure (and addressed in the draft legislation). These minor amendments include:
• Exempting certain employer contributions for Federal Judges sitting on or after 1 July 2012 and certain employer contributions made to constitutionally protected funds.
• Amending the definition of “total income” to that used for calculating liability for the Medicare levy surcharge.
The draft legislation released for comment has also confirmed that this additional tax will be collected via a mechanism similar to that currently applying to excess contributions tax.
It will also be important to be aware that the potential for this additional tax will also apply to the higher concessional cap of $35,000 proposed for those aged 60 and above from 1 July 2013 and those aged 50 and above from 1 July 2014.

Changes to tax free treatment of superannuation in pension phase
Effective date: 1 July 2014
As previously announced on 5 April 2013, the existing tax free treatment applying to assets supporting a superannuation income stream will be limited to the first $100,000 of earnings on those assets. Any earnings above that limit will be subject to the standard 15% tax rate applying to complying superannuation funds. The $100,000 threshold will be indexed to CPI and increase in $10,000 increments.
Transitional rules will apply in respect of capital gains that accrue on assets acquired before the commencement of this measure (i.e. pre 1 July 2014). These rules are as follows:
• For assets acquired prior to these announcements (i.e. pre 5 April 2013), any capital gains realised (as a result of the assets being sold by the superannuation fund) before 1 July 2024 will remain tax free and will not be included in the calculation of the $100,000 threshold. Where the asset is sold after that time, only the gain that accrues from 1 July 2024 is included in the calculation.
• For assets acquired between 5 April 2013 and 30 June 2014, individuals will have the choice to apply the reform to the entire gain on disposal, or only that part of the gain that accrues from 1 July 2014.
• For assets acquired on or after 1 July 2014, the entire capital gain will be included in the calculation.
Whilst not providing details on how this tax will be collected when it applies, the Budget announcements have confirmed that the $100,000 threshold applies across all pension accounts held by an individual – not per pension account.

Changes to concessional contribution caps
Effective date: 1 July 2013
As announced on 5 April 2013, from 1 July 2013 a higher concessional contribution cap of $35,000 will apply to people aged 60 and over. This higher cap will then become available to people aged 50 and over from 1 July 2014.

This cap will not be indexed in future years, and it is projected that the existing $25,000 concessional cap will reach $35,000 in July 2018. At that time, the same cap will again apply to everyone regardless of age.
Whilst this higher cap is less than that previously due to come into effect from 1 July 2014 (being $50,000), the requirement to have less than $500,000 in total superannuation savings has been removed.
Draft legislation for this measure has been released, which contains an important technical amendment, with qualification being based on the individual’s age at the 30 June preceding the start of the relevant financial year. This ensures that in a year where a member dies before reaching the qualification age in that year, they will be eligible for the higher cap.

Changes to excess concessional contributions
Applies to excess concessional contributions made from 1 July 2013From 1 July 2013, individuals will have the ability to withdraw any excess concessional contributions and have them taxed personally at their marginal tax rate. An interest charge would also apply to the excess amount, reflecting the delay in the collection of the relevant tax by the Australian Taxation Office (ATO).
This will replace the current limited withdrawal option which is only available where clients exceed their cap by less than $10,000 and is only available once. The new measure can be used each time a client exceeds their concessional contributions cap.

Extending concessional tax treatment to deferred lifetime annuities
Effective date: 1 July 2014From 1 July 2014, the Government will extend the concessional tax treatment applying to superannuation to deferred lifetime annuities. These investments currently attract the same tax free treatment as superannuation income streams once payments commence, but are still subject to 15% tax on earnings during the deferral period.
Under the announcement, the tax free status will also apply during the deferral period.
This measure was previously announced with other superannuation reforms on 5 April 2013.

Additional reforms for lost super
Effective date: 31 December 2015
In the 2012/13 Mid Year Economic & Fiscal Outlook (released in October 2012), the Government announced that the account balance threshold for inactive accounts and accounts of uncontactable (i.e. lost) members required to be transferred to the ATO would increase to $2,000 and interest would be paid on these accounts at a rate equivalent to the CPI inflation.
The Government has announced it will now increase the threshold to $2,500 from 31 December 2015 and then to $3,000 from 31 December 2016
This change will increase the number of accounts transferred to the ATO, but may assist in consolidating more lost accounts and aiding clients to find their lost super.

