Friday, June 22, 2012

Times Are Getting Tougher Economically And Financially

Tougher Economic Times

Perhaps times are getting tougher and it's really not just plain old belt tightening by householders but now also belt tightening by businesses.

Recently I spoke to a gentleman who does deliveries to businesses in the area and he told me that one of their client had just made 30 positions redundant.

My family's business has slowed down and my parents said that the past few months have been tough trading for many of their own customers. They sell at the wholesale level and their customers trade at the retail level.

Unfortunately I can't mention anything about my work due to confidentiality issues but I've had a few conversations with some clients about cash flow issues and that they're having difficulty too with the current economic environment. While I'd hate to get anyone angsty or anxious over the economic environment, I can't help but feel apprehensive myself and am in no condition to write anything refuting those thoughts.

Today's conversation about the fourth batch of redundancies across Sydney is a bit too close for comfort in my social and work circle. A few years ago, the topic of redundancy was a foreign issue but now, it's like every two months, another batch of redundancies...

Tougher Financial Times

All economies operate on two main policies which are fiscal policy and monetary policy, which are either contractionary or expansionary. Basic economics in a nutshell:

a) Fiscal Policy: Governments and their budgets
b) Monetary Policy: Central banks and the interest rates

i) Contractionary: Slowing down the economy on purpose by spending cuts and/or increasing interest rates
ii) Expansionary: Trying to boost the economy by spending more and/or decreasing the interest rates

You can see how much influence a country's government wields over their nation simply by reading about the gross mismanagement in the U.S, Greece and Ireland and the catastrophic effects on the population via unemployment.

I dislike the current opposition leader Tony Abbott and particularly his time as Health Minister, however I also dislike the policies that the Labour Government keep rolling out.* I would honestly like to to see the Liberal/Coalition government replace him so that we can vote the Liberals back into the House of Reps before life gets even tougher due to regulatory changes. (You may dislike the Gillard government but don't forget to vote Labour into the Senate or else we'll get another political travesty if the Liberal/Coalition controls both, the House of Reps + Senate.)

First thing that will hit several households starting 1st July will be the cut to private health insurance rebate. The second major hit will be from the carbon tax and the price inflation that is bound to happen. Carbon tax hasn't even been implemented yet and already the energy companies are already racking up power bills saying that the funds are needed to start preparing for a carbon tax environment.

Carbon tax= Scheme for the investment banks to cream off

The third worst policy decision is cutting the over 50s superannuation concessional contribution limits to $25,000 which includes both the employer guarantee component and any salary sacrificed into super.

In summary:

1. Cut to private health insurance rebates
2. Carbon tax to be implemented
3. Cutting concessional super contributions for over the 50s down to $25k

You've got folks in their 50s at their prime age for saving because the kids have moved out, have graduated from Uni, are working and finally self sufficient. Suddenly they can't boost up their super funds anymore. On the one hand, the government prefers everyone to be self funded retirees but on the other hand, they whip them and change the policies so that their ability to be self funded retirees has been shackled.

Why? The superannuation environment is taxed at 15%. If the over 50s (or younger crowd) don't salary sacrifice into super, then the money they earn are taxed at their MRT (marginal rate of tax ie their highest tax bracket) which can be up to 45% tax.

By doing this, they're going to get a lot more in tax revenue.

Are times tougher? Yes. Are times at their toughest yet? No.

SMG is not looking forward to the economy unravelling and is hoping that Aussies out there will keep earning and spending. Save some and spend some. If we all just hoarded our money, it bodes ill for the nation.

* Disclaimer: Have to disclose that the SMG household will be affected negatively by the policy changes. Who likes having to pay more for everything yo?!

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