Category Archives: Economy

Federal Budget 2018/19 – What it means for you…

On Tuesday 8 May, the Federal Government handed down its Budget for the 2018–19 financial

FEDERAL BUDGET 2018_What you need to know

Here’s a roundup of some of the key proposals put forward, and we take a look at how they might affect your financial goals — whether you’re starting out in your working life, building a career and family, or enjoying the fruits of your labor in retirement.

Remember, at this stage these are just proposals and not yet law. As such, they could change as legislation passes through parliament.

Personal income tax

1.Increase in tax bracket thresholds
The 32.5 per cent upper threshold will be increased from $87,000 to $90,000 from 1 July 2018. The existing threshold was increased from $80,000 to $87,000 from 1 July 2016.
The increase to $90,000 reduces the tax liability of those earning $90,000 or more by $135.
A further increase in this threshold to $120,000 is proposed from 1 July 2022.

In addition, the 19 per cent upper threshold will increase from $37,000 to $41,000 from 1 July 2022.
From 1 July 2024, the Government will extend the top threshold of the 32.5 per cent personal income tax bracket from $120,000 to $200,000, to recognize inflation and wage growth impacts.

Taxpayers will pay the top marginal tax rate of 45 per cent from taxable incomes exceeding $200,000 and the 32.5 per cent tax bracket will apply to taxable incomes of $41,001 to $200,000.

2.Low Income Tax Offset
The existing Low Income Tax Offset (LITO) will be increased to a maximum of $645 for those with taxable income less than $37,000 from 1 July 2022. LITO will phase out at 6.5% in the income range from $37,000 to $41,000, and at 1.5% thereafter.

3.Medicare levy thresholds for 2017-18
The threshold for singles will be increased from $21,655 to $21,980. The family threshold will be increased from $36,541 to $37,089. For single seniors and pensioners, the threshold will be increased from $34,244 to $34,758. The family threshold for seniors and pensioners will be increased from $47,670 to $48,385. For each dependent child or student, the family income thresholds increase by a further $3,406, instead of the previous amount of $3,356.

4.Increase in the Medicare levy
The Government will not proceed with the increase to the Medicare levy rate from 2.0 to 2.5 per cent of taxable income from 1 July 2019. The increase was originally announced in the Federal Budget 2017-18.

5.Denying deductions for vacant land
Expenses associated with holding vacant land will cease to be deductible from 1 July 2019 and will not be able to be carried forward.
Such expenses for land that was previously vacant will only become deductible when:

  • construction is complete, approval for occupancy has been granted and the property is available for rent, or
  • the land is used in carrying on a business.
    Denied deductions will not automatically be included in the cost base of a CGT asset. Taxpayers will need to assess the expenses against existing cost base element rules.

6.Ensuring tax compliance for individuals
Additional funding will be provided to the ATO to assist its compliance activities around taxpayers that over-claim deductions or entitlements.
The funding will complement and strengthen the ATO’s data matching and pre-filling activities.

7.Improving the taxation of testamentary trusts
Current rules allow minors to be taxed as adults in respect of income paid on assets or cash proceeds held within a testamentary trust.
This new measure, commencing on 1 July 2019, will ensure that minors are taxed in a manner consistent with other income earned and prevent assets being placed into a testamentary trust that were not related to the deceased estate.

8.Removing the CGT discount on gains made within a Managed Investment Trust (MIT) or Attribution MIT (AMIT)
Presently, MITs and AMITs are entitled to a 50% discount for capital gains made on assets held within the trust for longer than 12 months.
From 1 July 2019, this CGT discount will no longer be allowed at the trust level. This means each beneficiary taxpayer must determine their own entitlement to a CGT discount upon receiving a capital gain distribution through a MIT or AMIT.

Business owners

1.Continuation of small business asset write-offs ($20,000 threshold)
Small businesses will be given an additional 12 months to write off assets costing less than $20,000, provided they are installed ready for use by 30 June 2019.
Depreciation pools will continue to be allowed for assets costing $20,000 or more.

2.Economy wide cash payment limit of $10,000
From 1 July 2019, any payments for goods or services to businesses that exceed $10,000 will no longer be allowed to be paid with cash. They can only be paid electronically or via cheque.
Transactions with financial institutions and consumer to consumer (non-business) transactions will not be subject to this cash limit.

3.Removing tax deductibility of non-compliant payments
Where an employer fails to withhold an amount of PAYG from payments to an employee or to a contractor (where no ABN is provided), a deduction for the payment will be denied.
This measure will commence from 1 July 2019.

4.GST on online hotel bookings sold by offshore providers
The current exemption allowing offshore sellers of Australian hotel rooms online not to charge GST to consumers will be removed from 1 July 2019.
The proposal requires unanimous approval from the States and Territories and mirrors previous GST changes to digital products and low value importations.

5.Partnerships and small business concessions
The small business CGT concessions will no longer be available in respect of the disposal, creation or assignment of rights to future income of a partnership (also called an “Everett assignment”).
The measure will apply from the date of the budget, 7:30pm 8 May 2018.


1.SMSF member limit increase
The maximum number of members allowable in self managed superannuation funds (SMSFs) and small APRA funds will increase from four to six from 1 July 2019.

2.SMSF three-yearly audit cycle
SMSFs with a good record-keeping and compliance history will move from an annual audit to a three-yearly audit from 1 July 2019. To qualify the SMSF will be required to have three consecutive clear audit reports and lodged their annual returns on time.

3.Work test exemption for those with balances of less than $300,000
From 1 July 2019 those aged 65 to 74 with a total superannuation balance of less than $300,000 will be eligible to make voluntary contributions in the financial year following the year they last met the work test.
Eligibility will be assessed based on the individual’s total superannuation balances at the beginning of the financial year following the year that they last met the work test.

4.Individuals with multiple employers able to opt out of Superannuation Guarantee
Individuals who earn over $263,157 from multiple employers will be able to nominate that their wages from certain employers are not subject to the Superannuation Guarantee (SG) from 1 July 2018. This will allow eligible individuals to avoid unintentionally breaching the concessional contributions cap as a result of receiving SG contributions from multiple employers. Employees who use this measure could negotiate to receive additional income, taxed at marginal tax rates.