Low income superannuation contributions
Effective date: 1 July 2012
The low income super contribution was introduced with effect from 1 July 2012 and essentially provides a refund of the 15% contributions tax for those on incomes of up to $37,000.
Under the existing rules, if the amount of low income super contribution a person was eligible for was less than $20, no payment would be made.
This technical issue has been amended, so that anyone on an income up to $37,000 and otherwise eligible will have the payment made to their super fund. Where the amount of the payment is calculated as less than $10, the entitlement will be rounded up to $10.

SOCIAL SECURITY & WELFARE PAYMENTS

Deeming superannuation account based income streams
Effective for new income streams commencing from 1 January 2015
For Centrelink income test purposes, superannuation income streams are concessionally treated as a result of the calculation of a “deductible amount” that reduces the income amount assessed for benefit calculation purposes.
This concession will continue indefinitely for existing income streams. However, new superannuation account-based income streams starting on or after 1 January 2015 will be assessed under deeming arrangements applying to other financial investments.
This change is in line with a recommendation from the previous Australia’s Future Tax System Review (Henry review), and was previously announced on 5 April 2013.

Continued pausing of indexation of Child Care Rebate
Effective date: 1 July 2013For a further three years, the Government will freeze any indexation of the Child Care Rebate. The maximum level of rebate that can be paid in a year will remain at $7,500 until 30 June 2017. This won’t reduce the level of payment currently available, nor change the method of calculation, but correspondingly won’t lead to an increase in entitlements.

Increased level of income before allowance payments reduced
Effective date: 20 March 2014Currently, allowance recipients can earn $62 per fortnight before there is reduction in the amount of the allowance payment they can receive. For the first time in over ten years, this threshold will be lifted. With effect from 20 March 2014, the threshold will increase by $38 per fortnight to $100 per fortnight. This equates to an annual increase in income under the income free threshold of $988.
In addition, from 1 July 2015, this new $100 threshold will also be indexed annually in line with movements in the CPI.
The payments impacted by these changes are Newstart Allowance, Sickness Allowance, Parenting Payment Partnered, Widow Allowance, Partner Allowance Benefit and Partner Allowance Pension.

Reduction in time overseas before payments are impacted
Effective date: 1 July 2014Currently, it is possible for certain benefit recipients to be temporarily absent from Australia for up to three years before benefit payments cease. From 1 July 2014, this will be reduced to one year for certain payments, including Family Tax Benefit Part A, Schoolkids Bonus and Paid Parental Leave.

Continued indexation pausing on certain benefit thresholds
Effective date: 1 July 2013For a further three years (until 30 June 2017), the Government will pause any further indexation of the higher income thresholds for family payments and supplement amounts.
The existing $150,000 upper income test limit for Family Tax Benefit Part B, dependency tax offsets, Paid Parental Leave Scheme and Dad and Partner Pay will remain. The Family Tax Benefit Part A upper income free area will remain at $94,316 plus an additional $3,796 for each child after the first.

Replacement of existing Baby Bonus
Effective date: 1 July 2014From 1 July 2014, the existing Baby Bonus scheme will be removed. Instead, for families eligible for Family Tax Benefit Part A, increased benefits of $2,000 will be paid in the year following the birth (or adoption) of a child, and a $1,000 increase for second or subsequent children. The additional amounts will be paid as an upfront payment of $500 with the remainder to be spread over the next seven fortnightly payments.
The increase in Family Tax Benefit Part A will not be available for parents who have taken up the Paid Parental Leave option, but they will qualify for improved access to the Paid Parental Leave for subsequent children.
As an additional measure to make it easier for working mums with children born in close succession to qualify for Paid Parental Leave for subsequent children, the government will allow parents to count periods of government paid parental leave as work under the work test.

