Australia’s economy is in good shape and came through the previous Global Financial Crisis (GFC) relatively unscathed. A little ‘belt tightening’ here and there and decreased profitability in investment portfolios – mostly superannuation funds – was the major impact. Unemployment remained low, in fact many employers had difficulty in recruiting staff, particularly in service industries and agricultural industries. So much so that the government changed the rules on ‘working visas’ and allowed many employers to recruit seasonal workers and workers in the hospitality industry from overseas on special visas for periods of up to six months. (Many of those workers were recruited by agencies within their own home countries on wage conditions that were ‘local’ rather than the award conditions that applied in Australia – cheap labour which really chuffed the union movement but pleased the employers. Many of those employees have returned for subsequent 6 monthly employment engagements following the compulsory 3 months 'cooling off' period in their home country!)
Australia is a country that has a compulsory superannuation contributions by employers. Generally, you're entitled to super guarantee contributions from an employer if you're between 18 and 69 years old (inclusive) and paid $450(AUS) or more (before tax) in a month. It doesn't matter whether you're full time, part time or casual, and it doesn't matter if you're a temporary resident of Australia.
If you're eligible for super guarantee contributions, at least every three months your employer must pay into your super account a minimum of 9% of your ordinary time earnings, up to the 'maximum contribution base'. These contributions are in addition to your salary or wages. Some employers contribute more than 9% to an employees superannuation as a recruitment incentive.
Superannuation contributions run into multi-trillions of capital funds. Those funds are invested in diverse financial portfolios and the rules for those investments are tightly controlled by the Australian Taxation Office. In a nutshell, the more profitable an institution that those funds are invested in the larger the return to the superannuation fund and, ultimately, the retirement fund for Australian employees.
It was the 'bottom line' earnings that bore the brunt of the last GFC in Australia and some funds even went into 'negative earnings'.
You cannot take those contributions out of the fund until you reach retirement age. Presently, you are unable to borrow against those accrued funds, although there is considerable pressure on the federal government to change this rule. Advocates for change are arguing for up to 20% of funds over a set balance – eg, over $250,000(AUS) – should be released to the contributors for use as an interest free home loan deposit and repaid into the fund as one would repay an ordinary mortgage loan. There is also pressure for working couples to be able to ‘pool funds’ into a joint superannuation account in an effort to allow low income earners to qualify from such a 'loan' incentive.
Why is all of this of any importance, you ask? What is its relevance?
Well, more big employers are poised to shed workers across Australia, adding to the recent wave of cuts in banking and in the struggling manufacturing and retail sectors. As the ANZ Bank yesterday flagged plans to slash 1000 positions, it emerged that Qantas was expected to announce job cuts on Thursday when it issues its half-year earnings.
Australian Bankers Association chief executive Steve Munchenberg defended interest rate hikes, warning no matter how angry people became, this was nothing compared to what a credit squeeze could do to Australia. Many in his industry feared Europe's financial crisis would get worse before recovering and if international investors saw Australian banks' profits coming down they would worry, which could trigger a significant shift in market sentiment. The banks blamed "intense pressure on margins associated with higher funding costs, lower consumer and business demand for financial services and increasing global regulation".
Banks have blamed the same factors - especially economic problems in Europe pushing up their funding costs - for lifting mortgage rates even though the Reserve Bank left the official cash rate unchanged last week.
Yesterday the Commonwealth and National Australia Bank followed ANZ and Westpac in raising their variable home loan rates. The Commonwealth raised its variable mortgage rates by 0.1 of a percentage point and NAB's rose by 0.09 of a percentage point.
Angry Australian home buyers are breaking with their banks at unprecedented rates. More than 50,000 home owners refinanced a record $12.6 billion of mortgages in the December quarter, as they voted with their feet to get a better deal.
Australia is about to be hit hard by a second global economic crisis and unlike the last time, recovery will be far from short and sweet, a global finance expert says. Canadian finance and energy analyst Nicole Foss said a combination of energy shortages, climate change, population growth, food insecurity and political unrest were brewing a ''perfect storm'' that would ruin society as we know it.
TOUGHEN UP: Canadian finance and energy analyst
Nicole Foss told farmers in Bungendore that the way
forward when the next economic crisis hits was to supply
at a local level. Photo: MELISSA ADAMS
Yesterday, she met a panel of local biofarming representatives to discuss how local communities could better distribute their resources. She discussed a need for residents to ''decentralise'' by focusing on grassroots initiatives such as community gardens and local water regeneration.
''All we need to do is simplify our society from the bottom up,'' she said. ''We need to get our expectations back in line, reduce our demand and attempt to supply what we need at a local level.''
NSW State government Treasurer, Mike Baird warned that the lesson to draw from the debt crisis plaguing the euro zone was that “… market forces would punish reckless fiscal management. …”
The word on the street around our financial districts is – “Get Ready – prepare for the next onslaught, A second GFC is about to hit the world and it will make the previous one look like a picnic. It will be worse than the 1930’s depression!”