Financial Planning Industry – Global Trends

This is why Asian students choose our universities

International students The sector has rebounded to pre-2020 levels, with flexibility of course content key to attracting visitors, writes Michael Smith in Tokyo.

Janine Wan was still in high school when she decided to move from Singapore to finish her education in Australia.

Wan, who is now 25, jokes about getting into trouble for asking too many questions; she wanted a higher education system that was less rigid where she could challenge her teachers.

‘‘I was always getting into trouble at school in Singapore because I am the type of person who likes asking a billion questions. The Singapore system can be quite structured in that way, so it wasn’t best suited for me,’’ she says.

‘‘It was really refreshing moving to Australia and being able to ask those questions and feeling supported in that way.’’

The boom in international students has been a success story for the Australian university sector, making up 27 per cent of total revenue.

Despite the disruption from COVID-19, the numbers have now bounced back. International student numbers are now greater than they were in 2019, with 655,000 student visa holders as of July – 200,000 more than at the beginning of 2023.

The mix of students has also shifted. Chinese students, who accounted for one in every four new enrolments in 2019, have fallen by 37 per cent. Indian student enrolments, particularly in the vocational education sector, are up by the same amount.

Wan, who completed a law degree at Canberra’s Australian National University in 2019 and now works as a corporate lawyer for King & Wood Mallesons (KWM) in Singapore, had also heard Australian universities were more flexible than in other countries, and courses could be tailored to the individual.

This was important for Wan who had several potential career paths at the time and wanted to be able to pursue all her options. Before studying law, she initially wanted to be a biological anthropologist.

Wan moved to Melbourne to finish high school as a boarding student with the aim of eventually ending up at an Australian university. She completed years 10, 11 and 12 at Presbyterian Ladies’ College in Melbourne.

‘‘There were definitely challenges moving at that age, but I enjoyed it. I have always been independent,’’ she says.

Wan chose Australia over the United Kingdom not only because of its proximity to Singapore but also the flexibility of the education system, which allows high school students to take a university class. Wan completed two history courses at Melbourne University while still in school.

‘‘The reason why I considered moving to Australia for the education system was because I heard it was a lot more flexible and a lot more tailored to the individual with a focus on critical analysis.’’

After finishing year 12, Wan chose ANU because of its anthropology program and because she could do a law degree while studying other subjects as well. ANU ranks third overall in The Australian Financial Review’s Best Universities Ranking. ‘‘There was a lot of flexibility to explore your broader interests which is quite unique,’’ she says.

‘‘The prestige of ANU was definitely attractive. The approach is more intimate and the learning experience, I felt like I could get a lot of face time with the professors and really dig into what you were studying.’’

Wan made friends with students from all over the world at ANU and says the diversity was a major positive. ‘‘I have been lucky to be in very multicultural environments both in my Melbourne school and in Canberra. You get exposed to a lot of different experiences and opinions.’’

In the end, Wan chose law over anthropology and completed a four-year law degree at the end of 2019. She recalls the bushfires sweeping through Australia that summer and her sadness at leaving behind a close-knit group of friends in Canberra.

Asked if there were any negatives about her experience, she says the only issue was that international students looking to work in Australia after graduating could find it hard to secure a job.

‘‘The reality is it can be quite hard in certain industries looking for work in Australia as an international student. Some places don’t consider international students. That is something a lot of people struggle with,’’ she says.

Wan did not have any trouble finding work. She decided to move back to Singapore, partly for family but also for the huge opportunities working in Asia. She found a job with a big local law firm in Singapore and moved back in April 2020 just as COVID-19 hit.

She says some of her seniors at the firm told her Australian universities were considered inferior to those in the United Kingdom, but she saw no evidence of that when she was interviewing for jobs. Two years ago, she joined KWM where she is now an associate on the firm’s mergers and acquisitions team.

KWM already employed Australian graduates so she didn’t have a problem. ‘‘Singapore and Australia have put a lot of work into partnerships and university connections, I didn’t feel at all I was disadvantaged.’’

Employers in Asia say they like graduates from Australian universities despite some tough competition from institutions in the United States, the UK and Canada.

‘‘All four, including Australia, are still in the top bucket,’’ says Robert Quinlivan, who sits on the board of the Australian Chamber of Commerce in Hong Kong, and knows many of the city’s employers. ‘‘But there are some questions around the US because of safety/ guns etc. Canada has some visa benefits which are attractive for people post-grad.

‘‘Australia has the benefit of being close and [students from there] tend to be able to get jobs in Hong Kong.

‘‘I have three children at Australian universities at the moment, so my sense is that the overall proposition is pretty good.’’

While Australian universities compete with popular Hong Kong universities such as the University of Hong Kong and the Hong Kong University of Science and Technology, wealthier parents in mainland China prefer to send their children overseas.

A breakdown in China-Australia diplomatic relations in 2019 triggered a wave of negative stories about safety in Australia in the Chinese media, putting some parents off. However, Australia is back in favour with the Chinese government and media, although a slowing economy means parents have less money to send their children overseas.

This year’s unexpected spike in international student numbers has prompted backbench criticism of policies that make it easier for ‘‘lower quality’’ foreign university students to stay in the country and to work.

A report from the Grattan Institute in October, Graduates in Limbo: international student visa pathways after graduation, warned Australia offered international students more generous rights to stay and work after they graduated than other countries. It argued this gave them ‘‘false hope’’ to graduates who would never gain permanent residency, and threatened Australia’s reputation as a destination for tertiary study.

