The Experts

Peter Switzer
+ About Peter Switzer

About Peter Switzer

Peter Switzer is one of Australia’s leading business and financial commentators, launching his own business 20 years ago. The Switzer Group has since grown into three successful companies spanning media and publishing, financial services and business coaching.

Peter is an award-winning broadcaster, twice runner-up for the Best Current Affairs Commentator award for radio, behind broadcaster Alan Jones. A former lecturer in economics at the University of NSW, Peter is currently:

• weekly columnist for Yahoo!7 Finance
• a regular contributor to The Australian newspaper and ABC radio
• host of his own TV show, Switzer and Grow Your Business, on SKY News Business
• regular host of the Super Show on 2GB radio.


Dear Peter, What fun! You are really very good at what you do. I appreciated our time together and wish you continued success in all you do. Have fun (I know you will).

Jack Welch, former CEO, GE, and ‘Manager of the Century’ (Fortune magazine)

Peter, It was great to have worked with you – you really made the event come alive. I hope you enjoyed yourself. I know Steve Ballmer [CEO, Microsoft Corporation] did.

John Galligan, Director of Corporate Affairs & Citizenship, Microsoft Australia

Here’s a home truth, my only real education – or teacher who I actually ever listen to – is your interviews on Qantas. So thank you with sincere respect.

Sean Ashby, Co-Founder, AussieBum

Peter did a wonderful job on the night; keeping the program moving, working around changes to the run sheet, and ensuring each award recipient, and our sponsors, were made to feel welcome and important.
The feedback received from those attending has all been extremely positive.

Peter Mace, General Manager NSW, Australian Institute of Export

Peter, We would like to congratulate you for performing your master of ceremonies role in such a professional, entertaining and informative manner. We were impressed by your ability to tease out each winner’s story so that the audience gained maximum benefit from their collective business experiences.

Greg Evans and Nicolle Flint, Directors, Australian Chamber of Commerce and Industry

Hi Peter, I listened to you speak this morning and thought you were amazing. I am an accountant and in risk management and have never thought about doing a SWOT on myself – thanks for the tip!

Serife Ibrahim, Stockland Corporation Ltd

Dear Peter, Thank you for your valuable contribution to this year’s forum. Ninety-two per cent of delegates rated your presentation highly, commenting on its useful and topical content.

Catherine Batch, Head of Marketing and Communications, Indue

Peter has facilitated our CEO and CFO symposiums over the last three years. A true professional, he takes away the stresses of hosting and organising an event.

Justine Goss, Strategy Group

Trump's trade war will thump the stock market today!

Friday, March 23, 2018

The big story of today is the stock market’s reaction to President Trump’s trade war, with the Dow Jones index down over 700 points. This following news that while EU allies will be spared steel and aluminium tariffs, China will cop a $60 billion slug as as a payback for intellectual property theft!

But wait, there’s more important hip pocket money stories of the day that genuinely fit the tag line — the good, the bad and the ugly!

Donald’s trade war is definitely getting ugly, and China's response will add to that ugliness. That’s why stocks have slumped in the US.

The market didn’t need more tariff tough talk when it was digesting the Facebook fallout furore and the 0.25% rise in official interest rates yesterday, thanks to the Fed.

That said, the conclusion from what the Fed’s communiqué said was to expect three rate rises in 2018 and maybe four in 2019. I think if the conclusion was four rises in each year, stocks could have dropped harder yesterday.

Anyway, we have to expect a rough day at the office for our stocks.

That’s the ugly. What about the good?

This has to be the rise in unemployment from 5.5% to 5.6% primarily because we saw a record amount of Aussies get off their butts and go looking for work. We actually created 17,500 jobs in February and we’ve now gone 17 months straight with job creations, and that’s a record. The jobless number should have fallen but a better-looking economy is encouraging unemployed people to look for a job. This is called a rise in the participation rate.

For number types, the participation rate rose from 65.6% to a 7-year high of 65.7% and in trend terms the participation rate hit a record high of 65.7%. And all this happened with a solid rise in our population, which makes the achievement even better.

“Australia’s population expanded by 395,613 people over the year to September 2017 to 24,702,851 people.,” Craig James of Commsec revealed. “Overall, Australia’s annual population growth rate rose marginally from a downwardly revised 1.60% to 1.63% – still near the fastest population growth in 3½ years.”

This is a good sign for the economy.

The bad news story was the idea of taxing all parcels under $1,000 bought from overseas with a $5 parcel tax. This is being sent up the pre-budget flagpole to see what kind of saluting follows.

Fairfax says the Department of Home Affairs was thinking about the levy.

“Parcels containing clothing, makeup and books worth less than $1000 - which now represent 90 per cent of deliveries entering Australia - would attract the new tax,” Eryk Bagshaw reported. “Some 38.7 million parcels worth under $1000 each were imported to Australia last financial year - a 22% increase on the previous 12 months.”

The story is that because we’ve gone mad buying stuff from overseas online, the cost of scanning and checking the parcels for illicit or dangerous items has become expensive. Objective calculations say between $2 to $6 a parcel but whatever the potential levy, the likes of eBay is slamming the proposal.

