What does an ALP government mean for individual investors?

Hi Paul. What are the assumptions here? And of course caps impose a limit for the more wealthy.

Having children in the SMSF is not without risks and they can be significant. Assuming a lower risk two member SMSF when a member dies the surviving member can comute their pension back to accumulation to free up cap space for the deceased pension benefit up to the cap (for now). Any amount over this is forced out of the Super environment.

When the last surviving SMSF member dies all money is forced out of the SMSF then the tax deductible component is generally taxed at 17% in the hands of the beneficiaries.

I admit to being rusty in this area as it doesn’t impact us but curious to how you see a SMSF as a great vehicle for inter-generational wealth transfer?

I’m greedy by nature but tend to see Super as a retirement income stream which ideally should be drawn down leaving a minimal amount to beneficiaries other than the surviving partner when deceased. So in regard to inter-generational wealth transfer perhaps given the constant changes to super other structures might be more appropriate?

 

We are discussing ALP policy.

Not law yet, may never be .

 

What’s often forgotten here is that the young have plentiful human capital on their side when adverse times arise. The edlerly don’t! No remaining human capital to draw on, no time left to compensate for adverse changes. The resilience of youth and risk taking is no longer there. Essentially as an aging retiree you’re stuffed when the rules are changed overnight without grandfathering.

 

I would imagine that there are probably quite a few older retired Australians that might be having heart to heart conversations with the kids and grand-kids, and having to explain that because they might have to start drawing down on more of their super due to a tax grabbing government , the houses that was promised to the kids or grand kids might have to be sold off.

 

Yep, the ALP’s Greatest Treasurer (Paul Keating) did that to us.

Stopped our SMSF from buying assets from its beneficiaries and the change was retrospective .

 

I think you're generalising. You're not stuffed, you just adapt, plans change e.g maybe you might use pension, maybe you won't be able to leave $$$$$ to your kids, maybe you think about downsizing, etc. Hearing retired people whinge about change, is pretty annoying because the only thing anyone can guarantee is change is going to happen whether you like it or not. Probably a different perspective to one you're used to hearing.

 

True, I am generalising. Sure in our case we can adapt as we have the knowledge and wealth to do it. It’s the poor buggers caught in the middle as usual that suffer the most and who I feel sorry for.

 

Apart from scrapping the tax act and starting all over again - yeah, as if - I haven't a clue what the solution is.

It appears to be normal when changes or potential changes occur we tend to look at it from our individual perspective and how it affects us - and then apply that view to our cohort. If it's an adverse impact it's viewed as unfair while others may consider it a reasonable change. Call that greed, envy, outrage or whatever you like.

Those who have the wherewithal or the inclination will be off to get advice on how to get around it and reduce the impost on them while others won't for various reasons including their specific financial circumstances or lack of any. And that is a whole other discussion on the concept of fairness.

When or if the legislation is introduced, I'll do what many others will do. Off to get - and pay for (deductible or non-deductible ) - appropriate advice on a suitable approach.

 

Don’t forget his famous quote of 1990 when he was Treasurer:

“The recession we had to have."​

People forget what it was like (or weren’t even born) at this time. As a reminder, mortgage interest rate went to 17%+!!!! on Keating’s watch.

In the 1980’s, we bought our 3rd PPOR. Interest rates were about 9% at the time. I did my risk analysis based on rates going 12% (possible), all the way to 15% (impossible or so I thought). When they went above 17% in 1990’s, that really, really hurt us. And a lot of other people including my in-laws (who were forced into bankruptcy).

It wasn’t a recession we had to have, Paul.

In the same year as Paul’s quote, we went to Fiji for a holiday. Westpac Fiji had loan interest rates of 6% (remember, Oz was 17%+) and I famously said to the wife “We will NEVER see rates at 6%”.

Since then we have received rates of 6% on our cash and are currently paying <4% on our loans.

Goes to show that I am just as smart as our Greatest Treasurer. That is, we both have no idea .