5.Improving the integrity of personal deductible super contributions
The Australian Taxation Office (ATO) will receive additional funding to improve the integrity of the process for deducting personal superannuation contributions from 1 July 2018. This will include a new compliance model and additional compliance and debt collection activities. A new acknowledgement will also be added to income tax returns to confirm that an individual who is claiming a deduction has met the ‘notice of intent’ requirements.

6.Opt-in basis for default insurance inside superannuation
The Government proposes to amend the default insurance arrangement in superannuation funds, which currently requires members to opt-out of cover, to be on an opt-in basis. This change will apply to members:

  • with a balance of less than $6,000
  • under the age of 25 years, or
  • whose account has been inactive (ie hasn’t received a contribution) for 13 months or more.

The changes are proposed to take affect from 1 July 2019. A transition period of 14 months will allow affected members to decide whether or not to opt-in.

7.Passive fees, exit fees and inactive super
From 1 July 2019, a three per cent annual cap on passive fees will apply to superannuation accounts where the balance is below $6,000. In addition, exit fees will be banned on all superannuation accounts.
Superannuation funds will also be required to transfer inactive accounts (ie that have not received a contribution for at least 13 months) with a balance of less than $6,000 to the ATO. The ATO will proactively reunite inactive accounts with active accounts where the value of the consolidated account will be at least $6,000.

Social security

1.Expansion of the Pension Loan Scheme
From 1 July 2019:

  • all Australians of age pension age will be eligible, including full rate age
  • ensioners (currently excluded from the scheme)
  • the maximum loan amount will increase from 100 per cent to 150 per cent of age pension.
    The loan is paid fortnightly, is tax-free and currently attracts compound interest of 5.25 per cent on the outstanding balance.

2.Extension of the Pension Work Bonus
From 1 July 2019:

  • the bonus will increase from $250 to $300 per fortnight. This means that the first $300 of income from work each fortnight will not count towards the pension income test
  • eligibility will be extended to the self-employed, subject to a ‘personal exertion’ test, reflecting the intention that the bonus not apply to investment income.

3.New means testing rules for lifetime retirement income products
From 1 July 2019:

  • a fixed 60 per cent of all pooled lifetime product payments will be assessed as income
  • 60 per cent of the purchase price of the product will be assessed as assets until age 84, or a minimum of 5 years, and then 30 per cent for the rest of the person’s life.

Aged care

1.Improving access to residential and home care
The Government will provide additional funding to deliver a package of measures to improve access to aged care for older Australians. The More Choices for a Longer Life package includes 14,000 new high level home care packages over four years from 2018/19 and 13,500 residential aged care places in 2018/19. It also includes funding to deliver home care packages and residential care in rural, regional and remote communities as well as preparatory work for a new national assessment framework for people seeking aged care.

A new Aged Care Quality Safety Commission is also proposed to be established to ensure the quality of care provided by the aged care system.

Note: What you need to know
Any advice in this document is general in nature and is provided by Halle Yilmaz, as a financial adviser at HQ Financial Solutions, an Authorised Representative of Lifespan Financial Planning Pty Ltd ABN 23 065 921 735, AFSL No. 229892. Halle is authorised to advice on super, pension and investment products. The advice here does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters, products, and consider talking to a financial adviser before making an investment decision. Your Lifespan adviser or other professional advisers should be consulted prior to acting on this information. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. This disclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.

Source of the information on this newsletter: Colonial First State, and Macquarie.

Halle Yilmaz is a financial adviser and business consultant. As a financial adviser, she gives solid advice that can create rapid and lasting results for her clients. Sign up for her free E-Book and download “7 Steps to Healthy Wealth Management.” Follow Halle on Twitter @halleyilmaz

Federal Budget 2017/18: What it means for you…

On Tuesday 9 May, the Federal Government handed down its Budget for the 2017–18 financial
budget 17 18 According to Federal Treasurer Scott Morrison, this year’s Budget is founded on the principles of fairness, security and opportunity. Mr Morrison claims that the government’s proposed measures will raise almost $21 billion in revenue over the next four years, returning Australia’s budget to surplus by 2021.

Here’s a roundup of some of the key proposals put forward, and a look at how they might affect your financial goals — whether you’re starting out in your working life, building a career and family, or enjoying the fruits of your labour in retirement.

Remember, at this stage these are just proposals and not yet law. As such, they could change as legislation passes through parliament.

1. First Home Super Saver Scheme
Proposed effective date: 1 July 2017
From 1 July 2017, individuals will be able to make extra voluntary super contributions of up to $15,000 a year beyond their employer’s Super Guarantee payments, up to a total of $30,000. These contributions will be taxed at 15% and can be withdrawn to go towards the deposit on a first home. Withdrawals will be allowed from 1 July 2018.

What this could mean for you
When you withdraw your extra contributions to pay for a deposit, they’ll be taxed at your marginal tax rate minus a 30% tax offset. While the tax concessions for these contributions may allow you to save a larger deposit, you won’t be able to access your money until retirement if you decide not to buy a home.

2. Contributing the proceeds of property downsizing to super
Proposed effective date: 1 July 2018
Additional non-concessional cap for retiree downsizers
From 1 July 2018, people aged 65+ will be able to contribute up to $300,000 into super from the sale of their principal home, if they’ve owned their home for at least 10 years. The existing restrictions for contributions over age 65 won’t apply for these non-concessional contributions.

What this could mean for you
You may be able to contribute an additional $300,000 to super (or $600,000 for couples), over and above your existing concessional and non-concessional caps. However, if you or your partner receives the age pension, this could cause your entitlements to be reduced.

Taxation – general

3. Marginal tax rates remain unchanged
Marginal tax rates are unchanged from 2016–17. As legislated, the Temporary Budget Repair Levy – which is an additional 2% on the top marginal tax rate – will expire on 30 June 2017.

4. Increase to Medicare levy
Proposed effective date: 1 July 2019
The Medicare levy, which is still assessed on taxable income, is proposed to increase from 2% to 2.5% from 1 July 2019.The Medicare levy low-income thresholds for singles, families, seniors and pensioners will increase from the 2016–17 financial year. The increase in the Medicare levy will be used to fund the National Disability Insurance Scheme (NDIS).

