You've missed four years!!

So I haven't written here for four years...here's what you missed!

 

 

 

 

BUSINESS PERSON OF THE MONTH

Steve Vizard

Mr. Vizard has been receiving a lot of press in the past few years and probably a lot of us are still confused as to what he really did. Basically he didn’t listen to his own advice on insider trading he gave to the Sunday program in July 2000.

"You have to inform every board you are on of the business you are involved with ... you have to tell them you are involved with that business, declare your position, not be involved in any decision-making process that the company you are involved with makes."

This isn’t just good advice, this is the commonwealth law of any board of directors.

Stephan William Vizard was born 6 March 1956 (1956-03-06) in Richmond Victoria and is an old Carey Grammar boy. He is married with five children. Originally a corporate lawyer after graduating from Melbourne University Law he moved to television in 1989. He produced the comedy show, ‘The Eleventh Hour’ and won a Golden Logie in 1991 for his work in ‘Fast Forward’.

Other awards include his 1997 Order of Australia, for service to the community, through his established Vizard Foundation, and to the arts. Earlier this year he returned this award after the insider trading scandal. In 2002, he received the Australian Father Of The Year award.

He retired from television in the mid 1990’s and went back into business and philanthropy. In 1996 he became one of the directors of Telstra for four years. During the final year of his term at Telstra claims of $3 million of accountancy fraud and insider trading arose between Vizard and a college. In 2005 he was fined and sentenced to 10 years disqualification.

Moral of the story: Stick to what you’re good at and don’t get too greedy.

Tax Return Time

Ok kiddies, its tax return time, yeah!! I must confess that even I, a business nerd do not enjoy doing my tax return. But it must be done and hopefully you will get a bit of money out of it!

A financial year is from July 1^st to June 30^th the following year. This is the period of which your income is totaled and your tax is calculated from the tax you have already paid and that which you should have paid.

By the end of the financial year your employers should send you a group certificate as a total of your income and tax. You then have from July 1^st to October 31^st to lodge your tax return. Remember, the earlier you get it done the earlier you get any returns.

To carry out a tax return you must have a tax file number and group certificates from all of your employers over the past 12 months. If you don’t know if you need to lodge one go to http://calculators.ato.gov.au/scripts/axos/AXOS.asp and answer the questionnaire there to find out.

If you do have to complete one there are lots of ways to do so. You can go to www.ato.gov.au and complete the online e-tax section or over the phone. You can also pick up a hard copy of the TaxPack 2008 at newsagents and some book shops. Some registered tax agents offer student discounts to help do your tax returns. It can be a good idea to use a professional for this as they know the ins and outs of what can be deducted and get you your return quickly.

After you lodge your return they may say you owe the government tax. If this is the case the earliest you will have to pay it is November 21^st, regardless of when you lodge your tax return.

Frequently asked questions around tax returns are about what work related expenses can you tax deduct? This is when a professional is handy. Basic things to think about are:

- Work uniforms with logos or embroidery on them are generally tax deductible

- Laundry and dry cleaning of these uniforms are also generally tax deductible

- Every industry and role will vary from what they will be allow to tax deduct. For instance, the modeling business will allow you to tax deduct haircuts and pedicures where as some sales role will include home internet and phone.

- Tax deductible car and public transport use is only considered between work hours. The use of your car or transport to get to and from work is not included.
- A percentage of educational expenses such as pencils, textbooks can be deducted if the studies are in direct connection with your employment.

Good luck and I hope it is as painless as possible!

Reader Questions & Answers

Question

Hi Linda-Margaret,
My understanding of the Reserve Bank hiking interest rates up is that they are trying to curb inflation, which due to our booming economy (thanks to full employment among other things), is growing at too fast a rate. Therefore, the Reserve Bank uses interest rates to clamp on spending, to slow inflation down. Is this what is really happening? Do you think that people will turn to credit to make up the difference in spending, or curb their spending, as the RB want?
Also, it annoys me that the government doesn't do anything to support the RB like making an announcement to explain to the people about why interest rates are going up. Most people don't understand, and they think it’s just the RB trying to get more money. What do you think?
Juliet from Surrey Hills

Answer

Hi Juliet,
Great questions! Your right, the RB puts up interest rates to curb inflation and growth in consumer spending, by increasing mortgage repayments. The problem is the effect isn’t instant. This is the lesson learnt from the 1980's 'recession we had to have.' They jacked interest rates up then, when nobody changed they did it again, and again, and again. Interest rate rises can take 6-12 months to take effect. People struggle for a while, use their credit cards to get by then, as a last resort stop spending. We will probably see it get worse before it gets better I think.
It is true lots of people think the government controls interest rates. The government does very little to dispel this rumour while the rates are low and the economy is good. Reasons for interest rate changes are released by the RB after their monthly meetings on the first Tuesday of the month http://www.rba.gov.au/MediaReleases/2008/mr_08_03.html.
Cheers, Linda-Margaret

Australian Recession?

