Provision Newsletter

In the financial services industry, advising people to spend money is like being a doctor encouraging ice-cream consumption. There is a good reason why investment firms recommend setting aside as much as possible for retirement: many people in or approaching retirement fall short of what they need to be comfortable, according to the Association of Superannuation Funds of Australia standard for a comfortable retirement, so the adequacy question is real enough.

But it is a discussion with two sides, and increasingly data and research is pointing towards an unexpected issue which is that people in retirement appear to be being unnecessarily frugal.

While it is generally not smart (or sustainable for most people) to go out and spend at will (or to eat nothing but ice cream), a good way to view the spend / save relationship is through an “everything in balance” approach.

A comfortable retirement is a long-term goal, and you need a plan to achieve it. Consistent contributions via a diversified, low-cost portfolio are a good place to start. Ideally start young so that compound interest can help you across the finish line. Avoid unnecessary debt. Do all these things, but if you also love model railroads, crave a baking career, or just want to visit Coober Pedy before you die, isn’t that part of the reason you are saving today?

Ideas for matching your financial planning to your personality abound. You are no longer locked into logging every dollar you spend into a spreadsheet, unless you like doing it that way. There are lots of neat new online tools to help with budgeting, saving and keeping track of spending that can work for you.

One of the strengths of the Australian super system is its mandatory contribution regime but when it comes to drawing down those hard-earned savings in retirement the system is still immature, so it is not surprising that people are conservative about drawing down from super when they (a) don’t know how long they will live for (b) what investment performance they can expect or (c) what provision they need to make for health and aged care costs as they grow older.

Government regulations dictate that we have to withdraw minimum amounts from our super pensions each year – for those aged under 65 that starts at 4% a year, rising to 5% for those between 65 and 74 and so on until it reaches a maximum withdrawal amount of 14% for those over 95.

The government rules are designed to ensure that savings that benefited from super’s tax concessions eventually come out of the system. So these rules are driven by tax policy and were never intended to be the recommended way for retirees to spend their super.

But in the absence of any other guidance, it is hardly surprising that many people treat these as recommendations and only withdraw the minimums, just as many people only save the mandatory 9.5% in the savings phase.

So while there is understandably a lot of focus on saving enough in super to pay for retirement, perhaps the next focus needs to be helping people develop lifestyle spending plans.

Remember too, that many of the personal finance numbers you see are averages and may not be relevant to your situation. Some of you may inherit a portion of the estimated $2.4 trillion in wealth expected to be transferred from Baby Boomers to the next generation. Longer lifespans also may mean you can work and earn for more years than previous generations did.

Now, sit down, scoop yourself a healthy-sized portion of ice-cream, and start planning.

Please contact us on |PHONE| if you seek further discussion on this topic.

Source : Vanguard March 2019

By Robin Bowerman, Head of Corporate Affairs at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2019 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business,nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

If your partner has expressed that you’re a bit of a letdown when it comes to managing money, here are some pointers for when financial opposites attract.

Depending on what stage of life you’re at, you and your other half may be in talks about moving in together, adopting a pet, buying a property, or the day the two of you may be able to retire.

If your partner is on point when it comes to managing their finances, whereas you don’t have the faintest (do you even know how much cash is in your account right now, or how much money you owe?), it’s a chat that mightn’t end well.

If the thought had crossed your mind (after all, financial stress has a negative influence on many relationships), but you don’t know where to start, here are some ways you can demonstrate to that special someone, you don’t need financial babysitting no more.

How to flex your financial muscle

1. Create a budget

How much money you have in your back pocket will often come down to what you earn, but sometimes it’ll also come down to smarts – and creating a budget can play a big part.

It doesn’t have to be too hard of a task either. Start by writing down what money you’ve got coming in (from your job and/or elsewhere), what cash you need for the mandatory stuff (don’t forget any repayments owing), and what you’d like to have left over for the fun stuff.

Once you’ve got a good visual of these three aspects of your finances, you’ll more easily be able to identify where you may be able to cut back and where money might be saved.