It said temporary graduate visa-holders in Australia would almost double to about 370,000 by 2030.

For Hong Kong-born Natalie Chan, the main attraction of studying in Australia was the multicultural atmosphere.

‘‘I liked the multiculturalism which creates a broader way of thinking, the friendly vibe of the university and the staff who were super supportive of foreign students, although this didn’t really make up for the pricey tuition fee,’’ says Chan, 30, who studied a master of communications at Melbourne’s RMIT university from 2018.

She liked an environment which she says allowed students to be creative and act like themselves compared to Hong Kong which was more constrained.

Now back in Hong Kong, Chan says the advantages of studying in Australia or other English-speaking countries is that employers like overseas graduates and their language skills.

She says RMIT has a good reputation in creative industries and offered opportunities to network with the local industry which helps students find jobs after graduating. AFR

This is why Asian students choose our universities2023-11-22T12:55:48+11:00

Inflation rate highest of advanced economies

Australia’s headline inflation rate is the highest among the world’s largest advanced economies, prompting economists to warn the Reserve Bank may need to deliver further interest rate rises to quash persistent price pressures.

Australia’s consumer price index increased 5.4 per cent in the year to September 30, topping the list of headline inflation rates in the world’s 15 largest advanced economies, according to analysis by AFR Weekend.

The figures highlight the distinctive nature of Australia’s inflation outbreak, which started and peaked months after many other advanced economies, meaning price pressures have persisted well into 2023.

Sean Langcake, head of macroeconomic forecasting for Oxford Economics, said there was no single story explaining Australia’s higher inflation rate. While timing played a role in explaining why inflation was lower in Canada and the US, he said Australia seemed to have stronger underlying price pressures.

‘‘The thing that stands out is just the strength of our core CPI. I think we might be a little bit different on the breadth of inflation,’’ he said.

Australia’s underlying inflation, which strips out volatile price movements, was 5.2 per cent in the 12 months to September 30, exceeded by only Belgium and the United Kingdom.

National Australia Bank senior economist Taylor Nugent said a lot of the cross-country variation in headline inflation had been driven by exposure to the energy price shock resulting from Russia’s invasion of Ukraine.

‘‘Countries like the Netherlands and Spain saw very sharp increases in energy prices, but normalisation in prices is now weighing directly on headline inflation and more broadly easing cost pressures in the economy,’’ he said. ‘‘In Australia, energy prices have not risen as much, but have passed through to CPI more slowly because retail prices adjust infrequently. Government subsidies have pushed some of the measured impact out further into 2024, when subsidies unwind.’’

While core inflation peaked in Australia at a similar level to other countries, Mr Nugent said progress on taming price pressures had been harder to come by. ‘‘Domestic cost pressures are driving still-elevated services inflation. The September quarter data showed the RBA was overly optimistic on how quickly those domestic inflation pressures would recede, and their current forecasts imply only a very gradual easing. The RBA’s upgraded forecasts can readily justify some further tightening in policy.’’

Mr Langcake said population and rent growth may explain some of the relative strength in underlying price pressures. ‘‘Outside Canada, no one’s dealing with the same kind of net inward migration. If you think about housing markets, where supply can’t react [to demand], that’s where you’re getting more of an inflationary impulse.’’

Deutsche Bank chief economist Phil Odonaghoe said the figures demonstrated monetary policy had more work to do in Australia. ‘‘It is worth highlighting that many of the relevant peer economies in [the] sample have policy rates at or above 5 per cent – the US, UK, Canada, for example – while here in Australia, the cash rate is still below 4 1/2 per cent.

‘‘While Australia’s variable rate mortgage market helps explain why some of that gap to policy rates in peer economies might be able to persist, we don’t think variable rate mortgages can justify all of it.’’

Mr Odonaghoe said he expected the RBA would need to deliver one more rate rise, which would take the cash rate to 4.6 per cent.

While markets are almost certain the RBA will leave the cash rate on hold at 4.35 per cent in December, Mr Langcake said he expected the board would raise the cash rate. ‘‘I don’t think there’s any disagreement out there that inflation is coming down in year-on-year terms. The first part of the disinflation is the easy part. Now is where it gets trickier. There’s more upside risks than downside risks, and we could end up with inertia and persistence keeping us away from target for longer.’’

Inflation rate highest of advanced economies2023-11-21T14:35:12+11:00

Poorer times loom without reform: RBA

A further slowdown in global trade, the cost of the transition to net zero emissions and waning business dynamism could drive down productivity growth and make Australians poorer, the Reserve Bank has warned.

Echoing recent statements by former RBA governor Philip Lowe, economists at the central bank also said yesterday that Australia would not achieve the same high rates of income and productivity growth as previous decades without another round of ambitious economic reform.

The release of the research, Recent Trends in Australian Productivity, comes as the economy is hit by the largest fall in labour productivity on record, souring the outlook for inflation and incomes.

The decline has caused alarm among economists, given productivity improvements are the main driver of higher wages and living standards over the long run. Output per hour worked, a proxy for labour productivity, has fallen 6.5 per cent since its peak in March last year, pushing productivity down to March 2016 levels.

