Taxing times for trustees?

Christine St Anne: I'm at the SMSF Association's Annual Conference and this time I have managed to grab a quiet room, and today I'm joined by Graeme Colley to talk about some of the key legislative issues for trustees.  Graeme, welcome.

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Graeme Colley: Thank you, Christine.

St Anne: Now, Graeme, you had mentioned in your presentation some technical issues in particular the concession or contributions into superannuation and then the LRBAs. Can you give us a little bit of insight into those two initiatives?

Colley: With contributions we saw an increase last year around up to A$30,000 for people up to age 50 and then beyond age 50 it was A$35,000. We think that's a good thing, because people later in life probably need higher amounts to go into superannuation because of the adequacy there. So we're happy with that. We still don't think that's enough, but we continue to lobby the government in that regard.

Now with limited-recourse borrowing last year we saw the ATO issue some rulings, some determinations on certain non-commercial loans and they are trading those arrangements as being what we call non-arm's length income and they get taxed at 45 per cent rather than 15 per cent if you're in accumulation phase or zero if you're in pension phase. So, that's a pretty expensive exercise. We've also got legislation coming in fairly soon, which is going to look at what we call the look-through provisions about limited-recourse borrowing as well. So that will be interesting to see what that's got in.

St Anne: And the other topic that was brought up in the presentation was the recommendations in the Financial System Inquiry and specifically the tax white paper. Are there any issues of concern for trustees in that area?

Colley: Well we've seen a lot over the years on moving from accumulation to pension phase and that seems to be something that they'll certainly take into account, the taxing of the superannuation fund and we saw the Henry Review and what it had to say some years go. So we'll see what they come out with. I think they also mentioned franking credits and because we're quite unique in the world, actually unique in the world with a franking credit system that we've got. Then finally negative gearing and having a look at that. We think that was a good thing, because it seems to skew people's decisions away from superannuation where they really should be thinking about their retirement income.

St Anne: And there has been a lot of discussion of course about some of the generous concessions in superannuation and I know that the government has already – in the budget there won't be any changes, but do you expect any perhaps announcements to be made?

Colley: Not in the budget, there may be other announcements sort of relatively technical, but changes in the contribution levels, I think that they would leave that to the taxation white paper.

St Anne: Well, Graeme, thank you so much for your time today, and of course, we will be seeing you in a couple of weeks' time at our own conference in March. So thank you, Graham.

Colley: I look forward to this. Thank you, Christine.

St Anne: Thank you. Christine for Morningstar.

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US consumers increase January borrowing

US consumers increased their borrowing in January at the slowest pace in more than a year with borrowing on credit cards actually declining for the second time in three months.

THE Federal Reserve reported on Friday that consumer borrowing expanded $US11.6 billion ($A14.92 billion) in January following a $US17.9 billion gain in December.

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It was the smallest monthly increase since borrowing rose by $US8.3 billion in November 2013.Even though the January increase was more modest than the gains over the past year, it still pushed total borrowing to a fresh record of $US3.33 trillion, an increase of 6.9 per cent over the past year.Borrowing in the category that includes credit cards actually declined by $US1.16 billion in January following a $US6.2 billion increase in December and a decrease of $US537 million in November.Borrowing in the category that covers auto loans and student loans rose $US12.7 billion in January after a gain of $US11.7 billion in December.During the past year, borrowing in the category of auto and student loans has risen 8.3 per cent while borrowing in the credit card category has risen a much slower 3.2 per cent.

This news is reprinted from site  http://www.news.com.au/finance/business/us-consumers-increase-january-borrowing/story-e6frfkur-1227252288794

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GDP growth slows in December quarter

Australian economic growth slowed in the final three months of last year and remains firmly below trend, according to official figures.

The Bureau of Statistics says Australia's gross domestic product (GDP) increased by 0.5 per cent in the December quarter.

That took the annual rate GDP growth to 2.5 per cent, down from 2.7 per cent in the prior period.

The decline was in line with the consensus view of economists, as the Reserve Bank considers whether it should follow up on last month's cut to interest rates.

The RBA surprised by holding off on a second rate cut yesterday, but most economists expect the central bank will pull the trigger in the coming months.

