Government’s view of the economy could be summed up in a few short phrases:
If it moves, tax it.
If it keeps moving, regulate it.
And if it stops moving, subsidize it.
Welcome to our November newsletter
It’s amazing how quickly the year has gone and what an eventful year it has been. I promised to focus on the budget, but apart from a rejig of measures that were already in the pipeline, there was really nothing much new. It was certainly an aspirational budget, and I compliment Treasurer Jim Chalmers for that. Unfortunately, he faces a very challenging task.
The big issue was affordable housing with the stated ambition of ‘building one million new well-located homes over five years from 2024’. Well, to quote from the iconic movie The Castle, ‘tell him he’s dreaming’. Speak to anybody in the building industry and they will talk about the massive shortage of both materials and manpower, exacerbated by the re-building necessary as a result of floods and fires. The resources are just not available.
Image by Brett Jordan on Unsplash
Home affordability remains a serious issue but it’s getting worse as rates rise. Just three years ago, depending on where you lived, a good first home may have cost around $620,000. Interest rates then were 2.5% so anybody with a 20% deposit could borrow $493,000 over 30 years with repayments of $1,948 a month. This is of course assuming they have the resources to save a 20% deposit of $123,200 to avoid costly mortgage insurance and much higher repayments. My friendly mortgage broker tells me that the criteria for a couple with two children and no other debts would have been an annual income of $55,000 each or a family income of $110,000 a year.
Today, that same house would probably cost around $865,000 – a loan of 80% of the purchase price would be $691,000. This would require repayments of $4143 a month over 30 years if rates were 6%. The increase in monthly repayments is $2165 or $500 a week. The deposit needed would have skyrocketed to $173,000. The criteria for a couple would become $80,000 each or $160,000 a year combined.
In just three years the 20% deposit has risen by almost $50,000, while the wages needed to service the loan to buy that property have increased by 45%.
Image by Sander Sammy on Unsplash
Rate City says the value of new home loans being approved has plummeted by $2.26 billion in a month, according to ABS data released 2 November 2022.
In September $25.14 billion worth of home loans were approved, down 8.2% from the month before in seasonally adjusted terms – the lowest value since November 2020.
Owner-occupier lending took the biggest hit, with a 9.3% drop from the previous month, while investor lending fell by 6%, compared to August.
Value of new home loans approved in September
Rate City Research director Sally Tindall said:
“Every month the RBA hikes the cash rate, the amount banks are willing to lend new borrowers shrinks. This has the property market rattled, with both buyers and sellers exiting in droves – the hordes of cashed-up buyers are gone, while some nervous homeowners who were thinking about selling are now benching their plans.”
There is no simple solution – every time the Reserve Bank increases interest rates, another group of potential homebuyers are locked out of the market. It’s almost a certainty that the cash rate will be 4% by this time next year, and mortgage rates may well be hovering around 7%. It’s a sad dilemma for anybody contemplating buying a home. And keep in mind that mortgage payments come from after tax dollars.
The ABS says that the average mortgage in Australia is around $600,000 but of course this depends on where you live. An increase in interest rates of 4% would add $2000 a month to the mortgage payment which must come from after tax dollars. I’m not sure how many families could handle a drop in their after-tax income of $500 a week. There’s going to be much pain ahead.
Currently, downsizer contributions to superannuation can only be made by individuals aged 60 or older. The Government is proposing to lower this age to 55 and legislation has been introduced to give effect to this measure. All other eligibility criteria for downsizer contributions remains unchanged.
Image by Matt Bennett on Unsplash
Keep in mind that downsizer contributions do not count towards an individual’s non-concessional contribution (NCC) cap. Individuals under age 75 may also be able to trigger a 3-year bring-forward NCC cap subject to their Total Superannuation Balance. This could potentially result in super contributions of up to $630,000 being made by an individual when combining their NCC cap and a downsizer contribution where eligible to do so.