RBA economists Angelina Bruno, Jessica Dunphy and Fiona Georgiakakis pointed to a fading appetite for sweeping economic reform as one of several reasons for lacklustre rates of productivity growth over the past decade.

‘‘Without further economic and regulatory policy reforms, the same growth in productivity experienced in past reform decades is unlikely,’’ the trio said, citing research from the OECD showing elements of Australia’s regulatory landscape were excessively complex.

From the 1990s to the mid-2000s, productivity grew at an average rate of 2.1 per cent per annum, spurred on by deregulation, pro-competition policy reforms, and the uptake of new digital technologies, the RBA said.

That period included the Keating-era

‘‘However, the global nature of the productivity slowdown suggests economies must be dealing with common shocks, not only country-specific regulatory developments,’’ the economists said.

Productivity accounted for more than 80 per cent of national income growth over the past 30 years, according to the Productivity Commission.

A further slowdown in global trade, which the OECD said this week had declined by 2.5 per cent in the year to June, would also weigh on future productivity growth.

‘‘International trade increases competition, improves the reallocation of National Competition Policy, devised in response to Fred Hilmer’s sweeping review into competition in 1993.

Under the policy, states received about $600 million a year over a decade for implementing a host of important policies that limited anti-competitive behaviour and reformed the rules of the game for government-owned businesses.

Productivity growth in the decade before the pandemic was about 1.3 percentage points lower than the 1999 to 2004 period. The RBA found the finance, utilities, and manufacturing sectors recorded the biggest fall in productivity growth over this period. resources to more productive firms and reduces the costs of production by increasing the availability of intermediate inputs,’’ the RBA economists said.

Another key risk, they said, was the transition to net zero emissions.

‘‘Abatement measures will generally increase production costs for firms, weighing on productivity growth.

‘‘Over the longer term, as the benefits of these technologies are realised, the net impact on productivity may improve.’’

RBA governor Michele Bullock warned last month the sheer volume of investment required to meet Australia’s target of net zero by 2050 could push inflation higher over the medium term.

While the pandemic caused an unprecedented surge in the uptake of technology, including cloud computing and software enabling remote work, the RBA researchers said it was unclear whether businesses would face the same pressure to innovate now the health crisis is over.

Businesses where board members had relevant technological backgrounds were more likely to profitably adopt new technologies.

Poorer times loom without reform: RBA2023-09-26T11:56:59+10:00

How AI can help make us more productive

While artificial intelligence (AI) is a constantly evolving technology, it is not new. It has been a focus at Amazon for over 25 years. We are helping democratise the technology, making it accessible to anyone who wants to use it, including more than 100,000 customers of all sizes and industries.

As an Amazon Web Services chief technologist, I have the opportunity to help customers solve their biggest challenges with the latest technologies.

For example, using AI to drive sales and enhance the customer experience is a common question I get asked. Ticketek saw more than a 200 per cent increase in conversion rates when they leveraged AI to personalise the weekly email newsletter, allowing the events ticketing company to target and promote more relevant shows.

Online fraud can also be detected faster and more accurately. Using insights from historical data, companies can construct a customised AI fraud detection model. This model can identify suspicious online payment transactions before processing them, as well as differentiate between legitimate and high-risk account registrations.

Evolving contact centre operations is a low-hanging fruit that organisations can harvest to drive positive customer outcomes. By using virtual AI assistants to answer commonly asked questions, companies can reduce costs, while also driving quicker first call resolution rates. ‘‘Nibby’’ is a chatbot from health insurance company, NIB. Nibby is not just text-oriented but also voice-based, so members can converse with a very human-like bot. NIB receives 150,000 calls per month, so if 10 per cent of these calls can be addressed by Nibby, it can represent great efficiency gains for both agents and callers.

What’s next for AI? The talk of the year is generative AI. It helps enable new capabilities that are now more accessible for consumers and businesses, such as code generation, drafting written content, creating images based on text prompts, and transforming existing ML-powered capabilities such as web search and chatbots.

The responsible use of this new technology is also important to consider. Research by IDC showed about two-thirds of Asia Pacific organisations are either exploring potential use or have already invested in generative AI projects in 2023.

ChatGPT has been one of the first, broad, generative AI applications that has recently sparked a wave of interest and inspiration, leading many to rapidly experiment with how to take advantage of it, much like the early days of the internet. However, this is just one example of what generative AI can do. The potential uses for generative AI are boundless.

Customers want to understand how they can leverage generative AI to create new capabilities that could increase productivity, like bringing data together from disparate systems into one holistic view, to enable better outcomes through data analytics and natural language search queries. That’s why we are focused on democratising access to generative AI, giving businesses choice and flexibility to pick between different solutions, helping to bring down their costs and reduce complexity. There is opportunity for all industries to capitalise on this nascent technology, across both technical and nontechnical roles in departments such as marketing, sales, and HR.

Companies need to upskill their staff to better understand how to seize the transformative potential. For local startups, there is also a great opportunity to build innovative industry-specific solutions. For example, retailers could query a virtual assistant, powered by generative AI, on stock levels across their stores, predict busy periods, and even order more inventory all from a single chat interface.

In healthcare, generative AI assistants can analyse patient data from multiple sources, help identify patterns, and then present a summarised view of findings for review, augmenting the skills of medical professionals and improving patient outcomes.

The technology can also help architects generate building designs with proven patterns to minimise energy consumption or perform large-scale modelling and simulations resulting in more sustainable urban and regional planning.

