Concerns leading up to the RBA’s decision on interest rates this month, along with the drama over the US debt ceiling, have affected local markets and the Australian dollar.
The ASX200 ended the month nearly 3% down thanks also to weaker commodity prices.
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The start of a new financial year is the perfect time to get your financial affairs in order. Whether it’s tidying up your paperwork, assessing your portfolio or dealing with outstanding issues, there are plenty of practical actions you can take to set yourself up for the year ahead.
Here are some strategies for starting the new financial year on the right foot.
Dealing with the paperwork is the task most of us love to hate. But taking a day to trawl through the ‘To Do’ pile and the growing mountain of filing could be a good investment in yourself. What’s more, you might identify some savings.
So, reviewing your bank statements, credit card bills (check for any automatic deductions that are no longer relevant), and receipts, as well as organising any tax documents can be time well spent.
A lot can happen in a year, so it makes sense to review your budget to ensure it still works towards your goals in the new year. This will help you track your changing expenses and ensure you’re not overspending. And if you haven’t got a working budget, now’s a great time to start. There are plenty of budgeting apps and tools available online that can help you get started. By doing this, you’ll be able to get a clear picture of your financial situation and be able to identify areas of improvement.
Another important step to take as you start the new financial year is to assess your investment portfolio. This includes reviewing your investments, risk appetite and the investment mix and don’t forget to check your investments inside your super fund.
Some important areas you may wish to address:
You may be regularly keeping an eye on your portfolio but standing back and looking at the big picture can be a game changer.
Now is a good time to examine your insurances closely and to consider whether they match your needs and risks. It is also a good reminder to take note of policy renewal dates so that you can shop around to make sure you get the best price.
Make sure that any life insurance, total and permanent disablement, trauma, and income protection insurance premiums you hold are appropriate for you. Most of us have some kind of insurance cover within our super funds. Check to see what and how much you have. Is it enough to support you and your family should something happen to you? Alternatively, you may have multiple insurance policies or have too much cover and it may be time to reduce or cancel some of it to save the premium costs.
And don’t forget your house and contents and car insurance. Are you adequately covered if you are unlucky enough to have a total loss?
Keeping up to date with the commentary about Federal Budget initiatives may be useful.
The measures aimed at easing the cost of living will provide a boost to some. They include energy bill relief for concession card holders and energy-saving incentives. Meanwhile, those with chronic health conditions will benefit from a number of changes announced in the budget.
The Budget also included support for families with cheaper childcare and a more flexible Paid Parental Leave scheme, and incentives for some types of new home-building projects.
The start of the new financial year is a good time to deal with reviewing and simplifying any outstanding debt by negotiating better interest rates on loans or credit cards. Consider refinancing for better loan terms and offers. You could even consolidate multiple debts into a single loan, which will allow you to pay one fortnightly or monthly payment instead of multiple payments but carefully calculate the costs of any change first. If you have a loan offset account but also have cash savings in other accounts, you could consider pooling your cash into the offset account to save interest costs.
One simple change you can implement is making fortnightly mortgage repayments instead of monthly, which could reduce your interest over time. For example, on a 30 year $1,000,000 mortgage at 6% p.a. interest, your monthly principal and interest repayments are about $5,996. If you switch to fortnightly payments of $2,998, you will repay the loan 5.5 years sooner. This is because instead of making 12 payments, you have made 26 payments, which is an extra month’s payment each year.
Principal remaining ($) vs. Time (years)
A review – at least annually – of your super account is vital to make sure that:
It is also important to check for any stray super accounts from previous employers that may be incurring unnecessary fees. These can be consolidated, if necessary, into your main account. Check your myGov account for details of your super accounts.
You might also consider a salary sacrifice strategy, where you ask your employer to make extra super contributions from your pre-tax salary. These additional contributions are taxed at 15 per cent within the super fund, plus an additional 15% if Division 293 tax applies to you (income over $250,000).
Meanwhile, it is not too late to top up your super balance for this financial year using either concessional contributions (from your pre-tax income) or non-concessional contributions (after-tax income). Don’t forget the caps on payments, which are $27,500 for concessional contributions and $110,000 for non-concessional.
It is a good idea to get some expert advice regarding your super contributions, we can assist with the best ways to manage your contributions.
So, set yourself up for a fresh start to the year with some simple strategies to help you achieve your financial goals.
In the lead up to the Federal Budget, better-than-expected inflation figures were cause for optimism that the lengthy run of cash rate hikes have had an impact.
US stocks in April saw the biggest rally that has been experienced for months, as investors looked beyond gloomy economic data.
Local markets were buoyed by the Wall Street rally, as well as welcome signs of inflation easing, with the ASX200 ending the month slightly higher.
Treasurer Jim Chalmers bills his 2023 Federal Budget as an economic strategy to help ease cost-of-living pressures.
To that end, Chalmers has delivered a modest but welcome package of cuts to healthcare, housing and energy costs as well as boosts to welfare payments for single parents and the unemployed.
Banking an unexpected bonus in increased tax revenue and rising commodity prices, the Albanese government has aimed to help the most disadvantaged while also looking ahead with new plans for renewable energy, defence and the arts.
But it has kept its spending under control to deliver a forecast $4.2 billion budget surplus – the first in 15 years.
The Treasurer sums up his second budget as “a plan for security, for prosperity, for growth”.
While the first budget surplus in a decade and a half is to be celebrated, the joy will be short-lived. By next year’s budget, it’s expected there will be a return to small deficits for the next few years.
That’s because the global economy is slowing thanks to persistent inflation and higher interest rates. Aside from the pandemic and the 2007 Global Financial Crisis, the next two years are expected to be the weakest for global growth in more than two decades.
