If you’re struggling to save a sizeable deposit or you want to buy a house that’s out of your price range, an option might be to purchase a property with a friend or relative.

Buying a place with someone else has a number of benefits. It means you might be able to get into the property market sooner than if you were buying a property by yourself.

It also allows you to combine two incomes to maximise the value of the loan to buy a better property. It also reduces the size of the deposit you will need to save and also means you don’t have to service the entirety of the loan yourself.

Sharing the load

We are the only bank that offers a Property Share Loan that allows two parties to take out separate loans for the same property, to suit their individual needs.

If you’re thinking of buying a property with a friend or relative, the first thing you will need to do is decide where you want to buy the property and how much you’re willing to spend.

Decide how the split will work

There are also lots of other factors you will need to decide, says Commonwealth Bank Executive Manager, Product, Offer and Channel Management MortgageWealth, Ray Ters.

“Once you have found the property you will need to decide the ownership split, each party’s share of the repayment and the period of time you intend to hold the property,” he says.

Other decisions also need to be made around how costs associated with the property such as stamp duty, taxes and bills will be split, as well as how any renovations will be paid for.

Have an exit strategy

“It’s also really important to consider from the outset what will happen in the event one party’s circumstances change, for instance if one side loses their job and can’t meet the mortgage repayments. It’s useful to have an agreement that covers all of these considerations that you can refer to if either side’s situation changes,” says Ray.

There should also be a formal agreement that sets out what happens if one side wants to sell their share and who pays the selling costs. It should also cover how maintenance costs will be split, what happens if the property is rented out and how the loan will be met if a tenant can’t be found for the property.

Security guarantee

With the Property Share Loan, each side provides a security guarantee for the other side, so if one party defaults it’s the responsibility of the other party to repay the loan.

Under the facility, each side has a separate loan that suits their circumstances, for instance one party can have a variable interest rate, and the other side can have a fixed interest rate. Each side can also determine whether they make repayments weekly, fortnightly or monthly.

“Our No Fee Home loan is a popular option for people who want to buy a property together, especially first home buyers that don’t want too many expenses or fees. It also offers a great rate and it’s a simple product that people who are new to the property market can easily understand,” says Ray.

More information on property share loans.

Have you bought a place with a friend – how did it go?

Gold has garnered considerable attention since it became a safe haven investment in the wake of global financial market instability. But with markets recovering, does gold still have the same lustre?  We spoke to financial adviser, Andrew Jones, from Eureka Financial Group to get his take on the place of gold in an investment portfolio

Investor expectation

According to Andrew, whether gold is a good buy at the moment will depend on the investor’s return expectation, timeframe and what they want to achieve by investing in gold. He says it generally forms part of the alternatives asset class within an investor’s asset allocation

Bullion from the Mint

Andrew says there are a number of different options for investing in gold. To gain physical exposure to gold you can buy gold bullion bars or coins from the Perth Mint

Or to gain exposure to movements in the gold price you can:

• Invest in an exchange traded fund that is backed by gold that is listed on the Australian Securities Exchange.
• Invest in a managed fund that invests in listed companies that produce or explore for gold (more speculative).You can invest directly in a company that produces or explores for gold – Newcrest Mining is a well-known Australian gold producer listed on the ASX.

When considering an investment in gold, Andrew says it’s important to remember that unlike other assets such as equities or property, gold does not produce income in the form of dividends, rent or interest. Which means a gold investment purely exposes investors to movements in the gold price and the underlying currency that the gold price is bought in, for example in US dollars or Australian dollars.

 Gold rush

He says investors that wish to have an exposure to gold do so because:

• They believe the price of gold will rise.
• They are seeking a hedge against rising inflation (although gold will not always provide this hedge).
• They are seeking protection against a devalued currency.
• They are seeking protection against an economic crisis.

“With both the US and Europe engaging in quantitative easing – which means central banks are printing more money – currencies are being devalued, which means they have a lower purchasing power. Some investors are turning to gold to offset this, in the belief gold becomes a greater storage of wealth than their local currency alone,” he explains.

Gold dumped

Andrew says anyone investing in gold should be aware the gold price can be volatile. Although the gold price has been rising in recent years, it’s important to remember in the late 1990s and early 2000s many central banks dumped gold on to the market, such was the lack lustre return from gold

“Gold has a place in a portfolio in times of crisis. But the gold price has come off its recent highs of around US$1900 per Troy ounce ( the imperial measure used for weighing heavy metals). Although this could be a buying opportunity, the gold price could easily continue to fall, especially if global economic growth improves,” he says, adding that much will depend on whether the fallout in Europe can be contained.

Do you think gold will continue to hold it’s value?

The next time you log on to NetBank, things might look a little different. Based on the feedback and ideas you’ve tweeted, posted, emailed or talked to us about, we’re making some changes to NetBank that will make your day-to-day banking even easier.

What’s changing in NetBank?

You told us you want simple ways to stay on top of your money. So we’re placing the account information you use the most where it belongs – right in front of you. Things like, how much you owe on your credit card and by when, and how much interest you’ve earned on your savings. Or if you’re saving up for your dream home or a much needed holiday our new savings goal tool will keep you on track.

 The new design also makes it easier to see other useful figures, like how much you can spend on your credit card and foreign exhange rates that can help you decide whether to be shopping online via the US or the UK.  Plus to help you move around NetBank, we’ve simplified the menu bar at the top of the page and added quick access to some useful tools and help at the bottom of every page. Searching through your transactions is easier too.  

You spoke, we listened and we really learnt a lot.

Changing anything in NetBank is a serious business.  It all starts with you and what you’ve told us. Once we’ve sorted through all of your feedback, we spend lots of time designing, critiquing and then designing some more. Once the new page designs start to take shape, we put our ideas in front of people just like you and insist they don’t hold back with what they think. Like it, love it or loathe it, we take on your feedback, tweak it some more, then turn it over to our team of techies who transform the new designs into reality.