What this could mean for you
The increased levy may also result in increases to many tax rates linked to the top personal tax rate, including fringe benefits tax and excess non-concessional contributions tax.
Certain lump sum super payments that attract the levy may also be impacted, such as disability benefits paid to people under preservation age.

5. Residential investment property – disallowance of deduction for travel expenses and limitation on deductible depreciation
Proposed effective date: Various
From 1 July 2017, travel expenses incurred in inspecting, maintaining or collecting rent on your residential investment properties will no longer be tax deductible. As a residential property investor, you will continue to be able to deduct fees paid to real estate agents or other property managers for these services. In a separate proposal, depreciation deductions for plant and equipment – such as dishwashers and ceiling fans – in residential investment properties will be limited to the actual expenditure you incur. This is an integrity measure designed to ensure that successive purchasers of a property cannot depreciate an asset beyond its true cost.

What this could mean for you
If you’re a subsequent investor in a property, the acquisition of existing plant and equipment will be reflected in the cost base for CGT purposes. Grandfathering applies to plant and equipment that forms part of a residential investment property as at 9 May 2017 and will continue to give rise to depreciation deductions under current rules.

The new rule around travel expense deductions applies to all property investors, including SMSFs, family trusts and companies.

6. Tax changes for foreign tax residents and property owners
Proposed effective date: 9 May 2017
Foreign or temporary tax residents will no longer have access to the CGT main residence exemption on properties acquired after 7.30pm AEST on Budget night (9 May 2017). Also from Budget night, foreign owners of residential property that is not occupied or genuinely available on the rental market for at least six months per year will be subject to an annual levy of at least $5,000.

What this could mean for you
If you’re a foreign of temporary tax resident and you held an existing property before Budget night, the property will be grandfathered and you’ll be able to continue claiming the CGT main residence exemption until 30 June 2019. However, from 1 July 2017, the CGT withholding rate that applies to foreign tax residents will increase from 10% to 12.5%.

Taxation – small business

7. Instant asset tax write-off extension
Proposed effective date: 1 July 2017
The government will extend the existing accelerated depreciation allowance for small businesses by 12 months to 30 June 2018.

What this could mean for you
If your small business has aggregated annual turnover below $10 million, you’ll be able to immediately deduct the purchase of eligible assets costing less than $20,000 where they are first used or installed ready for use by 30 June 2018. After that date, the immediate deductibility threshold will revert back to $1,000.

8. Company tax rate reduction
Legislated from: 1 July 2016
Federal Parliament has now also finalised passage of legislation to reduce the company tax rate. The first step involves reducing the corporate tax rate for companies that are small business entities, from 28.5% to 27.5%, for the 2016–17 income year. Small business entities are classified as companies that carry on a business and have an annual aggregated turnover of less than $10 million. Other companies remain subject to the 30% corporate tax rate. The second step involves subsequent increases in this annual aggregated turnover threshold so that progressively larger companies with annual aggregated turnover under $50 million will qualify for the 27.5% corporate tax rate. For companies with annual aggregated turnover under $50 million the tax rate will progressively reduce to 25% from the 2026–27 income year.

9.Unincorporated businesses – annual aggregated turnover threshold
Legislated from: 1 July 2016
This offset is available to unincorporated small businesses and is currently 5% of the individual’s net small business income tax liability capped at a maximum offset of $1,000 per annum. The annual aggregated turnover threshold from 1 July 2016 is to be increased to $5 million (up from $2 million) for unincorporated business looking to qualify for the small business income tax offset.

What this could mean for you
This small business income tax offset will progressively increase to 16% of an individual’s tax liability related to their net small business income by the 2026–27 tax year. For the 2016–17 to 2023–24 tax years, the tax offset is to increase to 8% (up from 5%).

Families and Social Security

10. New thresholds for HELP debt repayments
Proposed effective date: 1 July 2018
Income thresholds for the repayment of HELP debts will be revised, along with repayment rates and the indexation of repayment thresholds.

What this could mean for you
A new minimum threshold of $42,000 will apply, with a 1% repayment rate. A maximum threshold of $119,882 will apply, with a 10% repayment rate. Currently, the maximum repayment threshold for the 2017–18 financial year is $103,766 with a repayment rate of 8%.

11. Reinstatement of Pensioner Concession Card entitlements
Proposed effective date: 2017 -18
Pensioners who lost their Pensioner Concession Card entitlement due to the assets test changes on 1 January 2017 will have their card reinstated. Those who lost their entitlement were instead issued with both a Health Care Card and a Commonwealth Seniors Health Card. However these cards provided access to fewer concessions than the Pensioner Concession Card.

What this could mean for you
If your Pensioner Concession Card entitlement is reinstated, you’ll have access to a wider range of concessions than those available with the Health Care Card, such as subsidised hearing services. Your Pensioner Concession Card will be automatically reissued over time with an ongoing income and assets test exemption.

You’ll also retain the Commonwealth Seniors Health Card, ensuring you continue to receive the Energy Supplement.

12. Increased pension residence requirements
Proposed effective date: 1 July 2018
An individual currently needs to have at least 10 years’ residence in Australia (at least 5 of which are continuous) to qualify for the age pension or disability support pension. From 1 July 2018, applicants will require one of the following to be met instead:

  • 15 years of continuous Australian residency
  • 10 years’ continuous residence including 5 years during their working life (age 16 to 65), or
  • 10 years’ continuous residence and not in receipt of an activity-tested income support payment for a cumulative period greater than 5 years.
    • What this could mean for you
      This measure may impact you if you have less than 15 years’ residence in Australia or less than 5 years’ residence between age 16 and age pension age. However, existing exemptions will be maintained for humanitarian reasons or if you became unable to work while you were an Australian resident.