To address the shortage of software engineers in Australia, developers are also starting to leverage AI-assisted coding companions to help them to create code for routine tasks.

These are just a few industry examples. We’ll continue to help customers accelerate innovation while assisting them on the responsible use of generative AI.

Factors like accuracy, privacy, copyright, and bias need to be addressed collaboratively by industry and government.

Globally, AWS is working alongside others like the OECD AI working groups, the Partnership on AI, and the Responsible AI Institute to develop new approaches and solutions.

Generative AI is an exciting disruptor for businesses. It has the power to impact our world by enhancing our abilities, solving some of humanity’s most challenging problems, and boosting our productivity.AFR

Rada Stanic is chief technologist, Amazon Web Services Australia and New Zealand.

How AI can help make us more productive2023-06-14T16:20:06+10:00

RBA change is coming, like it or not

More people, more input, more cooks in the kitchen. That’s ultimately the price the Reserve Bank of Australia will pay for a couple of years of bad or miscalculated calls, made in response to the pandemic.

Ironically, the review was conceived in the pre-COVID days when the RBA was criticised because inflation was running below its 2 to 3 per cent target range. All the attention is on what has happened since.

When money was flooding into the financial system and the economy, it is now clear the RBA board was too slow to apply the handbrake. The result is the highest level of inflation since the 1990s and an unprecedented 10 straight rate rises that were never going to be popular with ordinary Australians or politicians. No one seems to care that the unemployment rate is around its lowest level in nearly 50 years.

Right or wrong RBA governor Philip Lowe wears the blame. He will be all over the newspapers and nightly television news bulletins, even though markets (equities, bonds, currency) barely blinked. Mr Market saw the review coming, and now says the changes are some way off.

From the market’s perspective, next month’s budget is more material. Treasurer Jim Chalmers needs to set up the books for the next few years, which means finding more money. The economy is finely poised: it would be tempting to throw money around to ease cost of living pressures, although money’s tight and the inflation doesn’t need stoking.

In the meantime, old-head RBA watchers said it was a significant day. The fact that the central bank, which has such a great impact on Australians’ daily life, was subject to such scrutiny made it a historic day.

Lowe and the RBA will be hauled over the coals for what happened a few years ago, even though it was just as much the government stoking the fire that continues to burn today. The critics argue he should be accountable for the combination of low rates, forward guidance, yield curve control, quantitative easing and the term funding facility, which combined to whipsaw the economy and may yet cause a recession.

Of course, Lowe’s monetary policy is just one tool.

Once the commotion passes, we should all still be worried about the rising cost of rent and energy and how both can be addressed. The review doesn’t change that.

The review prompted plenty of thinking about the RBA, its corporate governance, board composition and decision-making. It recognised that in more normal times, the RBA had done well to keep inflation around the midpoint of its 2 to 3 per cent range for the past 30 years.

However, it is the past few years, a wartime for central bankers when no one escaped with a goldilocks path out the other side, that will now shape the direction of Australia’s monetary policy system.

What’s the answer to it all? Get more people involved in the decision-making. A specialist monetary policy board, fewer board meetings and more outsiders sitting around the table.

Reading between the lines, there seemed to be concern about how insular the RBA either is, or has become. Lowe is a perfect example; he’s got a great temperament for the governor’s job, is clearly smart and well regarded by colleagues and peers globally, but he is an RBA lifer and ingrained in current-day practice.

The creation of a new nine-person Monetary Policy Board, widely tipped by pundits, is about getting more rigorous thinking into rates decisions.

The nine people would include the RBA governor, deputy governor, Treasury secretary and six outsiders. The review recommends that ‘‘external members should be able to make a significant contribution to monetary policy setting through expertise in areas such as open economy macroeconomics, the financial system, labour markets, or the supply side of the economy, and in the context of decision-making under uncertainty’’.

So, this specific rate-setting board should mean more challenge and debate to the house view, which appears to have become more entrenched. At the same time the review calls for RBA’s operatives to spend more time with board members, making it a bit of an each-way bet but a good use of what is a big and expensive research team. (The need to spare a day a week or so in the RBA’s offices surely tilts the external board positions towards academics.)

The undertones were that the board wasn’t functioning properly, either because it didn’t have the right people or the right information. Lowe defended his board at a press conference yesterday, saying discussion around the boardroom table was robust and not dominated by himself.

It’s all well and good to have more people in the room on rates decision day, but it does not mean the board will function more efficiently or come to better decisions.

But big boards do not necessarily mean better outcomes. Corporate Australia is littered with poor boards and ‘‘jobs for the directors club’’ type attitudes that ruin what can be otherwise good businesses.

Often the bigger the board, the more constipated the decision-making process. The other scourge is chairmen roping in old mates and colleagues from other boards.

Ultimately, whether a separate and bigger Monetary Policy Board works will depend on who is on it. It was a logical and welcomed decision to create the separate board, and clear rate-setters of the governance-type matters that tend to dominate board meetings.

The review recommended a transparent appointment process, starting with advertised expressions of interest. External members would be appointed for five years, and up to another year depending on the circumstances.

There would also be fewer board meetings; eight not 11. And the governor would have to front the press following each meeting to explain the board’s decision, with more emphasis on the expected path of inflation and the labour market. That shouldn’t prove too onerous. External board members would also be required to make one public address each year.

