Beware the hidden extra costs of EVs + The big spenders in the US election campaign

Hi everyone,

Happy Friday, I hope you’ve had a good week. I’ve had a week on the road, starting with the AFL Grand Final in Melbourne, then to the Eyre Peninsula in South Australia for a three-day visit in my role as Chair of the South Australian Tourism Commission, then up to Darwin to speak as part of the NT’s Small Business Week, back to Adelaide for Port Adelaide’s Best and Fairest tonight, and home tomorrow.

So it has been a big week talking to a lot of people about their businesses. I must admit there is a strong sense of optimism despite the impact of high inflation and interest rates.

As I’ve mentioned previously, I’ve been having an ongoing dialogue with Treasurer Jim Chalmers, who has taken issue with my claim that the Government’s big spending has been adding to inflation. He disputes that argument.

So it was interesting to see the International Monetary Fund support my view yesterday in its new report on the Australian economy, warning Federal and State Governments to rein in their spending, which was adding to inflation.

I’ve shown this graph before, but it shows that Government spending as a proportion of the size of the economy is at record levels. Spending is higher than the economic stimulus at the depths of the pandemic. This is what the IMF is worried about.

In this week’s newsletter:

• Retail sales bounce back ahead of Father’s Day

• Who’s spending the most to attract votes in the US election campaign

• Residential property values are softening as more homes are put on the market

• But the luxury home unit market is remarkably strong

• The hidden extra costs of owning an Electric Vehicle

• Preparing your finances for a new baby

Australians open their wallets ... for Dad

Retail trade posted a decent 0.7 per cent gain in August, following an upwardly revised 0.1 per cent lift in July, on the back of department stores, clothing and eating out.

The ABS noted, “Retail spending was boosted this month by warmer-than-usual weather for this time of year. This year was the warmest August on record since 1910, which saw more spending on items typically purchased in spring. This included summer clothing, liquor, outdoor dining, hardware, gardening items, camping goods and outdoor equipment”. 

Economists at CommSec were inclined to put more weight on the timing of Father’s Day in boosting spending across a range of items in August by more than usual, as it occurred on 1 September ... the earliest possible time it can occur in September.

Show me the money ... the funding behind the US election

The Bondi Partners (Joe Hockey’s consultancy group) newsletter had a fascinating insight into the current funding behind the US election campaign.

If the results of US elections were determined by who could raise and spend the most money, it appears the Democrats would win in a landslide. 

In the month of August alone, Vice President Harris’ campaign took in US$190 million in August and spent US$174 million, three times more than the US$45 million raised by Donald Trump. Going into the campaign’s final stretch, Harris had US$235 million on hand, US$100 million more than Trump. 

This fundraising divergence has been a hallmark of this election, even while former President Trump was polling well ahead of Joe Biden. Data shows Harris/Biden has spent over US$300 million more than Trump, a similar margin to the 2020 election. 

But money doesn’t always correlate to victory. In 2016, Hillary Clinton lost despite a US$150 million advantage due to Donald Trump’s dominance of news headlines and earned media, an advantage he has retained throughout his political and entertainment career and continues to deploy. 

Kamala Harris also still has to work on bolstering her image with an unfamiliar public while battling sceptical progressives frustrated by her flip-flopping on key issues. 

Residential property values are starting to flatten

Higher for longer interest rates, the cost-of-living crisis and affordability are all combining to dampen the residential property market and deflate the boom of the last couple of years.

According to property research group CoreLogic, dwelling values increased by a modest 0.4 per cent in the first month of spring, broadly in line with the 0.3 per cent monthly change in July and August.

Nationally, housing values rose 1 per cent in the September quarter, the lowest rise in the national Home Value Index (HVI) over a rolling three-month period since March 2023, when the market was moving through the early phases of the current upswing.

Four capital cities recorded a fall in dwelling values through the September quarter, led by Melbourne, where values were down 1 per cent while Canberra, Hobart and Darwin also declined.

Sydney home values have continued to rise with a 0.5 per cent increase through the September quarter, but it was the lowest growth since the three months ending February 2023 when values were down 0.3 per cent. 

Perth values were up 4.7 per cent in the September quarter (easing from 6.2 per cent in the June quarter), while Adelaide looks to be topping out with a 4 per cent rise and Brisbane eased back to 2.7 per cent ... its lowest rise over a rolling three-month period since April last year.

Another reason for the slowing value rise is the increase in listings from owners wanting to sell into the spring selling season. New listings coming onto the market were tracking 3.2 per cent higher than a year ago nationally, to be 8.8 per cent higher than the previous five-year average for this time of the year. The flow of freshly advertised housing stock hasn’t been this high at this time of the year since 2021.

Auction clearance rates have also wound back to the low 60 per cent range across the combined capital cities, which is about 4 per cent below the decade average. Similarly, homes sold by private treaty are staying on the market longer, with a national median of 32 days to sell through the September quarter, up from 29 days in the June quarter and 27 days a year ago.

Looking at the rental market, the national rental index increased by just 0.1 per cent over the September quarter, the smallest change over a rolling three-month period in four years. The slowdown in rental growth is likely to be a factor of both easing net overseas migration alongside rental affordability pressures forcing a restructuring of demand.

The latest demographic trends from the ABS showed net overseas migration reduced by 19 per cent from the record highs in the first quarter of 2023.  

But luxury home unit values are still booming

While overall residential property values are softening, the luxury apartment market remains very strong according to real estate giant, Ray White. I wonder whether Baby Boomers downsizing from the family home is driving this trend.

Defined as properties priced in the 95th percentile of all units sold, luxury units now command on average a $1.6 million price tag, which is a 2.9 per cent increase from the previous year and a whopping 27.6 per cent jump over the past five years. 