The buzz word of this month is ‘recession’. But what does it mean? How do we know when we are in one and how will it change your life?

What is a recession?

In the purist of economics lingo a recession is either, a decline in a country's total gross domestic product (The total amount of value produced by the country in traded goods and services) or a negative real economic growth. These trends must continue for two or more consecutive quarters of a year.

The colloquial understanding is that the economy slows and consumers feel they have less money to spend on increasingly expensive things.

There are many reasons people are scared of recessions. A recession could mean interest rates go up as the reserve bank tries to control consumer spending, people are spending less money therefore businesses make less money, leading to a reduction in staff and job loses. House prices may drop as less people are buying houses causing an over supply and people may be less likely to invest funds in shares or business to grow for fear of an uncertain market.

BUT I prefer to look at a recession as we do the current drought.

The amount of water in the world remains constant. Whether it is in the form of ice, rain, sea or clouds there is always the same amount. If you follow the analogy that money is like water the value of money may change from assets to cash to options etc. but it can still be found. Therefore, just because Australia is going through a drought or a recession does not mean it is not raining somewhere and someone is getting rich. Do you like my little analogy? Yes? So let’s continue with it.

If there is less money coming into or being produced by our economy, businesses and individuals tend to be more conservative with the money they do have. If people are worried about the value of their house and security of their jobs they are less likely in invest in risky shares or buy the newest biggest LCD TV screen they picked out at Dick Smiths. Most will say, ‘Honey, let’s wait until next year to get that swimming pool installed’. Times this by 20 million people and we have ‘low consumer confidence’ and a further weakening of the economy.

Is Australia heading to a recession?

Most economists are waiting to see which will affect Australia more, Americas’ economic cold or Chinas’ economic growth steroids! Traditionally, America would have won but our location to China and other rapidly growing Asian and emerging countries such as Thailand, Vietnam and India could mean our business and services sectors will continue to grow supporting our economy during this period.

Some experts have reminded us that it will probably still FEEL like a recession even if we don’t meet the textbook definitions BECAUSE Australian consumers/individuals are currently in HUGE personal debt. The mortgage ‘stress’ felt by this months twelfth consecutive interest rate rise has delivered the lowest consumer confidence figures in fourteen years demonstrating the everyday persons’ concerns!

But maybe the conservative tightening of the proverbial ‘consumer spending belt’ will actually be the painful step we have to take to whip our personal debt into shape. The treadmill work out that will prevent the recession heart attack? Australians have been buying up LCD screens, holidays, new cars at an amazing rate for decades – like candy! The halcyon spending spree must slow or come to an end before Australia can build a foundation of sound, across the board economic security.

Business Nerd of the Month! David ‘Kochie’

Business Nerd of the Month! David ‘Kochie’ Koch, is best known as an Australian television personality, and financial commentator. He currently presents 7's Sunrise morning program each weekday and Where Are They Now. Koch hosts Australia's top-rated small business show, My Business, which airs on Sunday mornings on 7.Koch founded Personal Investment magazine and My Business magazine, the largest-circulation small business magazine in Australia. He also provides business and financial commentary for several publications, including Pacific Magazines and AFR Investor. Koch was a director of the NSW Small Business Development Corporation for eight years and as the current director of Pinstripe Media Pty Ltd, he speaks regularly at corporate events about small business, finance and investment issues.He was nominated for a Silver Logie in 2004 and 2005 for Best TV Presenter. The Money Management newspaper recognised Koch as one of the 10 most influential people of all time in the financial services industry and he has written several practical books on family and business financial management. Reader's Digest listed him in the top 50 Most Trusted Australians and he was recently named 2007 Australian Father of The Year by the Australian Father's Day Council. Yeah, we love successful nerds!

Housing Affordability

Hello fine readers! As promised last month I am going to delve into the world of ‘housing affordability’ come on this crazy journey with me as I try to understand the complex world that is….economics.

Unless you are literally living in a cave or under a rock, housing affordability is going to matter to you, hence why the current ‘crisis’ is getting such considerable media coverage.

The topic is complex as it is influenced by many economic factors. Any combination of such factors can create varying outcomes on individuals and community. Economists, banks, politicians and business people all monitor certain statistics to map trends and anticipate moves in the market. These factors and statistics include:
- The number of new housing approvals
- The reserve banks’ interest rates
- Credit and debt and international markets
- The number of approved home loans
- The housing costs to purchase, rent, build and renovate
- Individual income rates of pay
- Consumer confidence and employment growth
- Inflation rates
- Growth in population

To try and understand what is contributing to Victoria’s low housing affordability I will look at each of the above basic factors and discuss the influence they may be having. As you read you will see that each factor relies on and influences each other.