"The good news is we've now completed 23 years of continuous growth, the bad news is we're still running below trend, which will keep upward pressure on the unemployment rate, and keeps the RBA on rate-cut watch," Commonwealth Bank chief economist Michael Blythe said immediately after the figures were released.

"These figures are pretty much in line with what the Reserve Bank was expecting to see, so it doesn't add to the case of a rate cut.

"But when you have a central bank with a strong easing bias, as they laid out pretty clearly yesterday, then you've got to think there's a good chance in the next couple of months we'll see another cut."

When the previous GDP figures were released a fall in real gross domestic income prompted headlines about an income recession, but that measure has rebounded modestly today with an increase of 0.2 per cent.

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Net exports and household consumption helped boost GDP, while a fall in business inventories dragged on the result.

By sector, construction and health care were strong points.

The mining sector was flat, despite continued expectations of a slowdown, with gains for iron ore and oil and gas offsetting weakness for coal miners.

Below trend growth a 'good outcome': Hockey

Treasurer Joe Hockey has described today's GDP numbers as a "good outcome" for the Australian economy.

"Australia is still performing well by international comparisons. Our economy over the past year has grown faster than the United States, Germany and obviously Japan," Mr Hockey said.

"With continuing low interest rates, low petrol prices and lower Australian dollar, we are in a good position to manage the transition in our economy and maintain our positive economic trajectory."

But Mr Hockey has admitted economic growth is currently not good enough to reduce unemployment from its current 12-year high of 6.4 per cent.

"No, and that's why we have to work harder," he said.

"We have faced the remarkable drop in iron ore prices... It's our single biggest export and that has a big impact on our economy and on our national income.

"Having said that there are good signs, unquestionably the housing construction sector is in remarkably positive shape. This is very important because it is a big employer."

But shadow treasurer Chris Bowen has accused the Government of making the transition away from a mining-led economy more difficult.

"Economic growth started to struggle right at the time of the Government's budget," Mr Bowen said.

"The Treasurer's rhetoric and his actions have had an impact on the Australian economy.

"What we are seeing is a result of a Treasurer and a Government misreading the Australian economy, misjudging the delicate transition underway in the economy from mining construction to a different type of investment, and making that transition harder by their actions."

 This News is reprinted from site http://www.abc.net.au/news/2015-03-04/gdp-growth-slows-in-december-quarter/6279428?section=business

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Australian workers overpaid, hard to fire, says US economist

Aussie workers are getting paid too much and take too much annual leave, US economist Bob Baur says. Source: News Limited

THE economy is struggling to grow because Australians get too much pay, too much annual leave and are too hard to fire, an American economist says.

Bob Baur, chief global economist at Principal Global Investors, said the local labour market was in need of reform if the economy was going to shift from its dependence on mining for growth.

Mining investment is dwindling and iron ore isn’t fetching the prices that it used to, but other sectors have yet to step up to fill the breach.

Do Aussie workers have it too good? Tell us below

Dr Baur said Australia needs to start making things again, and exporting its services, like education.

But, with the Australian dollar still too high and the labour market too restrictive, it’s hard to do business here, he said.

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“The best thing for Australia would be some significant economic reform in terms of maybe loosening up the labour market and making it easier for businesses to take on workers or let workers go in difficult times,” Dr Baur said.

“You’ve got tonnes of wonderful natural resources here but don’t export the resources — export them as a car, or a computer or a television set, or furniture.

“You need to put some labour into it and make something of it here, rather than let somebody make something of it across the world.”

Dr Baur said Australia needed to follow the footsteps of the US, where manufacturing was thriving again after having lost six million jobs through the
90s and noughties to the cheaper labour markets of China and India.

While rising wages in developing countries and increased transportation costs had made the US much more competitive, manufacturing continues to deteriorate in Australia.

“Wages are too high,” Dr Baur said.

“Either it’s the actual level of wages or it’s the fact that it’s very difficult for businesses to let somebody go for whatever reason — some combination of that.

“In the US, we get two weeks’ vacation, so three or four weeks at one time (as in Australia) is not something that’s natural, at least in the US — it is in Europe, but then, Europe is not growing terribly fast either.”