      13. Other proposals
      Proposed effective date: Various

    • A new Jobseeker Payment will replace 7 existing working age payments from 20 March 2020
    • Job seekers and parents who receive working age income support will have increased activity test requirements from 20 September 2018
    • The maximum length of the Liquid Assets Waiting Period will increase from 13 weeks to 26 weeks from 20 September 2018
    • A one-off Energy Assistance Payment of $75 for single recipients and $125 for couples will be paid for those who qualify on 20 June 2017
    • Family Tax Benefit rates will not be indexed for 2 years from 1 July 2017
    • A new upper income threshold of $350,000 pa will apply to the child care subsidy from 1 July 2018.
      • Note: What you need to know
        Any advice in this document is general in nature and is provided by Halle Yilmaz, as a financial adviser at HQ Financial Solutions, an Authorised Representative of Lifespan Financial Planning Pty Ltd ABN 23 065 921 735, AFSL No. 229892. Halle is authorised to advice on super, pension and investment products. The advice here does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters, products, and consider talking to a financial adviser before making an investment decision. Your Lifespan adviser or other professional advisers should be consulted prior to acting on this information. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. This disclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.
        Source of the information on this newsletter: AMP, Colonial First State, and Challenger.

        Halle Yilmaz is a financial adviser and business consultant. As a financial adviser, she gives solid advice that can create rapid and lasting results for her clients. Sign up for her free E-Book and download “7 Steps to Healthy Wealth Management.” Follow Halle on Twitter @halleyilmaz

Surprise events happen!

When you invest, be prepared to expect the unexpected.

From time to time, equity markets experience heightened event-related volatility. In such times, it can be helpful to keep in mind “Volatility is a normal part of long – term investment.”

Recently, the decision of the UK electorate to leave the European Union is unexpected, and has resulted in significant amount of economic and global market uncertainty with investors concerned about the increase in volatility and confusion over “what’s next.”

Global-Business-BackgroundThe Brexit decision is more political causing some macro – economic adjustment which has been influencing investors’ behavior towards financial markets. It is expected to be more modest in its effect than the financial crisis or the sovereign debt crisis we experienced in the past.

When it comes to long -term investments, keep a long term view and ignore the day to day noise of markets.In life, there are two things; controllable and uncontrollable. Instead of stressing yourself with uncontrollable, put all your energy and attention into what you can control – discipline, costs and taxes.

Before making any investment, you must know your risk appetite and risk capacity level. Basically you need to understand yourself as an investor, your current situation and what it takes to achieve your long term goals.

Different investments perform differently over time in different economic conditions. Hence, you must understand that risk and return are related, and only some risks are worth taking.

When investing in high risk assets such as shares you need to look at medium to long term investment time-frame. And more importantly you need to understand that during your investment time frame you might come across some form of investment risks such as market risk, liquidity risk, legal, regulatory and international investment risk, currency risk, credit risk and so on. Therefore, with your investment decisions it is important to understand what type of risks you are willing to expose yourself to, and what strategies you can apply to minimize them.

Be aware that in the long term volatility is inevitable. However, staying calm, having a well diversified investment portfolio, sticking to your plan and reviewing it with your financial adviser on a regular basis you would be in a better position to manage it.

We focus on having a process driven and disciplined approach which combined with academic research and practical experiences. Should you have any question or want to discuss on your financial matters contact Halle Yilmaz.

Note: This article is issued by Halle Yilmaz ( Australia) herein is solely for information purposes and shall not in any way constitute advice or an invitation to invest.This material does not take into account your investment objectives, particular needs or financial situation.Before acting on this material, you should consider talking to your financial adviser.

Halle Yilmaz is a financial adviser and business consultant. As a financial adviser, she gives solid advice that can create rapid and lasting results for her clients. Sign up for her free E-Book and download “7 Steps to Healthy Wealth Management.” Follow Halle on Twitter @halleyilmaz

Are we headed for a global recession?

Global-Business-BackgroundThe term to describe “higher-for-longer” commodity prices was based largely on ever-climbing demand from the Chinese as the country industrialised. Amid the excitement, commodity prices soared by more than six-fold from 2004 to 2011, as measured by the Reserve Bank of Australia’s commodity price index.[1] That index has collapsed by 63% over the past four years as Chinese demand fell and supply increased after an investment frenzy to build more projects and the revolution in shale. (A high US dollar hurts too because it boosts prices in local currencies, thus curbing demand.)

The collapse of the commodities bubble – for that’s what it was in hindsight – is buffeting emerging countries (such as Brazil, Chile, Colombia, Russia and Venezuela) that rely on material exports. And plunging commodities is only one of their problems. The prospect of higher interest rates in the US is sucking capital from emerging countries by boosting repayments on the US$4.5 trillion (A$6.3 billion) of US-dollar-denominated debt that these countries owe. Political uncertainty is dogging Brazil, South Africa, Turkey and Malaysia.

The trials of China and other emerging countries on top of the unresolved eurozone debt crisis, Japan’s inability to revive itself and the Federal Reserve’s likely imminent rate increase are fanning talk[2] the world economy is headed for recession. The underlying concern is that policymakers can’t combat any slump as high government debt hampers fiscal stimulus and interest rates are already at record lows. While no one can rule out a global recession because events somewhere could surprise much like the so-called Arab Spring did in 2010, the world economy probably has enough going for it to avoid such a gloomy outcome. Its key advantages are that the US is prospering while China is only slowing, not shrinking.

On the other hand ,with emerging markets ex-China, which comprise about 19% of the world economy, many of them are expanding robustly enough. Emerging Asia, for instance, is in much better shape than it was before the collapse of the baht in 1997 triggered the Asia financial crisis. Back then, emerging Asia was full of foreign debt, had unsupportable fixed exchange rates and was dogged by wonky financial and property sectors. Today, even as currencies drop from India to Korea, emerging Asian countries have sounder financial systems, freer exchange rates, tame inflation, current-account surpluses, large forex holdings and sturdier government finances. While these neighbours face losing export sales to China and currencies are falling accordingly, it’s more the emerging world outside east Asia that’s a bigger problem; namely, much of Latin America, the oil exporters, Russia, South Africa and Turkey.

Still, considering emerging countries as a group, when you allow for their young and growing populations and expanding middle classes driving consumption, their resources, pro-business governments (to generalise), infrastructure needs and low labour costs, the IMF’s forecast of 4.2% growth for 2015 (including China) looks reasonable.

China, as 13% of the world economy, deserves separate analysis. No one denies that China confronts challenges as it shifts from an investment- and export-led economic model to one driven by consumption.