The idea of more communication is conceptually good, although post-meeting press conferences can be a double-edged sword. We’ve seen Federal Reserve chairman Jay Powell mix his messages in a live setting, which can leave the market with more questions than answers.

Fewer meetings mean more time between rates decisions and arguably more punting and reading the crystal ball for fixed income investors. There could be more focus on monthly/quarterly economic data, to fill the information void between meetings.

Market economists liked that there could be more briefings, as it should (in theory) help them with their forecasts. They also probably like that there would be an unattributed published vote after each policy decision.

Other parts of the review said RBA should work more closely with the government/ Treasury, although it remains to be seen how. The review said fiscal and monetary policy should be set separately, however the RBA and Treasury needed to ‘‘have a good understanding of the intentions of the other and informs better policy choices’’. The two institutions are already close, but the review said their co-operation should include increased information sharing on risks, scenarios and policy constraints, and some joint scenario analysis.

Lowe was gracious at his press conference, although it was clear he did not love all the recommendations. For example, he bristled at any notion rates decisions were his alone and thinks it’s important to be careful with the number of public messages out of the RBA to ensure consistency and stability.

Lowe said he would leave his reappointment to the RBA top job in the Treasurer’s hands. He said he would be happy to go around for another term if asked. If not, he said he would find another way to contribute to society.

The fact that the RBA was subject to a 294-page review and there were 51 recommendations suggests change is on the cards.

Next week’s CPI reading could be material to the situation. Economists are tipping a number just shy of 7 per cent.

For all the focus on Lowe, in the near term the real attention should be on Chalmers and the budget. That’s the real showstopper for the economy.

a.macdonald@afr.com 

RBA change is coming, like it or not2023-04-24T16:53:10+10:00

How wealthy are you compared with others?

Income and assets Who counts as rich? ABS data holds the answer.

At what point does someone earn so much money, they can be described as rich? It’s one of the perennial debates in Australian politics, and it is poised to emerge again this year as Labor faces more questions over the future of the so-called stage three tax cuts.

The package includes an increase in the threshold for the top 45 per cent tax bracket from $180,000 to $200,000 (as well as a flat 30 per cent tax rate on all incomes between $45,000 and $200,000).

Proponents of stage three say it addresses bracket creep and improves the efficiency of the tax system, while opponents argue it overwhelmingly benefits high-income earners.

They also point to the significant hit to the budget: about $18 billion in the first year and $254 billion over 10 years.

Much of the debate has centred on whether someone who earns more than $180,000 is rich.

What is a ‘normal’ income in Australia? | The median Australian employee earned $65,000 in 2022, according to the Australian Bureau of Statistics.

Half of all employees earned less than this, while the other half earned more.

This figure captures both full-time and part-time workers. If we look at these groups separately, the data shows the median full-time worker earned $78,800 in 2022, while the median part-timer took home $32,400 last year.

Incomes have increased steadily over the past few decades amid growth in the Australian economy.

In 1975, the median employee earned $6448 a year. In the 47 years since then, wages have grown by about 5 per cent annually, taking median employee income to where it is today.

What about the top 1 per cent? | Each year the Australian Taxation Office publishes a breakdown of the taxable income distribution of workers.

It shows that in 2019-20, the most recent year for which data is available, the median taxpayer – the person at the 50th percentile – reported a taxable income between $60,326 and $61,264.

About half of all taxpayers earned less than this, while the other half earned more. If your taxable income was $131,501 or higher, then you earned more than 90 per cent of other Australians. If you earned more than $253,066, you took home more than 99 per cent of taxpayers.

About 5 per cent of taxpayers had incomes above $180,000.

The data, which covers the nation’s 11.39 million taxpayers, is presented in percentiles. For example, a person in the 10th percentile earns more than 10 per cent of workers, while a person in the 90th percentile earns more than 90 per cent of workers.

The data is also presented in the interactive table above.

What about gender? | The data also reveals the extent to which men dominate higher-paying jobs.

Of the 10 per cent of taxpayers who earned more than $131,501 in 2019-20, about 70 per cent were men. Women made up almost 60 per cent of the 20 per cent lowest income earners.

Which industries have the highest incomes? | Mining industry workers are Australia’s top earners, with the median employee in the sector taking home $54.90 an hour in 2022.

White-collar workers in the financial services and professional services industries were the next best-paid employees, earning about $50 an hour. Utilities workers and public servants rounded out the top five, with hourly rates just shy of $50.

Hospitality workers and retail workers earned the lowest salaries, recording median hourly rates of $25.80 and $28.80 an hour respectively.

How do the states compare? | The large differences between industry wages are a major driver of the income gaps we see between some states.

Residents of the ACT are the best-paid, with the median full-time worker earning a salary of $93,600 – thanks to the territory’s concentration of well-remunerated public sector workers. About 42 per cent of ACT workers are public sector employees, compared with 16 per cent nationally.

The next best-paid employees were in the Northern Territory, which also has a large public sector, and Western Australia, which is home to a well-paid mining-sector workforce. Tasmania is the poorest jurisdiction, with a median full-time salary of $70,200 – about $23,000 less than the ACT.

What’s a ‘normal’ amount of wealth? | While incomes are a key driver of financial comfort, wealth is arguably the more relevant measure of a person’s material wellbeing.

To get an idea of ‘‘normal’’ levels of wealth, we can look at annual estimates of household wealth, compiled by the ABS.