Do you really think Chris Bowen has a better idea?

 

Its funny how we forget things over time .
It was only a few years prior to interest rates being at 17% there were sitting around 13% , and they also rose to 15% ?? on another occasion without crashing the economy.
What made 89 different was after the 1987 stock market crashed,everone bought property and Perth , Sydney and Melbourne with some really big increases in property as interest rates suddenly dropped by 2-3%.
Then the unthinkable happened as commodity prices tumbled as Japan (our biggest iron ore buyer at the time) bubble burst, and the days of cheap money came to an end.
Then the AUD crumbled as balance of trade figures went into big deficits..
It was also a good time to finally kill off high inflation as there was big changes to the labour market.
What people really forget is that interest rates rose 70% from their previous high prior to the stock market crash of 87.
Thats the equivalent of interest rates suddenly shooting up to 7.5% in todays numbers

 

... and who was in government for all of those turbulent times?

Yep, the ALP .

I was in my 30’s, with a young family, trying to get ahead, ...

The ALP was definitely of no help .

Thank God, they were turfed our in the mid 90’s and I was able to get ahead.

Can history repeat itself? Every chance.

Both of my kids are now in their 30’s, both with young families, both trying to get ahead, ...

I truly hope for their sake (and the nation’s) that history doesn’t repeat. I am worried that it will.

Yeah, it is REALLY funny how we forget things over time. NOT.

I believe if interest rates rise to 7.5%, a lot of people will “go to the wall”.

Bit like the 80’s. Sounds like history might repeat itself .

 

I understand the difficulty of dealing with change particularly as we age. This is human nature ; biological. I am sympathetic to @Nodrog views as they have held up their end of the social contract. Now the game changes. You can debate policy which is a separate matter.

Personally, a top marginal rate of 49.5% at AUD 180k, which has not even been adjusted for inflation in a decade is getting close to punitive and discourages risk which leads to economic growth. We should be looking at tax cuts across the board and far more effective use of resources....the dog whistling around class in a country like Oz is ridiculous. Social mobility is a non issue here. Having enough mongrel to have a go often is. NZ has a top rate of what, 33% or so? And they do just fine.

 

Menzies era top MTR applied at over $400k in today’s money.

 

All that means is that property is overpriced ? if you cannot afford repayments at 7.5%
But as we are finding out , much of our problems come back , again to really slack lending practices(like the 80s) , sudden drops in interest rates that causes bubbles in asset prices, a government that encouraged people with very generous tax breaks, and banks writing out lots of I/O loans to speculate on non productive asset prices that allowed many investors to inflate the market even further.
Some are even surprised with the sudden drops in the Sydney and Melbourne markets, but IO loans allowed many to spend more due to the fact their monthly repayments were significantly lower.

 

To be fair it was the RBA that dithered and had to go hard to stop inflation. Once it was broken we enjoy RBA that kept it in check. Howard rode rivers of ore and made irresponsible tax cuts that out in place structural deficit problems.

 

Also remember Howard ran some terrible figures as treasury

 

I personally would love interest rates to go to 7.5%. I am a self-funded retiree and this would mean that the income from 15% of my retirement portfolio would go up 5 times.

Might destroy the country tho.

Some learnt the rules and made the most of them; others didn’t.

This has been going on for centuries. Same thing will happen in the future. It is called human nature and survival.

I love I/O loans, especially with Offsets that I can fully chocked.

To me, I/O loans are s bit like cars. Some learn how to drive them safely, some don’t. It is a personal choice.

 

Over my 40+ years as a voter, I have voted ALP at times and LNP at others.

In my life experience, the LNP may be bad BUT the ALP is worst.

 

Banks make money when they lend. Its a simple formula.

Its even simpler when they lend against resi property and people have a 20% deposit. They are covered.

The 80's was a little over the top with respect to lending practices. Someone finally worked out if the customer has enough up cash equity, and you can service, you should be able to borrow.

Good for the bank in growing its loan book. Good for the customer being able to buy a home.