Admittedly, slabs of the advanced world are struggling. The eurozone, which covers 17% of the world’s economy (to outsize China), is yet to regain its pre-crisis size. So it can be classed as in a depression. But the deflation-prone euro area is eking out growth (0.3% expansion in the second quarter) as low interest rates, falling commodity prices, an improving labour market and higher wages are aiding consumer demand. The Greek saga is a threat, for sure. But what Athens’ recent near-default and near-exit from the euro showed is that the Balkan country’s troubles appear to do little immediate economic damage to neighbours.

Luckily for the world, the rest of the advanced world is thriving, especially the US, which grew at a vibrant 3.7% annualised pace in the June quarter. Retail sales are buoyant, consumer confidence is touching eight-year highs and the jobless rate is at a seven-year low of 5.1%. Housing is humming. Business investment is climbing and the government is injecting stimulus. Exports play a relatively minor role in driving US growth (at just 13% of GDP compared with 50% for Germany) so the country is insulated from miseries abroad. While wages are stagnant, productivity sluggish and there is some hidden unemployment, at least no hooligans in Washington are threatening showdowns over raising the country’s debt limit – at least, not before next year’s congressional and presidential elections. All said, consumer spending is expected to help the US maintain its 3% annual pace of growth into 2016 and beyond.

Advanced economies less the US, the eurozone and Japan amount to 23% of the global economy. The IMF predicts 2.2% growth this year for advanced economies overall. That appears a reasonable outlook for countries including Switzerland and the UK, for most of them will benefit from lower commodity prices – even if they are not so good for Australia (1.9% of world GDP) and Canada.

All up, economist might be prudent to trim their global growth forecasts for the next 12 months. But they shouldn’t go too much below the 3.3% the IMF in July forecast for 2015 or the 3.8% it predicted for 2016.[3]

The article is by Michael Collins, Investment Commentator at Fidelity,September 2015

Country and regional percentages of world output come from the World Bank’s database and measure gross domestic product for 2014. IMF growth forecasts are estimates taken from the World Economic Outlook – July 2015, Table 1 (Overview of the World Economic Outlook projections) on page 4 that give estimates for 2015 and 2016 rather than the upcoming 12 months. Other financial information comes from Bloomberg unless stated otherwise.

[1] Reserve Bank of Australia. Commodity price index. In SDR terms, the index rose from 24.4 in January 2004 to a peak of 162.2 in May 2011 before falling to 60.0 in July 2015. By way of comparison, the Bloomberg Commodity Index shows an increase of 140% from 1999 to 2011 and a 52% tumble since then.
[2] Bloomberg News. “China will respond too late to avoid a recession, Citigroup says.” 28 August 2015.
[3] IMF. World Economic Outlook Update release. “Slower growth in emerging markets, a gradual pickup in advanced economies.” 9 July 2015.

Halle Yilmaz is a financial adviser and business consultant. As a financial adviser, she gives solid advice that can create rapid and lasting results for her clients. Sign up for her free E-Book and download “7 Steps to Healthy Wealth Management.” Follow Halle on Twitter @halleyilmaz

What the 2015 Budget means for the Australian economy

The 2015-16 budget deficit forecast has been revised up to $35.1bn, more than double the estimate from 12 months ago, but a marginal improvement on the $41.1bn deficit expected for 2014-15.



  • Fiscal policy will remain a drag on the economy in the budget year and through the forward estimates. There has been a slight moderation in pace, but the destination remains the same with a surplus still predicted in 2019-20.
  • The key difference between the 2015-16 budget and the disastrous 2014-15 budget is in the communication, and the nature of the measures. The harsh edges of many of the last budget’s measures have been smoothed, with policy decisions adding $9.3bn to the deficit over the forward estimates.
  • Confidence is likely to be boosted by the measures in the budget. Particularly the two key policy packages – the Jobs and Small Business, and Families packages.


  • Clearly, the government has not missed calls for a fiscal catalyst to re-enliven the economy. Or at least heeded the message from the opinion polls. This year’s budget is clearly designed with a view to improving the government’s popularity. The economy may receive a boost in the meantime.
  • The key test for the 2015-16 budget is whether it boosts confidence. Expectations have been lowered. Even a ‘null’ in terms of impact on confidence across the economy could be considered a budget ‘win’ relative to last year. At first glance, the budget has the potential to better that outcome. But the communication task lies ahead.
  • Fiscal consolidation is still occurring in the budget. The pace of deficit contraction is marginally slower. The government is continuing to pursue structural budget repair despite the economy continuing to grow at a belowtrend pace and a rising unemployment rate. Whilst not ideal, the difference this time around is that the key policy packages in the budget are framed in a way that is designed to boost sentiment. It could just work.
  • Whilst the small business measures will boost confidence, and potentially demand and hiring, the opportunity to boost the economy with a substantive infrastructure package that boosts long-term potential and improves competitiveness (particularly around urban rail) has been squibbed. There was nothing new on the infrastructure front, and the government’s own forecasts imply continued weakness in public demand. If consumers and small businesses don’t respond, the RBA will be left to pick up the can for the economy.
  • Many of the longer-term challenges, such as dealing with excessively generous superannuation concessions and the discounted tax on capital gains, remain unaddressed. Longer-term agreements with the states for health and education still need to be funded. But for the short term, it appears that restoring confidence, and also popularity, is the over-riding focus.

Impact on households

  • Unlike the previous budget, where households were subjected to a range of budget nasties, the FY16 budget seems to have softened some of the blow for households – particularly at the lower end.
  • The key changes still result in the budget extracting savings from households, but the target of those savings has been redirected somewhat. On pensions, the decision to shift to CPI indexation has been reversed, which will put additional money in the hands of high marginal propensity to consume groups. But this has been partly offset with an increased taper rate for access to partpensions by wealthier households.
  • Reforms to the child care rebate will provide additional, simpler, support to households and are designed to encourage participation. But these changes come at the expense of subsidies for higher income parents, and also entail cuts to family tax benefit payments.
  • Reversals of ill-considered and unpopular measures from last year’s budget, such as the GP co-payment and the denial of access to unemployment benefits for 6 months, also softened the hits to households.
  • Overall, the impact on households is likely to be positive. The key outcome is likely to be alleviation, over time, of the dampening of consumer sentiment as the government looks to achieve a lift in popularity and electoral acceptance of its policy measures.