Changes to age eligibility for Family Tax Benefit Part A
Effective date: 1 January 2014From 1 January 2014, the age at which Family Tax Benefit Part A payments will cease in respect of children aged 16 and over will change. Payments will cease at the end of the year when the child completes schooling.
Individuals who no longer qualify may instead be eligible to receive the Youth Allowance.

Family Tax Benefit and Child Care Assistance tax claims
Effective from the 2012/13 FYFamily Tax Benefit and Child Care Assistance can be claimed through the income tax return process. From the 2012/13 financial year, families will have 12 months from the end of the financial year to file their claim rather than the current 24 months.

Pension Bonus Scheme closure
Effective date: 1 March 2014The Pension Bonus Scheme ceased to be available for those of age pension age from 20 September 2009. However registration is still possible for persons who were of age pension age as at 19 September 2009.
Under this new measure, no new registrations will be accepted from 1 March 2014. The Work Bonus remains available for those of age pension age who continue to participate in employment.

Pilot programme for Age Pension recipients downsizing their principal residence
Effective date: 1 July 2014 to 1 July 2017The Government will implement a 3 year pilot programme aimed at removing the Social Security disincentive for Age Pension recipients to downsize their principal residence. Under this measure, up to $200,000 of the proceeds from a principal residence sale may be deposited into a ‘special account’ (providers must be an authorised deposit taking institution, but other details are currently unknown). These accounts (including future earnings) will receive an exemption from Age Pension income and assets tests for up to 10 years.
To obtain access to the scheme, the following requirements must be met:
• At least 80% of the ‘excess’ sale proceeds (up to $200,000) must be deposited into a ‘special account’.
• The principal residence sold must have been owned by the Age Pension recipient for at least 25 years.
• The Age Pension recipient must move into a new principal home, granny flat, or retirement village (i.e. it is not available to those who move into residential aged care).
• The means test exemption ceases if the account holder makes any withdrawals from the account.

Extension of the Pensioner Education Supplement for single parents
Effective date: 1 January 2014The Government announced an extension of the Pensioner Education Supplement (PES) of up to $62.40 per fortnight to all Newstart Allowance (NSA) single principal carer recipients. This measure expands on the current arrangement that limits access to the PES to single principal carer recipients of NSA who were receiving the supplement prior to transitioning off Parent Payment single.

Extended Pensioner Concession Card entitlements for single parents
Effective date: 1 January 2014
Single parents who become ineligible for parenting payment due to the age of their youngest child and who do not qualify for any other income support payment due to employment income will no longer immediately lose access to the Pensioner Concession Card. The budget measures allow eligible single parents to retain eligibility for a period of 12 weeks.

SUMMARY

Overall, it was a Budget with many small measures, but no significant changes of any magnitude that weren’t already known. In an election year, it was perhaps lacking for the expected concessions that are often promised as part of an election pitch. For many, it may actually prove to be a tough Budget with more to be paid in the future. However, this appears to be what the Government was actually aiming for – a socially and economically responsible Budget (where expenditures equated to revenues) as a step to trying to return the Budget to surplus in the future.

It’s always important to remember that virtually all measures announced will still need legislation to be introduced, and will have to pass through Parliament, so the final version of the changes may differ to the announcements made in the Budget. Some of the measures have already been released in draft legislative format for comment, but no draft legislation is guaranteed to be passed in what will be a very limited and busy sitting time for the Parliament before it ceases on 11 August in advance of the September election.

As part of our ongoing service, we will review existing client files to determine whether the proposed changes will impact you. If so, we will be in touch with you in due course.

That said, should you wish to discuss the proposed changes sooner, please feel free to contact our office on (03) 9336 7800.

Best wishes,

RetireCare Personal Wealth Management

Down Down……Interest Rates Are Down May 7, 2013

As soon as you heard that 70 percent of economists had predicted that there would be no change in interest rates today you should have known that there would be an interest rate change today! The RBA today lowered rates by 0.25% to the rate of 2.75% the lowest rate we have had in 53 years.

This is what the Governor had to say;

Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 2.75 per cent, effective 8 May 2013.

