A new government is in power and like all previous incoming governments, has discovered that the financial position is much worse than they expected and severe remedial action must be taken.
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The stated aim is to get the budget back in surplus, but history tells us that's going to be a tough task. It's been 21 years since Australia had a surplus and that was in the early stages of the Howard government.
I remember being in Canberra in April 2019, when, to cheers from the gallery, then Treasurer Josh Freidenberg announced an expected surplus of $7 billion.
Sadly, it was about as good as most forecasts - the long-awaited surplus turned into a of deficit of $85.3 billion for the year ended June 2020.
Labor has a tough road ahead.
Inflation woes
A major plank of Labor's election policy is to give every low-paid worker a rise that would compensate for the effect of inflation.
Do the numbers - if inflation is 6 per cent a worker would need a pay rise of at least 9.5 per cent to cover inflation of 6 per cent.
This is because tax at 34.5 per cent would be deducted from any pay rise.
A worker can only spend what they get after tax.
Now look at it from the employers' point of view.
They are faced with compulsory superannuation rising from 10 per cent to 10.5 per cent on July 1 - and from then will have to pay super on casual wages of $450 a month which are currently exempt from compulsory super.
This means that employer could be faced with an increasing wages bill, plus more compulsory superannuation, and if they are a large employer more payroll tax.
Furthermore, the latest rise in wholesale electricity prices will add further costs.
For the nation to prosper, and the budget to be repaired, small business has to prosper - they are one of the major employers in the country.
Labor's other promises include putting a nurse full-time in every age care home, better access to childcare, and building 30,000 new social and affordable homes.
These too face a problem - neither nursing homes, nor childcare centres, nor the building industry have any available staff. It's simply not possible.
To this dangerous mix add the Greens goals of establishing a new minimum wage at 60 per cent of the median wage and building a million new, affordable, accessible and sustainable new homes to fix the public housing problem.
Anybody trying to fix the budget has a major structural problem.
A major part of our revenue comes from commodity prices over which the government has no control.
In the last few years prices have been booming, but that won't last forever.
Furthermore, some elements in the community wish to shut many of our exporting businesses down.
Making cuts
Given the uncertainty of commodity prices the only way left for a government to reduce a deficit is to increase revenue from various forms of taxation or by decreasing expenditure.
Two of the biggest consumers of government money in the recent budget were the NDIS and aged care - hardly a target for big cuts.
The incoming Treasurer Jim Chalmers has warned that everybody will be expected to make sacrifices.
Given the serious challenges facing our economy right now one has to wonder what those sacrifices might be. Watch this space.
Noel answers your money questions
Question
We are 48 and have three investment properties which we planned to pay down progressively using our surplus of $3000 fortnight.
We have nearly finished paying our home using that surplus. Crunching the numbers we could pay the three off by retirement age planned at 65. We have heard a new idea of investing all our surplus into super and index funds and then use these to pay off investment properties when we retire and have more money left over. Is this a good strategy?
Answer
A good superannuation fund should be returning around 8 per cent per annum, and even with projected interest rate rises I would imagine that 4 per cent would be the top rate you could be paying on the loans for the investment properties.
Therefore, it makes perfect sense to prefer investing money in superannuation where it can grow in a low tax environment, and at the same time stretch the loan repayment term out as long as possible.
Keep in mind you do not need to pay off the investment properties when you retire. You could simply maximise the amount of money you hold in superannuation and withdraw sufficient each year to make the loan repayments.
Question
We are both 68, working part time but keen to wind down even more. We have a house in the city worth $3 million and super of around $1 million. Our combined employment income is around $100,000 a year. We have rented out our city house and are renting a regional property which was bought by our son as an investment.
We rent the house from him for $650 a week and get around $1300 week for our house in Sydney. The arrangement is secure. We have a mortgage of $190,000 on the Sydney house, and two more equity loans for around $280,000 which we took out to help our children buy their own houses. We are very happy with the move. But have we made a big mistake?
Answer
I think you have put yourself in the perfect position. By retaining your residence in the city you have six years from when you moved out to harvest any future capital gain free of capital gains tax.
Furthermore, by renting in a regional area where you may decide to retire, you are giving yourself a feel of what retirement would be like if you decided to stay in that area.
I believe children should get a hand up, but not a handout, I think that helping them now at a time when they need it most, and when you will be around to watch them enjoy the help is a great strategy.
Question
My problem is that my christened name is not the same as my known name. What is the best way to deal with Centrelink regarding my ID?
Answer
Human Services General Manager Hank Jongen says that Services Australia will need to verify your legal name when you claim a payment.
If you've changed your legal name, you'll need to provide documents to support this. This can be done by providing an original document from a state or territory births, deaths and marriages registry that shows your change of name.
If a person needs assistance with their claim, or further information on how to prove their identity, they can visit servicesaustralia.gov.au/identity. Keep in mind that you can claim Age Pension from 13 weeks before you reach Age Pension age.
- Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. You can send your money questions to: noel@noelwhittaker.com.au