Apart from the cost to consumers, there is a real fear that other countries will consider retaliation, which could hurt our exporters.

When asked about the possible tax, the Prime Minister Turnbull refused to comment on it, using the old “the Budget is only weeks away” defence, which politicians use around now.

If it wasn’t being considered, he could have easily said: “No!”

This would be a bad tax, especially if the cost of the good was say only $20 and the parcel tax is $5, which would mean it would be a 25% impost!

That’s a bad tax.

Ahead of the closing bell in New York, the Dow was down around 700 points and this ugly US story will get uglier today for our stock market.

As someone with a fund on the stock market that responds well to positive market news, Donald and his tariffs make it hard for me to love his ugly plays!

By the way, the Yanks are close to a correction of the stock market since the January high.


What if digital disruption delivers low interest rates for a really long time?

Thursday, March 22, 2018

When it comes to stock markets, I find scary bear stories unbearable! Sorry for the pathetic joke but I do want to introduce one of history’s most pleasant bear tales — that of Goldilocks and the three bears.

Overnight, the US central bank (the Fed) under its new boss, Jerome Powell, raised the benchmark target range for the official rate by 0.25%. So, it’s now 1.5% to 1.75%. And it means the Yanks now have a ‘cash rate’ higher than the one that’s set by our Reserve Bank and reviewed on the first Tuesday of most months of the year. Our cash rate has been at this record low of 1.5% for 19 months and, as someone who has watched and commented on economies in major news outlets since 1985, this has quite shocked me but so has a lot of the economics that has come out of the local and global economies in recent times.

This economic trip down memory lane and my reference to Goldilocks was encouraged by what we learnt from the US Fed story overnight. First, the Fed raised interest rates. Second, Wall Street’s stock markets headed higher and third it was obviously linked to the Fed Chairman telling us his view on US economic growth has been upgraded.

But why didn’t that good news get everyone worrying about inflation? After all, in the first week of February, it was good job numbers that brought solid wage rises that then led to higher expectations of faster rising interest rates in the US, which gave the Yanks a 10% plus correction of stocks and, in turn, hurt our stock market!

In my teaching days at UNSW, I used to try to make economics more understandable by talking about Sussan Economics — you know the old ad “this goes with this, goes with this at Sussan”? Well, maybe you don’t, but I guess you get what I’m talking about.

In a nutshell, I’m saying this: better than expected economic growth goes with better than expected jobs goes with higher wage demands goes with higher inflation goes with rising interest rates, which, over time, goes with a falling stock market.

Sure, there are a number of assumptions to make this work out as set out above but the history of economies and financial markets made this little take on what economies do a useful teaching tool.

But it’s on assumptions that my story today rests. What if because of digital disruption, the spread of the Internet, the proliferation of smart phones and the related advancement of globalisation making people in poorer countries greater participants in the world economy, has changed the inflation story?

What if for a higher bang of economic growth and job creation we got less inflation in our buck?

There has been a concern that inflation in the USA and even here in Australia that prices and wages remain stubbornly low. Yesterday at the National Press Club, the new trade union boss, Sally McManus, decried the casualization of the workforce. She wants a better deal for casuals, labour hire workers and gig economy workers.

Google tells me “A gig economy is an environment in which temporary positions are common and organisations contract with independent workers for short-term engagements. The trend toward a gig economy has begun. A study by Intuit predicted that by 2020, 40 percent of American workers would be independent contractors.”

Now the term doesn’t mean these workers are foolish gigs, though some trade union officials might think doing what they do is a classic gig thing to do, it’s likely it came from the idea of a band getting a gig, which tends to be a temporary booking.

When you think about websites that drive the price of things in shops down via competition, workers in say The Philippines who do bookkeeping and computer work, the likes of Zara, which produces replicas of expensive stuff at lower prices and robots and artificial intelligence cuts average costs to business, you start to wonder if the drivers of inflation are changing.

And when you think abut the Internet making it easy for someone at home to create a disrupting product that can take business away from banks and Uber, airbnb and the like, which are driving the prices of stuff we buy down, you can understand why inflation might have a different relationship with economic growth and job creation.

Once upon a time, monopolies and oligopolies had pricing power and I could remember when Skype came along and was free, I thought this can’t be good for the likes of Telstra. Way back in the early 1990s, John Symond with his Aussie Home Loans drove interest rates down 2% by taking on the banks and along with mortgage brokers who ultimately carried laptops with lot of lenders offering new lower rates and the home loan sector became cheaper for average Australians.

I’m not sure how much inflation has changed but, if it takes longer to show up, it might mean interest rates will rise slower than they have in the past and this means this stock market bull market might avoid those nasty bears for longer than many might think.

Gee, I hope I’m right.

By the way, Fed officials raised their forecast for 2017 GDP growth from 2.5% in December to 2.7% and increased the 2018 expectation from 2.1% to 2.4%. Experts still think the Fed sees three rate hikes this year but there’s a growing number thinking four could be coming.