2. Keep in mind you can still have fun on a budget

If you’re ready to chuck the towel in after giving point one a go, keep in mind there are a number of inexpensive ways to still have a social life with a little less money. Here are just a few:

• Eat at home but make it an event. Invite friends over and take turns hosting dinner parties

• Pack an esky for a date at the park. You’ll save on food and drinks, and may get an A for effort

• Go where the specials are at and look for two-for-one deals via sites like TheHappiestHour

• Swap a flight with a road trip and research cost-effective accommodation on Stayz or Airbnb

• Do a movie night at home and deck out the kitchen bench with your own selection of popcorn, drinks and candy bar options.

3. Pay your debts to avoid problems borrowing down the track

Did you know late payments can impact your credit report, which means the next time you go to borrow money, you might not actually be able to? If the money you owe is mounting, check out our info page on 9 ways to manage your debts.

Meanwhile, if you’re struggling to make repayments, you may be able to seek assistance from your providers and you can also talk to a financial counsellor (free of charge) at the National Debt Helpline on 1800 007 007.

4. Call around to see if you can get a better deal

Research shows Aussie households could save up to $1,086 on their electricity bill every year just by switching from the highest priced plan to the most competitive on the market¹.

Now apply that thinking to your phone, wi-fi, credit card and other providers, and you might be pleasantly surprised by the savings you could make over a 12-month period.

If you want some help, comparison sites, such as Canstar, Compare the Market, Finder and Mozo, may be able to do some of the legwork for you.

5. Kick your vices or try to cut down

Aussies spent $10.7 billion on smokes, $6.7 billion on gambling and lotteries, and $5.8 billion on drinks at the bar in one year alone², so cutting back where you can might be worth a thought and reduce people in your life nagging you about it.

Easier said than done? Sure, but if you consider the other things you could put your money toward (an overseas trip might be nice) and that findings reveal those who persist in these areas could save more than $20,000 a year³, healthier choices might not sound like too bad an alternative.

6. Put an end to borrowing cash from your other half

When you’re in a bind, it might be tempting to ask for a hand-out, but it can put strain on relationships, particularly if it’s a regular occurrence and you don’t pay things back on time, or at all.

The person you’ve borrowed from might need the money back before you can repay it, start to judge your spending habits, or even end the relationship, because they’re over you asking for cash (point one should be able to help here).

7. Cut out the sneaky spending habits

Nearly one third of Aussies in relationships spend money they don’t tell their other half about⁴. And, with financial problems and dishonesty having the potential to push couples apart, putting an end to secret purchases, which you may be hiding in your car right now, might be a game changer.

8. Have an emergency stash for the unexpected stuff

An emergency fund can give you (and your partner) peace of mind, as you’ve got a bit of savings up your sleeve to pay for unexpected bills in the event of a financial dilemma – car troubles, medical or dental treatment, parking fine – you get the gist.

It also reduces the need to rely on your partner, family or high-interest options, such as credit cards or payday loans, which could see you pay back more than what you borrowed.

9. Show you care about the future

If you’ve put thinking about super on the backburner, you might want to think again, particularly depending on how you and your partner hope to spend your years after you finish working.

With over $17 billion worth of super waiting to be claimed by Aussies right across the country⁵ (you may have changed jobs and opened new super funds along the way that you’ve lost track of), you might discover super you didn’t know you had. If you’re with AMP, we can even help locate it for you.

Meanwhile, you might also be interested to know that according to the last analysis by the Australian Taxation Office (ATO), $2.75 billion dollars in super wasn’t paid to employees by their employers⁶, so it’s worth taking a moment to also check you’re getting what you’re owed.

So, you love fishing when you are on holidays but are finding it hard to convince others just how awesome angling is? Don’t fear – we have five solid reasons why holidaymakers should fish during their break.

1.     Connection

Put down the iPads and mobile phones and connect the good old-fashioned way – through conversation. Fishing is the type of activity that encourages chatter and, therefore, is a great way to spend time with friends. There’s something about the tranquillity of a quiet fishing spot and being in a relaxed environment that brings out the best in casual conversation.