New Housing Approvals
Housing approvals are important as they can forecast what will be built in the coming months and years. In July housing approvals increased by 15.3 per cent from the previous month to 3,625, but they were still down 5 per cent on the same time last year. Housing approvals peaked in August 2002 and five years on there is still no recovery despite Government first homebuyer and rebate incentives. 2006/07 figures show there would have been approximately 39,000 new dwellings built in Victoria, which is 3,000 fewer than the required 42,400 to fill the need. As fewer homes are being built and more people move to Melbourne supply decreases and demand increases. This will lead to an increase in cost.

Housing Costs
The average house price in Melbourne is now $420,000, up more than 10 per cent over the past 12 months. In Sydney, this figure is closer to $520,000. Both cities are now among the English-speaking world's least affordable housing markets. Research has shown that in Melbourne a 605sq m allotment in Tarneit, 27km southwest of the CBD, costs $249,600. 2km further west at Manor Lakes, prices are starting at $255,600. In Sydney a house and land package on a smaller block in St Helen's Park, 48km south of the CBD, is $400,000.

Affordability is affecting the whole country. In Brisbane, outer suburban housing starts at $320,000 in Jimboomba. On the Gold Coast places like Yatala and Pimpama, halfway to Brisbane are starting at $320,000. In comparison suburban affordability in Melbourne is quiet attractive to many Australians. This has lead to an increase in Victoria’s population which places a greater demand on the market.

Other housing costs have also increased contributing the low housing affordability. Renovation costs have jumped almost 6 per cent in the past 12 months dramatically increasing the price for those hoping to enter the property market by purchasing a ‘do-er up-er’. Rental prices have also increased with the decrease in available rental properties due to the number of owner occupiers purchasing.

Home Loans
Australians took out fewer home loans in July then June 2007. Some believe the fall was a correction after a strong rise in June as a result of this years’ superannuation opportunity to put up to $1 million in and receive a tax discount. More than 63,500 people took out home loans in July, down 4.1 per cent. Economists had expected only a 2 per cent fall. The number of loans for new dwellings dropped 3.3 per cent. In general, fewer home loans reflect the restraint on purchasers to enter the housing market and poor value available. Less homeowners can also lead to more renters as people choose to rent or stay in the family home longer before they purchase, thus putting pressure on the rental markets.

The reserve banks’ interest rates
It must be made clear that the Reserve Bank is independent of the government and the forthcoming election, despite general opinion, will have no bearing on their decisions to change rates.

On Tuesday 7th of August 2007 the Reserve Bank of Australia announced it had lifted official interest rates by a quarter of a percentage point to 6.50 percent, an 11-year high and the first rise in rates since last November 2006. The rise in interest rates will add around $50 a month to repayments on the average $250,000 mortgage. Many believe that rates may rise again this year if a return of stability to the money market does not occur and international economic pressures are not contained and spill over into Australia.

The fall in home ownership is expected to worsen in coming months as the effects of the interest rate rise takes hold. An interest rate rise can often taken 6-18months for its full effect to be felt. The possibility of a November rate rise is currently at 50 per cent at best.
Many believe the deciding factor would be an abnormally high October inflation figure.
This speculation of another interest rate rise may be the reason behind the slowing demand for home loans discussed above. Any interest rate rises will affect anyone with a mortgage particularly those first homebuyers whom may have already extended themselves to meet their current home loan.

Growth in Population
Melbourne attracted 61,000 new residents in the year to June 2006, while Sydney attracted only 35,000. For the first100 years after Federation, Sydney achieved a greater annual population growth than Melbourne every year. But this is no longer the case as Australians choose which city and which living environment they prefer. Of the new population a considerable amount are nuclear structured families. Research shows that over 5 year Sydney attracted 5,000 net extra traditional nuclear families where as Melbourne attracted 11,000. This population growth coupled with the shortage of new housing approvals would lead to a rise in housing costs in the year ahead.

Individual income rates of pay
As the gap widens between the rich and the poor, even people in ‘good jobs’ are finding themselves unable to live near their place of employment. A large proportion of these people are spending up to 50 percent of their income on their homes. With such a large percentage of income being spent on rent or house payments tremendous burden has now been placed on finances for food, utilities and transportation.
The deterioration of housing affordability has been worsened by salaries that haven't risen nearly as fast as house prices.
Studies have shown that the median house price in Melbourne is between six and seven times median household income and in Sydney housing costs measured between eight and nine times earnings. This unbalanced relationship between housing costs and income is a major contributing factor to the low affordability being experienced across Australia.

So, I hope this whirlwind tour of economics and housing factors has been beneficial! Despite sounding quiet doom and gloom for the future it must be remembered that all markets work in cycles and everything therefore is relative. So stay positive and continue to look for the bargains and opportunities that can be found in all sorts of markets.

Look forward to next months issue where I tackle the most frequently asked Real Estate questions.