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Family Tax Benefit Reform


The Treasurer has announced a number of measures which tighten the eligibility for Family Tax Benefit and put a freeze on indexation of payments. These measures and their impact are outlined below. It’s important to note that for Family Tax Benefit purposes; eligibility is based on Adjusted Taxable Income (ATI).



From 1 July 2014

Family Tax Benefit A & B freezing of indexation



Indexation will freeze on the following rates and thresholds:
base rate and maximum rate will be fixed for two years for FTB part A

  •   income free area will be fixed for three years for FTB part A

  •   maintenance income free area will be fixed for three years for FTB part A

  •   secondary earner income free area will be fixed for three years for FTB part B

From 1 July 2015

- Family Tax Benefit A removal of the per child add on

Under this measure, a per child add-on amount will no longer be used to calculate a family’s higher income-free area. The higher income-free area of $94,316 will remain, without the add-on amount of $3,796 for the second FTB child and subsequent FTB children.

  • -  Limit the Large Family Supplement

    The Large Family Supplement will only be paid to families with four or more children. This change applies automatically for new and existing recipients of the supplement and will no longer be paid to families with three children from 1 July 2015.

  • -  Family Tax Benefit B reduction of primary earner income limit to $100,000

    The primary earner income limit for FTB part B will reduce to $100,000 from $150,000. Families with primary earner income of more than $100,000 will no longer be eligible to receive FTB part B.

    This change applies automatically for new and existing recipients.
    As part of this measure the Dependant (Invalid and Carer) Tax Offset income threshold will also reduce to $100,000.

  • -  Family Tax Benefit B limited to families with children under 6 years

    Eligibility for FTB B will be limited to families whose youngest child is younger than 6 years of age from 1 July 2015. During the period between 1 July 2015 and 30 June 2017, existing recipients with a youngest child aged six years and over will not be affected until 1 July 2017.

  • -  Family Tax Benefit A & B change to end of year supplements

    The end of year supplements will be brought back to their original amounts, which were $600 per annum per FTB part A child and $300 per annum to each FTB part B family. There will be no indexation of these amounts from 1 July 2015.

GEM Capital Comment

The impact of this measure is that the maximum income thresholds where FTB part A is no longer payable will decrease where you have more than one child.


- New Family Tax Benefit Allowance


A new allowance will be paid over 4 years to single parents on the maximum rate of FTB part A whose youngest child is aged between 6 and 12 years old from the point when they become ineligible for FTB Part B. This allowance will provide $750 for each child aged between 6 and 12 years in each eligible family. 

Indexing pensions and pension equivalent payments by CPI

1 September 2017

The Government will index a number of pensions (and equivalent payments) by the Consumer Price Index (CPI). This measure will standardise the indexation arrangement for these payments which are currently indexed in line with the higher of the increase in the CPI, Male Total Average Weekly Earnings or the Pension and Beneficiary Living Cost Index.

This measure will commence on 1 July 2014 for Parenting Payment Single recipients and from 1 September 2017 for pension payments including Age Pension, Disability Support Pension, Carer Payment, Bereavement Allowance and Veterans’ Affairs pensions.

Removing certain concessions for Pensioners and Seniors Card Holders

1 July 2014

The Government will terminate the National Partnership Agreement on Certain Concessions for Pensioner Concession Card and Seniors Card Holders.

Holders of a Pensioner Concession Card and Seniors Card currently receive a range of concessions from state and local governments such as discounts on council rates, utilities charges and public transport fares. State and local governments generally make decisions on the type and level of concessions they offer. The Australian Government, under this Agreement, has contributed funding towards selected state-based concessions.

GEM Capital Comment

It is unclear at this stage what types of concessions will be removed upon the termination of this Agreement. 

Resetting the asset test deeming rate thresholds

20 September 2017

The deeming thresholds will be reset to $30,000 for singles and $50,000 for couples from 20 September 2017 (for both pensioners and allowees). Current thresholds are $46,600 for singles, $77,400 for couples and $38,700 for members of allowee couples.


GEM Capital Comment

This measure effectively increases the amount of assessable income from deemed financial investments.

The proposal will impact the social security entitlements of income test affected pensioners and allowees. Additionally, older people subject to income tested residential aged care or home care fees may also be affected.

This measure will also impact holders of account based pensions which are impacted by the recent legislative change to deem account based pensions from 1 January 2015. 

Changes to the Commonwealth Seniors Health Card (CSHC)

The Government has announced a number of changes to the Commonwealth Seniors Health Card (CSHC). The CSHC allows self-funded retirees to gain access to medicines listed on the Pharmaceuticals Benefits Scheme at a concessional rate as well as other concessions.