The global economy is likely to record growth a little below trend this year, before picking up next year. Among the major regions, the United States continues on a path of moderate expansion and China’s growth is running at a more sustainable, but still robust, pace. Japan has announced significant new policy initiatives aimed at strengthening demand and ending deflation. The euro area remains in recession. Commodity prices have moderated a little in recent months though they remain high by historical standards.

Financial conditions internationally continue to be very accommodative, with risk spreads reduced, funding conditions for most financial institutions improved and borrowing costs for well-rated corporates and sovereigns exceptionally low.

Growth in Australia was close to trend in 2012 overall, but was a bit below trend in the second half of the year, and this appears to have continued into 2013. Employment has continued to grow but more slowly than the labour force, so that the rate of unemployment has increased a little, though it remains relatively low.
With the peak in the level of resources sector investment likely to occur this year, there is scope for other areas of demand to grow more strongly over the next couple of years. There has been a strengthening in consumption and a modest firming in dwelling investment, and prospects are for some increase in business investment outside the resources sector over the next year. Exports of raw materials are increasing as increased capacity comes on stream. These developments, some of which have been assisted by the reductions in interest rates that began 18 months ago, will all be helpful in sustaining growth.

Recent data on prices confirm that inflation is consistent with the target and, if anything, a little lower than expected. The CPI rose by 2½ per cent over the past year, and measures of underlying inflation gave a broadly similar outcome. These results have been pushed up a little by the impact of the carbon price. Growth of labour costs has moderated slightly over recent quarters while productivity growth appears to be improving. This should help to lessen increases in prices for non-tradables. The Bank’s forecast remains that inflation over the next one to two years will be consistent with the target.
Over recent meetings, the Board has noted that interest rates have already been reduced substantially, with borrowing rates approaching previous lows, and that the effects of this on the economy are continuing to emerge. Savers have been changing their portfolios towards assets with higher expected returns, asset values have risen and some interest-sensitive areas of spending have increased.

The exchange rate, on the other hand, has been little changed at a historically high level over the past 18 months, which is unusual given the decline in export prices and interest rates during that time. Moreover, the demand for credit remains, at this point, relatively subdued.
The Board has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand. At today’s meeting the Board decided to use some of that scope. It judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target.

RPWM US Tour Day 5 – April 17 April 18, 2013

We arrive today in Boston via train and are greeted by scenes that can only be described as high alert. There are military personal and police carrying machine guns on almost every street corner. ID’s and bag searches are the norm as the city tries to deal with this atrocious act on innocent people. Boston is a beautiful place and to be perfectly honest when planning our trip which included New York, Washington and Boston we would have had Boston on top of the safest cities we are visiting list.

We took this photo just down the street where one of the bombs went off.

 

I think it sums up the resilience of the people of Boston and the US. They will not let this break their spirits. I saw a man outside of Starbucks almost in tears as he thanked the police for their efforts and offered to buy them coffees. It is times like this that a city like Boston is tested, and we are confident as outsiders that they will get through this.

It is not often that as business owners you have the opportunity to meet with a Harvard Business School Professor of Administration to actually present your business strategy. Well that is exactly what we had a chance to do today. What a fantastic opportunity to meet with a highly intelligent individual that eats Strategy Statements for breakfast. He was able to give invaluable feedback on our Strategy Statement and I am sure you will be seeing his influence on our business in the future.

Harvard University is an amazing place and one cannot help but be inspired by such an institution. Harvard was established in 1636 (YES 377 years ago) and it is the oldest US institution of higher learning. Absolute privilege to visit and spend some time on campus to get a feel for this historic place. I am sure we have walked away from their at least 20% smarter (perhaps a combined 20% between the three of us!).

Take Care,

Mirko, Luke & Shane

Here are some pictures.

It was nice of the Professor to unveil this banner for the three lads from RetireCare before our arrival

 

 

The closest Luke & Shane will ever get to playing football for Harvard

 

The current state of Australian Politics ….. from bad to worse April 2, 2013

Howdy All,

I hope that you had a pleasant Easter break. It always nice to have two short weeks back to back.

