Record breaking Australian economy

Australia is expected to surpass the Netherlands as the longest time without entering a recession; the record currently stands at 26.5 years. The Australian economy has been on an extraordinary run and could become a record breaker at the end of 2017. The annual survey of Australian Business Economists has revealed that the economy will continue to improve in 2017. The Aussie has enjoyed continued strength with relatively high interest rates in comparison to the rest of the developed world. Good economic performance invites an argument for a rate hike in Australia. However, unless there is an improvement in the current low levels of inflation it’s very unlikely.


Australian Unemployment Data

The Australian Unemployment data revealed a drop of 0.1% in January from the previous month which was better than expected.  An increase of 13,500 thousand jobs which was 3,500 better than the expected 10,000 is a positive sign for the economy. There was a slight rally for the Aussie following the news with the GBP/AUD rate dropping to1.61 for the first time in 1 month.


Chinese foreign direct investment

The new investment figures revealed by China are significantly lower than last year. There is a 9.2% decrease in the amount of investment from foreign countries into Chinese businesses. Whilst this data may not have an adverse effect on the Aussie, a poor performing China as Australia’s largest trading partner could have some impact. Weaker Chinese investments may prompt AUD weakness in the short term however, 3 decades of uninterrupted growth of the Australian economy, makes it a safer choice amongst the commodity currencies.


A new accounting standard is accessed by banks to increase the level of provisions for bad and doubtful debts and make that number more volatile, after the corporate regulator surprised the market by calling for early disclosure of the impact of the new rule.

The new standard moves from an ‘incurred loss’ to an ‘expected loss’ model. Experts say this will make provisions harder to determine and more volatile year-to-year if the economy struggles. An ‘expected loss’ approach is forward looking. It will requires banks to calculate the provision at the time a loan is written. This is carried for 12 months initially, but for the life of the loan if credit conditions get worse. The current standard only requires provisions to be raised when conditions start to deteriorate.

Under the new standard, “there will be an increase in provisions, and the number will be more sensitive to changes in the economy.”

Analysts, closely watch the level of bad debts as a proportion of total loans and investors because as banks increase loan provisions, profit reported falls.

When bad debts ultimately rise from their historic lows, reported provisions will be determined by a new accounting standard set to be introduced in 2018 – known as IFRS 9 internationally, or AASB 9 in Australia. This has been part of the global regulatory response to the financial crisis, when banks around the world raised provisions by too little, too late.
The new standard is starting from January 1, 2018, the Australian Securities and Investments Commission said in December that companies would “need to disclose the impacts of the new standards in 31 December 2016 financial reports”.

Planning for the new standards and informing investors and other financial report users of the impact on reported results is highly essential, said ASIC commissioner John Price.

National Australia Bank is the only big bank to have adopted AASB 9 – which saw its collective provision increase by $725 million in 2015.

Making disclosures this year of the impact of the new standard would be tough for the other banks, Mr Lichtenstein said, given it required them to know the level of borrower risk at the time a loan was made, in order to monitor changes to that borrowers’ ability to pay – data that might not be at hand.

“If a loan was originated five years ago, many banks don’t have the credit quality at that time, as they don’t necessarily keep the full history. But you need that under the standard,” he said. AASB 9 also requires economic forecasts to be incorporated into provisioning. But “that’s a difficult exercise, with a lot of moving parts,” he said.


The International Monetary Fund’s top economic adviser to Australia recommends that the Reserve Bank consider publishing its projected path for interest rates so that financial markets have a better understanding of the outlook for monetary policy and inflation.

Thomas Helbling also said the federal government should set a long-term debt target after years of repeatedly missing budget forecasts.

At the same time, Mr Helbling says the Australian economy has performed “remarkably” well since the mining investment bust of recent years.

A major external risk, as outlined in the IMF’s Article IV review of Australia, is a “hard landing” in China, which could interact with or trigger a sharp correction in record high house prices.


Australian households hold a relatively large amount of debt compared to other developed nations, which has been considered a threat to financial stability by some. The lower-income households that are under debt, tend to have quite a lot of debt relative to their incomes, overall, adding potential stress to their pockets.