As a result, the government expects Australia’s economic growth to slow from 3.25 per cent in 2022-23 to just 1.5 per cent the following year, before recovering a little to 2.25 per cent.
In this environment, the treasurer continues to mark inflation as the government’s primary economic challenge. He says that is why the budget is “calibrated to alleviate inflationary pressures, not add to them”.
The good news is that the Reserve Bank says inflation is falling slightly faster than it had first forecast and has now passed its peak.i It is expected to be around 4.5 per cent by the end of the year, a long way from last year’s CPI rate of 7.8 per cent.ii
The government’s $14.6 billion package of cost cuts aimed at helping some of those most affected by rising costs covers energy bills, health and medical services, and welfare payments.
There will be energy bill relief to around five million households and one million small businesses. From July 2023, eligible households will receive up to $500 and eligible small businesses up to $650.
The government will also introduce a number of energy saving programs for households including low-interest loans and funds for upgrades to social housing. And there will be access to better information on reducing energy bills.
Countering a major expense for many, the government is pouring in billions of dollars to ease health and medical costs and access to services.
It will spend an extra $3.5 billion to provide incentives to doctors to bulk bill Concession Card holders and children under 16. It’s expected that the increased bulk billing incentive will help around 11.6 million people.
The cost of medicines is also likely to change for many who suffer chronic health conditions. From 1 September 2023, some patients will be eligible to be prescribed two months’ worth of medicine at a time, instead of one month’s worth. It’s expected this change will cut the number of visits to GPs and pharmacies, and the government estimates at least six million people will see their bills for medicines reduced by half.
The government is also providing $2.2 billion over five years for new and amended listings to the PBS, including treatment for cystic fibrosis.
Meanwhile, to improve access to care and reduce the strain on hospitals, a further $358.5 million will be spent to open a further eight Urgent Care Clinics. The clinics will bulk bill and remain open for longer hours.
Income support payments including JobSeeker, Austudy and Youth Allowance will rise by $40 a fortnight following a concerted campaign by lobby groups in the months leading up to the budget.
And, recognising the extra challenges faced by older people looking for work, those aged 55 and over and out of work for at least nine continuous months, will now receive the higher rate JobSeeker payment currently paid to those over 60. Around 52,000 people will receive the increase of $92.10 a fortnight.
There will be more support for eligible single parents from September 2023. They will receive the Parenting Payment until their youngest child turns 14 (currently up to eight years old). Those receiving the payment will also benefit from more generous earning arrangements compared to JobSeeker. Eligible single parents with one child will be able to earn an extra $569.10 per fortnight, plus an extra $24.60 per additional child, before their payment stops.
While rents continue to climb sharply around the country, the government has provided only limited assistance to renters. Those receiving Commonwealth Rent Assistance will see a 15 per cent increase in their payments from 20 September 2023.
Eligibility for the Home Guarantee Scheme will be expanded beyond first home buyers to include any 2 eligible borrowers beyond married and de facto couples, and non-first home buyers who have not owned a property in Australia in the preceding 10 years.
The government’s other housing initiatives are medium to long term solutions to the housing crisis.
There are new tax incentives to encourage the construction of more build-to-rent developments. The government claims an extra 150,000 rental properties could be delivered as a result in ten years.
The government is also focusing on providing more affordable housing by supporting more lending to community housing providers for social and affordable housing projects.
Severe staff shortages in the aged care sector, largely been driven by low wages, may abate a little with the government’s commitment to fund a pay rise.
More than $11 billion has been allocated to support an interim 15 per cent increase in award wages.
Childcare will be cheaper from July 10, when the government subsidy will increase to 90 per cent for families on a combined income of $80,000 or less.
For families earning over $80,000, the subsidy rate will taper down by 1 percentage point for every additional $5,000 of family income until the subsidy reaches 0 per cent for families earning $530,000.
A more flexible and generous Paid Parental Leave scheme will also be introduced in July. A new family income test of $350,000 per annum will see nearly 3,000 additional parents become eligible for the entitlement each year.
Superannuation is in the government’s sights and employers and individuals with larger balances will be affected.
The concessional tax for those with balances exceeding $3 million will increase from 1 July 2025 to 30 per cent. Earnings on balances below $3 million will continue to be taxed at the concessional rate of 15 per cent.
Meanwhile from 1 July 2026, employers will have to pay their employees’ super at the same time they pay their wages. The government says that in 2019-20, employers failed to pay $3.4 billion of super owing to their employees.
The stormy global economic outlook will keep Australia on its toes for the next two years or so but the government has attempted both to support those who are particularly vulnerable now and keep an eye to the future with some bigger thinking.
Moving forward, the government wants to position Australia a “renewable energy superpower” with a new Net Zero Authority to help attract new clean energy industries and help workers in coal regions to find new jobs.iii
The arts received a boost with almost $1 billion going to art galleries, museums, arts organisations and the film sector to help address “a decade of chronic underfunding”.iv,v
And there is the much debated investment in defence – more than $30 billion over the next ten years. Treasurer Chalmers says that while we may have a lot “coming at us – we have a lot going for us too”.
Information in this article has been sourced from the Budget Speech 2023-24 and Federal Budget Support documents.
It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.
i RBA says inflation has passed its peak
ii https://www.rba.gov.au/publications/smp/2023/feb/economic-outlook.html
iii https://www.pm.gov.au/media/national-net-zero-authority
iv https://www.arts.gov.au/news/2023-24-federal-budget-revitalise-arts-sector
v https://minister.infrastructure.gov.au/burke/media-release/budget-2023-24-albanese-government-revives-australias-arts-and-culture
Watch the video to learn about April’s economic updates and market movements.