The big watch will be inflation and if the new world has not lowered price rises per economic growth as I’ve speculated, then I’ll be getting worried about stocks some time in 2019.

As I always say: watch this space. 



Peter Costello warns that rates will rise and your property's value will fall!

Wednesday, March 21, 2018

Former Treasurer Peter Costello has warned that interest rates will have to rise, eventually, and asset values will fall. But if this is a surprise to anyone, then they need to embark on an education course called The Bleeding Obvious 101!

This “rates will rise and property as well as share prices will fall” warning was delivered at a conference in Melbourne by Mr Costello, who nowadays is the Chairman of the Future Fund.

To someone like me, the message is so obvious it doesn’t really require anyone as smart as Pete to waste precious time talking about it. However, I guess it’s fair to say a hell of a lot of people out there in borrowing land don’t give a toss about economics until their hip pocket is hit.

Right now, borrowing land has delivered rising house prices, especially in Sydney and Melbourne but you might be surprised to learn that Hobart has been the stellar performer of late, as my chart shows.

As you can see, Sydney has just turned negative, down 0.5% for the year, after three years of double-digit growth. However, Perth and Darwin have had a couple of years of falling property prices, so Pete isn’t telling anyone in WA or the NT that it will come as a surprise.

Sure, it’s great when you pick up the newspaper or go online and see a story that tells you that you’re richer, due to silly, huge price rises but if you’re not a seller, the most it can do is make you borrow more to buy more stuff.

Rising property prices help confidence, spending and economic growth but other factors can reduce the positivity of these price rises, such as low wages growth, which has been the issue for Australia lately, until the job market took off last year creating over 400,000 jobs in 12 months!

Interestingly, Perth’s annual price ‘rise’ has been a negative 2.7% but the monthly signs say the worst is over and experts now expect price rises are coming.

And I’m prepared to bet that we will be ‘lucky’ to see an interest rate rise this year, if the consensus of economists is right, and even the rises in 2019 should hardly be scary. Maybe in 2020 Pete’s warning will come to fruition, unless there is no major reason for a stock market collapse in the interim period. Like what?

Well, a trade war, thanks to Donald Trump’s tariffs could be an economic curve ball that could hit our great economic outlook for the world economy out of the park!

One reason why Pete has done his warning is that there has been over-borrowing by some people because they paid too much for their homes. The former, very good Treasurer has pointed the finger of blame at former Governments and Reserve Bank policy that encouraged borrowing, especially via low interest rates, but both policy-making bodies were having to deal with beating a potential recession, as the world tried to avoid a Great Depression!

If borrowing did not work after the GFC started in 2008, then a lot of people who have worked all that time and have bought houses, gone on overseas holidays and have bought new cars might have been on the dole queue!

The value of Pete’s warning is that for those who don’t think this current economic party will end, well, they will one day have to cope with an economic hangover. And anyone who thinks they might be over-exposed, debt-wise, can always fix their interest rates but they should think about at least a three-year fix because rate rises aren’t about to happen any time soon. And if you are really scared about your debt and the future, maybe a 5-year fix should be considered but you will pay for it.

The best five-year fixed rate I’ve found is 4.39% at U Bank (though you should check out my Switzer home loan fixed rate too!) but if you’re thinking about a fixing option just make sure you look at the comparison rate because fees can make the advertised rate higher in reality.

Good luck with that and thanks Pete for making me explain the bleeding obvious!


Donald tweets and stocks down... be careful what you wish for!

Tuesday, March 20, 2018

The usually very positive Peter Switzer started the day with the less than optimistic advice “be careful what you wish for, lest it comes true.”

My morning was greeted with the news that the Dow Jones index was down over 400 points, and this kind of news makes someone like me go chasing for the reasons for such market negativity.

Challenges for Facebook was one reason. A second was the meeting mid-week with the Fed, which is now headed up by a new boss — Jerome Powell. An interest rate rise is expected because the US economy is doing well, but what this guy says in his first post-interest rate meeting has stock players nervous. And then there’s the President many have wished for — Donald Trump — and apparently his twitter tirade over the weekend hasn’t been good for stocks!

My best guess is that the problems for Facebook, which has hurt the tech sector and the unknowns around the Fed meeting, look like the more important reasons for this sell off but Donald simply doesn’t help with his tweets and his conga line of fired ‘friends’ out of the White House.

The world is cheesed off at politicians, as the Italian election showed recently. The Yanks anti-pollie play showed up in Donald’s win over Hillary Clinton, with the latter seen as a product of the old world of ‘ignore the masses’ politics unless it’s election time.

Donald Trump was an ‘outside the square’ option and in a world where we all can be commentators via social media, the large number of pissed off voters is seriously looking at unpredictable options like the new and unusual President of the USA!

Over the weekend, Donald had been tweeting about the firing of Andrew McCabe two days before his scheduled retirement. It is thought that McCabe has incriminating documents on the President in the form of memos of conversations he had with Donald.