To be eligible, a person must have an adjusted taxable income (ATI) of:

  •   $50,000 (singles)

  •   $80,000 (couples, combined), or

  •   $100,000 (couples, combined, for couples separated by illness or respite care)

    The proposed changes include:

  •   Annual indexation of the income thresholds to Consumer Price Index from September 2014.

  •   Account based pensions (ABP) that are subject to deeming will be included in the CSHC income test from 1 January 2015. Grandfathering applies to holders of a CSHC on 1 January 2015 with an ABP commenced prior to that date.

  •   Holders of the CSHC will cease to receive the Seniors Supplement beyond the June 2014 quarter. The Seniors Supplement is currently $876.20 p.a. (singles or couples separated due to illness) or $660.40 (couples, each). CSHC holders will still receive the Clean Energy Supplement.



GEM Capital Comment

The inclusion of deemed income on account based pensions in the assessment of income to determine eligibility to the CSHC will have a significant impact on a number of self- funded retirees.

Under the proposed change, based on the current deeming rates and thresholds and assuming no other income, a new applicant will not qualify for a CSHC if their ABP exceeds $1,448,543 (singles) or $2,318,886 (couple, combined).

However, these changes will not only impact self-funded retirees with large ABP balances, but also those with lower ABP balances who have other Adjusted Taxable Income such as income from untaxed Government schemes or foreign pensions.

The proposed change has a number of implications for holders of account based pensions. The grandfathering provision essentially “locks” clients into their existing ABP provider as any change after 1 January 2015 will see the new ABP deemed for CSHC purposes. 

Age pension age to increase to 70 by 2035


The Budget confirmed the Treasurer’s earlier announcement that the age pension age will increase to age 70 by the year 2035. This means that those born on or after 1 January 1966 (currently 48 years of age or younger) will have to wait until they are 70 before they are eligible for the age pension.

While the current pension age for both men and women is 65, it has been legislated that from 1 July 2017, the qualifying age for Age Pension will increase from 65 years to 65.5 years for both men and women. The qualifying age will then rise by six months every two years, reaching 67 by 1 July 2023. See table below. 


Date of birth

Qualifying age at

Commencing from

1 July 1952 to 31 December 1953


1 July 2017

1 January 1954 to 30 June 1955


1 July 2019

1 July 1955 to 31 December 1956


1 July 2021

From 1 January 1957


1 July 2023


The changes proposed in the Budget will continue the propose increase in the pension age as follows:

Date of birth

Qualifying age at

Commencing from

1 July 1958 to 31 December 1959


1 July 2025

1 January 1960 to 30 June 1961


1 July 2027

1 July 1961 to 31 December 1962


1 July 2029

1 January 1963 to 30 June 1964


1 July 2031

1 July 1964 to 31 December 1965


1 July 2033

1 January 1966 onwards


1 July 2035


GEM Capital Comment

Whilst the policy intention is to encourage people to continue working until age 70, the reality is many people will be unable to continue working. This means there will likely be a gap between when someone retires and when they qualify for the age pension.

How much additional superannuation will be required to fund this gap? A person who is currently 48 (born 1 January 1966) who wishes to retire at age 65, will require approximately $96,432 to generate the equivalent of the maximum age pension currently $21,912 p.a. (for singles) to fund the five-year gap. For members of a couple, they require approximately $72,689 each to fund the five year gap.

This is a substantial amount to accumulate over the next 16 1⁄2 years. To close this gap, a 48 year old today will need to make additional pre-tax contributions of approx. $5,232 p.a. (for singles) or $3,943 p.a. (for members of a couple) every year for the next 16 1⁄2 years.


Figures are shown in today’s dollars; rate of inflation of 3% p.a. Centrelink rates for the period between 20 March 2014 and 30 June 2014. Pensions are indexed at 3.0% p.a. An account based pension is to be commenced at age 65 with rate of return of 7% p.a. Contributions tax of 15%, rate of return on investment in accumulation phase is 6.0% p.a. net of taxes and fees. Super contributions will increase by 3.5% p.a. 




Tuesday, 11 March 2014 21:55

Aussies should be investing overseas now

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Investment specialist Douglas Isles, from Platinum Asset Management talks with Peter Switzer on Sky Business News about the reasons why Australian investors should think about investing outside of Australia.


Douglas offers his views on which markets look attractive, the $AUD and much more.




Tuesday, 04 March 2014 03:50

Warren Buffet's - 5 Investing Don'ts

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Warren Buffet, attributed as one of the best investors of the 20th century and one of the world's wealthiest people recently gave an interview to CBNC.  During this interview, 5 specific things NOT TO DO came from the discussion.  Warren Buffet's net worth is estimated to be around US$60bn at the time of writing this blog.