The extra hidden costs of Electric Vehicles

According to new research from Compare the Market, motorists who choose electric vehicles (EVs) continue to face higher insurance premiums, with some models costing hundreds more to insure.

The car insurance comparison experts found the top five best-selling EVs in the first half of this year were, on average, 43 per cent more expensive to comprehensively insure compared to a similar petrol-powered model.

This is despite electric cars being generally cheaper to own than a petrol or diesel vehicle over time, with previous Compare the Market research revealing Australian motorists could save more than $1,000 per year in running costs by switching to an EV and charging at home.

Electric vs petrol car insurance premium costs

Meanwhile, the most popular hybrid vehicles – which use both combustion engine and EV powertrains – were typically just 5 per cent pricier for comprehensive car insurance compared to their equivalent petrol-only counterparts.

Ahead of the Australian Government’s New Vehicle Efficiency Standard (NVES) in 2025, EV owners need to find a better deal by comparing car insurance policies.

There are already a number of EVs that are priced on par with some petrol-powered models – but the team at Compare the Market have found insuring an electric car could cost considerably more than insuring a similar petrol-powered model.

Across the top five best-selling EVs and 12 car insurance providers, motorists could spend between $98 to $1,788 more to comprehensively insure an EV every year, which may diminish some of the benefits of reduced running costs.

EVs are generally more expensive to insure because the battery pack creates more complexity for repairers, many EV-specific parts need to be imported from overseas, and there are fewer qualified smash repairers for electric cars.

Therefore, if you’re an existing or would-be EV owner, it pays to compare car insurance policies to ensure you don’t pay a cent more than you need to ... rather than staying loyal with the same insurer year-on-year.

Just like banks and lenders have started offering green car loans, it would be great to see insurers adopt some green discounts for electric car premiums.

For now, the best way to ensure you’re getting a good deal is to compare. Whether it’s your car insurance or electricity plan, there are options out there. Don’t park yourself into higher prices.

How to financially prepare to start a family

With four children of our own and nine grandchildren, you could say the Koch’s are pretty decent breeders. I’ll be honest, when Libby and I had our eldest, Samantha, we didn’t really think about the cost of a family.

We should have, but we were pretty naïve and had this view that we’d just make it happen. Our children have planned their own families a lot better than we did.

It’s an incredible experience filled with joy, sleepless nights and, yes, some serious financial planning. Because raising kids can be expensive, here’s how you can get ahead and financially prepare for this new chapter of your life.

Budgeting: Plan for today and tomorrow

Research from the University of Canberra found that raising two children can set you back between $474,000 to $1,097,000 over the course of 18 years. That’s anywhere from $13,166 to $30,472 per year per kid. So how exactly can you get ahead? Just like life itself ... it starts at conception.

Before the baby arrives, sit down and map out how your finances will change. You’ll have the immediate costs like baby gear, healthcare and setting up a nursery. Then there are the ongoing expenses like food, clothing, books and toys, childcare and education. It’s a lot, so start by putting together a budget that accounts for these new costs alongside your current financial obligations.

Create a family budget: Lay out all possible expenses and revisit your current budget. Make sure you’re factoring in new costs and adjust your spending habits wherever possible.

Review your insurances: Check your health insurance for maternity cover and make sure your life and income protection insurance are adequate. The last thing you want is to be caught off-guard by unexpected costs.

Talk with your partner: Open communication is key. Discuss parenting roles, potential changes in work arrangements, and your expectations for your financial future.

Financing parental leave

Losing part of one parent’s income after birth can be one of the biggest financial challenges you’ll face – so it’s vital that you plan how you’ll manage during the parental leave period. If one or both parents are stepping back from work for a few months, you’ll want to have a financial safety net already in place.

Check with your employer about any parental-leave policy they might have. Some companies have generous paid leave, while others might not have anything. Knowing your entitlements is the first step.

Government support is another area to explore. Australians are entitled to Parental Leave Pay after giving birth or adopting a child, which can really help ease the financial burden for new parents.

You should also start building up a savings buffer. Aim to have three to six months of living expenses set aside before the baby arrives. You’ll then be able to dip into this fund to cover the transition to a lower income – or to take care of any unexpected costs. Also try to pay down any high-interest debts you have right now. Clearing these financial drains will free up more cash flow for your growing family.

How does superannuation play into things?

Taking time off work can affect your superannuation, particularly for women, who tend to take longer parental leave stints. But there are ways to mitigate the impact and keep your retirement savings on track.

Voluntary contributions: If you can, make small, regular voluntary contributions to your super. Every little bit helps, and compound interest will really work in your favour over time.

Spousal contributions: If one partner isn’t working, the other can make contributions into their super. You’ll get the added bonus of tax benefits too.

Government co-contribution: Depending on your income, you might be eligible for a government co-contribution. It’s a simple way to give your super a boost.

Prepare for the unexpected

Life with kids is unpredictable. One moment you’re budgeting for nappies, the next you’re dealing with medical bills or urgent household repairs. That’s the whole reason why people have an emergency fund. With around three to six months’ worth of living expenses in your back pocket, you can ride out those unexpected moments and ensure that one-off costs don’t derail your financial plans.

It’s also wise to start adjusting your spending habits now. Try living on a tighter income before the baby arrives. In doing so, you’ll be able to spot areas of your life where you can cut back and save more, giving you a better sense of how your finances will feel once you transition to a single income for a period. You might find it easier than you think to trim some fat from the budget, and the extra savings can go towards building up your emergency fund.

Trust me, after four children who have now delivered nine grandchildren, starting a family is one of life’s most rewarding adventures ... but it comes with a price tag. Remember, it’s not just about managing costs but instead creating a financially secure future where your family can thrive. Start those financial conversations early, make a plan and then enjoy the ride knowing you’re prepared for anything that might come your way.