2.     Family time

For families, it’s tough to get everyone to agree on a holiday activity, especially as your children grow older. Yet fishing is the ideal family pursuit. This timeless activity can be enjoyed by all ages: you don’t grow out of fishing – you grow into it. Better still, our fishing tips for beginners can help anyone to get started.

If fishing with children, let them play a part in the process to better understand the art of landing a catch. Fishing teaches children useful skills and values such as the importance of preparation, patience, and persistence among many others.

There is something particularly exhilarating about landing that first catch – and the excitement on your child’s face is likely to be priceless.

3.     Easy access

Fishing is such a versatile activity. It doesn’t matter where you are in Australia; it’s easy to find somewhere to dangle a line. Whether it’s from the beach or rocks, on the banks of a river or lake, or in a boat, fishing can be enjoyed with ease. And where there’s water, there is sure to be a BIG4 park.

4.     Relaxing

Holidays are all about relaxation, and fishing is a great way to keep entertained while taking it easy. Find a quiet spot to cast your fishing rod, perhaps even pack a picnic lunch, and enjoy a pleasant outing with family or friends.

5.     Value for money

Sure, when you’re just starting out fishing can put a bit of a dent in the wallet. Buying equipment for any hobby comes at a cost. However, once you’ve bought your gear, ongoing costs are minimal. In fact, it can be argued that fishing offers great value for money.

Now that you’re armed with some perfectly good reasons why fishing and holidays are a wonderful mix, start planning your next adventure with BIG4.

Source : BIG4 Holiday Parks

Reproduced with the permission of BIG4 Holiday Parks. This article first appeared on BIG4.com.au https://www.big4.com.au/articles/5-reasons-to-go-fishing-while-on-holidays and was republished with permission.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Dividends but no real investment

One of the simplest yet most effective investment scams is the ponzi scheme. The promoter promises investors a return on investment and says it is secure, but there is no real ‘investment’.

The promoter convinces people to invest with their scheme. They then use the money deposited by early investors to pay the first ‘dividend’ until investors feel comfortable and decide to invest more. Some investors then encourage their family and friends to join. Eventually the scheme falls apart because the promoter starts to spend the money too quickly or the pool of investors dries up.

Here are tips on how to pick a ponzi scheme from a real investment.

Warning signs of a ponzi scheme

• The rate of return is sometimes suspiciously high (maybe as high as 10% per month or 120% per year)  – but it can also be just the usual rate of return

• The person who tries to recruit you is someone you think is trustworthy, like a neighbour or someone in your church or community group

• The recruiter may have already invested in the scheme and received great dividends

Read ASIC’s media releases about the conviction of ponzi operator Chartwell Enterprises, and a penalty and ban issued to ponzi ‘mastermind’ David Hobbs. 

Case study: Maria invests through a friend

First-time investors Maria and Jason borrowed $70,000 to invest in the overseas money market after a recommendation by their friend of 40 years, Steve.

Steve told them their investment would involve no risk at all, as it was guaranteed by the Bank of America. He said they could withdraw their capital at any time after the first 12 months. The return promised on the investment was fantastic (26% per year on their initial investment). Steve helped the couple arrange to borrow the $70,000 they would invest.

But the scheme was not real – they were caught up in a ponzi scheme. Part of the money they and other early investors deposited was used to pay their first dividend cheques. When the money for dividends dried up, Steve said that it was due to the interference of ASIC. This was one of many false stories fed to the investors by Steve, to keep them onside.

Jason and Maria were angry with ASIC as they thought the organisation was ruining their chances of making money from their investment. They wanted to believe Steve, as they didn’t want to think they had lost all their money, and he was an old friend.

When the truth eventually came out that the scheme wasn’t real, Maria and Jason, along with the other investors, assisted ASIC’s investigation and prosecution of Steve and his business partner — who spent more than 2 years in jail.

Maria and Jason lost their $70,000 and ended up having to pay off the loan. When Jason’s mother died, his inheritance was completely swallowed up by the $70,000 debt plus interest. 

Jason and Maria are now very wary, and warn others to get a second opinion from a licensed financial adviser before investing in anything.

This is a true story – only the names of the investors have been changed at their request.