When is this all happening?

Because there are more than five million of you using NetBank, we can’t unleash everything all at once, so the changes will be rolled out to you all in groups over the next few months. This means that you might get all of the changes before your family or friends, or maybe a little while after. We’re hoping that within a few months though, everyone will be enjoying everything the new-look NetBank has to offer. 

What do you need to do?

 Keep your eye out for the changes, then please tell us what you think by taking part in our Customer Feedback Panel. It’s quick and easy to do and it will help us to continue shaping NetBank the way you want.

Economic inequality has become a global political focus. While the boom years of the eighties, nineties and early 2000s focused on prosperity creation, today, sharing the pie has become considerably more important. The political focus is such that elections in Europe and revolutions in the Arab world have been determined by these issues. So how does China stand up against charges of inequality? Can China avoid the fate of other economies riven by inequality?

Outdated growth models

The Asian Development Bank, in The Financial Times, believes Asia, particularly India, China and Indonesia has created greater inequality in its growth model. Using rather woolly and dated statistics, the ADB believes there needs to be a change in the growth models of these economies to address inequality. That may be the case for India and Indonesia, but I’m not convinced that it is the case for China. This blog seeks to demonstrate how China is achieving greater equality than other economies. It argues that at a macro level China is achieving a low inequality economy but there are more micro risks.

Macro inequality in China

A slightly less orthodox place to start, given GINI data is from 2005, is billionaires (courtesy of Forbes). China has a lot of billionaires, 104 according to Forbes, which is a lot compared to Russia 96, Brazil 36 and India 48. The US has 425, Australia 18 and the UK 36. Re-balanced for GDP  however, and China has less than all these economies other than Australia and Japan, which has a significantly low number.

Billionaire monopolies

Obviously, billionaires represent success and aspiration. More often, however, billionaires make their money as rent-seekers (using their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation) through the ownership of monopoly or oligopolistic assets. For every Jobs or Gates there’s at least one Carlos Slim. Carlos Slim, the world’s richest man, made his wealth from ownership of Mexico’s telecommunications company, a quasi-monopoly (90% market share).

Mega wealthy

If we look at the mega wealthy in the emerging world two points are born out. First, China has fewer globally mega-rich individuals. In the top 100 there is one Chinese, compared to four Indians, Mexicans and Brazilians and twelve Russians. Second, most of these billionaires fit into the rent-seeking category. While the Chinese billionaire is a tech entrepreneur as is one of the Indian billionaires and one Brazilian is a brewer, the rest are all resources billionaires. Furthermore, Mexico’s billionaires in the top 100 control wealth equal to 10% of GDP, compared to 9% for Russia, 4% for India, 3% for Brazil and 0.1% for China.

So what explains this result?

A lack of disclosure would be an easy way to explain this result. I would argue however, that there are more important structural issues that make the emergence of rent-seeking billionaires, or even entrepreneurial billionaires, much less likely in China. China, from my perspective is built on two pillars that make this economy fairer and more stable; hyper-competition and state ownership of monopolies.

A competitive domestic economy

China through a bit of luck and good policy has created an extremely competitive domestic economy where low prices are the norm not the exception. This creates three positive outcomes; lower prices create higher real living standards for households, less volatile investment cycles in domestic industries (investors understand returns are capped by competition) and an incentive, in  the form of a stick, to innovate. However, such competition is not great for capital with investor returns well below emerging market peers.  

Stellar wage performance

State ownership of infrastructure assets is extremely important in generating both more stable long term growth and greater equality. It’s important the government undertake infrastructure provision and ownership. First, governments can have a longer term view than financial investors and, in addition, can generate returns from projects that are more diverse than solely user charges – taxes from increased economic activity. Second, strong infrastructure provision helps to create capacity in an economy and improve productivity. This supports lower inflation and higher wages. China’s wage performance is stellar compared to its emerging market peers. Indeed, Brazil’s wage growth has been appalling considering higher growth outcomes of around 4% p.a..  

Remarkable growth

The combination of competition and infrastructure has led to a remarkable growth – inflation trade-off in China relative to other BRIC nations, as the chart below shows. This has enabled substantially lower interest rates; 10 year interest rates in China have averaged 3.5% in the last five years compared to 8 – 12% in the other economies, which promotes further investment in capacity and productivity.

From a survey of 2008 to 2011, profits in part of the manufacturing sector fell from about 10% to 5% or even 2% to 3%. Some companies could only break even. Company owners are struggling, bringing in revenue of several hundred million yuan but profit of only several million.

This matches evidence from the most recent Chinese reporting season which shows profit margins amongst non-financial companies falling to less than 5% in 2011 at the same time as wages rise by over 15%. Wage growth is being driven by productivity which in turn can support non-inflationary growth.

Profit margins

Contrast this to India where I met a bottle manufacturer with 20%+ profit margins. I also saw an article about a dairy company entering the Indian cheese market. The journalist asked the MD if he would produce low quality cheese as he did when he entered the ice cream market some 10 years previously. The MD’s answer was illuminating. He said his ice cream was not low quality, just more keenly priced. He was happy with 28% profit margins versus his competitor’s 56%.

The size of profits is crucial for equity markets but not necessarily for an economy. Coupled with strong wage growth,  and fewer billionaires, there don’t seem to be strong indicators of an unequal society in China.

The risks

This blog  follows Bill Clinton’s maxim, “it’s the economy, stupid” so, at this point there are only limited comments on freedoms. That’s for a later time. But even without looking at the issue of political freedom specifically, there are risks in China to equality.

The most obvious risk is property. Property sits right in between infrastructure and competition. It can never be truly competitive, one property is objectively better than another (see last Friday), yet it’s difficult for China to not liberalise ownership. This creates the conditions for excess returns and their corollaries over-investment and price bubbles (which China has battled in the last two years). The billionaire analysis shows there are over 17 billionaires in China from the real estate industry. The sector is a magnet for excess return seekers.

