Down the contributions drain
Over 400,000 self-managed super funds are part of an estimated $1.3 trillion super fund industry which needs to be treated fairly by government. Failure to do so will drive a drain on federal funds many older Australians would rather avoid. By turning the existing tax regime on its head and limiting concessional tax deductions for fund contributions up to only $25,000, the federal government achieves two things:
1. From people earning between $37,001 - $80,000 in 2013 the government will get an extra tax of 17.5c in the dollar, which formerly would have attracted a tax deduction at the marginal rate and concessional treatment in super funds for contributions exceeding $25,000. For people earning over $80,000 and $180,000 the extra tax amounts to 22c and 30c respectively. People will now have to pay tax at the full marginal rate and make non-concessional (after tax) contributions to their super funds in trying to build their retirement savings.
2. The massive disincentive to savings brought about by the government’s desperate and disingenuous actions may well drive people away from building their own super funds to other tax effective investments incorporating margin lending; arguably against the intent of safe investing normally attributed to super funds.
The effect of this will be to place enormous pressure on government to provide pensions from the dwindling public purse to an increasing ageing population which would rather look after itself as far as possible. Government simply needs to be fair in its actions, do no harm and respect the work ethic of the Australian people.
Rate of inflation
I have read with interest recent articles on inflation linked bonds and the likely direction of the CPI over the next year or two. I have also been attracted to and invested via our SMSF into a number of recent bank subordinated notes issues. Invariably these are paying interest at around 2.75% above the BBSW. We are currently considering placing additional funds into the current Westpac notes issue and I would like to know if there is any correlation between the BBSW and inflation. Also what would be the likely effect on the price of these notes in the event of inflation rising to say 4%?
Editor’s response: A detailed explanation of how the BBSW is actually calculated can be found here, but it is fair to say the general rates environment affects it. As inflation moves outside the Reserve Bank’s 2-3% target range, it may be inclined to increase the cash rate to meet its price stability mandate. This cash rate in turn is a major contributing factor to bank lending. There are, however, a lot of other factors at play and a lag effect, and you should seek professional advice.
I have been waiting to download the speakers from Eureka Congress. I don’t know if I have missed them or if I have to buy the discs, but I would sure like to sit and watch them in my down time.
Editor’s response: We’re working on making sure everyone who attended the Congress can download the videos now. If you haven’t received a link and a code to download these, one will be made available for you soon.
To read this week's letters, click here.