The data shows the median household had a net worth of $579,200 in 2019-20.

This figure captures the total value of assets such as real estate, shares and superannuation, and deducts a household’s liabilities such as credit card debt and home loans.

The data reveals huge differences between the wealthiest households and the poorest ones. In 2019-20, a household at the 90th percentile of the distribution – that is, a household that is richer than 90 per cent of households – had a net worth of $2.26 million.

A household at the 10th percentile was worth just $36,900, or 61 times less. How does Australia compare internationally? | While there are large disparities between the rich and the poor, Australia is still comfortably one of the world’s wealthiest countries.

Australian household incomes are the seventh-highest in the OECD – a club of mostly wealthy countries – while mean household net worth is third-highest, behind only the United States and Luxembourg.

The average household in the OECD has a yearly disposable income of $US30,490, compared with $US37,433 in Australia. Average household net wealth in the OECD sits at $US323,960, about $US200,000 below the wealth of the average Australian household.

How wealthy are you compared with others?2023-04-12T09:45:17+10:00

How wealthy are you compared with others?

Income and assets Who counts as rich? ABS data holds the answer.

At what point does someone earn so much money, they can be described as rich? It’s one of the perennial debates in Australian politics, and it is poised to emerge again this year as Labor faces more questions over the future of the so-called stage three tax cuts.

The package includes an increase in the threshold for the top 45 per cent tax bracket from $180,000 to $200,000 (as well as a flat 30 per cent tax rate on all incomes between $45,000 and $200,000).

Proponents of stage three say it addresses bracket creep and improves the efficiency of the tax system, while opponents argue it overwhelmingly benefits high-income earners.

They also point to the significant hit to the budget: about $18 billion in the first year and $254 billion over 10 years.

Much of the debate has centred on whether someone who earns more than $180,000 is rich.

What is a ‘normal’ income in Australia? | The median Australian employee earned $65,000 in 2022, according to the Australian Bureau of Statistics.

Half of all employees earned less than this, while the other half earned more.

This figure captures both full-time and part-time workers. If we look at these groups separately, the data shows the median full-time worker earned $78,800 in 2022, while the median part-timer took home $32,400 last year.

Incomes have increased steadily over the past few decades amid growth in the Australian economy.

In 1975, the median employee earned $6448 a year. In the 47 years since then, wages have grown by about 5 per cent annually, taking median employee income to where it is today.

What about the top 1 per cent? | Each year the Australian Taxation Office publishes a breakdown of the taxable income distribution of workers.

It shows that in 2019-20, the most recent year for which data is available, the median taxpayer – the person at the 50th percentile – reported a taxable income between $60,326 and $61,264.

About half of all taxpayers earned less than this, while the other half earned more. If your taxable income was $131,501 or higher, then you earned more than 90 per cent of other Australians. If you earned more than $253,066, you took home more than 99 per cent of taxpayers.

About 5 per cent of taxpayers had incomes above $180,000.

The data, which covers the nation’s 11.39 million taxpayers, is presented in percentiles. For example, a person in the 10th percentile earns more than 10 per cent of workers, while a person in the 90th percentile earns more than 90 per cent of workers.

The data is also presented in the interactive table above.

What about gender? | The data also reveals the extent to which men dominate higher-paying jobs.

Of the 10 per cent of taxpayers who earned more than $131,501 in 2019-20, about 70 per cent were men. Women made up almost 60 per cent of the 20 per cent lowest income earners.

Which industries have the highest incomes? | Mining industry workers are Australia’s top earners, with the median employee in the sector taking home $54.90 an hour in 2022.

White-collar workers in the financial services and professional services industries were the next best-paid employees, earning about $50 an hour. Utilities workers and public servants rounded out the top five, with hourly rates just shy of $50.

Hospitality workers and retail workers earned the lowest salaries, recording median hourly rates of $25.80 and $28.80 an hour respectively.

How do the states compare? | The large differences between industry wages are a major driver of the income gaps we see between some states.

Residents of the ACT are the best-paid, with the median full-time worker earning a salary of $93,600 – thanks to the territory’s concentration of well-remunerated public sector workers. About 42 per cent of ACT workers are public sector employees, compared with 16 per cent nationally.

The next best-paid employees were in the Northern Territory, which also has a large public sector, and Western Australia, which is home to a well-paid mining-sector workforce. Tasmania is the poorest jurisdiction, with a median full-time salary of $70,200 – about $23,000 less than the ACT.

What’s a ‘normal’ amount of wealth? | While incomes are a key driver of financial comfort, wealth is arguably the more relevant measure of a person’s material wellbeing.

To get an idea of ‘‘normal’’ levels of wealth, we can look at annual estimates of household wealth, compiled by the ABS.

The data shows the median household had a net worth of $579,200 in 2019-20.

This figure captures the total value of assets such as real estate, shares and superannuation, and deducts a household’s liabilities such as credit card debt and home loans.

The data reveals huge differences between the wealthiest households and the poorest ones. In 2019-20, a household at the 90th percentile of the distribution – that is, a household that is richer than 90 per cent of households – had a net worth of $2.26 million.

A household at the 10th percentile was worth just $36,900, or 61 times less. How does Australia compare internationally? | While there are large disparities between the rich and the poor, Australia is still comfortably one of the world’s wealthiest countries.