Investor strike

The other side of excess investment in property is an investors strike elsewhere in the economy. This is certainly a risk when returns are  low. The government, however, by playing a pro-active role in investment can be the catalyst for more private sector. A good example of this is the investment in in infrastrucutre in the west of China that has seen private capital follow aggressively.

But, I think the bigger risks may be more micro with behavioural economics being of more use than macro-economics. Behavioural economics teaches us that the behaviour of those around us may be more important than the behaviour of those well-removed. For instance, to what extent does the life of Carlos Slim really impact on average Mexicans? Much more important are the lives and behaviours of those around you. This is where risks are posed for China.

Petty corruption

Stories abound about the petty, and not so petty, corruption that means China is 79th of 170 countries in the Transparency International corruption survey. There was a recent story about a Beijing proposal to ban local officials from buying foreign cars. The implication was that this is a protectionist measure, though I suspect it has as much to do with the image of local politicians as being remote from average people. Similarly, a client recently related the story of a colleague who attended a dinner with local government officials in China and was taken aback by the open hostility of waiters to the officials. People are angry and this poses real risk.

The more pervasive is corruption, the more one person is able to benefit from state largesse, relative to another, the more damaging this will be. It may be that corruption on a monetary scale is well below the level of rent-seeking in other economies, but if it is perceived as more pervasive, it will be more destructive to society.

Indeed, it was a reaction to corruption that led to the protests in Wukan in Southern China. The protests centred on the means by which developers gained access to farmland without proper compensation to farmers. Ultimately, this led to some democratic reforms but obviously highlighted how corruption poses such a risk to political and economic stability in China.

Conclusion

China has achieved much in creating a fairer economy. It has a level of competition that creates large welfare gains at the same time as it denies access to assets that create rent-seeking opportunities from which inequality can arise. But the risk for China remains– it’s the petty corruption that can be endemic in cities and towns that creates real resentment and spurs demand for political change that will be volatile.

As with investment, past performance may not be a reflection of future performance. I do however, think the foundations in China are strong and that unless a more populist leadership emerges, sustainable economic growth is likely.

If you’ve ever applied for a loan, had a credit card or even rented equipment such as a fridge or washing machine, you will have a credit file. This is a record of your debtor history and what it contains is important because it’s one of the key pieces of information any lender will take into account when you apply for a loan or credit. Here, we look at how to get information about your credit file and how to improve your credit rating.

Where do you go to find information about your credit file?

Dun & Bradstreet offer a free consumer credit report, available directly from its website. The report is sent via email or post within 10 days, or if the request is urgent the report can be sent within 24 hours for a small fee. To obtain a copy of your credit report visit: www.dnbcreditreport.com.au

What can you do to improve your credit rating?

According to Dun & Bradstreet Australia & New Zealand CEO, Gareth Jones, there are a number of steps you can take to ensure your credit rating is as good as possible.

1. Do a credit check on yourself

A credit check is something financial institutions often do when we apply for a loan, but it’s not something we often think of doing ourselves. Your credit file holds personal information about you as well as details of your loans, any credit applications you have made and details of past and present overdue accounts. Information is held on your account for between four to seven years. A bad credit file can cost you a lot in the long term. If you haven’t paid your bills, or if you’ve had your power cut off, your car repossessed or skipped payments, exceeded card limits or defaulted, you could be refused a loan or be charged a higher interest rate.

“It’s a great idea to check your credit report occasionally, not just to tally up the black marks but also to ensure that there are no errors – and to make sure you haven’t been an unwitting victim of identity fraud,” says Gareth.

2. Clear up any disputed credit records

Your credit report will contain records of overdue payments of 60 days or more when you have been sent a letter notifying you of the default. It also includes records of when a credit provider has unsuccessfully tried to contact you in writing and has reported you as a missing debtor.

 According to Gareth, if you believe a bank or phone company has unfairly listed an overdue account on your credit file, you should contact them and ask for an explanation and for the incorrect information to be rectified.

 3. Improve your credit

To change a bad credit record into a good one, use credit as much as you can, meeting all repayments on time, so the good record outweighs the bad. You do not have to spend more, just put all your spending (bills, groceries, petrol, transport pre-pay tickets) on a credit card and pay it off every month. You can arrange with your bank to have your card paid automatically from your savings or transaction account.

What can you do if you believe the rating is based on incorrect information?

Most consumers will only access their credit file after a credit application has been rejected.

“We strongly encourage consumers to keep a close eye on their credit report, so that any errors may be spotted and corrected well before an application is made. Continual monitoring of a credit report also raises awareness of any changes, such as negative credit events, which could affect your ability to obtain funds. This can also help negate issues such as identity theft,” says Gareth.

“In this way consumers can understand how they are being portrayed to prospective credit providers and be sure lenders are receiving a complete and balanced view of their credit history,” he adds.   

If you spot any discrepancies on your credit file, D&B can make any amendments necessary once documentation supporting the change has been supplied. Once a change has been successfully made, it will also send the amended version to all previous enquirers.

If the information has come from the credit provider, you can go directly to that provider or source supporting documentation.

Many of the most successful people in business and life have had mentors – people who have helped, coached and advised them in their careers. So why does having a mentor make  such a difference and how do you get one?

Catriona Pollard, the founder of Catriona Pollard Communications, has mentored numerous business people and graduates and sees this as an important part of her contribution to the business community. Here are her top five reasons why you need a mentor.

1. Mentoring cements a learning culture in your life

“We’re responsible for our own learning and by seeking a mentor you are creating an opportunity to grow, which is what you need if you really want to be successful,” says Catriona.

2. Mentoring is a great source of support and advice

Catriona says mentoring does not have to be formal – informal mentoring is also very valuable. “I have a group of business friends I can have a coffee or a catch up with. This isn’t really a formal mentoring process, it’s about seeking out people you trust and admire to provide support and advice.”