I came across this article written by Waleed Aly in this month’s Monthly Magazine and I thought that I would share it with you.

Unfortunately we live in a world where politically things are way out of kilter. We have a Labor Government battling a class war that they have essentially created and we have a Liberal opposition so fearful of making a mistake that they are paralyzed to say anything constructive. Regardless of what your political persuasion is, the fact as they stand are not good. I hope you enjoy Waleed’s article.

There’s an old Jewish prophecy that, as end times approach, history will speed up. Surveying the Australian political landscape, it seems Armageddon must be nigh. Events move in fast forward. The chaotic frenzy of our age, in which leaders are culled the moment a whiff of electoral defeat is in the air, economic stability notwithstanding, is unprecedented.

In the space of three years, three first-term heads of government – a prime minister, a premier and a chief minister – have been ejected by their own parties. For all the political mileage the federal Coalition has extracted from Kevin Rudd’s brutal removal, this is no partisan phenomenon. Ted Baillieu’s resignation in Victoria last month only came because the Liberal party room no longer supported him. And neither Rudd’s nor Baillieu’s demise seems as bloody-minded as Terry Mills’s axing in the Northern Territory, executed as it was while he was in Japan on official business, only a week after he had stared down a challenge from his Country Liberal Party colleagues.

In each case, we can identify direct triggers. For Rudd it was his dumping of the emissions trading scheme (ETS), which saw his approval ratings, and Labor’s, nosedive. For Baillieu it was a rogue MP’s resignation from the Liberal Party, and his chief of staff’s involvement in what at least looked like jobs-for-the-boys behaviour, as well as a series of poor polls. For Mills, it was the complete collapse of public support for his government – including a poll showing Mills had lost around 23% of the vote in his own seat – after large rises in electricity and water prices.

To cite these as explanations misses the point. Governments have faced crises before. They have pursued unpopular policies, and dealt with stubbornly bad polls. The failures are not new, but the speed and savagery of the consequences are. Rudd lasted just over two and a half years in office. Baillieu, just under. Mills, an astonishing seven months.

At least three things flow from this. First, political crises come swiftly, far more swiftly than in any previous era. Second, political parties more quickly assume such crises cannot be remedied, at least not in time for the next election. And third, they think the only way to salvage the situation is to replace the leader.

The new media landscape clearly has much to answer for here. Crisis is swift because news and commentary are swift and judgement is instant. Then it’s shared, constantly, and mostly with those who agree. Viewpoints become amplified rather than nuanced. So we forestall cool, reflective debate, and wind up with a public conversation that has almost no ability to persuade. Everyone’s in a war, everyone has a gun, and we’d much rather go on firing than sit through dull peace negotiations.

Political discussion has become a militarised zone. Perhaps that’s why parties are increasingly reaching for the nuclear option. As the debate gets faster and therefore shallower, our politics must become more presidential because image and personality are the only effective weapons left. This is particularly true given the collapse of serious ideological difference between the major parties. Every political problem therefore becomes a leadership problem. When you’re confronted with political disaster, there’s only one thing to do: get new leadership.

As Gillard’s experience shows, there’s no guarantee that change will work. The problems of contemporary politics are far bigger than that. In this connection, Baillieu and Rudd make an instructive comparative study: despite sharing the same fate, they are profoundly contrasting figures. Rudd is widely despised within his own party; his leadership style was unbearable to many of his colleagues and could be tolerated only as long as he had Newspoll in his corner. Baillieu remains liked as a man by colleagues and journalists alike. To follow the news coverage of his resignation was to be reminded every few moments that he is a “decent” bloke. Rudd is maniacally ambitious and hyperactive; Baillieu is aloof, indecisive and frequently passionless.

Rudd was everywhere. As Opposition leader he dismantled John Howard because his ravenous appetite for media engagement was so suited to our media-drenched age. In government, this caught up with him. His was a government of endless “announceables”. Initiatives poured from his office, but with no follow-through. There was an apology, a stimulus package, then a dizzying array of ideas – a dumped ETS, a maligned mining tax, a failed health take-over – that confused more than they inspired. Rudd governed as though the political cycle was the same thing as the 24-hour media cycle. He just couldn’t keep up with his own announcements.

