Don't let insurance companies play you for a sucker + Avoid a surprise tax bill!

Hi everyone,

Happy Friday. A morning of mixed emotions for me after my football team had a bad loss last night, but I became a grandfather for the 9th time! What a rollercoaster.

But a lot is going on when it comes to your money. In this week’s newsletter:

• Economic growth slows to a crawl.

• The Treasurer has to wake up and fight inflation, rather than just blame the Reserve Bank.

• A new order in Australian property valuation as Melbourne slides down the rankings.

• Rural properties have seen a surge in value.

• Insurance companies are playing us for suckers. Here’s how to fight back.

• How to avoid an unexpected tax bill.

• Share investing: Some interesting facts on timing the market.

No surprise that Aussie households are suffering

The June quarter economic growth figures out on Wednesday were anaemic. Quarterly growth of 0.2 per cent and annual growth of just 1 per cent - the slowest economic growth (outside pandemic lockdowns) in 30 years.

Take out population growth from migration and the economy has now contracted for six consecutive quarters. So those extra 500,000 customers from immigration are the only ones keeping us out of a fully-fledged economic recession.

The big surprise from the result is how bad Aussie households are doing with the weakness in consumer spending over the June quarter. Spending fell by 0.2 per cent over the June quarter, and slumped 0.5 per cent over the year ... and that’s including the new migrant shoppers. Even the RBA’s forecast had consumer spending up 1.1 per cent for the quarter, not down.

Spending on many discretionary categories fell in the June quarter. Surprisingly, spending on food was down by 1 per cent for the quarter. Households are not eating less but they are trading down on the type of food they are buying.

The cost of living crisis is hitting what goes on the kitchen table.

Consumers are feeling the brunt of the RBA’s tightening as rising mortgage payments along with a lift in tax payable and the effects of elevated inflation have weighed on household purchasing power. Businesses by extension suffer as growth in overall sales to consumers slow. Investment plans have moderated in response.

Annoyingly, government spending is much higher but more on that later. My view is the government should be tightening its financial belt to fight inflation, so interest rates can come down sooner and consumers can enjoy a better life.

Government spending is back up to record levels and equivalent to the massive economic stimulus package of the pandemic.

Interest paid on housing debt continues to push higher, although the growth rate has slowed given the RBA has left the cash rate on hold since last November. Notwithstanding, the ongoing expiry of ultra-low fixed rates continued over the June quarter. And interest paid on housing debt is up a whopping 179 per cent from pandemic lows.

The savings rate remained at a very low 0.6 per cent. The savings rate has averaged just 0.7 per cent over the past year, well below its five year pre-pandemic average of 6 per cent.

Treasurer, it’s time for you to wake up

Jim Chalmers, face facts and take responsibility.

The economy has slowed to a crawl … because of you.

Interest rates are staying higher for longer … because of you.

Australian families are hurting from a cost-of-living crisis ... because of you.

There is a housing and rental affordability crisis ... because of you (and the other levels of government which didn’t plan properly for the current population boom).

You’re the Treasurer. Stop blaming everyone else and stop trying to constantly be the good guy. You’re ‘The Man’. You control all the financial levers to drive the economy, change business conditions and influence every Australian’s household budget.

You’re earning a record amount of personal income tax revenue from all of us but what are you doing with it? You’re spending it. That’s the problem.

Yesterday’s latest national accounts figures showed the slowest economic growth (outside of pandemic lockdowns) since the last recession in the 1990s - 0.2 per cent for the June quarter and a measly 1 per cent for the year.

Household spending is at record lows but government spending is at an all-time high. About the same level as the economic stimulus during Covid.

Reserve Bank Governor Michele Bullock has every reason to be p*ssed with you. So don’t go hanging her out to dry. The RBA is fighting inflation with the only instrument it has: interest rates.

Meanwhile, you have dozens of instruments which could fight inflation. The infuriating thing is you’ve used a number of them to fuel inflation rather than fight it. That’s the reason why the RBA has had to keep rates higher for longer.

Back in April, in this newsletter, I wrote about how Michele Bullock basically apologised for having to raise rates to fight inflation acknowledging interest rates are a blunt economic instrument which has a massive impact on average Australian families… but it is the only instrument available for the RBA to use. Monetary policy is using interest rates to adjust the speed of an economy.