The President has labelled them “fake memos.” You have to admit that Donald use of the word

“Fake” has now given the world one of the funniest comebacks whenever you want to make light of accusations against you.

Unfortunately, the stock market doesn’t have a sense of humour and Donald’s tweets, his potential sacking, his tariffs, the trade war potential and the unknowns around China and Europe retaliating have all spooked the stock market.

I was never a fan of Donald Trump pre the election, mainly because Wall Street hated the idea of this maverick leading the free world, along with the US.

Then his acceptance speech was his best effort. I watched it on air, with a guest expert on my TV show and we both agreed Wall Street might give him a go. It did, and the Trump bump for stocks was a significant endorsement of the guy but the objective assessor would have to admit that Donald’s pluses — tax cuts, deregulation and plans for infrastructure spending and maybe some progress with that North Korean nutter — are now being whittled away by his less-than-wise tweeting, his Russian problems, his continual sackings and the uncertainty his Presidency lives with.

US voters wanted a maverick and they got it. So far economically and markets-wise, the punt has paid off but even his closest supporters, who are of sound mind, would like it if we saw more Presidential-style stability coming out of the White House.

If you don’t agree with my last point, then you are certifiably so pro-Trump that you can’t be objective. You are a fake commentator, who should be respected for having a point of view but you should be ignored.

All Trump fans have to hope he lifts his game politically. If you don’t, you must love anarchy because that’s what the US is getting — Trump’s version of his private version of anarchy.

If I didn’t care about wealth-building goals of my clients, my readers, viewers and listeners and their super balances, which are linked to stocks, I could simply have a laugh at Donald’s antics. But when he helps the Dow drop over 400 points, I really start wishing for a different Donald, who I’ll never regret wishing for!

For those who want an objective score on Donald and his impact on stocks and our material world, the S&P 500 was around 2085 before his great speech. It’s now 2709, so along with a good economy, which he has helped, his stocks are still 23% higher since becoming President.

When Donald won the top job, our stock market was at 5180. We’re now at 5959, so that’s a 15% spike. In all fairness, Mr T has helped this rise via his impact on Wall Street, which we follow.

However, if he gives us a trade war, thanks to his tariffs and tweets, then a lot of this stock market gain could go down the plughole, and Donald’s political stocks could go with it.

I just can’t bring myself to wish for that, for money purposes!



Would bank honesty kill their share prices?

Monday, March 19, 2018

One of the best pieces of ‘advice’ I’ve given the audiences I have talked to for decades was “if you don’t like the way the banks treat you, then get even — buy bank stocks!”

But could this be a dated strategy, with the Royal Commission grilling the life out of our banks’ executives?

As a consequence, the CBA’s boss-in-waiting, Matt Comyn has promised that the bank will do the right thing by customers. The question is: at what cost?

Comyn has written to his 14,000 staff in CBA’s retail division, which he has led for some time, warning that the Royal Commission will showcase examples of customers being unfairly treated by the bank. However he has pledged to “enhance the financial well-being of every single customer we serve.”

This comes following revelations that practices at their acquired mortgage business, Aussie Home Loans, where there were issues around commissions, haven’t gained the bank brownie points at the Commission hearings.

This bad publicity comes as the AFR says there is a group of young financial advisers who are swinging their Gen Y customers away from financial relationships with the big banks.

The Fin says “the new firms are attracting a diverse range of clients scared off by the myriad of banking scandals that have resulted in the explosive and only-just-getting-started banking royal commission.”

What’s intriguing about the so-called current mood of Australians towards banks is that the country has seldom ever acted against the big banks in a sustained way. And that’s why their share prices have done so well.

The GFC cemented the big four’s strength and they were the ones asked to absorb the weaker banks during that time: St.George went to Westpac and Bankwest now lives in the CBA family.

And remember, St. George was the one we loved so much – its ad said it all: where the banker at the BBQ stopped the party when they heard he worked for a bank but then he brought relief to all when he said “but it’s St. George!”

Right now, the young who might hate the banks are being courted by alternative lenders and super funds, which actually are more expensive than the best in breed and lowest in cost, so the cynical young might soon learn that these new age financial businesses are nothing more than wolves in sheep clothing.

And young financial advisers, who avoid working with banks to appease their Gen Y customers, will find that the transparent way in financial planning (i.e. not being dependent on financial institutions in financial planning) is hard work, as I found when we started in advice work.

In those days, there were lots of ‘under the table’ payments from financial institutions so the advisers could charge a low price but the institutions got the business. Asking people to pay the right price for good financial advice was damn hard because lots of people are cheap skates!

Another irony is that when the NAB tried to publicly break up with the banks, ridding itself of certain practices that were anti-customer, the Australian public ignored them and didn’t change banks.

I think more honest banks, like the ones that Matt Comyn is dreaming about, will be less profitable in the short-term, but as their rivals are shown to be not as fair on pricing of products as they portray themselves and a damn recession comes along to scare the pants off those who punted on financial newcomers, the banks will become ‘loved’ again and their share price will reflect it.

They would be a great buy during a recession and after a stock market crash, but who wants to sweat on something like that?