Ted Baillieu didn’t even try. He belonged to a completely different era. You can imagine him taking three months out over summer to read, perhaps aboard a ship bound for England. He and his ministers frequently declined media requests. At first this seemed to be part of a strategy to lie low for the first year while his team – who were as surprised as anyone to find themselves in government in 2010 – figured out what they were going to do. But the invisibility lingered for a second year. Baillieu opted out of the media frenzy, and wouldn’t opt in even as scandal engulfed his own office.

This low-key approach is more affordable to the second tier of government, but even so Baillieu overdid it. When he announced the end of his premiership, the response was very much “So long, Ted Baillieu; we hardly knew ye.”

The stories of these two utterly contrasting leaders, both brought undone by the relentless waves of digital information that define our world, raise a frightening question of contemporary politics: can anyone shine in the top job? If not Rudd with his unceasing media engagement, and not Baillieu with his apparently deliberate disengagement, then who?

Certainly each man had failures of leadership. But is ours an age that will not be led? Is our political and media cycle so unforgiving, so instant and so damn loud that it punishes those who play the game as much as those who don’t?

Colin Barnett might think not, after his serene victory in Western Australia last month. In many ways he’s the middle ground between Rudd and Baillieu: the quiet achiever whose image is of getting things done with a minimum of fuss. But then, his state has seen massive economic growth in recent years. His opposition is inept, and is of the same party as a prime minister so disliked in the west that she was asked not to cross the state line lest she contaminate the state Labor campaign. This is hardly a replicable model for political success.

It’s early days, but it would seem the rapid, shallow brutality of our political conversation reflects a coarsening and hollowing out of our very public culture: a culture of more judgement and less restraint, of sanctimony unearnt through reflection, of instant rhetorical gratification. We need a new pact, but we have no brokers.

Have a great day

Luke Eres CFP SSA

November 12, 2012

Howdy All,

Following on from our most recent posting, today we post an article written by Dr Shane Oliver who similarly writes about the same issues we raised. We thank Dr Oliver for his contribution.

Shane Oliver – Post US Election Outlook

Bidding you all a wonderful day ahead.

With thanks

Luke Eres CFP SSA

Global Political Insights – Obama Re-Elected as Attention Turns to the Fiscal Cliff November 8, 2012

Howdy All,

With the re-election of President Obama now confirmed we turn our attention to the looming challenges that he faces:

• US Political Status Quo Continues: In line with our longstanding call that the 2012 US elections would result in a continuation of the political status quo, Barack Obama has been re-elected President of the United States, winning no fewer than seven of the ten swing states. At 2 a.m. Eastern time, Obama had won 303 electoral votes to Romney’s 206, with Florida’s 29 votes still outstanding. A total of 270 is needed to win. Republican challenger Mitt Romney conceded defeat around 1 a.m., largely eliminating uncertainty over the results. As our poll-based forecasts suggested, Republicans maintain control the US House after losing perhaps 15 seats to Democrats while, in the Senate, Democrats appear to add to their majority.

• Same Political Players Will Address the Looming Fiscal Cliff: This outcome means that the same players remain in place for the upcoming fiscal cliff negotiations in the lame duck session of Congress, making a temporary compromise the base-case scenario, with the timing – before December 31st, or sometime into the new session in January – still in question. Watch for statements from leaders of both parties in both houses of Congress, as well as the leaders of the Ways & Means and Finance Committees, as their signals matter most.

• Presidential Mandates: Does Size Matter? Conventional wisdom suggests that a narrow mandate, as measured by the margin of victory in the popular vote, foreshadows a weak president without sufficient public support to enact reforms. But few contemporary US presidents have enjoyed a significant popular mandate. We note recent academic studies which suggest that there is little relationship in practice between the size of a president’s mandate and legislative outcomes. The ability to work with Congress matters more.

• Divided Government & More Status Quo: The history of the relationship between Obama and the Congressional leadership is one of eventual compromise, though not in the absence of circumstances forcing both parties to the table. Our expectation continues to be that the trail of last-minute, heart-attack compromises will continue, given the same actors retaining their positions, with appetite for comprehensive reform limited.