3. Formal mentoring assists with goal setting

According to Catriona, a formal mentoring relationship is a great way to set clear career path initiatives and goal setting. “It’s about creating a clear view of the future and what career success means to you. It also makes you accountable for your own career goals.”

4. Mentoring gives you inspiration… as well as perspective

“Spending time with someone you admire leads to better decision making,” says Catriona. “Someone else’s perspective can influence your own perspective and help you think outside the box,” she adds.

5. Mentoring is a great way to expand your networks

“Starting a mentoring relationship with someone outside your own sphere of influence is a great way to start mixing in a new area and also gives you the opportunity to influence your mentor’s peers. It can really help you access people you normally wouldn’t come into contact with and open up new career opportunities you otherwise wouldn’t have,” she says.

There are a number of avenues you can follow if you’re looking for a mentor:

·     If you work in a corporation: ask your HR department about formal mentoring programs the business has or ask for help in finding a mentor internally or externally.

·     If you don’t work in a corporation (or even if you do): seek out people who inspire you.

·     Find industry groups you can join that offer mentoring opportunities.

One of Catriona’s former mentorees is Gail Rast, who started her business, Life’s a Feast, three and a half years ago. The business offers cooking classes and other foodie events.

She says having Catriona mentor her was an excellent way of increasing her PR and marketing skills as the business developed. It also gave her motivation to keep going. “Catriona was someone I could talk to if things did not go the way I had hoped they would,” explains Gail.

“I was very lucky I found Catriona – she never gave up on me and was also quite tough. If it wasn’t for her I could easily have thrown in the towel because I didn’t realise how tough it would be to go out on my own.”

What has a mentor taught you?

Head of Investment Markets Research, Stephen Halmarick, gives us his overview of the 2012-13 Federal Budget.

Key insights:

• The 2012/13 Australian budget has, as widely expected, estimated a surplus of $A1.5bn, or 0.1% of GDP. This is a substantial turnaround from the 2011/12 deficit estimated at $A44.4bn or 3% of GDP.
• The economic impact of this fiscal contraction is likely to be less than the headline implies. The budget contains a redistribution of income to low and middle income earners and small businesses as a way of ‘sharing the benefits of the mining boom’.
• The budget is unlikely to add to the case for another near-term monetary policy easing, but further easing remains on the agenda given ongoing global uncertainties and the domestic inflation outlook.
• The budget projects an economy growing around trend in the years ahead, but with the ‘two-speed’ nature of this growth likely to remain in place.
• The budget surplus will see a sharp reduction in net bond issuance and a peaking of net debt at 9.6% of GDP. This is consistent with Australia’s AAA rating and will be applauded by international investors.
• For the equity market the budget is a mixed bag, with support for the consumer a positive, offset by the decision to abandon the planned company tax reduction.

Overview and market implications:

The 2012/13 Commonwealth budget and projected return to surplus of $A1.5bn, 0.1% of GDP, represents a tightening of fiscal policy. But the budget is also designed to actively redistribute income to low and middle income earners and small businesses, as a way of, in the government’s words, “spreading the benefits of the mining boom.”

Given this, the net contraction on the economy from the 2012/13 budget will be less than the headline reduction in the budget position of 3.1% of GDP would imply. This is because the government has shifted some outlays into late 2011/12 or early 2013/14 and provided new cash payments to low and middle income earners and tax benefits to small business. In addition, some of the spending cuts and tax changes announced in the budget will have minimal effect on the broader economy.

Taking these timing and structural issues into account, the impact on the economy of the fiscal contraction in 2012/13 is more likely to be around 1%-1.5%: still significant in an economy growing below trend, but not dramatically so.

The small surplus estimated for 2012/13 follows a revised deficit estimate for 2011/12 of $A44.4bn (3.0% of GDP), well up on the original budget-time estimate of $A22.6bn (1.5% of GDP) and the mid-year estimate of $A37.1bn (2.5% of GDP).

For the out years the government continues to forecast surpluses all the way to 2015/16, peaking at $A7.5bn, 0.4% of GDP.

Tough decisions

The government has had to make some tough decisions to get the budget back into surplus, including reversing the decision to lower the company tax rate by 1%, reducing tax benefits for high income earners and cutting into both defence and overseas aid outlays.

As a result, over the next four years the budget bottom-line has been improved by a net $A17.0bn, including $A33.6bn in ‘savings’, offset by new spending totalling $A22.4bn and a reduction in the contingency reserves account of $A5.8bn.

However, within the new spending announced in the budget there is plenty of money for small business and low income earners. In this sense the budget also clearly has an eye on the political agenda.

Growth close to trend

With the Australian economy as a whole expected to grow close to trend in the years ahead, eg. the unemployment rate is forecast around 5%-5.5%, the government’s desire to move back to budget surplus makes sense.

In a global context Australia’s fiscal position remains very strong and this is an important factor for both local and international investors.

At an expected peak of just 9.6% of GDP at June 2012, compared to an estimated 93% of GDP by 2017 for the major advanced economies, Australia’s government net debt position remains the envy of many and provides Australia with significant policy flexibility for the future.

In terms of the economic forecasts in the budget the government expects a return to trend economic growth, of 3.25% in 2012/13 and 3.0% in each year out to 2015/16. The primary source of growth over this period will be business capital spending.

As a result of this trend-like growth the unemployment rate is forecast to be in a 5%-5.5% range in the years ahead, with the inflation rate in the middle of the RBA’s 2%-3% target range.

Based on current market expectations, the budget assumes further monetary policy easing to help achieve this trend growth outcome.

Fiscal policy

Much will be made, therefore, of the implications for monetary policy of the tightening of fiscal policy in the 2012/13 budget. However, the RBA is unlikely to pre-empt the expected fiscal policy tightening, preferring to assess actual fiscal outcomes – rather than projections.

Importantly, while there is a tightening of fiscal policy at the headline level, the structure of the budget is likely to support consumer spending, especially over coming months. This is due to the decision to provide further financial support to low income households and small business, which tend to have a higher propensity to spend, while reducing the financial benefits to larger companies, the defence forces and foreign aid.