Impact on businesses

  • In the lead-up to the budget, the focus around businesses was directed on the moves to strengthen the integrity of Australia’s corporate tax system, particularly around profit shifting by foreign multi-nationals. However, overall – both directly and indirectly – the budget appears a net positive one for businesses.
  • Small businesses in particularly are the major winners, with a tax cut (the company tax rate for firms with turnover less than $2mn shifts from 30% to 28.5%). Unincorporated businesses will also receive a discount on income tax payable, up to $1,000 per annum. The cuts come at a cost to revenue of $3.3bn over the forward estimates.
  • The other win for small businesses is the reinstatement of the instant asset write off. As of 7:30pm, firms with turnover under $2mn will be able to instantly write off assets that cost less than $20,000 and are purchased between now and 30 June 2017. This is an enlarged version of the instant asset write-off that was originally cancelled as part of the mining tax roll-back. The impacts are two-fold, the boost to confidence should assist the general tone in the economy, and secondly, the demand for assets from small businesses should be a positive for larger entities – particularly in the retail sector.

The impact of the Budget on the economy

  • To assess the impact of the Budget on the economy a differentiation between discretionary policy changes and the automatic stabilisers needs to be made. The 2015-16 Budget reflects the combination of discretionary fiscal policy loosening providing a boost to the supportive effects of the automatic stabilisers. This is a different outcome to the 2014-15 budget.
  • Weaker nominal GDP growth, from weaker commodity prices and wages growth and slower wages growth, has reduced revenues by $52bn compared the 2014-15 budget. The government is not taking as much money out of the economy (and from businesses) as it expected – this is the automatic stabilisers in the budget at work. Whilst this is a cyclical challenge for the budget bottom line, it’s actually supportive for the economy.
  • Above and beyond the discretionary policy changes in the budget is the impact on confidence. The hit to confidence from the 2014-15 budget saw a retrenchment in consumer spending, and was a contributor to the ‘capex cliff’ as weaker demand dampened non-mining investment signals. The discretionary policy changes in the 2015-16 budget are expansionary, and should also be supportive of confidence. The shift in spending from the expanded paid parental leave scheme, which the Productivity Commission consistently found would deliver no participation benefits, to fund the child care package should deliver a benefit to the economy over time.

The economic outlook

  • Treasury expects the economy to grow at a subdued pace in 2014-15, gradually rising to above 3% growth by 2016-17. This is consistent with the unemployment rate peaking at 6½% in 2015-16.
  • Treasury highlights that non-mining investment is taking longer than expected to recover, resulting in a downward revision to 2015-16 growth expectations. However, the projections anticipate a recovery in this area to drive 2016-17 growth.
  • CPI has been contained at 1.3% over the past year by low oil prices, moderate wage growth and domestic activity. Inflation is expected to remain around the middle of the RBA’s target band through the year to 2015-16 as depreciation in the exchange rate flows through prices.
  • Growth, particularly nominal GDP, projections are highly sensitive to fluctuations in commodity prices through the impact on terms of trade. Treasury’s updated sensitivity analysis to iron ore prices indicates that a US$10 per tonne reduction/increase results in just over a 3 per cent fall/rise in the terms of trade, a 0.8% reduction in nominal GDP and a $2.1bn revenue hit in 2015-16.
  • Treasury is forecasting that weaker commodity prices will drive a fall in the terms of trade by 8½% in 2015-16. From 2016-17 the terms of trade is expected to remain broadly flat assuming a modest recovery in some commodity prices and a waning currency impact on import prices.

General disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN 58 002 832 126, AFSL No. 238947) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited.

Halle Yilmaz is a financial adviser and business consultant. As a financial adviser, she gives solid advice that can create rapid and lasting results for her clients. Sign up for her free E-Book and download “7 Steps to Healthy Wealth Management.” Follow Halle on Twitter @halleyilmaz

What the 2015 Budget means for you

australian-dollarThe Australian Government on 12 May released the 2015/16 Federal Budget.Below is a summary of key announcements that may affect you from a financial advice perspective. Please talk to your financial adviser for further details.

Please remember that, at this time, these measures are proposals only and require the passage of legislation to become effective. The start dates for some of these measures are after the next federal election. These measures may be subject to change through the implementation process.

Income tax changes
Personal income tax
There were no changes to personal marginal tax rates for resident or non-resident taxpayers in this year’s Budget. However, the following changes in relation to personal income tax were announced:

  • Motor vehicle expense deductions
    ‒ The number of methods available for calculating tax deductions related to the business use of a motor vehicle will be reduced from four to two, with the ‘12 per cent of original value method’ and ‘one-third of actual expenses incurred method’ to be removed with effect from 2015/16 financial year

    ‒ The ‘cents per kilometre method’, which currently provides a deduction based on the size of the motor vehicle’s engine, will also be modified. The reference to engine capacity will be removed and a flat rate of 66 cents per kilometre will be applied to determine an individual’s deduction amount under this method.

  • Fringe Benefits Tax (FBT)
    ‒ Employees of public benevolent institutions, health promotion charities, public and not-for-profit hospitals and public ambulance services are currently able to salary sacrifice meal entertainment benefits without being subject to FBT and without the benefits being reportable

    ‒ From 1 April 2016, a new separate single grossed-up cap of $5,000 will apply for salary sacrificed meal entertainment benefits for employees of these institutions. All use of meal entertainment benefits will now be a reportable fringe benefit

    ‒ Meal entertainment benefits exceeding the separate grossed-up cap of $5,000 can also be counted in calculating whether an employee exceeds their existing FBT exemption or rebate cap.

    • Tax compliance

      • Increase in penalty units
        ‒ The value of Commonwealth penalty units will increase from $170 to $180 from 31 July 2015. The penalty unit will also be indexed every three years by the Consumer Price Index, with the first indexation to occur on 1 July 2018

        ‒ Commonwealth penalty units are relevant for some Australian Taxation Office (ATO) penalties including:
        * failure to lodge an income tax return or other document by the due date or in the approved form
        * statements made or schemes undertaken by a taxpayer including intentional disregard of the tax law, recklessness or failure to take reasonable care
        * breaches of the Superannuation Industry (Supervision) Act 1993.