• Significant Challenges for the Second Obama Term: From the looming fiscal cliff, to the challenge of reforming the tax code, to a likely resumption of Israel-Iran tensions and the need to work with a new Chinese leadership, Obama in his second term faces significant challenges at home and abroad. Domestic pressures will be center-stage, with the fiscal cliff immediately commanding attention for the remaining seven weeks of the Lame Duck session and testing the limits of bi-partisan deal-making in a highly polarized Congress. But international challenges will eventually demand attention.

It is fair to say that we are in for some interesting times ahead.

Have a great day

Luke Eres

God Bless America!! Obama 4 More Years November 7, 2012

Howdy All,

With the results filtering in, it appears more than likely that President Obama will be returned to serve as President of the United States of America for a further 4 years. While President Obama has had his fair share of critics during his first term (and justifiably so) one can not forget the mess he inherited. That said we do believe that he is worthy of another chance and here’s to hoping that he will deliver on the promise of change he made 4 years ago.

The article below has been sourced from the website http://www.realchangepolitics.com

President Barack Obama won re-election in a tight campaign, besting Republican presidential nominee Mitt Romney in enough swing states to secure four more years in office.

Propelled by wins in Ohio, Wisconsin Iowa – states long touted as Obama’s “firewall” – the president won a long-fought election in which the economy, its slow pace of recovery and Obama’s management of it, became the central issue.

NBC News declared Obama the projected winner of Ohio and the election after polls had closed on the West Coast. The president also held onto a series of Democratic strongholds, beating back Romney’s efforts to take back states Obama had won in 2008 and make inroads into traditionally Democratic strongholds, like Pennsylvania, Minnesota and Wisconsin.

Exit polls suggested that the economy was, by far and away, the issue at the front of voters’ minds on Election Day. Romney edged Obama nationally by six points among voters who said the economy was their top issue.

But Obama outperformed Romney on questions of empathy, and voters nationwide were virtually tied on the more direct question of who would better handle the economy and the budget deficit.

Obama also held a demographic edge over Romney among two key groups of voters. The president bested the former Massachusetts governor by 10 points among women (Romney beat Obama by 8 percent among men). Hispanic or Latino voters also broke heavily for Obama by a 39-point margin.

In losing, Romney fails at his task of becoming the first challenger to unseat a sitting president since 1992.

The president will enter his second term facing a political landscape much like his last two – that is, gridlock. NBC News projected that Republicans would retain their majority in the House, and that Democrats would retain their majority in the Senate (because Vice President Joe Biden would be able, in his official capacity as president of the Senate, to break a 50-50 tie).

The specter of gridlock would undoubtedly loom before Obama as he confronts an immediate task in addressing the series of automatic tax hikes and spending cuts – the so-called “fiscal cliff” – set to spring into place at the end of this year. As Obama won a second term, House Speaker John Boehner, R-Ohio, said Republicans’ retention of their House majority meant “the American people have also made clear that there is NO mandate for raising tax rates.”

As election results continued to trickle in, Nevada, Florida, Colorado and Virginia remained too close to call. North Carolina, where Romney was declared the apparent victor, was the lone state that flipped from Obama in 2008 to Republicans this election cycle.

Obama awaited results earlier in the evening at his home in Hyde Park, Chicago, where he had dinner with the first family. Romney joined his family at a hotel suite near his election night party in Boston. The president spent the day doing a series of interviews and participating in a pick-up game of basketball, an Election Day tradition for Obama.

Romney, meanwhile, added some last-minute campaigning to his schedule instead of enjoying down time. He stopped in Cleveland and Pittsburgh in a last-minute bid for votes in the crucial battleground state of Ohio.

Speaking to reporters traveling with him from Pittsburgh to Boston, Romney said he sensed that victory was on the horizon.