But as always there are complexities. Super funds don’t have to accept downsizer contributions so it’s best to check with your fund if it does. This is particularly relevant for SMSFs because the trust deed might need to be amended to ensure that the fund is not precluded from accepting any types of contributions such as downsizer contributions.
The other thing to note for anybody in receipt of Centrelink benefits is that these downsizer contributions may count towards the assets test and the income test, which obviously determines eligibility for the aged pension and other benefits as well.
In essence, when you downsize you are moving money out of an exempt asset – the family home – and putting part of that into a super fund where the money will cease to be exempt.
A downsizer contribution may also have issues for aged care. Downsizer contributions will increase a person’s means and therefore can increase their aged-care fees and home-care fees as well, particularly the means-tested fee or income-tested fee that a person may be required to pay.
There can be some relief from the above consequences. The latest budget extended the social security assets test exemption for principal home sale proceeds from 12 months to 24 months for income support recipients and amended the social security income test, to apply only the lower deeming rate (currently 0.25%) to principal home sale proceeds when calculating deemed income for up to 24 months after the sale of the principal home.
Image by Josh Olalde on Unsplash
The measures will apply to the whole or a part of the proceeds of the sale which the person intends to use to build, rebuild, repair or renovate another residence, or to purchase another residence that is to be the person’s principal home. In some circumstances the measure can extend for a further 12 months (up to 3 years in total) on approval.
I can’t stress enough the importance of getting expert advice if you are downsizing, or entering Aged Care. If you don’t have an advisor just email me at email@example.com and I will recommend advisors who specialise in this area for you.
Commonwealth Seniors Health Card. CSHC
The Commonwealth Seniors Health Card (CSHC) is the card that is most prized by self-funded retirees, but given the number of emails I get regarding eligibility for it, it’s one of the least understood.
The first thing you need to understand is that the CSHC is not asset-tested, it is only income-tested. The income cut-off points are currently $57,761 for a single and $92,416 for a couple, and your income is calculated using your taxable income as per your tax return, plus any deemed income. The changes confirmed in the budget take the single cut-off to $90,000 and the couples cut-off to $144,000.
But it can be confusing. Under the CSHC rules, Centrelink only deems superannuation that produces an income stream. Superannuation funds in accumulation mode are not tested at all, because they are not producing a taxable income and you are not drawing an income from them.
Jack and Jill have a share portfolio of $900,000, producing an income of $34,000 a year, plus franking credits of $10,000, so their ATI is $44,000 a year. They also have very large superannuation balances, but since the Turnbull government restricted the amount that could be held in the tax-free pension mode to $1.6 million back in 2016, they are most unlikely to have more than $1.7 million each in pension mode, unless their super fund has been performing spectacularly well.
The deemed value of their super would be $74,720 a year which, when added to their ATI, gives them a total income for CHSC purposes of $118,720. So thanks to the changes, Jack and Jill – and a huge number of other self-funded retirees – will be able to pick up a CSHC and its generous concessions.
Many people are not aware of the proposed changes. You could be one of them, so don’t forget to check with Centrelink and use the deeming calculator on my website.
Encouraging workforce participation by pensioners
To incentivise pensioners to engage in paid employment, the government has temporarily increased the Work Bonus income bank.
Image by David Siglin on Unsplash
Under this measure, eligible pensioners and certain veterans’ entitlement recipients will have an extra $4,000 credited to their Work Bonus income concession bank balance. The maximum Work Bonus income concession bank balance will increase from $7,800 to $11,800 until 30 June 2023, and will reset to $7,800 on 1 July 2023.
This effectively increases the amount a pensioner can earn from work from $150 a week to $230 a week, but it only affects income-tested pensioners. If you go to the pension charts under Resources in my website you can see that an asset-tested pensioner can earn much more than these amounts without any effect on their pension.
This is a welcome and much needed measure and was the result of a campaign by National Seniors. But why impose a time limit if the aim is to help ordinary pensioners cope with the increased cost of living, as well as go some way in solving the huge staff shortages we have.