In the short term, banks’ share prices can't be helped by the Royal Commission, but if the Oz economy improves as I expect over 2018 and 2019, their share prices will sneak higher but not at a rate that you’d call fast. However, their dividends will remain attractive, even with Bill Shorten as PM!


Bill backs down on punishing pensioners and public servants but who does he still hit?

Friday, March 16, 2018

Labor has now backed down on its tax refund reneging, well in part, by saying no pensioner will be hurt by their proposed promise to kill the cash payment from the tax office. These refunds go to owners of shares where the tax paid by the company linked to the stock (30%) is more than what the taxpayer is expected to pay.

Super funds pay 15% tax, so lots of SMSF trustees could get refunds. And then there are a lot of retired SMSF trustees and other retirees outside of super, as well as pensioners with small holding of stocks, all in the zero tax bracket, who’d definitely get a cash refund.

The public backlash has taught Bill a lesson but his back down won’t help retirees inside an SMSF with a moderate level of income. These people who can’t get a pension will have to give up their tax refund if Bill becomes PM.

However, the public servant’s Future Fund will be exempt. During the week, I was asked this question on air and I thought out loud that the Fund would collect a lot of tax credits. I suspected that therefore it would get a damn good tax refund and I now know how good, because Bill is exempting it from his drive to make the ‘super rich’ (as he called them) give up putting their snouts in the Government’s trough!

The AFR says last year the Future Fund received a tax refund of, wait for it, $817 million! The Fund was created by Treasurer Peter Costello to make sure we have enough money to pay public servants’ super pensions. Previous dumb governments thought the tax systems of the future would be able to cover future public servant pensions but Costello’s figuring said this liability to our civil servants was a ticking time bomb. “Cash payments for unclaimed dividend credits accounted for 24 per cent of the Future Fund's total dividend income in 2017,” the AFR reported.

Ironically, as Labor changed the rules for low income investors and super trustees getting tax refunds on their dividend payments, they gave exemptions to not-for-profit and charity organisations but super funds were not let off. Now we learn the Future Fund is a special case.

I should also inform you that the Fund is also exempt from tax as well, so it’s definitely a very special beast! Of course, I haven’t had an issue with this as the Fund was created to help out future taxpayers but it’s when you start seeing who gets special treatment and who doesn’t that you start wondering about the equity of all this.

It’s not surprising that a survey by the Australian Institute of Superannuation Trustees found more than half of property investors think property is a better vehicle for building a retirement nest egg.

This body that represents super is lobbying for changes to negative gearing and the capital gains tax discount and underlines the moves afoot by super funds to make their products more attractive than property.

The timing of this survey is interesting, as Bill Shorten’s tax refund policy is making a lot of would-be retirees start thinking about property as an alternative to super. As a financial adviser, I think diversification is always a good strategy and if someone can have a healthy super balance and a profitable investment property, then they would be comfortable in retirement, provided future governments don’t again shift the goal posts!

The interesting development from Labor’s foray into super is that it has reminded those with long memories and an interest in politics that the Opposition Treasurer, Chris Bowen, has talked about the possible need of taxing super on the way out.

He has expressed concern about wealthy Australians being in the tax-free zone. Given the backlash and the back down that followed, Labor is more likely to keep their future super policy cards much closer to their chests, if only for election-winning purposes!

That said, you can bet the Turnbull Government won’t let Labor forget this super mistake by Bill and his number crunching team. And I wonder if Bill and Chris have had a “what the f**k” discussion, following the media madness and mayhem that has followed their tax refund proposal.

That said, don’t forget that even Scott Morrison has done super goal posts shifting as well, with his $1.6 million cap. And you wonder why we like property over super!


A Green's Batman rides to the rescue of refund robbed retirees!

Thursday, March 15, 2018

The crackdown on retirees and their tax refunds has become critical to the outcome of Saturday’s Batman by-election, where the Greens have outraged Bill Shorten by promising to fix his potential changes in the Senate.

So you could say a Greens Batman is coming to the rescue of flabbergasted retirees with a self-managed super fund. But wait, there are more who could be trapped by Bill’s tax refund clawback — there are really low income pensioners who get a small refund from the shares they hold outside of super!

Using Treasury figures, the Government says 97% of those affected have incomes of less than $87,000 and the PM says that “More than half are on incomes of less than $18,000 and 3.5 million superannuation accounts are going to be worse off as a result of this.”

You can never trust either side of politics when they come up with these numbers but Saturday’s election will be an interesting test of how acceptable Bill’s policy is, because it does affect say a middle income Australian with an SMSF as well.

You see, if I’m in the 32.5% tax bracket and I had my shares held outside of super, then I’d pay 2.5% more tax on my dividend. As the company has paid 30%, I only have to stump up the extra 2.5% in my tax bill.

However, if I have these shares in an SMSF, then the tax rate is 15% so I get a 30% minus 15%, which equals a 15% tax refund. It’s why we say a dividend can “gross up” to a higher yield.