Though there are pockets of stress where the lower income groups had to take on a lot of debt to buy a home. The bulk of mortgage debt in Australia is held by higher-income households, who are best able to service the debts.

Reserve Bank of Australia (RBA) Assistant Governor Luci Ellis stated that higher-income households were not only likely to own their own house but also have other properties as investments.

“This is why we say that most of the mortgage debt in Australia has been borrowed by those most able to service it,” Ellis told a housing conference in Melbourne.


However, The Reserve Bank of Australia might want to call the debt counsellors soon to seek feedback on the health of the economy. Homeowners, consumers and property investors around Australia are making more calls to financial helplines as three warning signs back up the spike in demand:

  • Mortgage arrears are creeping up,
  • Lenders’ bad debt provisions have increased
  • Personal insolvencies are near an all-time high.

There are more people who have got mortgages that they can’t afford to pay. Australia’s households are among the worlds most-indebted after being on more than $1 trillion of mortgages amid a housing boom that’s fizzled out in parts of the country, but still roaring in Sydney and Melbourne.

While most are capably servicing their debts, a worsening of credit metrics has seen executives and analysts take a more cautious tone. Australians’ private debt has soared to 187 per cent of their income, from about 70 per cent in the early 1990s, encouraged by low interest rates. While most households are managing these levels of debt, many feel they are closer to their borrowing capacity than they once were.


Knocking out the wind

“There’s so much household debt that a couple of rate hikes here would completely knock the wind out of the housing market, and a lot of people would be impacted by it,” said Gareth Aird, economist at Commonwealth Bank of Australia, the nation’s largest lender.
While most borrowers in Sydney have plenty of equity in their homes as prices keep rising, that’s not the case elsewhere. In the mining state of Western Australia, which is struggling to cope with the end of an investment boom, more than 10 per cent of mortgage holders have little or no equity buffer, according to a Roy Morgan report last week. In South Australia and Queensland, 8 per cent and 7.2 per cent of borrowers respectively are in negative equity.

Lenders are watching these indicators as closely as the RBA. After a seven year bull-run, annual cash earnings at Australia’s big four banks fell last year for the first time since the financial crisis, said PricewaterhouseCoopers. At the same time, their bad debt expenses which encompass both business and consumer lending – jumped 39 per cent to $5.1 billion, the highest since 2012.

But the hardest indicator to track may be borrowers worried about making their next repayment. Counsellors at the National Debt Helpline deal with such problems and are now even getting calls from property investors. In the last quarter of 2016, phone calls to the service jumped 12 per cent on the previous year to an average 11,079 per month, that’s double the rate of increase of the same period a year earlier.

“Pockets of stress appear manageable in 2017 given the prevailing low interest rate environment,” Citigroup banking analyst Craig Williams said in a January report.


The Federal Court rejected Uber’s argument that its drivers should not have to pay GST because it is not providing “taxi travel” and ordered Uber pay the Tax Office’s legal costs.

The court case hinged on whether Uber was providing “taxi travel” for the purposes of the GST legislation. Generally businesses with less than $75,000 turnover do not need to collect GST but this rule does not apply to taxis.

More than 50,000 Uber drivers in Australia will have to pay 10 per cent GST from the first dollar they earn after the ridesharing app lost an 18-month battle with the Australian Tax Office.

The decision confirms Uber drivers will have to pay 10 per cent GST on top of the 25 per cent commission to Uber regardless of how much they earn.

Uber sued the Australian Tax Office in July 2015 after the Tax Office declared from August 1, 2015, Uber drivers must pay GST because they are providing a modern equivalent of taxi service.


If Uber was classified as a provider of “taxi travel” its drivers would also have to pay GST even if they earn less than $75,000 a year.

Justice John Griffith of the Federal Court said the phrase “taxi travel” should be “construed broadly and not technically” and accepted the Tax Office’s argument the ordinary meaning of the word “taxi” is a “vehicle available for hire by the public and which transports a passenger at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a taxi meter”.

He said the fact Uber cars did not have taxi meters installed them was irrelevant because it was not essential to the ordinary meaning of the word “taxi”.