But there are a myriad of other inflation-fighting instruments in the hands of the Federal Treasurer to help. It’s called ‘fiscal policy’ and it’s where the government uses budget measures to impact the economy - cutting government spending to slow the economy or increasing government spending to speed it up. Or it can increase taxes to slow an economy or cut taxes to stimulate economic growth.

At the time I challenged the Treasurer to stop being the “good guy” by promising everyone a pay rise (which adds to inflation which then forces the RBA to lift interest rates) and to instead use his fiscal policy financial muscle to help the RBA fight inflation without raising interest rates or, at the current stage of the cycle, having to keep them higher for longer.

And that’s the root of the problem. The Treasurer wants to be everyone’s friend, but we need an economic reformer who makes tough, unpopular decisions in the interests of the future of the economy.

Take May’s Federal Budget which is forecasting a $28 billion budget deficit for the current financial year after delivering close to a $20 billion surplus in the last financial year. That 2023-24 surplus was bloated by high iron ore and coal prices, which have since come down significantly, and strong corporate and personal tax revenues.

But even factoring in the slide in iron ore and coal prices (which are projected into this Federal Budget) a budget deficit clearly adds to inflation. The message from the Reserve Bank is that all Australian households need to tighten their purse strings and cut spending in the fight against inflation.

The government and the Treasurer do exactly the opposite. The Federal Budget is forecast to spend $28 billion more than the Treasury is earning. It’s stimulating the economy which means the RBA has to keep interest rates higher to dampen it.

Then there are the current big drivers of the CPI basket - rents, building costs and the services sector. All of which are being driven by the action, or inaction, of the federal government.

While post-pandemic supply chain issues have been largely resolved, home building costs have risen dramatically, largely because of a shortage of labour and the rising costs to attract workers to the industry. Ask anyone in the building sector and they’ll tell you federal and state governments have been sucking workers out of home building and into their massive infrastructure and renewable energy projects.

Those big spending, big paying projects are creating the labour shortage which, in turn, pushes up home building costs, adds to inflation and keeps interest rates high.

It’s a similar story when it comes to skyrocketing rents. The federal government, quite rightly, reintroduced a strong post-pandemic immigration program, but then failed to plan the logistics. Where will they be housed?

Australia needs to build 250,000 new houses a year to keep the property market in balance. We’re currently building less than 200,000 and building approvals are at ten-year lows. The ripple effect is higher property prices and a shortage of rental stock which pushes rents up. All because the federal government didn’t plan their migration policy properly.

As for what the RBA calls the “stickiness” of the rising costs in the services sector, that all stems from rises in wage costs set by government recommendations to the Fair Work Commission.

Bottom line is, high interest rates are needed to fight inflation but are wreaking havoc through Australian households and sending us into economic recession.

Interest rate cuts will only come when we beat high inflation. That’s why the Treasurer has to stop blaming the RBA and join the fight.

A new property valuation order and Melbourne continues to slide

According to property research giant, CoreLogic, national home values rose 0.5 per cent in August, the nineteenth consecutive increase. However, the growth rate is slowing and it’s the smaller capital cities which are supporting the market.

There is still more demand for housing than available supply, but the flow of advertised supply and demand are becoming increasingly balanced. Supply levels varied markedly from region to region, with total listings in Melbourne about 25 per cent higher than the previous five-year average, while total listings in Perth and Adelaide are down on the five-year average by more than 40 per cent.

As I’ve always said, property is all about demand and supply. It’s that simple.

Monthly gains were led by a 2 per cent increase in Perth, followed by strong rises of 1.4 per cent in Adelaide and 1.1 per cent in Brisbane. Monthly growth in Sydney was a mild 0.3 per cent.

Four capital cities saw a monthly decline in home values, led by a 0.4 per cent dip in Canberra, -0.2 per cent in Melbourne and Darwin, and a mild 0.1 per cent fall in Hobart.

The median dwelling value in Melbourne has been overtaken by Adelaide and Perth, making Melbourne’s median the third lowest among the capital city markets. The Adelaide median is now $790,800 and Perth’s is now $785,250, compared with $776,044 in Melbourne.

This is the first time that Perth’s median dwelling value has been higher than Melbourne’s since February 2015, when the city was just coming off the highs of an iron-ore boom. It is also the first time in CoreLogic’s forty-year median dwelling value series, that Adelaide has had a higher median than Melbourne.

But look at this chart which shows capital city property growth rates over the last five years. Perth, Brisbane and Adelaide have outperformed Sydney and Melbourne over that period.

