{"id":119881,"date":"2023-08-21T17:05:35","date_gmt":"2023-08-21T17:05:35","guid":{"rendered":"https:\/\/websitedesigns.com.au\/elankanew\/?p=119881"},"modified":"2023-08-21T17:06:41","modified_gmt":"2023-08-21T17:06:41","slug":"noel-news-51","status":"publish","type":"post","link":"https:\/\/websitedesigns.com.au\/elankanew\/noel-news-51\/","title":{"rendered":"Noel News"},"content":{"rendered":"

Noel News\u00a0<\/span><\/h2>\n

\"Noel<\/p>\n

“Make the most of yourself, because that is all there is of you.”<\/em><\/span>
\nRALPH WALDO EMERSON<\/span><\/p>\n

Welcome to another Newsletter<\/span><\/h1>\n

The big news last week was the housing summit, but unfortunately, I can see nothing proposed to solve the alleged housing crisis. There are two basic problems: too much demand and too little supply. The only way to cut demand is to cut immigration, which the government is not prepared to do, and building all these proposed new houses will put further pressure on the building industry, which cannot complete the jobs they have.\u00a0 I would hate to be building or renovating a house right now.<\/span><\/p>\n

\"Noel<\/span><\/p>\n

Then of course you have the Greens pushing for a rental freeze, one of the worst ideas imaginable. To increase the supply of rental houses, we need to make becoming a property investor attractive, not unattractive. If they want to freeze rents the government should be prepared to freeze rates, land tax, insurance and interest on the loan. You can\u2019t attract investors by freezing their income at a time when their costs are going sky-high.<\/span>
\n\"Noel<\/span><\/p>\n

A Landlord’s Story<\/span><\/h1>\n

The following is an edited version of an email I received recently from a reader named Bob. I think it\u2019s a perfect summing up of the current situation.<\/span><\/p>\n

<\/p>\n

\u201cI am 51 and fully employed. I bought a cottage in Footscray years ago \u2013\u00a0 it has a $350,000 mortgage with an interest-only loan at 5.99%. My strategy has always been to leave the investment property on interest only and focus on repaying the non-deductible debt on my own home. The rental property has shown good growth and is now worth $900,000. The rent is $450 a week or $23,400 a year, which is a yield of 2.6% based on the valuation.<\/span><\/p>\n

\"Noel<\/span><\/p>\n

Yes, rents have been rising, but not enough to offset increasing costs. The interest for the year ending June 2022 was $9,600 but became $13,000 for the current year. That\u2019s an increase of 36%. I believe interest for this year will be $21,000, which will be an increase of 62%. In just two years interest has increased by 220%. The increase in interest in those two years is $220 a week while the rent has increased by just $30 a week.<\/span><\/p>\n

On top of this is an electrical and gas compliance cost of $1500, increased land tax, and large increases in insurance. Based on these assumptions, there will be a loss of $10,000 for the current year with the only silver lining being a tax refund of $4000.<\/span><\/p>\n

\"Noel<\/span><\/p>\n

As a strategy to curb inflation higher interest rates are having the opposite effect by putting pressure on landlords to increase rents to keep their own heads above water. Rent is now one of the major influences on domestic inflation.<\/span><\/p>\n

I would like to get out, but the potential capital gains tax bill of $150,000 makes me hesitate. I now understand why some people invest all their capital in the most expensive home they can afford and live in it well while enjoying its CGT-exempt status. When it comes to pension time, the home is excluded from the assets test \u2013 the investment property is not.<\/span><\/p>\n

Looking at all this in totality, is it any wonder we have generated a rental crisis?\u201d<\/span><\/p>\n

Interest Rates<\/span><\/h1>\n

Interest rates are always in the news and I\u2019m not convinced there will be a pause at next month\u2019s Reserve Bank meeting on 5 September.<\/span><\/p>\n

Outgoing Reserve Bank of Australia (RBA) governor Philip Lowe has warned against premature celebrations in the central bank\u2019s ongoing battle against inflation while flagging the possibility of additional monetary policy tightening in the future.<\/span><\/p>\n

\"Noel<\/span><\/p>\n

In his final appearance as governor before the House of Representatives standing committee on economics, Dr Lowe said:<\/span><\/p>\n