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Originally published as Aussie workers ‘overpaid, hard to fire’

This news is reprinted from site http://www.news.com.au/finance/work/australian-workers-overpaid-hard-to-fire-says-us-economist/story-e6frfm9r-1227246217211 

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Qantas Swings Back To H1 Profit

Qantas Airways has swung back to a first-half profit, delivering its best interim performance in four years, as its massive transformation program continues to reap results.

In the six months to December 31, Qantas posted a statutory net profit of $203 million, from a loss of $235m a year earlier.

On an underlying basis, the national carrier posted a net profit of $367m, a sharp improvement on the $252m loss it posted in the previous corresponding period, and beating its target for earnings of between $300m and $350m.

The national carrier flagged last year that it expected to return to an underlying profit in the first half, as it reaps the benefits of a wide-reaching transformation strategy as well as a drop in the Australian dollar and oil prices.

Revenue in the period rose to 2.1 per cent to $8.07 billion, from $7.9bn a year earlier.

Qantas declined to pay an interim dividend.

The airline said the repeal of the carbon tax was significant factor in the underlying profit result, adding $59m.

Qantas chief executive Alan Joyce pointed to the removal of the carbon tax as one of the “positive drivers” behind the result.

Lower fuel prices also improved the underlying profit by $33m.

“While fuel prices produced a modest benefit in the first half, we expect fuel costs for the full year to be no more than $4 billion at current prices – which will be a significant boost to the bottom line in the second half,” he said.

This news story is reprinted from www.theaustralian.com.au

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Spending Slowed To Crawl In January

Economy-wide spending has slowed to a crawl but cheap petrol and the recent interest rate cut should hopefully turn that around.

Spending rose just 0.2 per cent in January, marking the slowest spending growth since 2012, figures from the Commonwealth Bank on Monday show.

Sales growth has been slowing for the past five months, but CommSec chief economist Craig James said consumers should start splashing more cash this year.

“With household finances improving following the fall in petrol prices and recent interest rate cut, we can expect many consumers to slowly start opening their wallets and increasing their spending as we progress through 2015,” he said.

“Overall, the economy is in a relative stable position, so business owners should start planning for growth in 2015 and take advantage of the expected increase in household disposable income.”

The strongest performing sectors last month were hotels and motels and transportation, according to the Business Sales Indicator, which tracks credit and debit card transactions on CBA machines.

Spending rose in the ACT, Tasmania, Western Australia and Queensland, but had fallen in NSW, Victoria, South Australia and the Northern Territory.

This news story is reprinted from www.businessspectator.com.au

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Bowen Stumped On Tax-Free Threshold

Shadow Treasurer Chris Bowen is under fire for not being able to identify the cut-off point for the tax-free threshold.

Under repeated questioning during the interview on Sky News’ Richo and Jones program, Mr Bowen was not able to correctly nominate the figure of $18,200.

But Opposition Leader Bill Shorten is sticking by his shadow treasurer saying Mr Bowen ‘absolutely’ still has his confidence.

‘Chris knows what he got wrong last night. He also knows the tax free threshold,’ he told reporters in Melbourne.

‘The person I don’t have confidence in, and I think I speak for millions of Australians, is Joe Hockey.

‘Mr Bowen insists he knows Australia’s tax rates after being unable to identify the cut-off point for the tax-free threshold.

Liberal frontbencher Simon Birmingham said everybody made mistakes and had ‘slips of the mind’.

‘But you do expect that the shadow treasurer will at least in ball-park terms – if not in the precise dollars – be able to talk about the tax rates, the tax-free threshold,’ Senator Birmingham told Sky News.

Labor MP Ed Husic defended his colleague’s performance in Tuesday night’s interview, saying running the country was not about ‘getting a sash for the best rote learner’.

‘Does anyone seriously believe if later today Treasurer Joe Hockey is given a pop quiz on the tax scales and he passes that that means he’s going to be able to frame a good budget?’ Mr Husic asked.

Speaking after the interview, Mr Bowen said he thought Mr Jones was quizzing him about superannuation tax, rather than personal income tax rates.

Mr Bowen maintains his knowledge of the country’s personal tax rates is solid.

This news story is reprinted from www.skynews.com.au

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