As a result, the RBA is likely to watch very carefully the impact of these cash payments on the consumer and the implications for the inflation outlook.

Nevertheless, as we noted last week, with the inflation outlook low and plenty of global uncertainties around that will likely impact on confidence, a further monetary policy easing from the RBA should be expected.

Low debt levels and credit rating

Bond investors, especially those offshore, will likely be encouraged by the projected return to surplus in the budget and Australia’s very low debt levels – all consistent with the AAA credit rating.

Both international and local investors will also welcome the government’s re-commitment to retaining “a deep and liquid Commonwealth government securities (CGS) market.”

Importantly, while the total supply of CGS is expected to remain below the current debt ceiling of $A250bn at the end of each financial year, the risk that total CGS on issue could move above this level at times within the year has seen the government announce their plan to have the debt ceiling increased to $A300bn.

For 2012/13 the Australian Office of Financial Management (AOFM) is expected to dramatically reduce its net nominal bond selling task, down to $A9bn from $A44bn in 2011/12.

The impact on the Australian dollar (AUD) from the budget is likely to be minimal. Indeed, the strong fiscal and debt position the government will no doubt champion could add to upward pressure on the AUD, given that it should reinforce Australia’s AAA rating.

The government will be hoping, however, that the easier monetary policy they are looking for will place some downward pressure on the AUD. This looks doubtful however, given the structural nature of some of the offshore inflows into Australia.

Mixed picture for investors

For equity investors the budget is a mixed picture. The extra money for families could be supportive for the consumer, but this could be offset by the decision to abandon the 1% reduction in the company tax rate.

In the budget the Treasury has taken the effort, once again, to include a major research piece. This year the topic is “Building resilience through national savings”, a topic clearly linked to the medium-term objective of achieving budget surpluses.

Further saving desirable

The conclusion from this research piece states that “further improvements in government saving are desirable with the economy forecast to grow around trend.”

“Delivering surpluses, along with a further boost to superannuation, will foster fiscal sustainability in the context of an ageing population, and ensure the Government is not contributing to price pressures in the economy, providing scope for monetary policy to respond to economic developments. Higher national saving will also improve economic resilience by reducing Australia’s vulnerability to external shocks.”

Comments/questions are welcome.

What the 2012 Federal Budget means for your bottom-line.

Federal Treasurer Wayne Swan has confirmed the pre-budget proposal to reduce the company tax rate by one per cent will no longer go ahead. Mr Swan also indicated that the budget will return a modest surplus of $1.5 billion for the 2012/2013 financial year, but the budget deficit will reach $44.4 billion for the 2011/12 financial year.

What are the downsides?

Although it’s commendable the Federal government has predicted it will be able to achieve such a significant reversal to the Commonwealth budget, measures announced tonight favour households over business.

CommSec Economist Savanth Sebastian says, “No new measures were announced that help to close the divide between the two speed economy. In particular, the decision to leave the company tax rate unchanged will be a disappointment to the business sector”.

Keeping the company tax rate unchanged is expected to increase cash receipts by $4.6 billion over the five years to 2015/16, a figure that includes a reduction in receipts from the unwinding of the associated growth dividend.

Who are the winners?

Small businesses will benefit from the introduction of a new initiative that will allow them to carry back losses against previous revenue to receive a refund against previously paid tax. As companies will be able to carry back up to $1mn of losses each year, providing a benefit of $300k. This measure should help those companies facing headwinds in the economy see through challenging periods, and provide much needed funds to retain staff and invest to improve productivity and grow.

What this means

Overall, the government has taken the decision to reduce or delay spending to be able to return the budget to surplus. The contraction of fiscal policy, however, could set the stage for future interest rate cuts, which would benefit small businesses, although this is by no means a given.

Although this year the government has left the company tax rate unchanged, this is an issue that will need to be revisited in future years, given Australia’s company tax rate is higher than many other developed nations.

Want to know more?

For a full breakdown of how the 2012 Federal Budget will impact your business, or industry, visit our dedicated Federal Budget website this morning for expert analysis of all the major decisions and key sectors impacted by last night’s budget.

Watch our experts opinion on these key budget areas:

Australian Dollar

Small Business

Corporate

Retail/Small Business

Debt Markets

Industries

Analyst James White, argues that while Australian property prices are high, they are not necessarily overvalued. That Australia has a unique situation, which means as a nation we pay a premium for city living.

Two of my favourite strategists, Albert Edwards and Dylan Grice of Societe Generale, have recently been talking about Australia. In particular, they have been discussing Australian house prices, saying how over-valued they are and why; and that we spend too many resources on digging. Both the Financial Times and the Australian Financial Review have latched onto it. Their focus is…

Why should a country with a land mass roughly the same size as Europe but a population only one-tenth (probably smaller, in fact), which digs stuff out of the ground and sells it on for other people to make stuff, have about the most expensive real estate on the planet?

So our house prices are too high and we shouldn’t be digging stuff out of the ground?

This is the thing about some macro analysis, it fundamentally misunderstands micro-economics. The comment about real eststate is, particularly, mis-informed. Property values have three key drivers, credit creation – of course, incomes in the surrounding area and scarcity. It’s scarcity that is so important in explaining Australian prices, particularly relative to Europe.

When cheap is expensive

Australia is a big place. Yet we live in such concentrated areas because, otherwise, life would be very expensive. The closer we can live to other Australians, the cheaper our lives are; lower costs for roads, utilities, schools, hospitals and better access to jobs and social activities. Consequently, we pay a premium to live in these areas. One only has to look at the dying communities in rural Australia, because of the high cost of health care, the closure of schools, limited availability of jobs and an absence of social opportunities, to understand that living where land is cheap comes at a huge cost.