Where do ponzi schemes operate?

Operators of unlawful investment schemes sometimes target community groups, like churches, to find victims. In some cases, members of the community group innocently encourage others to put money into the illegal scheme.

This means that when the scheme collapses, not only do the investors lose their money, but relationships break down between friends, neighbours or community group members.

Ponzi schemes targeting Thai communities

ASIC Victorian Regional Commissioner Warren Day talks to SBS about how members of the Australian Thai community are falling victim to Ponzi scams operated through Facebook.

Warren Day interview on SBS (23 mins)

How long can the scheme last?

If the promoter of the scheme is disciplined about how much money is left in the account to pay ‘dividends’, the scam can go on for many years. Ponzi schemes only require a few people in their early stages to be successful.

How ponzi schemes work

An example of how a ponzi scheme works is shown in the table below. In January, the promoter convinces Katie to invest $100,000 in his scheme. The promoter then pays Katie $10,000 each month using Katie’s own money.

As Katie receives $10,000 each month she doesn’t suspect anything is wrong, and happily recruits friends and work colleagues to invest, too. After 3 months, Katie’s neighbour Adam decides to invest $100,000 after hearing about Katie’s great returns.

After both Katie and Adam have invested their savings, the returns continue to come in April. But in May they don’t hear anything from the promoter. They try to contact him but his number has been disconnected.

The promoter has taken off leaving two devastated people in his wake. Katie lost $70,000 and Adam lost $90,000. The promoter got $160,000 out of the scheme.

This is example has only two victims but in reality these schemes can have dozens or even hundreds of victims.

Katie and Adam invest in a ponzi scheme

What to do if you have invested in a ponzi scheme

1. Stop investing any more money

2. Check if the company is on our list of companies you should not deal with

3. Check the company’s licence number on ASIC Connect’s Professional Registers.

4. Report the scam to ASIC

ASIC may be able to prosecute the ponzi scheme operators if they are operating in Australia. ASIC may also be able to issue an alert about the scheme. You should also warn your family and friends, to stop them from becoming victims.

The biggest telltale sign of a ponzi scheme is the suspiciously high rate of return. That old saying applies here: if it sounds too good to be true, it probably is.

Before you invest in any scheme, do independent checks to see how the returns are really going to be made. Don’t just trust the word of the person selling you the scheme.

 Please contact us on |PHONE| if you seek futher assistance .  

Source:

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at www.moneysmart.gov.au

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Are you contributing enough to super? Recent research highlights the reality that most members of large super funds do not make voluntary contributions.

How Australia Saves 2019, a collaboration between Vanguard and three major funds – First State Super, Sunsuper and VicSuper – examines how over 2.3 million members of these funds managed their super, including contributions, over the three years to June 2018.

In 2017-18, just 12 per cent of members receiving compulsory superannuation guarantee (SG) contributions made additional voluntary contributions – an almost identical percentage over the three years covered by the research.

This underlines the importance of Australia’s SG contributions to retirement savings as well as the need for members to consider making voluntary contributions when possible. (The current SG rate, payable by employers, is 9.5 per cent of salaries.)

How Australia Saves reports that 8 per cent of working members receiving compulsory contributions into these funds during 2017-18 made salary-sacrificed contributions. Just 3 per cent of members also made non-concessional (after-tax) contributions while 1 per cent made both non-concessional and salary-sacrificed contributions.

Members making voluntary contributions in addition to compulsory contributions had a much higher median age, income and length of fund membership than members relying solely on compulsory contributions.

A message from this research is that super fund members should understand what steps they can take to boost their super savings – depending upon their personal circumstances.

Salary-sacrificed contributions

For most employees, perhaps the most straightforward way to save more in super is to begin making salary-sacrificed contributions. And members already making these contributions can consider whether to “sacrifice” more into super each pay day if affordable.

As with all concessional (before-tax) contributions, salary-sacrificed contributions are not taxed at a member’s personal tax rate but are taxed at 15 per cent upon entering a super fund. Typically, this is a valuable tax savings.