Deeming rates frozen
The budget also confirmed that deeming rates would be frozen until June 30, 2024. I just don’t get it – the present deeming rates are way out of kilter in a climate of rising interest rates. Currently singles are deemed .25% on the first $56,400 a year and couples .25% on the first $93,600 a year. The excess is deemed at 2.25%. It makes no sense to freeze the deeming rates until June 2024, while chopping back the amount pensioners can earn till next July.
The deeming rates also affect eligibility for the CSHC.
Orders are pouring in for the print version of my latest book 10 Simple Steps to Financial Freedom, now the eBook version is available for $11.99
It’s not easy but it is simple to live a life of abundance and financial independence.
And you don’t need to be smart, talented or suffer to get there.
You just need to do what most people don’t – understand the simple, powerful forces at work that will either separate you from your money, or have it working tirelessly for you.
This book is easy to read and the perfect gift for someone you love starting out on their financial journey, it’s also a handy guide to keep you on the path, no matter how financially literate you are.
How to send the 10 Simple Steps to Financial Freedom eBook as a gift:
Many of you have asked how you could gift an eBook for the younger generations to read on their devices.
When you buy a voucher, you receive an email to simply forward to the person you intend to gift the book to – with your own message of encouragement.
Superannuation Made Simple eBook update – 4th edition:
Imagine living in a country with no capital gains tax and a flat rate 15% income tax – you’d move there right?
That “country” is Australia’s Superannuation System, a system designed to help you build and grow your wealth to live a life of abundant independence.
To help you navigate this system I’ve thoroughly updated the Superannuation Made Simple eBook with the new pension and tax rates for the 2022-2023 financial year, plus important new information that’s relevant to my readers since the first edition was published.
So if you’re looking for the most up-to-date way to make Australia’s Superannuation system work tirelessly in your favour, click here for a 15% discount on Superannuation Made Simple 4th Edition (discount will be automatically applied at checkout)
If you have purchased the Superannuation Made Simple Ebook in the past I will send you the update for free – you don’t need to do anything, just keep an eye on your inbox this week for a personalised link to download this update to the 4th edition free of charge (plus a special thank you from me as well).
Retirement Made Simple eBook update – 2nd edition:
I’ve also updated the tax, pension and new information for the 2nd edition of Retirement Made Simple eBook. Again, if you have purchased this eBook in the past, check your inbox over the next fortnight for your free upgrade to the 2nd edition and another surprise gift from me.
If you haven’t purchased a copy yet, tap here to buy with a 15% discount for my newsletter readers.
A travel warning
We returned home safely but we did have a hitch when we booked into a hotel in Newport, California. As you all know, hotels ask for your credit card details to guarantee any expenses incurred at the hotel.
Image by Patrick Tomasso on Unsplash
We handed over our Latitude card which certainly covered the cost of the rooms but does have a fairly low limit. Because Geraldine’s ING card had been cancelled due to a scam, the Latitude card was the only one that Geraldine could use for her own personal spending. To our horror we discovered her card had been blocked. The hotel had added so much extra potential expense that it took the card over the limit.
It had been three years since I had travelled overseas and I had forgotten that my strategy had always been to give the hotel my American Express card for this type of guarantees, because it’s got a big limit and I never ever use it for overseas travel because of their high exchange rate and fees. When the time comes to pay, I simply pull out the ING card or the Latitude card. To solve the problem, I asked the hotel to process all the room accommodation immediately and substitute the American Express card as the guarantee card. To get the Latitude card operational again, I then transferred some extra money to it, but that took 36 hours to be processed. This was such a contrast to the ING card, where a payment from our bank account to ING is processed virtually simultaneously.
It was a great feeling to arrive home with nothing owing on credit cards, because almost all our spending had been done on the ING debit card where you pay as you go. Granted, it doesn’t give you any reward points, but in my experience points are getting more and more worthless by the day.
The talk is all about inflation, but the new word is ‘shrinkflation’, whereby the price remains the same but the amount you get is reduced. The numbers below have come from America, but my friends tell me that the same thing is happening in Australia. It’s a very sneaky way of raising prices.
