Noel News 16 June 2022

Whoever said that diamonds
are a girl’s best friend
never owned a dog.

 


I am writing this newsletter at lunchtime on Tuesday 14th June while the stock market is being smashed. It’s one of the worst days I have experienced – it’s always a shock to the system to see so much red ink on the screen. I guess all we can do is proceed with confidence in the knowledge that the share market has always been a good long-term investment.

Most of my portfolio is now in index funds or various managed funds which gives me an interest in companies like Amazon, MasterCard, Zillow, BHP and the Australian banks. Remember, if the index is down 5% you are effectively buying the assets that make up the index at a 5% discount. I know it’s hard to cop, but the alternative is to panic and cash out and try to buy back on the market recovers. History tells us that the bounce back when it comes is always very quick, and often unexpected. Painful as it may be I think it’s better to sit tight and ride it out.

 


A new government

The election is over, and Labor has a majority in the lower house which at least gives us some certainty. Like all previous incoming governments, they have discovered that the financial position is much worse than they expected and severe remedial action must be taken. The stated aim is to get the budget back in surplus, but history tells us that’s going to be a tough task. It’s been 21 years since Australia had a surplus and that was in the early stages of the Howard government.  I well remember being in Canberra in April 2019, when, to cheers from the gallery, then Treasurer Josh Freidenberg announced an expected surplus of $7 billion. Sadly, it was about as good as most forecasts – the long-awaited surplus turned into a of deficit of $85.3 billion for the year ended June 2020.

Labor has a tough road ahead. Australia, in line with most of the world, is facing severe challenges. The major one is inflation, much of which is driven by the energy crisis and which hits lower income people the hardest. They are about to lose the $0.22 a litre fuel rebate which was introduced by previous government as an election sweetener, but are facing rising costs for things like groceries and fruit which are going sky high.

To make matters worse the rate on their home loan is going up. Don’t forget these costs come from after tax dollars. It may sound great to give a worker a pay rise of $50 a week, but that will be just $33 a week after tax has been deducted. Similarly it takes it takes $38 a week in pre-tax income to pay for an increase in fuel of just $25 a week.

Anybody trying to fix the budget has a major structural problem. A major part of our revenue comes from commodity prices over which the government has no control. In the last few years prices have been booming, but that won’t last forever. Furthermore, some elements in the community wish to shut many of our exporting businesses down.

Given the uncertainty of commodity prices the only way left for a government to reduce a deficit is to increase revenue from various forms of taxation or by decreasing expenditure. Two of the biggest consumers of government money in the recent budget were the NDIS and aged care – hardly a target for big cuts. The incoming Treasurer, Jim Chalmers, has warned that everybody will be expected to make sacrifices. Given the serious challenges facing our economy right now one has to wonder what those sacrifices might be. Watch this space.

 


Energy

The energy crisis is making headlines as I write this, with the local papers saying that Queensland and NSW are facing possible blackouts, and urging us to restrict the power we are using. But it’s not an easy problem to solve. The costs will be horrendous and the process won’t happen quickly.

As J.P. Morgan’s annual energy paper points out, those costs include transmission, back-up thermal power and, eventually, utility-scale storage. Whatever fills the intermittent power void won’t be cheap – a study commissioned by Industry Super Australia calculated the cost of battery storage for Australia at $6.5 trillion. To that add the rising cost of ancillary services needed to keep the retooled electricity system secure and reliable, a service that was once a by-product of electricity generation in old-world power stations.

Germany stands as a stark testimony. It has spent more than €500 billion ($743 billion) transitioning its electricity system, boosting wind and solar to more than 45 per cent of generation since 2000. But it had to keep 89 per cent of its fossil-fired capacity to deal with the problems caused by calm, dark days. It now boasts Europe’s most expensive retail power and is strategically exposed because the country can’t function without imported gas.

The fact is that wishing and hoping won’t fix climate change. The closure of most remaining coal-fired or gas generators will not be determined by billionaires, affluent ideologues, or anyone else for that matter. Coal-fired and gas-fired generators will shut when a full suite of cost-competitive, cleaner technology and transmission and storage is available to replace them.