Uber spokeswoman said the company is disappointed with the decision and will provide its drivers with more information “as soon as we can”. The Taxi Office spokeswoman said: “It is important that Uber and other ride-sourcing providers now work co-operatively with us to help assist their drivers to understand and comply with their tax obligations and to claim their entitlements.”

Uber argued its drivers are not providing “taxi travel” because taxis can pick up passengers without booking using the rank and hail system but Uber cannot.

But the Tax Office quoted a number of dictionary definitions to argue the term taxi should include ride sharing services.

Although Uber drivers have been required to register for GST since August 2015, Ride Share Drivers’ Association of Australia spokesman said some drivers have chosen not to register until the court decision. RSDAA represents over 700 Uber drivers.

He said the decision was “disappointing news for drivers who are already being pinched by Uber’s predatory pricing model.”

But NSW Taxi Council chief executive Roy Wakelin-King said “the notion that somehow Uber is magically different to the taxi industry is a myth” because taxis and ridesharing services such as Uber do the same job.

K & L Gates tax partner Matt Cridland said the decision means the government will have to make a policy decision as to whether the $75,000 exemption should apply to Uber and taxi drivers and tax laws need to evolve to deal with technological developments.

There will be UberX drivers who are casual drivers who will need to pay GST, as opposed to professional drivers who attend to it full-time for their living.



Samsung and Apple’s market share is competing strongly with their Chinese smartphone competitor Huawei, which is rising fast to challenge them.  Huawei has grown more than 25 percent last year as compared to its giant competitors, who have appeared to stagnate.

According to Gartner, Huawei’s global sales were up 26.7 percent for full-year 2016, while Samsung and Apple experienced sales declines of 4.3 percent.

Sales growth in turn saw the Chinese company push its smartphone market share to 8.9 percent, up from the previous period’s 7.3 percent. Samsung’s full-year market share fell to 20.5 percent while Apple’s influence dropped from 15.9 percent to 14.4 percent.

In a tightening smartphone race, the fourth quarter of 2016 represented the closest ever between Samsung and Apple, with Samsung’s Galaxy Note7 battery fire drama allowing Apple to overtake the South Korean manufacturer for the first time since Q4 2014.

Respective fourth quarter results for the three vendors saw Apple at 17.9 percent market share, Samsung at 17.6 percent market share and Huawei at 9.5 percent market share.

Huawei has big ambitions, setting itself the goal in November last year to overtake Apple in two years.​ Despite the substantial gap between Huawei and Apple and Samsung, the Chinese vendor is now largely considered to be the main competitor of the two giants.

Huawei’s expansion into premium smartphones has seen it shrink the gap between it and Samsung during Q4 2016, a difference of 36 million units. In the same period last year, the gap between the two vendors was more than 50 million units.

Huawei, together with Oppo and BBK Communication, the next biggest makers in the global smartphone market, accounted for 21.3 percent of smartphones sold in Q4 2016.

Gartner said those brands, along with ZTE, Xiaomi and Lenovo were “aggressively expanding into markets outside China, where they will continue to disrupt the top smartphone players in 2017”.


Telstra said the ACCC’s mandate had resulted in a $400 million hit to revenue in the past six months. The consumer watchdog set a mandate early last year for telco’s to reduce termination rates for calls from 3.6 cents per minute to 1.7 cents, and messages from 7.5 cents to 0.03 cents.

Telstra is the latest telco to pin declining revenue and net profit on the Australian Competition and Consumer Commission’s decision to cut mobile call and SMS termination rates last year.

The telco giant announced revenue for the first half of the 2017 financial year had slipped by nearly one percent to $13.7 billion. Net profit fell 14 percent to $1.8 billion in the same six-month period.

Australia’s next largest telcos, Optus and Vodafone have chimed up in the past about their own financial burden from the mandate. The ACCC also ordered the telcos to reduce backhaul prices last year, which cut another $38 million from Telstra’s revenue.

Telstra said that revenue would have grown by two percent if it wasn’t for the ACCC’s ruling.

Despite the financial hit, mobile revenue was far and away the biggest earner in Telstra’s technology empire, which also includes fixed services and products, data and IP, IT services, global connectivity, media and NBN commercial works.

