Rate talk grows as economy strengthens

Posted on 24 June 2021
Rate talk grows as economy strengthens

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

Australia's recovery marches on with the economy posting its biggest monthly trade surplus on record and skilled vacancies striking their highest level in well over a decade, pointing to a further fall in the jobless rate.

But there is little sign at this stage of the Reserve Bank of Australia changing its view on its interest rate outlook, even as a growing swell of economists believe a cash rate hike could be as early as next year.

The RBA board meets on July 6 and its assistant governor for economics Luci Ellis wasn't about to announce a change in the central bank's policy guidance.

"The board remains committed to maintaining highly supportive monetary conditions," Dr Ellis told the Australian Industry Group event in Adelaide on Wednesday.

"The aim of these policy settings is to support a return to full employment and inflation consistent with the target."

Since cutting the cash rate to a record low 0.1 per cent last November, the RBA has been adamant that a lift in the rate will not happen until inflation is sustainably within the two to three per cent target.

It does not expect this to occur until 2024 at the earliest.

But Commonwealth Bank head of Australian economics Gareth Aird believes a rate rise will come earlier, saying his bank's views on the outlook for inflation and wages have differed significantly from the RBA's view for some time.

"The labour market will tighten quickly and this means wages and inflation will lift, particularly because the supply of labour is constrained," Mr Aird said.

"Our central scenario has the RBA delivering the first hike in the cash rate in November 2022."

At that time he expects an increase of 0.15 per cent which would take the cash rate to 0.25 per cent.

That would be followed by an increase of 0.25 in December 2022, and further moves will see the cash rate at 1.25 per cent by the September quarter 2023.

Other economists also believe last week's labour force figures that showed the jobless rate unexpectedly falling to 5.1 per cent and back to its pre-pandemic level was a "game changer" in regard to interest rates.

Job advertising figures suggest the strong recovery in employment from last year's recession has much further to run.

The National Skills Commission's final vacancy report for May confirmed earlier preliminary figures that job advertisements on the internet rose by a further 1.9 per cent in May.

This was the 13th consecutive monthly rise to stand at the highest level in 12 years and 46 per cent higher than their pre-pandemic level.

Separate data showed that while the relationship between Australia and China may be rapidly declining, demand from the Asian giant for iron ore continues unabated, even at over $US200 per tonne.

This helped Australia's merchandise trade surplus to a record $13.3 billion in May, preliminary figures from the Australian Bureau of Statistics showed.

"Iron ore exports continued their strength in May with both value and quantity increasing in the month," ABS head of international statistics Andrew Tomadini said.

Exports rose 11 per cent in May to a record $39.2 billion, while imports increased by one per cent to $25.9 billion.

Iron ore exports to China rose 20 per cent to $12.7 billion, the third consecutive monthly record.

 

Posted in:News  

Income Protection: How, what, why and who

Posted on 18 June 2021
Income Protection: How, what, why and who

MoneySmart
(ASIC)

Income protection insurance pays up to 85% of your pre-tax income for a specified time if you're unable to work due to partial or total disability.

Each income protection policy has its own definition of partial or total disability that must be met before a claim is made. Check the insurer's website or the product disclosure statement (PDS) for the definition and any exclusions.

Your income protection policy will have a waiting period before payments start due to loss of income through injury or illness.

Income protection insurance doesn't cover you for lost income because you are stood down or become unemployed.

Deciding if you need income protection insurance

Income protection insurance can be important if you:

  • are self-employed or a small business owner, as you may not have sick or annual leave
  • have family members or dependents that rely on the income you earn
  • have debt, such as a mortgage, you'll need to make payments on even if you're unable to work

To work out how much income protection you need, prepare a budget. This will help you see your monthly expenses and the income you'll need to replace. You may want to factor in making payments to your super as well.

Also consider:

  • if you have total or permanent disability or permanent disability or trauma insurance, that can help replace lost income
  • if you have private health insurance that could help pay for any medical expenses
  • what help or support from family or friends may be available

If you need help deciding if you need income protection insurance and how much, speak to a financial adviser.