 


Renewable energy

Let me tell you about my own experience with renewables. About eight years ago, at our beach house, we installed a 24 panel solar system which cost around $6000. The system now tells me it’s generated 53,000 kW of power, which at an average cost price of $0.25 a kw means we have recouped over $13,000 back for our $6000 investment. Then, 18 months ago, due to Covid we found ourselves fairly cashed up due to some refunded overseas trips that did not occur and decided to install a solar battery. We chose the Tesla power wall which at that stage had the biggest capacity of 14 kW, and cost $12,000 to install.

It’s a great asset to have but there is no way that the mathematics work. It might have a capacity of 14 kW but the effective capacity is only 85% of that because it always keeps 15% in reserve. The great thing about solar batteries is that you always have backup capacity available in the event of a power failure. That in itself is quite a value although it’s impossible to quantify. This means the battery can only produce 12 kW, which at the going rate of $0.25 a kilowatt is worth just three dollars. If we fill the battery every day for a whole year the maximum savings would be around $1000.

The Tesla battery has a magnificent app which enables me to monitor the house usage closely. One thing is obvious – on a cloudy day there is not much solar power produced and on a rainy day almost nil.

The press has been focusing on the cold winter that is with us, and what a huge use of power heating a house will take. But the fact is that the cheapest heating is air-conditioning, and it costs far less to heat a house than cool a house. Now they are telling low-income people to get solar power, and think about a battery. There is no good news here. My solar people tell me the cheapest battery which would be just 6 kW would be at least $7000 installed. Given that that would be an effective 5 kW after the allowance so it can be left on it as a power failure, this gives you just five effective extra kilowatts. That’s just over a dollar. The maths suggested don’t work for solar batteries. If you’ve got a dishwasher, a clothes dryer and air-conditioner on, you can go through 5 kW in an hour. That’s the battery emptied.

Of course things will change in the future as technology improves – but right now solar batteries are going up in price not down. It will not happen quickly. To make matters worse we are being urged to buy electric vehicles, but their price is exorbitant, and they would be a further drag on our already all overstretched electricity supply.

 


Saving on capital gains tax

As 30 June comes closer, it’s time to turn our minds to capital gains tax. Just bear in mind that it’s the date of the contract – whether for purchase or sale – that determines the timing of CGT. Therefore, if you’re thinking of a signing a sales contract in the next few weeks, the date 30 June should be prominent in your thinking. Furthermore, to be eligible for the 50% discount, which halves how much CGT you have to pay, the asset must have been held for over a year.

CGT is calculated by adding the net gain (that is, after costs have been accounted for) to your taxable income in the year the sales contract is signed. Therefore, if you have had, or expect to make, a capital gain in the current financial year you should be trying to find ways to minimise your taxable income in this year. The best way to do this is by tax-deductible superannuation contributions, if they are appropriate for your situation.

Since 1 July 2018, anybody with a superannuation balance of less than $500,000 at 30 June in the previous financial year has been able to use their unused concessional contributions caps to make additional concessional contributions – these are known as catch-up contributions. The amount that can be contributed is calculated on a rolling basis for a period of five years, but that have not been used after five years will expire. So in the 2022 financial year, three years of unused amounts can be carried forward, as well as this year’s cap: the total amount varies depending on your personal circumstances.

CASE STUDY

Jack and Jill are both aged 65 and have been retired for five years. Jack’s superannuation is $700,000 and Jill’s is minimal. They expect to sell a jointly owned investment property next year that will trigger a taxable capital gain of $400,000, and they will only have to pay tax on $200,000 of that after the 50% discount. Because it is jointly owned, the gain will be split again, giving them $100,000 each. Because neither has made any concessional contributions since they retired, they have the right to “catch up” for those three years with contributions of up to $75,000 in the 2023 financial year, provided their super balances are less than $500,000 at 30 June 2022. To achieve this, Jack withdraws $330,000 tax free from his superannuation, and contributes $330,000 to Jill’s. Now both balances are under $500,000.

They then make catch-up contributions to superannuation of $80,000 each, which takes them below the tax-free threshold, and wipes out the entire CGT on the investment property. Their only cost is a 15% contribution tax into super, or $12,000 each.