Australian household incomes are the seventh-highest in the OECD – a club of mostly wealthy countries – while mean household net worth is third-highest, behind only the United States and Luxembourg.

The average household in the OECD has a yearly disposable income of $US30,490, compared with $US37,433 in Australia. Average household net wealth in the OECD sits at $US323,960, about $US200,000 below the wealth of the average Australian household.

How wealthy are you compared with others?2023-02-09T09:51:07+11:00

Financial Planning Message – December 2022

As 2022 draws to a close we are reminded of the recent period of intense volatility in capital markets and the reality that a global recession is likely next year.

 

Markets are pricing in a lower probability of a recession in Australia.

 

This in turn will depress corporate earnings and valuations across all asset classes and significantly increase default rates among high-risk borrowers.

 

The correction to valuations is likely to be more severe during this economic cycle due to valuations starting from elevated levels compared to previous corrections.

 

We are also yet to experience a high number of fixed loans move from fixed interest rates of sub 2% to levels of 5%+ prevailing rates, something in the order of $500bn are due to mature in mid to late 2023.

 

This will no doubt impact the already depressed property market in Australia.

 

All the major banks and APRA are keeping a close eye on this development as we progress into 2023.

 

As inflationary pressures persist ( highest in 40 years ), geopolitical tensions and tight labour supply, the  central banks are forced to aggressively press on with higher interest rates and keep for much longer.

 

The RBA has so far moved the cash rate from .1% in March 2022 to now 3.1%, markets are now pricing in another two .25% increases in early 2023 before a potential pause to evaluate the impact on inflation.

 

The Federal Reserve was pricing in a rate increase of just 1% in December 2021, it is remarkable that their view now is that it is likely to peak at approximately 5.25%.

 

Consequently, 2023 is poised to exert added stress to highly leveraged borrowers, specifically those that have acquired property / equities in 2021 / 2022, are now in nil or negative equity positions.

 

It is worth noting that during this business cycle, we have had an explosion of companies that have become addicted to cheap debt, on the other hand, these same companies are not generating sufficient cashflow to support increased interest payments.

 

Clearly, there will be consolidation particularly in property related businesses in 2023.

 

There are no doubt significant headwinds for Australian households and the economy in general as we enter 2023.

 

Accordingly, extreme caution and sound strategies need to be implemented for the year ahead, including but not limited to :-

  • Be clear on what and who matters given the many conflicting sources of information and ‘investment opportunities’ across the media.
  • Understand your portfolio and position appropriately taking into account your forward plans and risk / return / management costs.
  • Review cashflows and eliminate unnecessary lifestyle costs in light of higher interest rates in 2023.
  • Let’s not forget managing your tax position, this is always relevant be it during your working life, in retirement ( with respect to investments) or as part of your estate plan.
  • Focus on what can be controlled / influenced as opposed to factors over which we have no control or influence.
  • Make incremental ‘dollar cost savings’ as opposed to taking a significant position when investing.
  • Diversification and history are our best friends, reflect and actively rebalance asset allocations.
  • Consider Dividend Reinvestment Plan ( DRP) in light of the attractive valuations.
  • Confirm borrowing / refinancing options well before due dates and explore potential savings across relevant lenders – competition appears to be intensifying across the major lenders.
  • Insurance is always important, however potentially critical during extreme business cycles as are likely to unfold in 2023. It is not desirable to execute forced sales at depressed values.

 

In closing, we would like to take this opportunity and thank you for placing trust in AMCO since inception 26 years ago and making our Integrated Wealth Management practice what it is today.

 

We are aware of the challenges you are facing during these uncertain times and are there to advise and navigate all matters with professional care and promptness.

 

It is vital that fundamental mistakes are prevented during these critical periods, hence the need for sound advice.

 

From the team at AMCO, we wish you and your loved ones good health, peace of mind and prosperity in the year ahead.

 

Merry Christmas.

 

 

Danny D. Mazevski 

Chartered Tax & Financial Adviser

FIPA   CTA  FTMA  MBA (Un.NSW/SYD)  Dip.FS   JP

Financial Planning Message – December 20222022-12-22T08:01:23+11:00

China is stumbling into its own destabilising mortgage disaster

The Chinese authorities’ drift on managing bad debts feels eerily like the impending subprime crisis in 2008.

It is spreading like wildfire. Home buyers in China are refusing to pay the mortgage on properties they have bought but that their financially strapped developers can’t finish. Some say that they will resume payments only when construction restarts.

The protest involved more than 100 delayed projects as of July 13, up from 58 projects the previous day.

The frustrated buyers accuse the developers of misusing sales proceeds and the banks of failing to safeguard their loans.

China has never seen anything like this. As in the United States – until the 2007 subprime crisis – the possibility of troubles in the mortgage market was vanishingly small.

But this mortgage strike isn’t entirely unpredictable. Home buyers have every reason to be angry. Most of the projects were begun by developers who have defaulted.

China Evergrande Group led the pack, accounting for an estimated 35 per cent of the total projects that faced mortgage revolts, data compiled by capital management company CLSA of Hong Kong shows.

One such project in eastern Jiangsu province was launched before the COVID-19 pandemic. Construction has been suspended since August, while property values in its neighbourhood have come down by about 10 per cent. In other words, not only did the affected households see their wealth dip, they can’t move in and enjoy their new apartments either.