In Brisbane, there was a more pronounced slowdown in the quarterly growth rate between May (4.1 per cent) and August (2.9 per cent), suggesting an easing in demand across this increasingly less affordable market.

The lower value quartile of the combined capital city market, which makes up the most affordable 25 per cent of dwellings, rose 2.7 per cent in the three months to August, compared to a 0.3 per cent lift across the upper quartile of most valuable properties.

Growth trends have also been highest in relatively affordable pockets like Canterbury in Sydney (up 13.3 per cent in the past year), Kwinana in Perth (up 31.4 per cent), and the Springwood/Kingston market in Brisbane (up 25.5 per cent).

Rural property values seem to be surging again

A quiet revolution is taking place in the country's interior with country properties surging, according to real estate giant, Ray White. So what's driving this inland boom, and which areas are emerging as the new ‘hot spots’?

Over the past decade, the Gold Coast has been the strongest regional growth area in Australia, with all top performing areas being located in either the Gold Coast or Sunshine Coast. The top performer has been the Mermaid Beach-Broadbeach area where the median has increased from $1.1 million to $2.5 million.

While there is no inland regional area that has seen an increase so marked over the past decade, there are many areas that have more than doubled and the majority of them are in regional inland New South Wales and Victoria.

The strongest inland regional area over the past 10 years has been the Southern Highlands in regional New South Wales. Bowral tops the list with an increase of $1 million over the past decade. The Victorian spa country also features with Woodend and Daylesford seeing increases in excess of $460,000.

While the Southern Highlands and Victorian spa country have topped the list over the long term, Toowoomba and surrounding areas account for nine of the top 10 growth areas over the past year.

Middle Ridge in Toowoomba has seen price growth of just over $100,000 over the past year and is now getting close to a million dollar median.

While it has taken a bit longer for Toowoomba to see strong price growth similar to Brisbane, Sunshine Coast and Gold Coast, it appears that this is now occurring.

The only suburb on the list that’s far from Toowoomba is Tanunda in South Australia’s Barossa Valley. The median there has increased by just under $75,000 over the past year.

What has been driving prices in these areas? Overwhelmingly, the top inland performers are relatively close to capital cities. This makes it possible to commute to a larger city for work if required. Most of them have a large number of older historic homes and are attractive leafy towns and suburbs with a high level of amenity, similar characteristics to many capital city suburbs that have seen very strong growth over a prolonged period.

Insurance companies are playing us for suckers

Insurance premiums have become one of the main drivers of inflation, along with rent and housing construction costs. These three factors are contributing to the sustained high-interest rates that are squeezing regular Australian households.

The big question is: are insurers playing us for suckers? The excuse for higher premiums has been that natural disasters are to blame, but then why have all the big commercial insurers just reported huge profit increases?

The profit surge amid rising premiums

Take QBE. The insurance giant’s after-tax profits doubled to an eye-watering US$802 million (around AU$1.2 billion) in just six months, yet investors punished the company because it barely missed their expectations. If natural disasters were truly the reason behind higher premiums, shouldn’t we see a more modest profit result?

Then there’s IAG. They reported an 11 per cent rise in insurance premium income over the 12 months to 30 June. Coupled with fewer weather-related claims, this resulted in a 7.9 per cent jump in net profit to $898 million. When profits soar while premiums continue to rise, it’s hard not to feel like we’re being taken for a ride.

So what can you do about it? Here are a few ways you can fight back against skyrocketing insurance costs.

Step 1: Take control of your premiums

• Raise your excess: If you’re a safe driver or have a well-maintained home, think about raising your excess. Yes, this means you’ll pay more if you ever need to claim, but in return you could enjoy cheaper premiums. It’s a strategy that is particularly useful for those of us who rarely make claims and are looking to reduce everyday expenses.

• Update your details: Insurers calculate your premiums based on risk factors, some of which you might have control over. If you’ve recently moved and can now park your car in a secure garage, for example, this lowers your risk of theft and might also lower your premiums. Similarly, if you’re driving less than before, perhaps because you are now working hybrid or fully remote, see if you can switch to a low-kilometre policy.

• Limit drivers on your policy: Another way to cut costs is by removing younger drivers from your policy. Insurance premiums tend to surge if you’re covering inexperienced drivers, so if they don’t need to be on the policy then restrict it to certain age groups. You can always update your policy as your drivers mature.