Anybody thinking of using this strategy should be aware of the changes to the rules that take place on 1 July. Right now anybody can contribute up to age 67, but after 1 July it’s possible to contribute tax-deductible contributions to super till age 75 as long as you can pass the work test. This is not hard to do – all you need to do is work for 40 hours in 30 consecutive days in the financial year you make the contribution. Given the sad state of employment in the economy right now I don’t think too many older people find that too difficult. Just make sure you involve your financial advisor every step of the way.

 


Reward Points

A savvy reader has provided the following information about reward points. I do hope you find it useful and can put it to good use.

“In your last letter you mentioned earning frequent flyer points with certain credit cards. I would like to point you in the direction of three websites that have a wealth of information about frequent flyer programs and also credit cards that earn frequent flyers.

These are:
Australian Frequent Flyer – https://www.australianfrequentflyer.com.au/
Frequent Flyer Solutions – https://frequentflyer.com.au/
Point Hacks – https://www.pointhacks.com.au/
 
I subscribe to them but am not associated with any of them other than that. I have learnt a great deal from each of these sites and AFF also has a sister website called Frequent Flyer Solutions which has a complete training program (10 modules) on frequent flyer programs and credit cards that earn frequent flyer points.  If you are not aware of these then I thoroughly recommend them.

You could find an even better credit card to suit your needs.”


And Finally

I know you all love the funnies at the end but this poem choked me right up and I felt duty-bound to share it with you.

Photo by Tim Doerfler on Unsplash 

When an old man died in the geriatric ward of a nursing home in an Australian country town, it was believed that he had nothing left of any value.

Later, when the nurses were going through his meagre possessions, They found this poem. Its quality and content so impressed the staff that copies were made and distributed to every nurse in the hospital.

One nurse took her copy to Melbourne. The old man’s sole bequest to posterity has since appeared in the Christmas editions of magazines around the country and appearing in mags for Mental Health.

A slide presentation has also been made based on his simple, but eloquent, poem.

And this old man, with nothing left to give to the world, is now the author of this ‘anonymous’ poem winging across the Internet.

 

Cranky Old Man

What do you see nurses?
What do you see?
What are you thinking
When you’re looking at me?

A cranky old man,
not very wise,
Uncertain of habit
with faraway eyes?

Who dribbles his food
and makes no reply.
When you say in a loud voice,
I do wish you’d try!

Who seems not to notice
the things that you do
And forever is losing
A sock or shoe?

Who, resisting or not
lets you do as you will,
With bathing and feeding
The long day to fill?

Is that what you’re thinking?
Is that what you see?
Then open your eyes, nurse
You’re not looking at me.

I’ll tell you who I am
As I sit here so still,
As I do at your bidding,
As I eat at your will.

I’m a small child of Ten
with a father and mother,
Brothers and sisters
who love one another

A young boy of Sixteen
with wings on his feet
Dreaming that soon now
a lover he’ll meet.

A groom soon at Twenty
my heart gives a leap.
Remembering, the vows
That I promised to keep.

At Twenty-Five, now
I have young of my own.
Who need me to guide
And a secure happy home.

A man of Thirty
My young now grown fast,
Bound to each other
With ties that should last.

At Forty, my young sons
have grown and are gone,
But my woman is beside me
to see I don’t mourn.

At Fifty, once more,
Babies play ’round my knee,
Again, we know children
My loved one and me.

Dark days are upon me
My wife is now dead.
I look at the future
I shudder with dread.

For my young are all rearing
young of their own.
And I think of the years
And the love that I’ve known.

I’m now an old man
and nature is cruel.
It’s jest to make old age
look like a fool.

The body, it crumbles
grace and vigour, depart.
There is now a stone
where I once had a heart.

But inside this old carcass
A young man still dwells,
And now and again
my battered heart swells

I remember the joys
I remember the pain.
And I’m loving and living
life over again.

I think of the years, all too few
gone too fast.
And accept the stark fact
that nothing can last.

So open your eyes,
people open and see.
Not a cranky old man
*Look closer*
*see ME!!*

___________________________

*Remember this poem when you next meet an older person who you might brush aside without looking at the young soul within. We will all, one day, be there, too!*


 

This entry was posted in . Bookmark the permalink.