Labor is really worried that the seat could go to the Greens. Batman was once dominated by David Feeney, who, like others, was found not to be a ‘real’ Australian, which meant he was thrown out of Parliament.

Making it worse for David, Bill Shorten wanted a more appealing candidate after the former Member for Batman was found to be a committed property investor, with negative gearing.

And while this pre-election revelation in 2016 is not illegal, the problem was Mr Feeney had failed to declare a $2.3 million house on his parliamentary register of interests, saying it was an oversight.

Bill lost the election by a whisker and I reckon David hasn’t had play lunch with Bill inside Parliament House since!

Another worrying consequence of Bill’s tax refund change proposal is that many are saying many will avoid shares and head for property or any other tax-charitable products, such as investment or insurance bonds.

So how could the Greens ‘Batman’ fix Bill’s policy?

They could give an exemption to those already retired but put a cap on the size of the refund. After all, the Government put a cap on how much you can have in your super fund of $1.6 million when you go on to a tax-free pension.

Labor has admitted that 1.2 million taxpayers will be affected and 14,000 on a full pension will lose their tax refund. And I wonder if the numbers could actually be higher? That aside, why wouldn't Labor want to give exemptions?

The trouble with most tax changes aimed at the wealthy is that if Bill designed a tax policy to get the really wealthy types, the number would be too small to really rake enough cash to justify the political heat.

Bill has gone after $5 billion by killing the tax refund. If he gives fair exemptions, the gains would be whittled down to where I don’t know.

Ultimately, it would be determined by where Labor set the income level that says a retiree is wealthy to be slugged.

If someone is on $50,000 from a super pension and $5,000 is the tax refund from shares, if you take that $5,000 away, it’s a 10% loss and it could mean that private health insurance or running a car becomes unaffordable.

On $50,000, a retiree could be comfortable in retirement but on $45,000 they’d be starting to feel the pinch.

Politically, this becomes an even bigger problem when the children of these retirees start hearing about how Labor proposes to make their life really less enjoyable.

That’s why the Greens ‘Batman’ is riding to the rescue. "We want to make sure that these proposed changes don't accidentally end up hurting the very people Labor says they want to help," Senator Di Natale told the AFR.


Will our economy be run by Mr T or will we have to put up with BS?

Wednesday, March 14, 2018

In case you thought I was a hopeless optimist who seizes all things positive and ignores the negative when it comes to our economy and stocks, I’d like to inform you that the Organisation for Economic Cooperation and Development has given us the big thumbs up!

This Paris-based economic think tank has agreed with the Reserve Bank and Treasury, predicting we should grow by 3% this year and next year. And in case you’re not an economics tragic, like yours truly, 3% is the magic number for economic growth, where historically jobs are created. The bigger the growth jump above 3%, the bigger the jobs jump, so this is a good news message for businesses, consumers, job-hunters and a struggling Malcolm Turnbull.

I hope he’s got the rocks to capitalise on this great economic setting for the next election. And I would recommend to him (as I do to many who ask me for advice on business and wealth building) that he learns from legends.

Success leaves clues, so if I want to be a better stock market investor I’d learn from Warren Buffett. If I wanted to build a business brand then Richard Branson or Frank Lowy, who both started small and became huge, would be great role models to learn from and in politics Malcolm could do worse than to study the ABC documentary on Bob Hawke.

Sure Lucy — the first lady — would prefer Malcolm to ignore Bob’s wandering eyes and affairs but gee, the PM really needs to embrace Bob’s love affair with the Australian people.

Like Bob, the Australian people (to steal a US term of endearment) like one thing about Malcolm and that’s his brain.

Who really wants to be led by a dope? We want our leader to be respected overseas but we want him to be respected even more at home. And that’s the piece Malcolm has to work on over 2018.

With our economy tipped to pick up growth from 2.1% to 3% this year and close to 400,000 jobs expected to be created, Malcolm has to step up or it will be Prime Minister Shorten we’ll be dealing with in 2019.

Bill’s drawn battle lines to go after the economically well off, even if they have been former working class strugglers, who have worked and saved their way to a comfortable life in retirement.

His crackdown on negative gearing, the capital gains tax discount and tax refunds to lots of retirees who invest in stocks, shows he’s worked out who might not vote for him and he’s gone after them. Meanwhile, he’s well and truly courting those who are a good chance to be Labor lovers.

It’s clever politics — classic divide and rule — but it’s divisive. And that’s Malcolm’s opportunity. He has to try to be like Hawke who was the master of inclusiveness. He has got a year to get out amongst his “fellow Australians”, as Bob would often say, and not just sell himself. But like Bob, he has to love his potential followers.

That’s what’s missing and luckily for Malcolm, Bill’s not a great man of the people either, but as the polls show, his Party is in front — 53 to 47 on a two-party preferred basis — and Malcolm is losing his lead as preferred Prime Minister. This was Malcolm’s biggest plus, aside from the improving economy I’ve been predicting, but now the score is MT 37 and BS 35.