Step 2: Be smart about your insurance choices

• Shop around for better value: Loyalty rarely pays dividends when it comes to insurance. While some insurers do have so-called “loyalty discounts”, they’re unlikely to be as competitive as the deals available to new customers. It’s worth shopping around every year before renewing your policy. If your current insurer won’t match a better deal elsewhere, there’s only one thing to do: walk away.

• Take advantage of technology: Some insurers offer discounts for using a dashcam, which can be used as evidence in the event of a road incident. If you already have a dashcam, it’s worth checking if your insurer offers such a discount. Elsewhere, you can use a home contents calculator to get a more accurate estimate of the amount you need to insure. This can prevent both over insurance and underinsurance, which are common pitfalls that Aussies can fall into.

• Don’t automatically renew: It’s easy to let a renewal notice slip through to the keeper, but this can be an expensive mistake. Always review your renewal notice to see what’s changed, and don’t hesitate to negotiate or switch insurers if your premiums have gone up without a good reason.

Step 3: Use free tools to your advantage

• Comparison tools are your friend: There are so many online comparison tools available that it’s never been easier to review policy features side-by-side. You’ll be able to find a product that suits your lifestyle, your current needs and – most importantly – your budget. There’s the potential to save hundreds of dollars on your premiums. Just make sure to read the fine print so you know exactly what you’re getting.

• Beware of so-called loyalty discounts: Loyalty discounts might sound appealing, but they can sometimes mask less competitive pricing. More often than not they’re a marketing slogan rather than a legitimate discount. Don’t assume that staying with the same insurer is always the best option. You might find better value with a new insurer, even after taking into account the loyalty discount.

It’s time to stop letting insurers dictate the terms and start fighting back. Taking control of your premiums is as simple as shopping around and using some free online tools.

Bottom line: insurers are in the business of making money, but that doesn’t mean you have to be the one footing the bill for their profit margins. Take a few of these simple steps today so you can start getting a better deal.

How to avoid an unexpected tax bill

The Australian Taxation Office (ATO) is giving taxpayers some simple ideas to help avoid an unexpected tax bill next tax time.

There are easy steps you can take right now to ensure the correct amount of tax is being put aside throughout the year. Such as:

• Let your employer know if you have a study or training support loan such as a HECS or HELP debt. Under the pay as you go (PAYG) withholding system, your employer will withhold an additional amount from your salary and wage income to cover your compulsory repayment.

• Check you are only claiming the tax-free threshold from one employer. Usually, you claim the tax-free threshold from the payer who pays you the highest salary or wage.

• Consider whether the Medicare Levy Surcharge may affect you this financial year. If you, your spouse and any dependent children (including newborns) don’t have an appropriate level of private patient hospital cover, and you earn above a certain income, you’ll have to pay a surcharge of up to 1.5 per cent of your total taxable income. The Medicare Levy Surcharge is not covered in tax withheld by your employer.

• Check your income tier is correct for your private health insurance rebate. By updating your income with your private health insurer, you ensure you don’t receive too much rebate, which would need to be repaid when you lodge.

• If you earn business or investment income, consider voluntarily entering PAYG installments and prepaying tax throughout the year to avoid a large bill at tax time. If you’re earning regular income through multiple sources, including a ‘side hustle’, prepaying your tax through PAYG installments will help you smooth out your cash flow and gives you the flexibility of spreading out the payments if you expect to owe tax on your income.

Remember that if you have multiple sources of income, you may end up with a tax bill as your combined income may push you into a different tax or study loan repayment bracket.

If you lodge your own tax return, the due date for payment is 21 November, regardless of when you lodge. If you are using a registered agent your due date may be later.

For taxpayers facing financial difficulties or hardship, reach out to the ATO or a registered tax professional early to discuss the support that is available including payment plan options.

Timing vs time in the market

It’s the age old debate about how to time your investment in the sharemarket. Investors agonise over when to invest to maximise returns.

But other investors reckon the key is always being invested so you don’t miss the perfect moment.

How about this historical data from business news network Bloomberg? It certainly makes you think:

• $US 10,000 fully invested in S&P 500 since 1973, now worth $US 380,000.

• If you missed the 10 best trading days over that 50 years: $US 170,000

• If you missed the 20 best trading days over that 50 years: $US 98,000

• If you missed the 60 best trading days over that 50 years: $US 18,000