Making salary-sacrificed super contributions is a simple and disciplined way to save. First confirm the impact of salary sacrificing with your employer (in some instances, it may reduce the amount of SG your employer is obligated to pay on your behalf) and if it suits, tell your employer how much you want to regularly contribute. And think about increasing the amount of the regular contribution at least once a year or whenever you get a pay rise.

Keep in mind that the annual concessional contributions cap for all eligible super fund members is currently $25,000. (This cap covers compulsory SG contributions, salary-sacrificed contributions, and personally-deductible contributions by eligible self-employed individuals and investors.)

After-tax contributions (including inheritances)

Astute super members look for opportunities to contribute more to super as non-concessional (after-tax) contributions – may be after they receive an inheritance or sell a non-super investment such as a rental property.

Being ready to make extra personal contributions whenever extra money becomes available is a smart approach to quickly increasing retirement savings.

Again, take care not to overshoot the contribution caps. (The standard annual non-concessional contributions cap is $100,000 for 2018-19. Fund members under 65 have the option of bringing forward non-concessional contributions to $300,000 over three years, depending upon their total super balance. The latest Federal Budget proposes to increase the age limit for bring-forward contributions from 2020-21.)

Please contact us on |PHONE| if you seek further assistance on this topic.

Source:

By Robin Bowerman, Head of Corporate Affairs at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2019 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

The 2019-20 Budget had three aims: to cement the Government’s fiscal credentials by delivering the long-awaited return to budget surplus; to provide fiscal stimulus to an ailing economy; and to help get the Government re-elected. It looks on track for the first thanks to a revenue windfall, this has provided room for fiscal stimulus and of course time will tell whether it makes a difference in the May election. Of course, while whoever wins the election will provide stimulus next financial year its timing and precise makeup won’t really be known for some time which makes the Budget a bit academic.

Key budget measures

The goodies include:

• Income tax cuts from July focussed on low to middle income earners of an additional $10 a week (following last year’s announced tax cut of around $10/week) which is mainly achieved by doubling the Low & Middle Income Tax Offset.

• More generous tax stimulus in later years especially for higher income earners (which builds on the tax changes announced in last year’s budget), starting in 2022 with an expansion in the 19% rate tax bracket and a reduction in the 32.5% rate to 30% in 2024.

• Expansion of the small business instant asset write off by $5,000 to $30,000 until 2020 (which is also now extended to medium-sized businesses) and a drop in small business company tax to 25% earlier than expected.

• A $75 to $125 cash payment to 3.9 million pensioners and other welfare recipients.

• Greater flexibility for 65 & 66 year olds to top up their super.

• Spending on energy efficiency measures including an equity injection of $1.4bn on the Snowy Hydro project.

• An extra $25bn in infrastructure spending over the next decade including $2bn for a rail from Geelong to Melbourne, and a large allocation to NSW transport projects.

Stronger revenue, but tax cuts

Thanks to stronger corporate revenue, better personal tax revenue thanks to higher employment and reduced spending the 2018-19 budget deficit is projected to come in at $4.2bn compared to $5.2bn in the Mid-Year review. The Government has assumed that this revenue boost is only temporary (see the “parameter changes” line in the table below) and has only used some of it to fund tax cuts and other measures. The net result is that the budget is projected to continue to reach a surplus in the next financial year, albeit its still only small at $7.1bn or 0.4% of GDP. The move to higher surpluses is slowed slightly by the fiscal easing from policy changes (predominately tax cuts).

However, note that the fiscal stimulus proposed for 2019-20 is actually bigger than that shown in the table below under “policy changes” as $3bn in tax cuts were already allowed for in the Mid-Year Review and if the already legislated tax cuts are allowed for in total its around $9bn or 0.5% of GDP. That said this is still relatively small and not enough to offset low wages growth and the negative wealth effect from falling house prices.

Source: Australian Treasury, AMP Capital

The already legislated tax cuts for higher income earners next decade are designed to satisfy the Government’s commitment from the 2014 Budget to cap tax revenue at 23.9% of GDP (or total revenue with dividends at 25.4% of GDP) on the grounds that this is around the historic highs. This cap is now projected to be reached in 2021-22.