Mobile revenue fell nine percent, staying just above $5 billion during the half-year despite adding 200,000 new retail mobile customers. Telstra blamed the slide on increased sharing through handsets and declines in hardware sales.


You have limited official channels to fix your phone, in case it breaks, with manufacturers tightly controlling the companies that are authorised to tinker with handsets.

In the US, legislation has been proposed in eight states that would force companies to sell spare parts to the public and private repair shops, as well as making service manuals readily available.

The first state to have a hearing date scheduled is Nebraska, However, Apple is not taking this threat.  Allegedly, the industry’s argument will hinge on the idea that fixing smartphones is dangerous, and could cause lithium ion batteries to catch fire.

The “right to repair” bills  which have also been introduced in New York, Minnesota, Massachusetts, Kansas, Illinois and Tennessee are being lobbied for by, which has had to deal with similar arguments about safety in the past.’s executive director, claims that industry lobbyists warned Minnesota lawmakers last year that broken glass could cut fingers of untrained members of the public who try to replace cracked screens.

“They should want to give people as much information about how to deal with a hazardous thing as they can,” Gordon-Byrne told Motherboard. “If they’re concerned about exploding batteries, put warning labels on them and tell consumers how to replace them safely.”

Any change to the law would force Apple to treat repairs in a markedly different way to how they do now. Currently, Apple has an “authorised service provider program” where third parties have to let the company view their financial records, promote AppleCare and to ensure that “high standards are consistently met.”


Global technology distributor Avnet Technology Solutions has been chosen as Veritas’s authorised distributor for Australia. Avnet partners with Veritas in the US, Europe and Asia-Pacific and will now be able to offer Australian partners the same solutions for data collection, protection and data analysis.

Darren Adams, vice president and general manager at Avnet Technology Solutions Australia and New Zealand said that Veritas aligned with Avnet’s solutions specialist strategy.

More than 450 solution specialists were dedicated to empower the channel to capitalise on cloud in August 2016, offering cognitive computing, data analytics, internet of things, mobility, security and enterprise networking.

“The relationship with Veritas further enables Avnet to drive scale and profitability for our partners whilst helping end customers accelerate digital transformations within their organizations,” Adams said. “We are confident this comprehensive distribution mix will further add value across the breadth of services for both existing and new partners.”

Avnet becomes Veritas’ second distributor for Australia, joining Dicker Data, who became a distributor in August 2015.



After a busy 2016, SMSF trustees should review their funds with their advisers and should check how the legislative and regulatory changes of 2016 affect them.

With the countdown to 30 June underway, what areas should advisers and trustees focus on ahead of the financial year-end?

A raft of government changes and policy flip-flops keeps the industry on its toes. Trustees will be hoping for no major budget surprises in 2017, after the federal government was forced to back down on budget changes last year.

The backflip included replacing the proposed $500,000 lifetime non-concessional contributions cap with an annual $100,000 limit, and barring individuals with a super balance exceeding $1.6 million from making further non-concessional contributions from 1 July 2017.

This year, the Australian Taxation Office (ATO) has warned SMSF advisers and trustees about the need to comply with arms-length terms concerning limited recourse borrowing arrangements (LRBAs) by 31 January, or terminate the fund if necessary.

The ATO has previously warned that SMSFs will face a full evaluation if incorrectly-structured LRBAs are not rectified by the financial year-end.

Meanwhile, for those likely to have super balances at or over $1.6 million by 1 July, there are plenty of issues to consider, including whether to commute the excess from pension back to accumulation phase, or withdraw the excess from super and invest it outside super in a less tax-friendly environment.

Under the changes, trustees have a grace period where amounts up to $100,000 over the cap will not incur the excess transfer balance tax, provided the breach is rectified within six months. This does not give trustees much time to finalise their 2017 accounts to determine their 30 June 2017 pension balances.

Changes to the contributions cap may also require a review of salary sacrificing arrangements, while time is fast running out for those needing to make any extra contributions to satisfy LRBA obligations.