Once upon a time, it was Malcolm first as loved PM, daylight second and Bill was like Prince Charles, when he had to be driven home from a cross-country event when he was a schoolboy. He got back only just in time for supper!

My interest in Malcolm over Bill is that with the economy now tipped to be producing the best growth since the GFC, do we really need a change of government? I prefer to kick governments out when they’re failing and despite an unhelpful Parliament setting, which we voters created with a crazy supply of independents and odd-ball parties, the economy has still managed to keep improving.

And to be objective, Bill’s policies are not really pro-business and right now I don’t think, with business conditions and confidence really riding at highs, that a change of government is a great idea. That said, Malcolm has to be worth keeping, so he is the hope of the business side and anyone who thinks the economy doesn’t need a radical Labor plan right now. 

One day their prescriptions might be needed but I’d argue, not now. And if Malcolm could show us some return love for us making him our leader,  he actually could win the next election.

But he’s got a lot of work to do and he has to start today!


Labor is going after 'cursed' SMSF retirees!

Tuesday, March 13, 2018

Labor’s planned assault on those ‘cursed’ self-funded retirees and anyone with a self-managed super fund continues, and it puts enormous pressure on the Turnbull Government to lift its game, or else those who get tax refunds from investing in shares will lose a lot of money!

Labor’s number crunchers think its proposed rule change will deliver Treasury $5.6 billion in the first year rising to $8 billion over time. And it’s calculated that more than a million shareholders will be affected.

The AFR’s Phil Coorey has been briefed on a speech Mr Shorten will make to a KPMG get together in Sydney where he “will stress that those affected – about 200,000 of the 600,000 who use self-managed superannuation funds along with another 1.2 million taxpayers – will not pay any more tax. But they will not be entitled to a cash refund if their imputation credit on their dividend is more than their total tax bill.”

That’s like a charity telling a down and out person that they won’t take any food from you but they won’t give you any either.

To make the story look like another crackdown on the wealthy, we’ve been told that 50% of the refunds go to the wealthiest 10% of SMSFs and the top 1% of these pocket annual average cash refunds of $83,000.

But this is a better statistic to think about — 90% of the money accrues to SMSF trustees/ retirees, which represent less than 10% of all superannuants. However, that would be most of those retirees who have an SMSF!

For those who don’t understand how someone gets a tax refund from the dividend imputation system, here’s a simple explanation.

If you have shares and your tax rate plus Medicare levy is 47% and you receive a dividend from your shares, then this income has already been hit by the company tax rate of 30%, so all you would pay is 17% on your dividend income.

Dividend imputation was meant to kill the double taxation of dividend income. However if you are a low income Australian with a tax rate under the company tax rate of 30%, you get a tax refund.

If you are a retiree in the tax-free zone, then you could get all of your tax on a dividend repaid to you.

This is good for retirees who aren’t on the pension and helps the stock market, as shares become attractive to retirees. So Labor’s plan could hurt the stock market and even the super funds they love — the Industry Super Fund sector!

The changes would start from 1 July 2019 and will hit earnings and franked dividends in the 2020-21 financial year.

Charities and not-for-profit outfits such as universities will be exempt.

Labor leader Bill Shorten is going back to the Paul Keating-designed dividend imputation system, which was changed in 2000 under John Howard and Peter Costello.

In those days, it cost the Budget $550 million but it’s now closer to $5 billion but over that time there has been a growth of self-funded retirees who were encouraged to look after themselves after finishing work.

Those Australians won’t be taxed any more under these changes but money they live on will no longer be coming down the pipe from Canberra.

These people will buy less stocks and the stock market will be affected and the economic implications — these people will be poorer consumers! — could surprise the architects of this policy.

Sure, Labor will spend the money on other areas that could help the economy but these Australians will be poorer for the experience.

One final point. You have to be careful about looking at economic numbers in isolation.

Sure, the tax benefit to retirees of $5 billion is big but these people don’t draw a pension so there’s a saving there. They spend their money so they pay the GST and they often help their families with their excess funds, which can be a plus for society as well as the economy.

But what I think is worse is the shock factor delivered to retirees. This morning around 1 million Australians will be wondering what’s going to happen to the money they live on.

Remember, Labor has revealed that 50% of the refunds go to the wealthiest of SMSF trustees but it means the other 50% is doled out in small amounts to the 90% of SMSF trustees.

These small amounts will be a significant loss to these lower income trustees.

Sometimes I wish governments and would-be governments could actually come up with productivity-generating ideas to increase the nation’s income rather than creating policies that set Australians against Australians.

When the so-called wealthy get targeted in these tax-grab policies, there are a hell of a lot of middle class Aussies who have worked hard, played by the rules, have not taken Government handouts for most of their life and now become targets because they have become self-funded, under current rules, with a tax refund.

The irony is that many of these less wealthy SMSF trustees could go on to part-pensions because they lose their refunds and that means Labor’s calculations of gains might prove less than what’s expected!

So it could be a lose-lose policy change. I hope Labor works out a way not to punish the 90% of SMSF trustees that divvy up 50% of the total tax refunds from dividends.