1. Don’t let world events affect your investing decisions.

Even if the Oracle of Omaha said he knew a big war was unavoidable, “I will still be buying stock ... The one thing you can be sure of is if we went into some very major war, the value of money would go down,” CNBC reported him as saying on its web site.

“The last thing you want to do is hold money during a war. You might want to own a farm, you might want to own an apartment house, you might want to own securities. During World War II the stock market advanced. The stock market is going to advance over time.”


2. Don’t feel bad when stocks go down

Even as global markets began to gyrate because of the Russian military build-up in the CRimean region of neighbouring Ukraine, the 83-year-old head of Berkshire Hathaway said: “When I got up this morning I actually looked at a stock on the computer, on the trades in London, that we’re buying and it’s down and I felt good ... We were buying it on Friday and it’s cheaper this morning and that’s good news.” Asked if he would buy more, he replied: “Absolutely.”


3. Don’t think you have to be an expert to profit from stocks

“The stock market just offers you so many opportunities, thousands and thousands of different businesses. You don’t have to be an expert on every one of them. You don’t need to be an expert on 10 percent of them even. You just have to have some conviction that either a given company, or a group of companies ... are likely to make more money five or 10 or 20 years from now than they’re earning now. And that is not a difficult decision to come to,” CNBC reported Buffett as saying.


4. Don’t go for the quick profit

When Buffett, whose fortune was estimated in December to be worth about $US59.1 billion ($66.2 billion), was asked if activist investors were acting in the best interest of targeted companies and their shareholders, he replied: “Generally speaking, they are interested in making a quick profit and there’s no law against making quick profits. But our whole attitude in our own business and what we like to see with the businesses we own stock in is we want to run them for the people who are going to stay in rather than the people who are going to get out. At any given time, you can make more money, usually, selling the company. ... The answer isn’t to sell the company. The answer is to keep running the company well. ... I could do certain things to jiggle up the price of Berkshire in the short run. It would not be good for the company over five or 10 years.”


5. Don’t put your money into bitcoins for the long run.

When Buffett was asked about the latest craze of investing in the virtual currency Bitcoin, he was quick to reply: “It’s not a currency. It does not meet the test of a currency. I wouldn’t be surprised if it’s not around in 10 or 20 years. ... It’s been a speculative – a very speculative – kind of Buck Rogers-type thing, and people buy and sell them because they hope they go up or down just like they did with tulip bulbs a long time ago.”


Wednesday, 19 February 2014 21:40

Chinese Credit Boom - will it go BOOM?

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The rate of Chinese debt growth, particularly in the corporate sector and local government sector is now at a level that is drawing attention from ratings agencies to infamous investors like George Soros.

The chart below shows credit levels compared to GDP, and the rate of growth of credit (lending) in 5 countries at various points in time that represent 5 years that preceded a credit crisis.  (Obviously Chinese credit crisis has not yet happened).












This chart shows similarities between China's level of debt and growth in debt in the past 5 years with the US and UK most recently and Japan and Korea in the 1990's.  What followed in each of these scenarios was recession.

This growth in lending has largely funded Fixed Asset Investment, which is defined as capital expenditure of large items, such as roads, power stations, buildings.

If the rate of lending were to slow significantly, this would more than likely disrupt the level of fixed asset investment in China.

What does this have to do with Australia?  Everything.

Australia currently exports vast quantities of commodities such as iron ore to China that is required for their Fixed Asset Investment program.  A lower level of fixed asset investment would more than likely result in China importing lower quantities of some of Australia's major exports.

The chart below shows that China is now Australia's major export partner.  It used to be said that if the US sneezed, Australia would catch a cold.  Investors must now consider what happens to Australia if China sneezes.





Australia has enjoyed a decade of prosperity on the back of a China construction boom, which is now cooling.  Many investments have profited from this.  The challenge for investors now is to ensure that their investment strategy now is not anchored in the past.


DISCLAIMER: The above information is commentary only (i.e. our general thoughts).  It is not intended to be, nor should it be construed as, investment advice.  To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.  Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and circumstances.



Wednesday, 19 February 2014 21:21

RBA Minutes - rates on hold for now

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BillEvans_small_headshot_WIBIQThe minutes of the February 4 RBA Board Meeting confirmed that the Bank now has a neutral bias and has desisted from further talking down the AUD. On interest rates: "the most prudent course would likely be a period of stability in interest rates". Whereas in the December Board minutes the AUD was described as "uncomfortably high" the language used early in 2013 has been restored with "the exchange rates has also depreciated further since the December meeting. If sustained, a lower exchange rate would be expansionary for economic activity and would assist in achieving balanced growth of the economy". Of course that fall has not been sustained with the AUD around US 91c at the time of the December Board meeting falling to US 88c at the time of the February Board meeting but now having rebounded to around US 90.50c, only slightly below the "uncomfortable level" at the time of the December Board meeting.