Choosing an income protection policy

Some of the things you'll need to consider when choosing an income protection policy are:

Policy type

Income protection policies are provided as either an:

  • Indemnity value policy - the amount you're insured for is a percentage of your salary when you make a claim. If your salary has decreased since you bought the policy, you'll get a smaller monthly insurance payment. Indemnity value policies are generally cheaper and can be useful for people with a stable income.
  • Agreed value policy - the amount you're insured for is a percentage of an agreed amount when you sign up for the policy. These are generally more expensive but can be useful if you have income that changes from year-to-year.

Waiting period

This is the amount of time you must wait before your payments start. Most income protection policies offer a waiting period between 14 days and two years.

In general, the longer the waiting period, the cheaper the policy. When you're choosing the waiting period, think about how much you have in sick and annual leave, savings and emergency funds.

Benefit period

The benefit period is how long the monthly payments will last. Most income protection policies offer two or five years, or up to a specific age (such as 65). The longer the benefit period, the more expensive the policy. But it also means greater protection if you're unable to work for a longer time.

Stepped or level premiums

You can generally choose to pay for income protection insurance with either:

  • Stepped premiums - recalculated at each policy renewal, usually increasing each year based on the higher chance of a claim as you age
  • Level premiums - charge a higher premium at the start of the policy, but changes to cost aren't based on your age so increases happen more slowly over time

Your choice of stepped or level premiums has a large impact on how much your premiums will cost now and in the future.

Use our Life insurance claims comparison tool

Compare how long it takes different insurers to pay an income protection claim and the percentage of claims they pay out.

How to buy income protection insurance

Check if you already have income protection insurance through super. Most super funds offer default income protection insurance that's cheaper than buying it directly. You can increase your level of cover through your super fund if you need to.

You can also buy income protection insurance from:

  • an insurance broker
  • a financial adviser
  • an insurance company

Premiums you pay for income protection insurance held outside of super are generally tax deductible. Policies outside of super usually allow a higher amount of cover and have more features and benefits available.

What you need to tell your insurer

You need to tell your insurer anything that could affect their decision to provide you with insurance. You need to give them this information when you apply, renew or change your insurance.

This can include your:

  • age
  • job
  • income (salary, wage, commissions)
  • medical history
  • lifestyle (for example, if you're a smoker)
  • hobbies or activities that are high risk (for example, skydiving)

The information you provide will help the insurer to decide:

  • if they should insure you
  • how much your premiums will be
  • terms and conditions for your policy

It is important that you answer the questions honestly. Providing misleading answers could lead an insurer to deny a claim you make.

Who to contact to make a claim

To make a claim on your insurance, speak to the person or company you bought the policy from.

  • an insurer - contact the insurance company
  • an insurance broker or financial adviser - speak to them first
  • a superannuation fund - contact your fund
  • an employment arrangement - speak to your employer
Posted in:News  

Holiday homes

Posted on 17 June 2021
Holiday homes

(ATO)

If you own a holiday home, you can only claim tax deductions for expenses to the extent the home is rented out or genuinely available for rent.

Even if you don't rent out your holiday home, there are capital gains tax implications when you sell it.

Holiday home not rented out

If you own a holiday home and don't rent out the property, you don't include anything in your tax return until you sell it.

When you sell the property, you will need to calculate your capital gain or loss.

Keep all records from the time you purchase the property until the time you sell it to be able to work out the capital gain or loss when you sell.

See also:

Holiday home rented out

If your holiday home is rented out, you need to include the rental income you receive as income in your tax return.

You can claim expenses for the property based on the extent that they are incurred for the purpose of producing rental income.

You will need to apportion your expenses if:

  • your property is genuinely available for rent for only part of the year
  • your property is used for private purposes for part of the year
  • only part of your property is used to earn rent
  • you charge less than market rent to family or friends to use the property.

Holiday home not genuinely available for rent

Expenses may be deductible for periods when the property is not rented out, if the property is genuinely available for rent.