Poor national infrastructure

Similarly, compare the circumstances of Bathurst in NSW, 200km from Sydney, and any of Lille, Nancy, Sedan, Metz, each of which are 200km or so from Paris. The access of most Europeans to services and jobs and large markets is substantially greater than Australia, meaning it’s more difficult to create price differentiation for dwellings. Indeed, the decline of the European periphery, Ireland, Portugal and Greece, may, in part, be as much geographic as fiscal.

 The same applies in the US, large populations joined by efficient infrastructure.

Land prices 

We should also distinguish between dwelling and land prices. Sydney land prices might not be too far removed from Sydney dwelling prices, given the propensity of Australians to live in detached housing. New York, London or Paris dwelling prices would be significantly different from relevant land prices.

Paying a premium

 None of this to say that house prices in Australia are under or over valued, or that prices won’t fall, but it’s to say that micro-economic factors do account for some difference and they should be acknowledged. Furthermore, prices will remain high for as long as the nation fails to make substantial investment in infrastructure in the non-mining economy. Particularly as, by 2050, Australia will have a population of 45  to 50 million. The premium paid to live 10km or less from major centres will only increase.

A great opportunity

The second part of the comment – that Australia just digs stuff out of the ground rather than making stuff – is again great macro, but not so good on the micro. Other than Apple, are there any other large-scale industries with profit margins anywhere near those of the mining industry? Take iron ore for example. The current $A price for Western Australian iron ore is $128. Current cash costs for the most expensive Australian ore, are $55 and as low as $30 odd for Rio Tinto. Why should Australia not pursue this opportunity? Yes, China could collapse, but it makes rational sense to devote some resources to selling the dirt. The challenge is spending the revenue on capital goods not consumption.

All this said, undoubtedly the global sentiment sees Australia as too expensive and likely to fail.

Do you feel Australian property is currently over priced?

Let us help you to be among the first to get the full picture on what this year’s Federal budget means for your business and your industry. Our team of experts will give you the inside view by analysing how it will affect small businesses, corporates, interest rates, the retail industry and the Australian Dollar.

Comprehensive financial outlook

We’ll have a comprehensive analysis of all the major talking points from 6am AEST, 9 May 2012. So save the date in your outlook calendar, mark the page in your bookmarks and don’t miss our series of insightful videos and commentaries and help your business get a head start on all the key initiatives. 

Still want more? Why not ask our experts? 
Tune in at 2.30 pm AEST on Thursday 10 May to view our live online panel of business and economic experts answering your questions on anything and everything you need to know about this year’s budget and how it will affect your business.

Cash is the lifeblood of every business, but all too often, businesses don’t pay enough attention to bringing cash into the business as fast as possible. The consequences of doing this can be dire: it can mean you don’t have enough money to pay staff or suppliers or, worse, the business could fail completely.

There are lots of steps enterprises can take to make sure this does not happen. The idea is to be vigilant and consistent with your approach to cash management to ensure the enterprise is in the best financial position possible.

Step 1 – deal with quality customers

“It’s essential to deal only with quality customers who appreciate the value you offer, and are willing and able to pay promptly in return,” says Andrew Pride, a business coach with Smart-BIZ Consulting.

Step 2 – get paid up front

Pride advises asking for payment up front or cash-on-delivery whenever possible. “Too many people offer payment terms automatically, when many customers would be more than willing to pay you upfront,” he says.

Step 3 – be selective with accounts

Don’t offer accounts with payment terms to everybody, says Pride. “Reserve them for selected clients who genuinely need and deserve them and are willing to pay on time. Provide incentives for people to pay on delivery like a rewards program or prize draw each month.”

Step 4 – negotiate for staggered payments

Pride says another way to bring cash into the business fast is to break up payments for larger jobs into an up-front component and progress payments as the job progresses. “You might charge for cost of materials up front, then ask for weekly progress payments, with a final balance due on completion,” he says.

Step 5 – accept credit card payments

It’s also a great idea to take payments by credit card or encourage clients to arrange for pre-authorised direct debits to be made on the day a bill falls due, says Pride.

Step 6 – reduce your terms

Although many businesses offer 30-day terms as a matter of course, this delays the time it takes for the business to receive the money it is owed. Instead, says Pride, reduce your terms to seven or 14 days maximum and chase overdue accounts promptly.

“The days of posting cheques are gone, and have been replaced by online banking and instant EFT facilities. Give people reasonable time to pay but don’t volunteer to be their overdraft facility,” he says.

Step 7 – don’t bet the house

Finally, says Pride, never allow any single client to owe you more money that you can afford to lose. “Put yourself in this position and you potentially compromise the viability of your business. But if you put in place the right cash management processes in your business, this should never be a problem,” he says.  

Everyday Settlement is a way to get paid faster for your services. Check it out and see if it could help your business cash flow.

The eagle has landed!

It was over 15 years ago that we launched our original NetBank ‘app’… I call it an app as you had to download it onto your PC. It even had a floating keyboard, which a lot of people think is safe, but that’s a different story.

What a lot of people don’t realise is that every six months we make big investments into NetBank and our mobile apps; and every other month we make smaller but significant changes. So I am really pleased to announce that the next update to NetBank is just 2 weeks away. Although you all won’t get it all on the same day, we will roll it out over the next month.

The easiest way to see the difference is to visit our site and watch a very tech saavy Bob and Doreen, find out whats new. But if you don’t want to wait then here are my top six highlights of our upcoming changes:

1. We have collapsed the navigation to make it easier to find the things you want to do every day, we now have a new ‘mega menu’ where you can access most of the every day functions.
2. We store two years of transactions in NetBank and customers just did not notice, so we have made it easier to find transactions, just look at the top of your transactions on the transaction history page.
3. There’s now a universal footer across the bottom that display the top six Foreign Exchange (FX)  rates. See my other blog on why I think FX rates are important. This is a great start and I’m keen to allow you to choose your own FX rates in the future
4. Lots of customers want to know what the interest rate is on their account or when their credit card is due. We have added this onto the transaction history page so that it’s easier to find. We expect to add more relevant information on this page in future releases (just let me know what you want next!).
5. Every month I spend money and have no idea what goes in and out, so we now have a feature that shows how much money you are spending each month (and how much you earn). My tip is to have more ins than outs, which brings me to the news that…
6. Finally we have added a savings goal into NetBank. This feature was hugely popular in our labs and now you can add a goal, create a savings and then track your progress everytime you log into NetBank..

