It was always going to be an election budget, and there were some good things in it. But the cash handouts are fiscal irresponsibility at its worst.
Think about it: the Treasurer revealed that there would be a deficit of $78 billion in the forthcoming 12 months. This is money we, as a nation, have had to borrow.
One of the first rules of good money management is to avoid bad debt, and use good debt.
Bad debt is when we borrow for consumption, such as travel, clothing, or a wedding. Good debt is when we borrow for assets such as property and shares, which will provide lasting benefit.
I have no problem whatsoever with government borrowing for roads, infrastructure and other items that have a long-term payback, but I see no point in cash handouts for the sole purpose of getting the government back into power.
Take the decision to cut petrol excise by 22c a litre. Where I live, it's normal for petrol to fluctuate by 30c a litre or more over the cycle. So you can expect your 22c a litre discount to vanish in the next few cycles. Even though this measure has been announced for six months only, the cost will be a staggering $3 billion - all borrowed.
Think what you could do with $3 billion towards flood mitigation programs.
In any event, the major motoring organisations have associations with petrol stations to provide a discount of between four and five cents a litre. And there are apps such as the 7 Eleven fuel app, which lets you lock in today's fuel price for the next seven days with no penalty. We've been using it for years and have saved a bundle.
Then there is $1.5 billion used to give 6 million welfare recipients a once-only payment of $250. Let's face it, that kind of money won't change their lives one bit. Wouldn't it be better to use that kind of money to provide better dental facilities or improve aged care?
These are just expensive Band-Aids. They won't do anything to slow down inflation, which is the actual problem here.
Despite the official figure of 3 per cent, I am told the average rise in groceries and fruit and vegetables is nearer 10 per cent - ignoring the current post-flood highs.
A cash payment of $250 now, combined with six months of slightly less expensive petrol won't do a thing to change it.
The big issue about to be felt by most Australians is interest rates. We are in a unique position where inflation is running at more than 5 per cent, at least in the real world, and interest rates are at historic lows. It's a virtual certainty that we'll see at least an interest rate rise of a full 1 per cent in the coming year.
Thanks to low interest rates, and rapid housing price rises, the average mortgage in Australia is now a breathtaking $600,000. A rate rise of just 1 per cent would add $6000 a year or $115 a week to the average family's mortgage repayments. How will people cope with that?
There are also budget moves to help first homeowners, but the problem with all these schemes is that they drive up house prices by increasing the number of potential purchasers.
And it gets worse, as the government supports homebuyers to borrow on just a 5 per cent deposit, with no mortgage insurance. In that scenario a person can buy a home costing $500,000, with starting equity of just $25,000. If that house falls in value by just 10 per cent - and this is not unknown, especially in some regional areas - they are $25,000 underwater.
If they're forced to sell the property because of rising interest rates they could be suffering a big capital loss. It won't affect the lender, who is covered by the government's own mortgage insurance scheme.
So how does that help struggling homebuyers?
I am interested in how Centrelink views gifting in the context that I am not eligible for the age pension until January 2023. I would like my third of my inheritance to go equally to my four children instead of me as I do not want the money to affect my old age pension application. Should this be written into my mother's will now or can I "disclaim my entitlement" at the appropriate time?
You have highlighted a common problem, and the obvious solution is to make the inheritance part of your mother's will. You can't disclaim a bequest after the testator dies.
You have written about the tax of 17 per cent that is applied to the taxable component of your superannuation fund if left to a non-dependent
If I die slowly I will have time to move my assets from superannuation to avoid the tax. However, I wonder what will happen if I die fairly quickly? You have written that the assets need not necessarily be taken from the fund at the date of death - an indication that this is what is planned would be enough. Would appreciate clarification.
This is not as simple as it may sound. A self-managed fund may have investments in assets which do not have immediate liquidity - these may include direct property, property syndicates and certain types of managed funds.
The first two may be highly illiquid, while managed funds may require notice to the manager who will then redeem the investment in terms of funds policy. I have mentioned that giving notice to some of these managed funds may be sufficient to satisfy the trustee of the super fund of the deceased that the asset is in the process of being redeemed.
However, it is not wise to take this for granted as the trustees decision cannot be guaranteed. A much better option would be to put steps in place for redemption of the money before the person dies, or at the very least converting the assets to cash. Then liquidity will be guaranteed.
Keep in mind that the main benefit of keeping money in superannuation when you are retired is to get higher returns because your money is in a tax-free or low tax environment. If the term is short the rate of return is not of great importance - in most cases little would be lost if you are at a stage where you thought you would die in the next two or three years and took steps immediately to withdraw your funds from the superannuation system.
Why don't savers get any attention from the media? When interest rates go down, savers get less interest, feel poorer and spend less. Perhaps if the interest rates went up, savers would earn more interest, feel richer, spend more and stimulate the economy. Does the Reserve bank or the government care about savers, or should we all give up saving in cash and invest in shares and property?
The media thrives on bad news and there are more headlines in rising interest rates and mortgage foreclosures than there are in rising interest rates and wealthier investors. By all means spread your investments, but make sure you keep an appropriate proportion of your money in cash so you have liquidity when you need it.
You recently wrote that a person between 67 and 75 while being able to make non-concessional superannuation contributions, would have to pass the work test to claim a tax deduction for a personal concessional contribution. You also said that people who had been out of the workforce for several years may be able to make tax-deductible contributions to reduce capital gains tax. This appears to be an anomaly and I would appreciate clarification.
People can make concessional contributions up to age 67 with no work test, but they do have to pass the work test to make contributions between 67 and 75.
The contributions I referred to which could be used to reduce capital gains tax in certain circumstances are catch-up contributions which can be made up to by people who, for various reasons, may have not be in receipt of the total concessional contributions each year which they are entitled to.
These are $27,500 a year since July last year, and prior to that the $25,000 a year. You can only carry forward unused concessional contributions from 1 July 2018 and unused amounts can only be carried forward for five years until they expire.
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