Source: Australian Treasury, AMP Capital

Economic assumptions

The Government’s growth forecasts look a little bit on the optimistic side, particularly the assumptions for wages growth. It remains hard to see wages growth rising significantly over the next few years given unemployment is not expected to fall and on our forecasts is expected to rise to 5.5%.

Source: Australian Treasury, AMP Capital

Assessment and risks

Like last year’s this is an upbeat Budget. First the near-term tax cuts for low to middle income earners will help households at a time of soft wages growth, falling home prices and tightening lending standards. But while roughly two times bigger than planned a year ago, this will still be relatively small though at around $20 a week (enough for 3 rounds of coffee and a muffin!). Second, the Budget continues to recognise that we cannot rely on bracket creep to cut public debt. The Australian tax system is already highly progressive and is becoming more so with the top 10% of earners accounting for roughly 45% of income tax revenue, up from 36% two decades ago. Compared to other comparable countries the top marginal tax rate is both relatively high and kicks in at a relatively low multiple of average earnings. In fact only the top 20% of income earners pay more tax than they receive in government benefits. If this is not limited it risks dampening incentive and productivity. Third, the continuing focus on infrastructure is good for short term growth, productivity and “crowding in” private investment. It will help to keep the economy growing.

Source: ATO, AMP Capital

Finally, thanks to constrained spending growth and the surge in revenue in recent years the outlook for surpluses is positive.

Source: Australian Treasury, AMP Capital

However, we have still seen a record run of 11 years of budget deficits. While our net public debt to GDP ratio is low at 19% compared to 78% in the US, 70% in the Eurozone and 156% in Japan, comparing ourselves to a bad bunch is dangerous. The run of deficits swamps those of the 1980s and 1990s and this was without a deep recession! Rather we have achieved this thanks to a combination of ramping up spending at the time of the GFC and then not reining it in again. Unlike prior to the GFC we have nothing put aside for a rainy day and there is a risk that the revenue surprise will prove temporary if global growth slows or more likely Australian growth and employment disappoints.

While the Government’s revenue growth assumptions for the years ahead are modest partly due to tax cuts and they are relatively conservative in assuming that the iron ore price falls back to $US55 a tonne, a big risk remains that wages don’t accelerate as assumed leading to a resumption of poor personal tax collections.

Finally, the budget strategy and fiscal stimulus comes with greater than normal uncertainty given the coming election in May and whether the tax measures pass parliament. A Labor Government would likely also undertake a similar sized stimulus but there may be a greater focus on government spending and the timing may be delayed as a new government would likely have a mini-budget in the second half of the year.

Implications for the RBA

While this Budget should provide some boost to household finances and confidence – the fiscal boost to the economy and household income is still relatively modest and uncertainty around its timing and details may dampen any positive announcement effect. So while it will help the economy it’s not enough to change our view that the RBA will cut interest rates twice by year end taking the cash rate to 1%.

Implications for Australian assets

Cash and term deposits – with interest rates set to fall, returns from cash and bank term deposits will remain low.

Bonds – a major impact on the bond market from the Budget is unlikely. With Australian five-year bond yields at 1.4%, it’s hard to see great returns from bonds over the next few years albeit Australian bonds will likely outperform US/global bonds.

Shares – the boost to household spending power could be a small positive for the Australian share market (via consumer stocks) and there is an ongoing boost for construction companies. But it’s hard to see much impact on shares.

Property – the Budget is unlikely to have much impact on the property market. We expect Sydney and Melbourne home prices to fall further.

Infrastructure – continuing strong infrastructure spending should in time provide more opportunities for private investors as many of the resultant assets are ultimately privatised.

The $A – the Budget alone won’t have much impact on the $A. With the interest rate differential in favour of Australia continuing to narrow the downtrend in the $A has further to go.

Concluding comments

The 2019-20 Budget has a sensible focus on providing support to households at the same time as returning the budget to surplus. However, the actual fiscal stimulus is pretty modest – particularly for a pre-election budget – and comes with greater than normal uncertainty given the upcoming election.

Source: AMP Capital

Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.