      Corporate tax changes
      Small businesses

      • Capital gains tax (CGT) roll-over relief for small businesses
        ‒ Commencing from the 2016/17 income year, changes to the legal structure of a small business with an aggregated annual turnover of less than $2 million will allow a deferral of the taxing point via CGT roll-over relief.

        ‒ Currently, CGT roll-over relief is only available for individuals who incorporate, while all other entity type changes (eg trusts) may give rise to a CGT liability. This measure recognises that new small businesses might choose an initial legal structure that they later find does not suit them when the business is more established.

      • Tax cuts and tax discounts for small businesses
        ‒ Small businesses that are companies with an aggregated annual turnover of less than $2 million will receive a tax cut of 1.5 per cent.

        ‒ Companies exceeding the $2 million threshold will be subject to the existing 30 per cent company tax rate on all taxable income. The current maximum franking credit rate for a distribution will remain unchanged at 30 per cent for all companies.

        ‒ Unincorporated small businesses will receive a tax discount of 5 per cent, capped at $1,000

        ‒ These changes will commence in the 2015/16 income year.

      • Immediate deductibility for professional expenses of small businesses
        ‒ The Government will allow businesses to take an immediate deduction for a number of professional expenses associated with starting a new business

        ‒ The expenses will include certain professional, legal and accounting advice expenses and will commence from the 2015/16 income year

        ‒ Under the current law, some professional expenses would ordinarily be deducted over a five year period.

      • Expanding accelerated depreciation for small businesses
        ‒ Small businesses with an aggregate annual turnover of less than $2 million will be able to immediately deduct the cost of assets, provided the asset cost is less than $20,000.

        ‒ This measure represents an increase from the current threshold of $1,000. It will apply to assets acquired and installed ready for use between 7.30pm 12 May 2015 and 30 June 2017.

        ‒ Assets valued at $20,000 or more will continue to be placed in the small business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year thereafter.The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools)

        ‒ The Government will also suspend the current ‘lock out’ laws for the simplified depreciation rules. These laws prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out, until 30 June 2017.

        ‒ From 1 July 2017, the thresholds for the immediate depreciation of assets and the value of the pool will revert to existing arrangements.

      • Superannuation changes
        Access to benefits

        • Release of superannuation benefits for terminal medical condition
          ‒ As previously announced by the Government, the conditions under which an individual suffering a terminal illness can access their superannuation benefits will be amended

          ‒ Currently, access to benefits using the ‘terminal medical condition’ condition of release requires an individual to obtain certification from two medical practitioners (one of whom is a specialist practising in the area related to the injury or illness) stating they are likely to have less than 12 months to live. This time period is proposed to be extended to 24 months with effect from 1 July 2015.

        Social security and family assistance changes
        Family assistance

        • Parental Leave Pay
          ‒ Eligibility conditions for the Government’s Parental Leave Pay scheme will be tightened, preventing some parents from claiming parental leave payments from both their employer and the Government. From 1 July 2016, parents who are eligible for employer-funded parental leave that is more generous than the Government’s Parental Leave Pay scheme will no longer receive the taxpayer-funded payment as well. Where employer-funded parental leave is less than the Government’s scheme, parents will be eligible for a Government payment, up to the maximum Parental Leave Pay benefit (ie currently 18 weeks at the national minimum wage).
        • Child care
          ‒ The Government has announced a comprehensive package of reforms intended to provide a simpler, more affordable, flexible and accessible child care system. The reforms include a new Child Care Subsidy that will replace the current Child Care Benefit, Child Care Rebate and Jobs, Education and Training Child Care Fee Assistance programs from 1 July 2017

          ‒ Eligibility for the new Child Care Subsidy will be based on an activity test and a means test. Families with incomes of up to $60,000 (in 2013/14 dollars) will be eligible for a Child Care Subsidy of 85 per cent of the lesser of the actual child care fees and a benchmark price per child. The subsidy rate will reduce to 50 per cent for families with income of $165,000 and above. The subsidy amount will be capped at $10,000 per child for families with income of $180,000 and above. No cap will apply for family incomes of less than $180,000

          ‒ Other measures include a two year pilot program to extend subsidy support for home care services provided by nannies and a child care safety net for disadvantaged families

          ‒ For further information, see Budget 2015/16 Families Package.

        Social security

        • Deeming thresholds
          ‒ The Government has indicated it will not proceed with a reset of the deeming thresholds that was announced in the 2014 Federal Budget. Under the previous proposal, the deeming thresholds for the social security income test were to be reset to $30,000 for single pensioners and $50,000 for couples, with effect from 20 September 2017.
        • Age Pension
          ‒ In a pre-Budget announcement, the Government indicated it will make significant changes to the means test used to determine eligibility for the Age Pension. The changes include increases to the ‘asset free area’ for the full pension and assets test reduction rate and a subsequent reduction in the part-pension cut-out thresholds. The changes are proposed to come into effect from 1 January 2017

          ‒ Pensioners impacted by the proposed changes to the Age Pension means test will be guaranteed eligibility for either the Commonwealth Seniors Health Card or the Health Care Card.

          ‒ The Government has also indicated it will not proceed with changes to indexation of the Age Pension that were announced in last year’s Federal Budget

        • Income test treatment of defined benefit pensions
          ‒ The social security means testing of certain defined benefit pensions will be amended to impose a cap on the deduction amount available under the income test. Currently, a portion of an individual’s defined benefit pension, based on the tax free component, is not counted as income for social security purposes, which can result in a significant amount of income being disregarded in assessing eligibility for pensions under the income test. From 1 January 2016, this deduction amount will be limited to 10 per cent of the value of the annual pension for defined benefit pensions payable from public sector and corporate defined benefit schemes.

          ‒ Military pensions, veterans’ pensions and income streams purchased from retail providers or through self-managed superannuation funds will not be affected by this change.

        Aged care

        • Means testing arrangements
          ‒ The Government will align the aged care means testing arrangements for residents who pay their accommodation costs by periodic payments with the arrangements that currently apply to those who pay via a lump sum. This will remove the rental income exemption for aged care residents who are renting out their former home and paying their accommodation costs by periodic payment. This measure will apply for new residents entering care from 1 January 2016.