Over the years, with consent of local governments, the likes of Evergrande and Country Garden Holdings fed the residential housing boom through a pre-sales model: apartments are bought long before they are completed. Now the builders don’t have money to finish these projects.

Granted, developers’ debt woes were met with protests in the past – from suppliers, employees, all the way to hapless retail investors who had bought their wealth management offerings. But this new development is something entirely different.

It opens a Pandora’s box and poses a direct threat to the stability of Chinese banks. The Ministry of Housing and Urban-Rural Development held talks with financial regulators and major banks last week to discuss the mortgage boycotts.

Unless President Xi Jinping’s government stops this stampede, a collapse of the banking system on the scale of Lehman Brothers in the US in 2008 is very much on the cards. China is unprepared for such a big chunk of its bank loans to go sour.

According to Autonomous Research, banks have about 62 trillion yuan ($9.1 trillion) of exposure to the property sector. More than half is in the form of mortgage loans. At China Construction Bank, one of the world’s largest banks, mortgages account for more than 20 per cent of total assets.

Until last week, China’s middle class were excellent customers, dutifully paying their monthly bills. The government’s social credit system – a national credit rating and borrowing blacklist – has worked well; bad credit can even hamper one’s ability to travel on high-speed rail. But what if some are just fed up and willing to walk away from their obligations?

We’re not talking about one or two delinquent developers. In the past year, 28 of the top 100 developers have defaulted or asked their debt holders for extensions, data compiled by CLSA shows.

Collectively, they account for about 20 per cent of China’s total property sales. Money is even tighter now. In the first half of the year, property sales plummeted 72 per cent from a year ago, further eroding their cash flow.

A CLSA monthly survey on the status of Evergrande projects gives us a glimpse of how many unfinished sites there are across China. As of June, more than half of Evergrande’s projects were under construction halts.

CLSA estimates that about 840 billion yuan in mortgages is tied to abandoned sites across China.

It is worth asking how we even managed to get to this point, especially for a government that is obsessed with stability.

All we have seen is policy inertia. Developers have been in distress for more than a year now, but there has been no progress in restructuring their finances. Local officials have been unwilling to make difficult decisions, write off bad debt and reach resolutions.

Unable to shed financial burdens, builders cannot focus on operations. They become zombies, and their construction sites turn into ghost towns.

In 2008, I worked at Lehman Brothers in New York and witnessed first hand how the subprime mortgage crisis dragged down the venerable bank – and threatened the entire industry. This environment is starting to feel eerily similar.

BLOOMBERG OPINION

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets.

China is stumbling into its own destabilising mortgage disaster2022-07-22T16:08:11+10:00

Small business pays the cost of rising wages

Average pay rates among small businesses have grown by more than 4 per cent this year off the back of the tightest labour market in decades, according to new research.

Data on more than 130,000 small to medium businesses using technology software firm Employment Hero shows the average hourly rate of 1.75 million employees increased 1.4 per cent between May and June, and 4.3 per cent since January.

The company’s inaugural SME index suggests labour shortages in low-paid jobs such as hospitality have started to bite.

Employment Hero chief executive Ben Thompson said changes in average rates could be influenced by lack of staff as much as wage growth.

‘‘We’ve seen a lot of change in industry engagement – people moving from hospitality and retail into knowledge work – and if that means we’ve seen some senior roles with high salaries terminated through resignation and moving from one sector to another, then that could definitely affect the average rate of pay,’’ Mr Thompson said.

‘‘For example, in healthcare if you saw a lot of highly experienced mature-age nursing staff resigning due to COVID burnout that could lead to a decrease in the average wage.’’

The report found retail, hospitality and tourism experienced an increase in average hourly rates of 4.7 per cent from May to June.

However, healthcare suffered a decrease in its average rate of 4.2 per cent. Agriculture, mining and energy experienced the biggest fall, 11.6 per cent.

Overall, the Employment Hero report found medium-sized firms, which also experienced the biggest increase in staff, were driving the most recent surge in average hourly rates.

Small businesses (fewer than 20 employees) and large businesses (more than 200) had their average hourly wage growth marginally decline.

Asked how they would deal with this year’s minimum wage increase of up to 5.2 per cent, about 24 per cent of 500 respondents said they would ‘‘have to review prices’’ and 16 per cent said they would need to work more hours.

About 11 per cent said they would have to let staff go and 10 per cent planned to outsource work locally. About 7 per cent said they would seek to identify cost savings outside of pricing and staffing changes.

The report follows an analysis by JP Morgan economist Jack Stinson last week that suggested wage growth was still tepid because vacancies were concentrated in industries such as hospitality that also had the lowest margins.

‘‘Such firms are less willing to bid wages up to levels above marginal product,’’ Mr Stinson’s analysis said.

‘‘The consistently high level of unfilled vacancies should then be read as a partial signal that firms cannot fill positions at any cost, explaining some of the disconnect between very low unemployment and middling wage growth.’’

Whitehaven Coal chief executive Paul Flynn told The Australian Financial Review his ASX-listed company had been relying on paying retention bonuses ‘‘on a quarterly basis, just to make sure people stay put because the market is very, very tight’’. ‘‘All the miners are running hard and then the government is competing for the same labour with all the infrastructure building they have got going around the country … so the government is contributing to a lot of the inflationary pressure by their own actions here so that is challenging for us,’’ he said.

Small business pays the cost of rising wages2022-07-22T14:58:31+10:00