Folgers container: 51 ounces to 43.5
Nescafe Azera Americano coffee: 100 grams to 90
Kleenex: 65 tissues to 60
Walmart Paper Towels: 168 sheets per roll to 120
Crest 3D White Radiant Mint toothpaste: 4.1 to 3.8 ounces
Dorito’s: 9.75 ounces to 9.25
Most “Party Size” Chips: 18 to 15.5 ounces
Chobani Flips yogurts: 5.3 ounces to 4.5
Burger King chicken nuggets: 10 to 8
Bounty Triples: 165 sheets to 147
Tillamook ice cream: 56 ounces to 48
Hefty’s mega pack: 90 bags to 80
Earth’s Best Organic Sunny Day: 8 bars per box to 7
Vim dish soap (India): 155 grams to 135
Cottonelle Ultra Clean Care toilet paper: 340 sheets per roll to 312
Pantene Pro-V Curl Perfection conditioner: 12 ounces to 10.4
Royal Canin’s cans of cat food: 5.9 ounces to 5.1
Angel Soft: 425 sheets per roll to 320
Some great aged care software
Australia’s Aged Care Guru Rachel Lane recently launched Village Guru, software that’s taking the financial confusion out of downsizing, and it’s proving to be a big hit.
‘My motivation was very simple, so many downsizers (including my own grandma) said the same thing, “My only regret is not moving sooner”. I wanted to remove the financial confusion from that decision.’
‘The complexities of exit fees, Age Pension, Rent Assistance, and Home Care Package costs leads to inaction,’ she says ‘that delay isn’t weeks or months; it can be years … years they could have spent enjoying the retirement community … In the words of a millennial, “living their best life”.’
So what does Village Guru do? In a nutshell, Village Guru enables retirement communities to answer potential residents’ burning finance questions, such as: How much does it cost to move in? What are the ongoing costs? How will moving here affect my Age Pension and Rent Assistance? Will it impact my Home Care Package fees? How much will I get back (and how soon) after I leave?
It caters to communities offering different payment options and can compare downsizing with staying at home and between one village and another.
The software has proved popular with retirement communities that wish to provide transparency and empower their customers to make well-informed decisions. The software is being used by industry giants and not-for-profit operators alike. Aveo, Ingenia, Bolton Clarke, Uniting, Anglicare, and Baptcare are just some of the operators who are using the programme.
How do you get a Village Guru report? Just ask the sales person at the village (or villages) you are thinking about moving to. The software is tailored to you and the village, so no two reports are the same.
Speech in Toowoomba
I’ll be giving a presentation in Toowoomba on the morning of Wednesday, 16 November for the University of the Third Age.
Admission is free – if you’d like to attend it, just email me on firstname.lastname@example.org.
It’s hard to explain puns to kleptomaniacs because they always take things literally.
Human genius has its limits while human stupidity does not. ~Alexandre Dumas
The only thing that interferes with my learning is my education. ~Einstein
A bus is a vehicle that runs twice as fast when you are after it as when you are in it.
There are 10 kinds of people in the world: those that understand binary and those that don’t.
Image by Peter Lloyd on Unsplash
Evening news is where they begin with ‘Good evening’ and then proceed to tell you why it isn’t.
Why does someone believe you when you say there are four billion stars but check when you say the paint is wet?
Going to church doesn’t make you a Christian any more than standing in a garage makes you a car.
When tempted to fight fire with fire, remember that the Fire Department usually uses water.
Always swim or dive with a friend. It reduces your chance of shark attack by 50%.
I asked God for a bike, but I know God doesn’t work that way. So I stole a bike and asked for forgiveness.
I hope you have enjoyed the latest edition of Noel News.
Thanks for all your kind comments. Please continue to send feedback through; it’s always appreciated and helps us to improve the newsletter.
And don’t forget you’ll get much more regular communications from me if you follow me on twitter – @NoelWhittaker.