Commentary around the domestic economy is generally upbeat. Consumption, dwelling investment, business conditions and exports are described as being "more positive". In fact the minutes note that "survey measures suggested that business conditions had improved noticeably in recent months, to be above average levels". Of course the labour market was still described as weak but this was partially dismissed by describing the labour market as a lagging variable. Consistent with that theme, and, in line with the view around spending, the minutes note that the forward looking indicators of labour demand had shown signs of stabilising although were described as "consistent with only moderate growth of employment". There appears to be little consideration in this analysis of the feedback effects from a weak labour market to household confidence and incomes. Indeed the Bank expects that the rise in house prices will boost spending leading to falls in the savings rate.

The unexpected increase in inflation clearly played an important role in discussions. Four different explanations were given for this lift with interestingly the first one mentioned being "an element of noise that occurs in economic data". Other explanations related to: the faster than normal pass through from the lower exchange rate: "a slower than expected pass through from weak wages growth"; and finally the possibility that there was less spare capacity in the economy enabling retailers or wholesalers to increase their margins. The Bank concludes that it was not possible at this stage to distinguish these explanations and it was likely that some combination of these four explanations was at work.

A number of vulnerable remarks appear in these minutes. Firstly, the 3% decline in consumer sentiment back to average levels made the comment "consumer sentiment had recorded a modest decline around the end of 2013" somewhat out of date. A more disturbing issue was around the Bank's forecast for growth of Australia's trading partners which is expected to increase to be above average in 2014. It would be our view that with Chinese growth likely to decelerate this growth outlook seems overly optimistic.


There are no significant surprises in these minutes. If the Bank had decided to continue talking down the AUD possibly with less strident language than "uncomfortably high" then it is likely to have been covered in the Governor's statement accompanying the decision two weeks ago. With no lead from the Governor it was not surprising that the language around the AUD has reverted back that period in 2013 when there was no explicit effort to talk down the AUD. The Governor also made it clear that policy had been moved to a neutral stance and these minutes confirm that view. There are a number of behavioural assumptions in the minutes. Firstly it is assumed that the labour market will lag economic growth with feedback effects from employment to incomes and confidence tending to be overlooked. It is therefore assumed that the rise in house prices will prompt a marked lift in consumer spending through the wealth effect and therefore a reduction in the savings rate. We tend to be more sceptical around that dynamic given the ongoing attitude of households since the Reserve Bank started to cut rates in November 2011. However we do accept the explanation that the unexpected lift in the inflation rate most likely shows some noise; a faster than expected response to the fall in the currency and a slower response to soft wages growth. With the AUD now stabilising and wages growth remaining soft the wages story is likely to be the dominant driver of inflation through 2014.

Our forecast that the RBA will need to cut rates further in the second half of 2014 clearly hinges on the likely outlook, at that time, for growth in 2015 . Factors that will impact on that outlook will include the ongoing downturn in mining; fiscal consolidation; the impact of a fall in the terms of trade; and two important macro dynamics which the Bank appears to be understating. These are the direct feedback effects on confidence and incomes of the weak labour market and ongoing caution amongst business and consumers.

Bill Evans - Chief Economist - Westpac Banking Corp

DISCLAIMER: The above information is commentary only (i.e. our general thoughts).  It is not intended to be, nor should it be construed as, investment advice.  To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.  Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and circumstances.

Friday, 14 February 2014 19:17

US Recovery - It's real!

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There continues to be much skepticism among the general public about the recovery of the US economy.

In this article, we provide a series of charts that show that the US recovery is very real.

Further evidence can be seen in the US share market.  During the most recent company reporting season we saw 68% of companies in the S & P 500 beating earnings expectations.

US Labour Market recovery

The next chart shows the average monthly employment growth - note that a number of 200,000 new jobs is required to lower the unemployment rate.

US Employment GrowthThe US Housing market has a multiplier effect throughout the economy both in terms of employment as well as consumer spending.  Activity and prices have most certainly turned as can be seen in the chart below.

US Housing Market RecoveryThe US Budget position has dramatically improved as economic activity has turned.

US Budget PositionUS energy sufficiencyUS Corporates are also in good shape - earnings have beaten expectations and their balance sheets are in good shape.

US Corporates in good shape


DISCLAIMER: The above information is commentary only (i.e. our general thoughts).  It is not intended to be, nor should it be construed as, investment advice.  To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.  Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and circumstances.