The big news during May was of course the Federal Budget. On June 3, we got ‘great’ economic growth figures, but I will leave that until later.
A lot of the Budget information was leaked before the actual night, so most were prepared for what was in store. I did an economics wrap-up for PriceWaterhouseCoopers at a Budget breakfast up on the Gold Coast where 900 people attended to find out how the Budget would affect their business and personal lives. This year I began my speech with: “On a historical basis, this is a very irresponsible Budget – thank God, we needed an irresponsible Budget!”
As I discussed in my Yahoo article in May, creating a $57.6 billion budget deficit is so big it puts us back on track to over $300 billion of debt in ensuing years and around six years of more deficits down the track.
It’s the weekend after the Budget that I look forward to after some of the smartest guys and gals in accounting firms and financial institutions have had a while to digest it.
Changes to rules surrounding salary sacrifice will affect a lot of people. If you’re under 50, the amount you can put into super will be reduced from $50,000 to $25,000. If you’re 50 or over, the amount will be taken from $100,000 to $50,000. These changes don’t come into effect until the start of the new financial year, so your deadline is June 30 if you want to make a larger payment.
There were also a few other changes to come out of the Budget that you may have missed if you blinked. One of these is changes to income tax paid by people working overseas. At the moment, these people may pay income tax in the countries they are working, but under the new laws, if they are a resident of Australia and work for 91 days or more, they may have to pay income tax based on the Australian tax scales, and will receive a rebate to the amount of income tax they paid in the foreign country. Those affected or think they are affected should give the Australian Tax Office a call to get the details.
There were a few winners to come out of the Budget – single pensioners will get $32.49 extra a week, while couples will get $10.14. The First Home Buyers Grant will continue at $21K for new homes until October. Following this, it will go to $14K, and existing home grants will fall to $10,500.
One of the big controversies of this Budget has been the private health insurance rebate. For those earning between $75K and $90K, the rebate has been cut from 30% to 20%. If you earn between $90K and $120K, the rebate fall to 10%, and if you earn over $120K, there is no longer any rebate. For two income families, these income levels double.
On the markets, May was a big month for the bulls. CNBC says the Dow was up 4.1% and more than 20% since the start of March. This is the biggest three-month gain since late 1998. The S&P 500 had the biggest three-month gain since 1933 and as for the Nasdaq, it was the biggest three-month gain since late 2001. There are quite a few economists out there who believe we are headed for a second half of 2009 recovery in the US.
Interest rates stayed as they were, and the pressure has been on for banks to pass on further cuts.
Australia’s GDP figures were released on 3rd of June, and we actually expanded 0.4% during the first three months of the year.
This means we have avoided a technical recession and while we are still struggling to grow, most comparative economies are deep into recession. This outcome will help contain bankruptcies and the length of the dole queue. In addition, it will bring the economic recovery closer and make it stronger.
As someone who has promoted both economic and market optimism in face of the massive challenges of the past 18 months, it’s good to see that both the global economy and the Australian economy are heading in the right direction. This is great for long-term investors.