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Ben Kingsley Blog post by Ben Kingsley

RBA Rate Decision – July 2016

Wow, to be a fly on the wall at the latest RBA Board Meeting. It would be fascinating as the conversation would have move to the political uncertainty that we currently got in federal politics. Really important to understand that this ‘circus’ that is happening in Canberra and this new structure of our government, the lower house and the upper house is effectively going to mean that we are not going to see a mandate for any policy deliveries that are going to make a big and significant difference to our economy. And that is obviously what the RBA is thinking about.

Now they didn’t pull the trigger to lower interest rates this month because they are waiting on a couple of things.The first thing that they want to see is the CPI Data for the second quarter, so for the end of June which comes out at the end of this month. The second thing is I think it’s pretty clear that the rating agencies around the world will more than likely drop our AAA credit rating. We saw the Brexit vote caused the United Kingdom’s AAA credit rating to be removed or downgraded and I suspect the political uncertainty that we are now going to “enjoy” and that’s not the right word, but we are now going to have to “experience” here in Australia is going to pull the trigger for those. Because the reality is, here’s what going to happen. Business confidence is going to now be smashed, consumer confidence is then going to follow, consumer spending is also going to slow down and we are going to have an economic slowdown because there wasn’t a clear mandate delivered. Now, I think people got a bit complacent around the fact that we have around 25 years of positive economic growth and they probably haven’t seen some tough times so maybe, this is the recession that we have to had for a second time. I do believe that obviously when you do bottom out and you bottom out hard, unemployment does grow and the economy really struggles, people then realise the importance of planning for the future. And then the tough decisions are allowed to get made in politics. Total tax reform, including the GST, bring it all into play. Making sure that we’ve got infrastructure projects that are going to lead us through to the next century, not just for today and tomorrow. Right now we’ve got this problem with politics and it’s this popular politics that is being played by the two big parties to stay in power without making those tough decisions. And that is being led by us, the voters who are making those decisions based on, “Oh, it’s ok. Things are alright.” So when they do bottom out, you’ll realise that the economy is the number one game in town and when you start playing with that, the flow on effect to not only health, to education, to all those other things, play out.

One thing for sure is you never tax your way to prosperity.

It’s a really important message. You don’t get economic growth when you keep raising taxes. What you need to do is grow the economy and then take a percentage of those as your economy grows and that’s your tax revenue. So, look forward for higher deficits and that also means that it is going to take us a lot longer to come back to surpluses. So, not a good outcome for the economy. No one got a clear agenda to take the nation forward and the circus that will be Canberra over the next three years is going to play out in all of our hip pocket with potentially lower prices for housing and job security is also going to be a question. So my message here and I know I’ve been taking some time to get to it but it’s really important message and that is, to all our Empower Wealth clients, “If it is to be, it is up to me”. Get rid of the noise that is playing in your head and start to think about looking after your own backyard because right now, this noise that is our political environment is toxic and it’s not healthy for anyone so you need to take charge of your circumstances. Get back to the basics. Make sure you’ve got a buffer, make sure your cash flow is in order and then if you do have job security, the time now is a really opportunistic time to get to look into the market over the next 6 to 18 months. This is the time when everything else is going down, you can see great opportunities and it does become those smart opportunities that are going to set you up, not for the next 6 months or 12 months but I’m talking about the next 6 years to 12 years and beyond. These are times when you make those great decisions and you stay the course and you look after your own backyard because the government is not going to be in a position to fund our health services as we live longer. That’s absolutely no doubt that they are not going to be able to afford this and when that happens, our pension is going to be in question. So superannuation is going to be a political part, sorry not a political part, an important part on how you are going to look after your future. So don’t get complacent around your super. Make sure you understand what you are investing in, make sure you understand the opportunity that the super is going to provide for you and of course, super is not going to be enough, you also need to make sure that you are doing other things. You are making your money work harder for you. So I haven’t spend a lot of time in talking about interest rates today. I’m speaking about this being a wake-up call. This is a moment in time where you need to make sure that you are thinking about your own backyard and say, “Alright, I’ll let that noise go on. Well, we won’t be a welfare state forever and I can’t rely on that so ultimately, I’m going to make a decision on looking after my best interest and my family’s best interest by investing and building that nest egg that is going to look after us into the future.”

Thanks for watching.

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