Factors that may indicate a property isn't genuinely available for rent include:

  • it's advertised in ways that limit its exposure to potential tenants for example, the property is only advertised
    • at your workplace
    • by word of mouth
    • on restricted social media groups
    • outside annual holiday periods when the likelihood of it being rented out is very low
  • the location, condition of the property, or accessibility of the property mean that it's unlikely tenants will seek to rent it
  • you place unreasonable or stringent conditions on renting out the property that restrict the likelihood of the property being rented out, such as
    • setting the rent above the rate of comparable properties in the area
    • placing a combination of restrictions on renting out the property for example, requiring prospective tenants to provide references for short holiday stays and having conditions like 'no children' and 'no pets'
  • you refuse to rent out the property to interested people without adequate reasons.

These factors generally indicate the owner doesn't have a genuine intention to earn rental income from the property and may have other purposes, such as using it or reserving it for private use.

Holiday home part year rental

If you rent out your holiday home and also use it for private purposes, you must apportion your expenses. You can't claim deductions for the proportion of expenses that relate to your private use or if it was not genuinely available for rent, such as when used or reserved for yourself, friends or family.

If your holiday home is rented out to family, relatives or friends below market rates, your deductions for that period are limited to the amount of rent received.

Posted in:News  

Do you need income protection insurance?

Posted on 29 April 2021
Do you need income protection insurance?

MoneySmart
(ASIC)

Income protection insurance pays up to 85% of your pre-tax income for a specified time if you're unable to work due to partial or total disability.

Each income protection policy has its own definition of partial or total disability that must be met before a claim is made. Check the insurer's website or the product disclosure statement (PDS) for the definition and any exclusions.

Your income protection policy will have a waiting period before payments start due to loss of income through injury or illness.

Income protection insurance doesn't cover you for lost income because you are stood down or become unemployed.

Deciding if you need income protection insurance

Income protection insurance can be important if you:

  • are self-employed or a small business owner, as you may not have sick or annual leave
  • have family members or dependents that rely on the income you earn
  • have debt, such as a mortgage, you'll need to make payments on even if you're unable to work

To work out how much income protection you need, prepare a budget. This will help you see your monthly expenses and the income you'll need to replace. You may want to factor in making payments to your super as well.

Also consider:

  • if you have total or permanent disability or permanent disability or trauma insurance, that can help replace lost income
  • if you have private health insurance that could help pay for any medical expenses
  • what help or support from family or friends may be available

If you need help deciding if you need income protection insurance and how much, speak to a financial adviser.

Choosing an income protection policy

Some of the things you'll need to consider when choosing an income protection policy are:

Policy type

Income protection policies are provided as either an:

  • Indemnity value policy - the amount you're insured for is a percentage of your salary when you make a claim. If your salary has decreased since you bought the policy, you'll get a smaller monthly insurance payment. Indemnity value policies are generally cheaper and can be useful for people with a stable income.
  • Agreed value policy - the amount you're insured for is a percentage of an agreed amount when you sign up for the policy. These are generally more expensive but can be useful if you have income that changes from year-to-year.

Waiting period

This is the amount of time you must wait before your payments start. Most income protection policies offer a waiting period between 14 days and two years.

In general, the longer the waiting period, the cheaper the policy. When you're choosing the waiting period, think about how much you have in sick and annual leave, savings and emergency funds.

Benefit period

The benefit period is how long the monthly payments will last. Most income protection policies offer two or five years, or up to a specific age (such as 65). The longer the benefit period, the more expensive the policy. But it also means greater protection if you're unable to work for a longer time.

Stepped or level premiums

You can generally choose to pay for income protection insurance with either:

  • Stepped premiums - recalculated at each policy renewal, usually increasing each year based on the higher chance of a claim as you age
  • Level premiums - charge a higher premium at the start of the policy, but changes to cost aren't based on your age so increases happen more slowly over time

Your choice of stepped or level premiums has a large impact on how much your premiums will cost now and in the future.