Also, from 1 July, access to the three-year bring forward rule for non-concessional contributions will be restricted not only by the individual’s age, but also by how close their total super balance is to $1.6 million at the most recent financial year-end before the contribution year.

Retirees should claim capital gains tax (CGT) relief on any investments in their pension, which will become taxable from 1 July. Claiming CGT relief, can also become more complex where a fund has two members or more.

After the major legislative and regulatory changes of 2016, SMSF trustees and advisers will be hoping for a more stable year in 2017 to digest the new rules.


Despite the Australian exchange-traded fund (ETF) sector’s slow start to the year, SMSF investors are on the hunt for unique exposures within traditional asset classes and are also showing a preference for rules-based ETFs.


During the first monthly SPDR Bites briefing for 2017, SSGA SPDR ETFs Asia-Pacific head of research and strategy Matthew Arnold labelled January a lacklustre month for ETF flows in Australia with $60 million in outflows across the industry.

“Looking at the categories that saw most of the action, we had money coming out of Australian equity ETFs, and money going into global equity, money market and fixed income ETFs,” Arnold said yesterday.

“These are very small numbers in the context of the ETF industry, so it’s difficult to take too much away from this except that it was a pretty lacklustre start to the year.”

Commenting on whether SMSF flows into ETFs were waning, particularly amid trustees’ growing interest in new and emerging investment structures such as peer-to-peer lending, SSGA head of SPDR ETFs Shaun Parkin told selfmanagedsuper: “The central theme that we’re finding with SMSF clients is that there’s less traditional vehicles being used at the moment and the reason is pretty clear, which is that they’re looking for some consistent income.

“In particular for last year, it was about [finding] consistency of income, however, that looks like it might be within an ETF or it might be P2P lending or something else; that’s absolutely a theme.”

Parkin said despite last month’s outflows, SMSF money was not pouring out of SSGA’s investor base.

“Most of our ETFs are used around a strategic asset allocation construct, so our SMSF clients tend to bucket them and we see consistent flows across them,” he noted.

“But what we’re starting to see is a big request for information, and this may just be on the data side, for what the distribution has done relatively to, say, the moving capital.

“So as capital markets have moved, has that distribution stayed relatively the same, which is the central tenet of the more rules-based ETFs.

“Obviously domestic equities pay good distributions and the franking credits are still very important, so I wouldn’t say there has been a big move away from ETFs by our SMSF client base, but more that they’re targeting specific types of exposures and preferring rules-based ETFs in particular.”


The SMSF Association and Australian Tax Office (ATO) have announced a three-year strategic partnership, effective 15 February 2017.

In a statement of intent released today, the Association and ATO outlined their intentions to work together to ensure effective regulation and integrity of the SMSF sector.

SMSF Association Managing Director/CEO Andrea Slattery says the partnership is a landmark agreement between the key regulator in the SMSF sector and the recognised peak body.

“The goals are to work in partnership to improve and maintain the integrity and professionalism of the SMSF sector and focus on enhancing industry knowledge and competency, with trustees being a major target,” Mrs. Slattery says.

“We are also committed to work together to be able to influence the right behaviour.”

“What this means in practice will be developing the knowledge and competency of SMSF professionals and trustees; undertaking shared research and knowledge projects; actively seeking opportunities for joint and complementary communication; and improving efficiency in the dealings between the SMSF sector, the regulator and government.”

“The collaboration of the Association and ATO will ensure the delivery of high-quality education and information services for SMSF trustees and the wider financial services sector.” “The support and commitment of the ATO to the SMSF sector will further enable us to implement our vision of allowing Australians to take greater control of their own retirement destiny through a sustainable SMSF community.”

The Commissioner of Taxation, Chris Jordan, AO, says productive partnerships with industry bodies such as the SMSF Association are key to the ATO being a leading tax and superannuation administration.  “This is a clear example of the way we work collaboratively with industry to ensure community trust and confidence in the tax and superannuation systems.”


Upcoming Dates


Due Dates  
28-Feb-17 December quarterly BAS due
28-Feb-17 December quarter super guarantee charge statement due
21-Mar-17 February monthly BAS due
21-Apr-17 March monthly BAS due