\u2018We\u2019ve made progress here, and things are moving in the right direction, but it\u2019s still too early to declare victory.\u2019 While describing recent data as \u2018encouraging\u2019 and consistent with inflation returning to target in the next couple of years, Dr Lowe highlighted two key risks that the RBA is focusing on, including the possibility that services inflation remains at high levels.<\/em><\/span><\/p>\n

\u2018High services price inflation reflects a combination of factors, including strong demand for services in the wake of the pandemic, stronger growth in nominal wages and incomes, and weak productivity growth \u2013 this weak productivity growth is a particular problem for a number of reasons. Amongst these is that, in combination with a high level of aggregate demand, it is adding to the upward pressure on prices.\u2019<\/em><\/span><\/p>\n

\"Noel<\/span><\/p>\n

The RBA governor noted that the central bank\u2019s forecasts are based on productivity growth returning to near pre-pandemic levels. This, he said, would contribute to a moderation in the growth of unit labour costs and therefore inflation.<\/span><\/p>\n

His summing up was: \u2018Looking forward, it is possible that some further tightening of monetary policy will be required to ensure that inflation returns to target within a reasonable timeframe. Whether or not that\u2019s the case will depend upon the data and the board\u2019s evolving assessment of the outlook and the risks.\u2019<\/span><\/p>\n

But it\u2019s a worldwide thing.<\/span><\/p>\n

Minutes released last week from the American Federal Reserve showed that most Federal Reserve officials see \u2018significant upside risks to inflation that may require more tightening\u2019. Policymakers cited a range of scenarios that included the rising commodity prices that could lead to \u2018more persistent elevated inflation\u2019.<\/span><\/p>\n

\"Noel<\/span><\/p>\n

Two of them favoured halting rate hikes, but the minutes showed no official dissenters. The Fed economists also expect a small rise (only) in the jobless rate in the US, but they warned that commercial real estate fundamentals could worsen.<\/span><\/p>\n

As I was writing this, I got a newsflash from the Wall Street Journal saying the average new mortgage rate in America is now 7.09%, the highest in 20 years. As the paper said, it\u2019s a disincentive for people to buy, and a disincentive for people whose rates are locked in at 2% for 30 years to sell.<\/span><\/p>\n

Aged Care<\/span><\/h1>\n

Challenges in the aged care system continue to dominate the news. The facts are not in doubt: people are living longer, and within eight years, the number of people over 75 is expected to increase by 101%. The problem is that the number of people between 15 and 64 \u2013 the ones who pay taxes to support older people \u2013 is forecast to increase by just 28%.<\/span><\/p>\n

\"Noel<\/span><\/p>\n

\"Noel<\/span><\/p>\n

\"Noel<\/span><\/p>\n

The ageing population is putting an increasing cost on the welfare budget and the big challenge is how to pay for it. It\u2019s been nearly three years since the Royal Commission into aged care proposed a simple solution: charge an aged care levy, like a Medicare levy, on all taxpayers.<\/span><\/p>\n

The commission recommended a minimum levy of 1%, which would rise with age and with taxable income. For example, people in the second tax bracket would pay an extra 3.6% of their income, while people over 40 in the same tax bracket would pay 6.8% of their income.<\/span><\/p>\n

\"Noel<\/span><\/p>\n

The proposition was ludicrous and sank like a stone. Most retirees pay no income tax at all. Imagine the outcry if workers, already slugged with rapidly rising mortgage costs, were slugged with a massive tax on their income while the oldies continued to enjoy a tax-free retirement. It was never going to get traction. Besides, suggesting that the rate of income tax you pay should depend on your age is ridiculous.<\/span><\/p>\n

Last week ACCPA (Aged Community Care Providers Association) released an issues paper in which they canvassed the problem in depth and pondered ways it could be rectified. They considered ways to plunder people\u2019s superannuation, but they are on dangerous ground here.<\/span><\/p>\n

For years, the anti-superannuation lobby have focused on the fact that most retirees die with substantial money in superannuation. They see this as proof that they should never have been allowed to accumulate that much money in the first place. Suddenly, there\u2019s been a change of attitude, and now there are suggestions that superannuation should now be earmarked for their aged care.<\/span><\/p>\n

If you talk to senior Australians, however, you will find they have good reasons for going easy on drawing down their superannuation. They can all relate stories of friends who had sudden and unexpected health issues, which incurred massive costs. As far as they\u2019re concerned, their super is their safety net, and they are not going to fritter it away.<\/span><\/p>\n