Use our Life insurance claims comparison tool

Compare how long it takes different insurers to pay an income protection claim and the percentage of claims they pay out.

How to buy income protection insurance

Check if you already have income protection insurance through super. Most super funds offer default income protection insurance that's cheaper than buying it directly. You can increase your level of cover through your super fund if you need to.

You can also buy income protection insurance from:

  • an insurance broker
  • a financial adviser
  • an insurance company

Premiums you pay for income protection insurance held outside of super are generally tax deductible. Policies outside of super usually allow a higher amount of cover and have more features and benefits available.

What you need to tell your insurer

You need to tell your insurer anything that could affect their decision to provide you with insurance. You need to give them this information when you apply, renew or change your insurance.

This can include your:

  • age
  • job
  • income (salary, wage, commissions)
  • medical history
  • lifestyle (for example, if you're a smoker)
  • hobbies or activities that are high risk (for example, skydiving)

The information you provide will help the insurer to decide:

  • if they should insure you
  • how much your premiums will be
  • terms and conditions for your policy

It is important that you answer the questions honestly. Providing misleading answers could lead an insurer to deny a claim you make.

Who to contact to make a claim

To make a claim on your insurance, speak to the person or company you bought the policy from.

  • an insurer - contact the insurance company
  • an insurance broker or financial adviser - speak to them first
  • a superannuation fund - contact your fund
  • an employment arrangement - speak to your employer

 

Posted in:News  

Budget position now in far better shape

Posted on 28 April 2021
Budget position now in far better shape

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

Josh Frydenberg is expected to hand down a budget in far better shape than was expected just a few months ago due to the economy performing much stronger than predicted.

But economists are warning the treasurer not to rush in and start cutting the budget to get debt back on an even keel, saying he needs to be patient after the shock after last year's deep recession.

However, the better budget position will allow for some targeted policies to be introduced and for a promised aged care package to go ahead when it is released on May 11.

Senior government minister Karen Andrews declined to comment on media reports the government is putting together a $10 billion aged care budget package.

"Aged care is a significant issue for our government and for the people of Australia," she told Sky News' Sunday Agenda program.

"We established the royal commission to look at aged care and we have made it very clear that there will be a comprehensive response to that."

But Opposition Leader Anthony Albanese said the $10 billion figure being speculated is a "drop in the ocean" compared with the crisis in aged care.

"The government had a report which was titled neglect," he told reporters in Hobart.

"We have maggots in wounds. We have an extraordinary number of aged care residents who literally aren't getting enough to eat."

In the mid-year budget review released in December a $197.7 billion budget deficit was forecast for the 2020/21 financial year and a $108.5 billion deficit for 2021/22.

"On budget night the treasurer will announce deficits that are substantially lower because the economy is substantially better," Deloitte Access Economics economist Chris Richardson told Sky News.

Warren Hogan, economic adviser at Judo Bank, agreed the budget will be in a much better position due to lower unemployment, stronger economic growth and higher commodity prices, particularly for iron ore.

But he advised the government to be patient and avoid the temptation of tightening fiscal policy too soon.

"This government likes to get the budget back into order quickly, that's not the right strategy right now. Allow the economy to do the repair for the time being," he told Sky News.

"The government needs to be patient, it needs to stick to its plan and allow the strong economy to be the major driver of budget repair for at least the next 12 months, if not a big longer."

AMP Capital chief economist Shane Oliver believes the deficit could now be $125 billion for 2020/21 because the strength in employment means a surge in personal tax revenue.

"The starting point could for the 2021/22 budget could now be around $50 billion," Dr Oliver said in a note to clients.

When the pandemic and subsequent recession first hit Australia's shores, Mr Frydenberg said he did not intend to start budget repair until the unemployment rate was comfortably below six per cent.

The unemployment was 5.6 per cent in March.

"We're already there, but we need to go further," Mr Richardson said.

"The Reserve Bank aims for an unemployment rate of 4.5 per cent. The government should shift its line in the sand aiming for an unemployment rate comfortably under five."

Posted in:News  

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