“You know, intellectually, I’ve felt we’re going to win this and have felt that for some time,” Romney told reporters traveling with him from his last campaign stop from Pittsburgh back to Massachusetts. “But emotionally, just getting off the plane and seeing those people standing there … just seeing people there cheering as they were connected emotionally with me and I not only think we’re going to win intellectually, I feel it as well.”

Both candidates could know their fate in just a few hours, as vote totals and additional exit poll data paints a bigger picture of the American electorate this Election Day.

Bidding you all a great day ahead

With thanks

Luke Eres

US Stock Market closes as SUPER storm approaches October 29, 2012

As if the stock market has not had enough so called perfect storms, super storms or storms in a tea cup. The US market is poised to be closed on Monday (early Tuesday morning AET) as Hurricane Sandy prepares to batter the US East Coast overnight.

Whilst a hurricane named “Sandy” doesn’t really exude fear it is considered serious enough to ensure both the physical safety of market participants and market integrity is not tested.

Let’s hope that this literally blows over with minimal human and structural damage and it will be business as usual on the trading floor on Tuesday.

RBA cuts rates to 3.25% October 3, 2012

The RBA first Tuesday of the month get together has resulted in a 25 basis point cut to the official cash rate, down to 3.25%. The underlying impression being put out is one of more urgency by the RBA as historically we have seen the RBA wait on inflation data (due out later in the month) followed by a rate cut the following month.

Whilst borrowers hold their breath on a rate cut by the banks (if you are going blue in the face that is not good!) retirees are searching far and wide for a decent yield in their portfolios.

Here is the Statement issued by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 3.25 per cent, effective 3 October 2012.

The outlook for growth in the world economy has softened over recent months, with estimates for global GDP being edged down, and risks to the outlook still seen to be on the downside. Economic activity in Europe is contracting, while growth in the United States remains modest. Growth in China has also slowed, and uncertainty about near-term prospects is greater than it was some months ago. Around Asia generally, growth is being dampened by the more moderate Chinese expansion and the weakness in Europe.

Key commodity prices for Australia remain significantly lower than earlier in the year, even though some have regained some ground in recent weeks. The terms of trade have declined by over 10 per cent since the peak last year and will probably decline further, though they are likely to remain historically high.

Financial markets have responded positively over the past few months to signs of progress in addressing Europe’s financial problems, but expectations for further progress remain high. Low appetite for risk has seen long-term interest rates faced by highly rated sovereigns, including Australia, remain at exceptionally low levels. Nonetheless, capital markets remain open to corporations and well-rated banks, and Australian banks have had no difficulty accessing funding, including on an unsecured basis. Share markets have generally risen over recent months.

In Australia, most indicators available for this meeting suggest that growth has been running close to trend, led by very large increases in capital spending in the resources sector. Consumption growth was quite firm in the first half of 2012, though some of that strength was temporary. Investment in dwellings has remained subdued, though there have been some tentative signs of improvement, while non-residential building investment has also remained weak. Looking ahead, the peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected. As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur.

Labour market data have shown moderate employment growth and the rate of unemployment has thus far remained low. The Bank’s assessment, though, is that the labour market has generally softened somewhat in recent months.

Inflation has been low, with underlying measures near 2 per cent over the year to June, and headline CPI inflation lower than that. The introduction of the carbon price is affecting consumer prices in the current quarter, and this will continue over the next couple of quarters. Moderate labour market conditions should work to contain pressure on labour costs in sectors other than those directly affected by the current strength in resources. This and some continuing improvement in productivity performance will be needed to keep inflation low as the effects of the earlier exchange rate appreciation wane. The Bank’s assessment remains, at this point, that inflation will be consistent with the target over the next one to two years.

Interest rates for borrowers have for some months been a little below their medium-term averages. There are tentative signs of this starting to have some of the expected effects, though the impact of monetary policy changes takes some time to work through the economy. However, credit growth has softened of late and the exchange rate has remained higher than might have been expected, given the observed decline in export prices and the weaker global outlook.

At today’s meeting, the Board judged that, on the back of international developments, the growth outlook for next year looked a little weaker, while inflation was expected to be consistent with the target. The Board therefore decided that it was appropriate for the stance of monetary policy to be a little more accommodative.