Plus it’s all wrapped up in a new look and feel. I hope you enjoy using it as much as the team enjoyed working on it – let us know.

See more of the irrepressible Bob and Doreen here.

Estate planning, the process of organising how you want your investment and assets transferred when you die is something that many of us, understandably, avoid talking or doing anything about.

Currently around half of all Australians die without a will, some of them leaving their families to deal with grief and a complicated legal process. If this happens, assets will be divided up among the beneficiaries according to the law of the state you live in rather than in accord with your personal wishes. So if you want to leave the right kind of legacy, consider these things.

1. Transferring your investments
• Decide on who your beneficiaries will be.
• Look at how much money is required to cover the needs of beneficiaries such as children.
• Nominate an enduring power of attorney, someone who can take control of your finances if you are incapacitated. If you have young children, you also need to appoint a guardian who can take care of them if they are left alone.
2. The financial angle
   Once you’re confident you’ve set up the legal side of your estate, make sure you keep an eye on the financial side of things. Take a regular look at your investment strategy to ensure you maximise the value you get from it, now and in the future. And don’t be afraid to change it if you think your needs are changing.Talk to your financial adviser about how to enact your plan before consulting a solicitor to help with legal aspects. The Financial Planning Association (FPA) website has a section called ‘Find an Adviser’, where you can search for an adviser in your postcode area.You can also download a booklet called Getting Advice, which provides useful information and a checklist of questions you can ask your potential adviser. Visit the www.fpa.asn.au website or call 1800 337 301.
3. Seek Public Trustee help or employ a solicitor
   Consulting the relevant Public Trustee or a solicitor should ease the legal load and help eliminate any problems you may anticipate.Both can help you to make sure your Will is correctly drawn up, with the right signatures and witnesses. They will also store the Will for you and give advice on choosing an executor.If your wishes are clearly and legally spelled out, they will be hard to contest – although this can still happen if someone feels they should have been provided for and weren’t.Disputes over Wills can take a long time to resolve, but many law firms take the cases on a ‘no win, no charge’ basis. Either way, it will be an ordeal your family won’t want to go through, and another reason to make sure your Will is watertight.
4. Review your insurance
   An insurance policy can give you the peace of mind that your financial plan will be protected. Life insurance policies can allow you to directly nominate who should receive the proceeds of the policy if you die.For more about insurance.
5. Keeping your Will up to date
   Once you’ve nominated beneficiaries and set up your estate, you can still alter it if circumstances change – such as a marriage or divorce, the arrival of children or grandchildren. Minor changes can be made using a codicil (a document signed by two witnesses) but if the changes are major, having a new will drawn up will make things clearer.
6. Choosing your executor/s carefully
   Your executor must be someone you trust completely as they will be responsible for putting your wishes into action, plus collecting all your assets and paying taxes, debts and other expenses.  They can be your partner, a friend, a relative or your solicitor but make sure they are comfortable taking on the job.

Which three of these must happen to make your Will valid?

1. It must be drawn up in writing
2. It has to be signed by you
3. A Justice of the Peace must be in the room
4. Two people must be present when you sign to witness you doing so
5. The Executor must be one of the witnesses

(Answer: 1, 2 and 4 must all occur for your Will to be legally binding)

Get guidance
Each Australian state and territory has a Public Trustee to help people formulate Wills and make them legal.

It’s important to make sure you get guidance, as your will is a binding and very exact legal document. In NSW, the Public Trustee cautions against do-it-yourself Will kits for that very reason.

To start, have a look online at the Public Trustee for your state:

• NSW – www.tag.nsw.gov.au
• Victoria – www.statetrustees.com.au
• Queensland – www.pt.qld.gov.au
• Western Australia – www.dotag.wa.gov.au
• South Australia – www.publictrustee.sa.gov.au
• Tasmania – www.publictrustee.tas.gov.au/index.php
• ACT – www.publictrustee.act.gov.au
• Northern Territory – www.nt.gov.au/justice/pubtrust

These sites will help you understand what you need to start planning for your Will.

This post was first published on The Wealth Generation website.

Business confidence in Queensland economy soars following State Election, says a Commonwealth Bank, Chamber of Commerce survey, despite mixed sentiment about local and national issues and their possible impacts on the economy.

Business confidence in the Queensland state economy has rallied strongly in the March quarter, increasing to levels not experienced since 2008 prior to the Global Financial Crisis (GFC), according to the latest Commonwealth Bank, Chamber of Commerce IQ Pulse Survey of Business conditions released today.

Impact on optimism

From the findings, it’s clear that Queensland State Election promises relating to payroll tax, red tape, abolition of the waste levy and tighter economic and fiscal disciplines have had a direct impact upon the optimism shown.

As expected, Queensland businesses suffered a challenging March quarter with sales, profitability and employment remaining down for most sectors over the period.

In relation to the national economy businesses are feeling less optimistic in the March Quarter with an increasing number of businesses expecting the national economy to become weaker over the coming twelve months.