Just how bad are banks? Do they deserve the hate?

Monday, March 12, 2018

In today’s SMH there’s a story about how banks could be cut out of our lives, but the Government/RBA would have to step up and be the banker. And there’s another saying “after 73 inquiries the banks know their time is up…there’s a reason Australia’s share market heavyweights are all lawyered up to the teeth.”

The two yarns prove that bank bashing is a national sport here in Australia. If the truth be known, I’d argue that banks are hated worldwide.

The famous US comedian, Bob Hope, summed up our suspicion about banks with this classic joke: “A bank is a place that will lend you money if you can prove that you don't need it.”

And then there’s the one I’ve told for years; that a bank is a place that will lend you an umbrella when it’s sunny and then want it back as soon as it rains!

Don’t get me wrong, banks have behaved badly in the past and I think this Royal Commission will turn up a few cases where we will say “unbelievable!”. However I think the biggest conclusion will be that CEOs of the past have let their customers and their brand down, which ultimately hit their share price by not fixing up the problems root and branch in their organisation.

Yep, individuals have been hurt and treated unfairly by banks and so have small business owners. On the other hand, many bigger businesses have taken the banks for a ride.

As the old gag/adage goes: “If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem."

For a large chunk of the population, a lot of hate for banks has come from those times when our home loan interest rates were pushed up relentlessly. In the late 1980s, the home loan rate went to 18% for some borrowers but that was driven by the Reserve Bank.

Most bank rate rises on our homes is led by the RBA but banks have been quick to raise and a tad slower to cut when the cash rate was falling.

Recently, property investors have been given a rough time with some borrowers seeing former promises of a loan withdrawn. Others have been denied interest only loans. In most cases, the bank’s hardball plays were on the direction of the Australian Prudential Regulatory Authority (APRA), aided and abetted by the RBA and the Treasurer.

Let’s face it, are banks really that different in their anti-customer behaviour from telco companies, energy businesses, retailers with their exorbitant store cards and lawyers that overcharge? And let’s not leave out local councils that have computers that are programmed to say “no” to just about every dream you need permission for from these dream-spoilers!

On the flipside, for many of us, banks have actually been accessories before the fact in many of our greatest economic successes. Let me remind you:

  • When they said “yes” to a loan that saw you buy your dream house/
  • When they did lend money to you and your business that helped you grow a successful, income-giving business that you later sold at a big profit.
  • When they sneakily got into our lives with their saving plans introduced to us at school, which were marketing strategies but they turned us into savers, which helped when it came to buying important stuff in our lives; and
  • I reckon a lot of our super balances have been driven by the success of the banks’ share price and their great dividends that smart super funds harvest to produce the fantastic results we’ve seen since 1992.

As Warren Chant from Chant West showed us, our super funds’ performances have been great. “Over an extended period that includes the worst financial crisis that most of us can remember, funds have returned 5.8% above the rate of inflation,” he calculated. “That’s a very substantial boost to the real wealth of their members.”

Sure, bank’s super funds had a history of charging too much for super in the early days but once competition came from industry super funds and the growth of self-managed super funds, they had to lower their fees.

And sure, their fees remain high for the person who doesn’t check them but overcharging the unwary is not the sole domain of the banks.

Telcos, airlines, energy companies, insurance companies, lawyers, etc. all do the same. So do corner shops compared to Coles and Woolies but these guys too can attract you to their stores on specials, then overcharge on other products once they’ve got you inside.

Banks have got away with blue murder because governments never had the guts to have a proper disputes resolution system for customers of banks. Like a lot of bank bosses, Treasurers never had the guts to force banks to have an objective, judicial system to give customers a fair go.

I’m told the Banking Ombudsman was a good service but I always ask: “Well, how come we have a Royal Commission driven by an accumulation of bad bank stories involving their customers?”

State government have consumer claims tribunals, which work well, but governments have been accessories to banks behaving badly.

I like the fact that our banks are safe because we underwrite them with our taxpayer’s money but governments in the past should have used this to make them behave better. That safety and our role in keeping them safe explained why out top four banks were in the best 10 banks in the world during the GFC.

This helped explain why our unemployment rate didn’t go over 6% during that time, when the world’s economies went into recession and we didn’t.

Like a lot of other businesses and like a lot of people, banks have some problems that need to be attended to but they have also been accessories to a lot of great things in our lives: homes we bought, businesses we grew and wealth we generated.

I know overdraft interest rates have always been high but when our business grew and we had big customers who paid late (more businesses behaving badly), it was a bigger bank overdraft that kept us in business, kept growing our operation, which kept us employing young Australians and doing more businesses with other businesses.

I know banks can be bastards for individuals but they also have had some help from many of us who don't do their money homework, who are lazy when it comes to looking for alternatives and so, in many ways, we have been accessories to our own mistreatment.

If this Royal Commission is of any real value to us, we’ll see a proper disputes resolution system put in place to ensure big banks don't behave badly to individuals and businesses.

This will help us, the banks’ brands and their share prices, which will help our super funds.

Who said economics is a dismal science?



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