\"Noel<\/span><\/p>\n

The ACCPA issues paper also mentions an \u2018inheritance tax\u2019 for super but gives no details on how such an animal might be created. For starters, there is already a death tax of 17% on super, which applies to that part of the taxable component left to non-dependents. But in any event, because of the way our income tax system works, a retired couple could have financial assets of up to $800,000 in their own name outside super and pay no tax whatsoever.<\/span><\/p>\n

If the government tried to hit super with an inheritance tax, people would simply cash out their super and opt out of the system. It\u2019s never going to work.<\/span><\/p>\n

So we are stuck with a situation where it\u2019s not practical to tax existing taxpayers to fund the aged care of senior citizens, and special taxes on superannuation would never work because people would opt out of the system. The only solution available is to raise the GST to 15% with no exemptions. This would not only catch every Australian irrespective of age but would also raise a fortune from the cash economy. Finally, every Australian would be paying their fair share of tax.<\/span><\/p>\n

There is also a misconception about how much wealthy people pay for age care.<\/span>
\n\"Noel<\/span><\/p>\n

A reader emailed me as follows:<\/span><\/p>\n

\u2018What about raising the caps for the means tested fees for wealthy aged care residents?<\/span><\/p>\n

My mother has a valuable share portfolio and a couple of term deposits and yet her means tested fee as an aged care resident is capped at $29,399 per annum and there is a lifetime cap of $70,559. Seems overly generous to me even if it increases our inheritance.\u2019<\/span><\/p>\n

Rachel Lane responded:<\/span><\/p>\n

\u2018I think it\u2019s important to bear in mind that the means tested care fee is just one component of the cost of aged care. Most residents pay the market price for their accommodation, anywhere between $300,000 and $3mil as a lump sum or a daily amount equivalent to that based on a government-set interest rate (currently 7.9% p.a.). Beyond that, they pay a Basic Daily Fee of $59 per day plus an additional service fee for any services above the prescribed care and services: a choice of meals, a glass of wine with dinner, entertainment, hairdressing, etc.<\/span><\/p>\n

On top of those fees is the Means Tested Care Fee, which is currently capped at $31,706 p.a. and $76,096 over a lifetime. Uncapping the means tested is unlikely to solve the problem, as around 1\/3 of aged care residents are classified as low means and either don\u2019t pay a means tested care fee or pay a very small amount. Of the market price payers, you would still have a significant proportion who don\u2019t have sufficient means to make them liable for the maximum amount. It would pick up the very wealthy, and there is an argument for increasing or removing the caps for that reason, but it wouldn\u2019t solve the issue of how to fund care for everyone.\u2019<\/span><\/p>\n

Do you want to Win the Day?<\/span><\/h1>\n

If you missed the event that my son James and I were speaking at in Brisbane last month, you\u2019re in luck. James will be the keynote at a\u00a0free online event\u00a0<\/a>with Success Magazine, facilitated by its editor-in-chief, Amy Somerville.<\/span><\/p>\n

He will be sharing tips on how to think much bigger than your circumstances, achieve your goals, and upgrade your daily routine.<\/span><\/p>\n

Date:\u00a0<\/strong>Thursday, 31st August<\/span>
\nStart time:<\/strong>\u00a08am (BNE \/ SYD \/ MEL)<\/span><\/p>\n

More than 300 people have registered so far.<\/span><\/p>\n

If you\u2019d like to attend, all you need to do is\u00a0click here\u00a0<\/a>and add your email address \u2013 or click on the image below. You will then receive a calendar invite with the event access link.<\/span><\/p>\n

\"Noel<\/span><\/p>\n

It\u2019s a busy week for James because it also coincides with the release of Episode 150 of his Win the Day podcast. He will be interviewing Mark Victor Hansen who is the creator of the\u00a0Chicken Soup for the Soul<\/em>\u00a0book series that sold 500M+ copies worldwide. The theme of the episode is that the size of your questions determines the size of your results.<\/span><\/p>\n

Many years ago, I was asked to contribute to\u00a0Chicken Soup for the Teenage Soul<\/em>, so it\u2019s fascinating to see James and Mark connect for what I\u2019m sure will be a thrilling conversation.<\/span><\/p>\n

You can subscribe to James\u2019 podcast below:<\/span><\/p>\n