Key Findings

Key findings of the Commonwealth Bank CCIQ Pulse Survey of Business Conditions for the March Quarter 2012 include:

• Pulse Business Confidence – Queensland Economy Index increased by over 10 percentage points to 60.8 with more than half (55 per cent) of all businesses expecting economic conditions in Queensland to be stronger over the coming twelve months.
• The majority of businesses reported weaker (38 per cent) or similar (36 per cent) sales and revenue outcomes over the past three months, however a growing number of businesses (37 per cent) expect stronger sales and revenue conditions for June. Accordingly the Pulse Sales and Revenue Index is forecast to reach 55.1 in June 2012.
• The Pulse Profitability Index remained relatively steady at 41.8 over the March Quarter. This is consistent with reports of generally slow business conditions over the past three months, dampened by the election period, poor weather and the usual post-Christmas and holiday period slump.
•  The Pulse Employment Index fell slightly to 45.4 in the March Quarter reflecting an increase in businesses reporting weaker employment levels (up by 7 percentage points to 30 per cent).
•  The on-going trend, reflected in a marginal decrease in the seasonally adjusted Pulse Capital Expenditure Index to 41.7 for March, has been for capital expenditure to remain the same (49 per cent of business respondents) or weaken (37 per cent of business respondents).
• Level and demand and economic activity continues to be the most significant factor impacting on opportunities for business growth. This is largely influenced by continued falls in consumer confidence and spending and reduced international demand due to international economic stability and the high Australian Dollar.
• Political and economic stability also remains a key concern for Queensland businesses. Whilst many businesses have commented that they are confident the new State Government will be conducive to growth, concern remains over the ability of the Federal Government to instil confidence in the consumer market and economic environment.

According to a new study released  by CommBank Kaching, the average Australian borrows more than $200 from their nearest and dearest every month, equating to over $1.6 billion[i]. This billion dollar exchange between friends, family and colleagues is being dubbed the, ‘Australian Informal Borrowing Network’ (AIBN).

Buddy can you spare a dime?

The biggest contributor to the AIBN is ‘unforseen or emergency situations’, with just under half (49 per cent) indicating this is their most common reason for borrowing. However, for others simply ‘running out of money before payday’ (26 per cent), ‘never having enough cash’ (24 per cent) or ‘convenience’ (22 per cent) provide the reasons behind their informal borrowing needs.

Interestingly, the study shows big differences in the value of informal borrowing networks between genders, age groups and locations[ii]:

• Women borrow almost twice as much as men ($9,830,000 Vs. $5,850,000).

• 18-24 year olds borrow $2,400,000 more than 30-39 year olds ($7,220,000 Vs. $4,850,000).

• Those living in capital cities borrow almost three times as much as those living in regional areas ($1.2 billion Vs. $3,460,000).

 The Bank of Mum

When it comes to our preferred informal lenders, the ‘Bank of Mum’ firmly tops the list with the majority of Australians saying they would be most likely to ask their mum if they needed to borrow $50. Australian mums are also the most likely to be lending money on a regular basis with the average Australian asking to borrow money from their mum 1.72 times a year.

 Mobile lending

Australians increasing reliance on informal borrowing networks has led to an explosion in the uptake of mobile payment methods, including CommBank Kaching – a revolutionary new mobile payment app – which has seen more than 235,000 downloads in a matter of months. The new smartphone application allows consumers to make instant peer-to-peer payments removing the need for long-term informal loans.

“Our research shows that millions of Australians rely on informal borrowing networks for emergencies or short term loans. Recent innovations in smartphone banking, such as our Kaching application, mean Australians consumers can make instant payments to friends and family using their favourite communication channel,” said David Lindberg, Executive General Manager Cards, Payments and Retail Strategy.

“From paying a work colleague for a coffee via their email address, to splitting the cost of dinner with friends via a Facebook® friends payment, CommBank Kaching fuses peer-to-peer payments via text, email and Facebook to give Australians more ways to make safe, secure payments to their friends and family.” continued Mr Lindberg.

Getting into debt-iculty with mates

Although it seems Australians are more than happy to lend each other money, when it comes to repaying informal loans the study paints a slightly different picture.

Despite the majority (85 per cent) of Australians claiming that they were brought up to always repay their debts, almost half (49 per cent) have experienced disagreements when it comes to paying loans back and a surprising one in five (20 per cent) Australians have actually lost friends over lending and borrowing money.

Cash strapped

However, many disagreements over informal loans may be down to simple human error and lack of access to social banking tools. While the majority (76 per cent) of Australians agree that they would ideally get their cash back instantly, more than half (52 per cent) admit that it’s difficult to pay people back if they do not have enough cash on them.

With nearly than two thirds (60 per cent) of Australians now wishing that there was a way to pay people back on the spot without relying on cash, applications such as CommBank Kaching, which enabling mobile payments via Near Field Communication (NFC), email, mobile and Facebook, and the ability to check and transfer money between accounts, look set to become increasingly popular.

“We all know that borrowing money from friends and family can be the cause of disagreements, whether that’s over the amount or best way to pay someone back.  CommBank Kaching is a significant leap forward in how we pay and receive money from each other. It brings speed, convenience and importantly money to our informal borrowing networks, giving Commonwealth Bank customers more ways to instantly pay and receive money than any other bank,” said Mr Lindberg.

Fast Facts:

• The average Australian owes cash to 2 people.
• Over the last month, the average Australian has borrowed $213.58 from friends, family or colleagues.  In total, Australians have borrowed $1.6 billion using this informal borrowing network.
• Amongst those who have borrowed money from other people, the most common reasons for borrowing money are unforeseen or emergency situations (49%).
• Whilst one in three (33%) Australians claim to know someone who has deliberately forgotten to pay them back the cash they owed, less than one in ten (9%) admit to having done this themselves.
• Similarly, while only 7% of Australians admit borrowing cash from someone when they already had some, 23% claim to know someone who has done this.
• If they needed to borrow $50, Australians would be most likely to ask their mum or their partner first. Overall, the majority of Australians would ask mum to borrow $50 before going to other people.
• Australian mums are not only the first port-of-call if you need to borrow $50, they are also the most likely to be lending money on a regular basis.

If consumers want to find out more about CommBank Kaching, or download the app, please visit: www.commbank.com.au/kaching

Who do you borrow money from? 

________________________________________

[i] All monetary figures have been calculating using weighted data and the latest population estimates sourced from the Australian Bureau of Statistics

[ii] All monetary figures have been calculating using weighted data and the latest population estimates sourced from the Australian Bureau of Statistics