RBA Rate Decision – May 2014

Hello, Ben Kingsley here and today the RBA met and release their cash right decision. As anticipated by many, the cash rate was kept on hold at 2.5 percent. In this month I want to talk to you about the big pending discussions which is dominating the financial sector at the moment and that is the budget. Next Tuesday night’s budget and what that means to us in terms of our household from a federal point of view.

It’s an important budget, it’s Joe Hockey first budget and we are seeing a lot a commentary and a lot over media work being done by the Liberal Party to ease the pain. It’s going to be a tough budget.

We also saw last week, the Commission of Audit released their report to the government about where they can save money so their job was to to go and save literally tens of billions of dollars by the 2020 – 2023 range and they have put the recommendations forward.

Now in addition to that the federal government is also announce a further revenue review or a tax review because that’s how they raise their revenues.

So that, coupled with some really tough decisions that we’re being told about in next week’s budget is really starting to penetrate household in terms of how they start thinking about their money and how well they feel financially. And that’s a sentiment thing. Last month I talked to you; I thought sentiment was up and confidence was up. We saw the sentiment surveys and business survey is starting to show signs of improvement but with these types of big decisions where we are talking about potential tax hikes in and some about services and benefits and income flowing into the house being affected; that can have a sentiment shift.

Now prior to that, I say I was confident of a rate rise to maybe later this year, not a huge rate rise maybe 25-50 basis points by the end of this year. If we take this sentiment on and we become more and more conservative we might see a flow-on effect in terms of our retail sales and how we’re spending our money and how cautious we are. And that caution is a change in sentiment as opposed to we were starting to feel more confident, we were certainly getting out there and spending more. That’s been evident in the data around lending, in terms of finance approval. They are at the highest point in the last five years. These are important important points to understand.

So let’s recap. We’ve got a big budget coming up next week and we need to digest those information because all the recommendations,committees and these reports; at the moment are ideas. They are ideas and think tanks. The government of the day needs to have the political will to see the longer-term and we saw Joe Hockey again last week talked about he wanting to increase the pension age in 2035. It’s a gutsy call.

It’s something that I’ve been on for a long time. There is no way known where the pension age was going to stay at 65 with an aging population and the cost of health care and the way we’re looking after people. Joe is right. The year of entitlement is over.

And that’s what our business is all about. We’re about not having to worry about pensions and not having to worry about somebody else providing us with our future income. You invest in property and you invest in yourself and you create wealth as a means to support yourself. We don’t want to be at the beck and call of government in terms of what our clients are able to retire on and that’s a big message for us and that’s my message for this month. Thanks for watching.

 

(Those people watching/reading this should be reminded this is an opinion comment by Ben Kingsley, and should not be used when making decision about financial matters without seeking further clarification and understanding of your own personal circumstances. This article is not advice you should rely upon. I recommend you speak to one of our licensed professionals before taking any action with your financial affairs.)