        This information is provided for educational purposes. It does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. For further information on the measures detailed above, please talk to your financial adviser.

        Halle Yilmaz is a financial adviser and business consultant. As a financial adviser, she gives solid advice that can create rapid and lasting results for her clients. Sign up for her free E-Book and download “7 Steps to Healthy Wealth Management.” Follow Halle on Twitter @halleyilmaz

What is good for you? The RBA cuts the offical interest rates

Due to experiencing low inflation, soft economic growth, plunging in commodity prices and falling in mining investments, the Reserve Bank of Australia (RBA) cuts the official interest rates to historical low of 2.25% from 2.5 % on 3 February 2015. In my opinion, it was too early action.

My view is based on several factors;

  • The surprise drop in the unemployment rate to 6.1% in December 2014.That means the labor market is moving. The ANZ Job advertisements series, along with the NAB’s respective employment indices have all been moving higher for some time.
  • The drop in oil prices should help consumer sentiment and spending. Although Australia is a net- energy exporter (coal and LNG), we are a net-importer of oil. The fall in petrol prices flowing from lower oil prices has so far cut the average Australian household’s petrol bill by around $14 a week, therefore, $728 a year.
  • Increasing growth in non-mining sectors of the economy; dwelling construction – demand for new homes especially for units remains solid -, tourism, higher education, agriculture and manufacturing are likely to see a boost.
  • A weaker $AU.Because of arise in the value of the $US in response to relatively strong economic conditions in the US, and drop in commodity prices mainly plunge in iron ore price, the dollar is rapidly falling towards the RBA’s preferred US 0.75 cent level, which should have reduced pressure for a cut in official interest rates.
  • A weak $AU should help to boost sentiment among trade-exposed industries, which will provide a partial offset to lower commodity prices. Depreciated $AU makes the Australian produced goods and services more competitive in global markets. This should be a plus for investments, job creations, and federal tax revenues. Beside this, weak $AU will attract more international tourists, and international students for their high education in Australia. This again will help businesses’ bottom line and increase in employment.

    Thus petrol prices and $AU are already doing part of the RBA’s job for it, leaving interest rates steady for now would have leaved the RBA better flexibility to respond more forcibly to demand weakness later should that be needed.

    However, as the official interest rates drop to historical level of 2.25%, $AU will depreciate even faster. That should help trade-exposed industries, encourage businesses to spend more if possible to expand, and stimulate the housing industry a bit more.

    But we know that household debt is actually Australia’s biggest economic problem. Surely, making borrowing even more attractive by cutting rates is not, therefore, the solution.

    In the meantime, this decision will deteriorate the returns from cash and bank deposits for those who hold their savings and retirement income in those accounts.

    On the other hand, if banks pass on the RBA’s the interest rate cuts to their mortgages’ interest payments on their loans then mortgages benefit from this decision.

    Halle Yilmaz is a financial adviser and business consultant. As a financial adviser, she gives solid advice that can create rapid and lasting results for her clients. Sign up for her free E-Book and download “7 Steps to Healthy Wealth Management.” Follow Halle on Twitter @halleyilmaz

The Federal Budget Looms

moneyAustralia’s new federal government today, 13 May ,will deliver its first budget.

The first budget a government brings down is typically one that contains tough political decisions because it has two years to engineer a recovery in the polls. The bluster in parliament and elsewhere about inherited large federal budget deficits and expanding government debt hints at a hard-hitting budget. But this might not be the best thing for the economy.

The economy is expanding but its unsteady growth and the risks it confronts warrant a gentle removal of fiscal stimulus, especially in the form of spending cuts. If the global financial crisis should have taught policymakers anything about fiscal policy it’s that austerity hurts economies, often in a way that is self-defeating in terms of fixing government finances. The size of Canberra’s deficit and debt don’t demand such drastic action.

Much angst about the federal government’s budget deficit stems from how each update on the government’s finances usually shows bigger deficits than previously estimated. The most recent figures from the government are in the mid-year review in December. They showed that the budget deficit for this financial year is estimated to have blown out to $47 billion, or 2.7% of GDP, from $18 billion, when former treasurer Wayne Swan delivered the budget in May last year. The mid-year review projected that Australia is headed for federal deficits each year until at least 2023-24 without any policy changes. By 2016-17, the sale of government bonds to pay for four years of federal deficits is expected to boost net government debt to $280.5 billion, which would by then equal about 15.7% of GDP. While these numbers are big, our ratio of net government debt to national output is low by international standards. The figure for Japan, for example, is headed above 140% of GDP this year.

The government’s budget is the difference between government revenue (which includes taxes) and spending. The reason behind the blowout in the deficit is not excessive government spending. The problem is that the fizzling out of the China-inspired mining boom is slowing economic growth more than expected. A slowing economy reduces government receipts as people and companies pay less tax and boosts government payments if it is forced to pay out more on welfare – which is why austerity is usually self-defeating. The mid-year review said “significantly” lower economic growth (a slowing from 3% to 2.5% in 2014-15) had resulted in an estimated drop of tax receipts of more than $37 billion over four years.

All governments should aim for a balanced budget over the longer term. In the short term, policymakers should stimulate the economy by running a budget deficit if economic growth is lagging and do the opposite if the economy is humming enough to threaten inflation. As even the government admits the economy is expected to be sluggish in the near term there is nothing wrong with the government running a deficit in the next couple of years, even if that adds to government debt.

The economy would probably have a bigger problem if the government tried to return the budget to surplus too quickly, especially if it tries to do this via spending cuts rather than higher taxes – which it is predisposed to do. While the housing market might be frothy enough to prompt the Reserve Bank of Australia to this year raise the cash rate from its record low of 2.5%, the economy faces plenty of challenges. The prices of Australia’s exports are falling as China’s economy struggles. The eurozone confronts numerous threats. While the US economy is bouncing back, its recovery is timid. While the political clock says now is the time for tough budget decisions, investors can just hope that the federal government doesn’t make it harder for the economy to surmount these risks.

Australian budget information comes from the federal government’s Mid-Year Economic and Fiscal Outlook. 17 December 2013. Other financial information comes from Bloomberg, and Fidelity’s research unless stated otherwise.