Maxim Newsletter - May 2018

JUNE 2018

this issue: Market Insights 
Quick snapshot 
Tax Planning: Being
Proactive - 2 BY GREG MCKENNA

Big Pie, Small Slice - Australia's economy grew 1% in the March quarter and 3.1% for
-3 the year to March 2018. Respectively that’s the best quarterly
growth rate since 2011 and best year on year rate since June
What Does that Mean for 2016. That rate of growth was better than economist or the RBA
Business? - 4 forecast.

What does the RBA Do? - So you’d be forgiven for wondering why many in the press and in
-5 the economics fraternity are talking as though the economy is
weak. It’s all about consumers and the dichotomy between
McCrindle Research Event aggregate and business growth against consumers in the
-6 Australian economy

- Put simply as the economy grows the pie is growing faster than
what consumers and households are feeling because population
growth is driving a significant part of that growth.

.

JUNE 2018

Tax Planning: Being Proactive Will Save You!

by Courtney Dolan

Have you done your homework? For those clients who've already had your 2018 tax planning meeting, or who are
currently meeting your Maxim advisor, this is the time to refresh on those action plans. What do you need to do
before 30 June, to lock in those tax savings?

• Superannuation contributions for staff
If you want the tax deduction in 2018, you need to make the payment in 2018. For many super clearing houses,
they set a deadline of 22 June 2018 to lodge your payment to ensure it clears by 30 June. Check with your super
clearing house and act before the deadline.

• Bonuses
If you’re considering paying a bonus to your staff, document your decision by 30 June. Then you can claim the
deduction in 2018 and still pay your staff in July.

• Bad debts
Review your Accounts Receivable and identify any long outstanding or debts you consider not collectible. Write
them off from your Receivables by 30 June and you’ll claim the deduction for Bad Debts in 2018.

• Stock counts
If your business holds inventory, it’s good practice to do regular stocktakes. When it comes to cash flow, stock is
one of the main culprits for tying up cash. Performing a stocktake for 30 June 2018 allows an accurate measure of
your gross profit. Plus, if you write off damaged or obsolete stock, you’ll lock in the tax deduction this year.

• Invoicing
For most businesses, when you issue an invoice is the year in which it’ll be taxed. Be careful though of the cash
flow impact of delaying any invoicing until July.

• EOFY Sales
We’ve all seen the advertising encouraging you to spend money to save tax. Should you do it? Remember to only
buy things if you need them, don’t spend money for the sake of saving tax: the maths doesn’t make sense.

• Structure
Did you review your business structure with this year’s tax planning? Are there any actions to complete prior to 30
June?

• Single Touch Payroll
Do you employ more than 20 staff? If so, are you and your payroll software ready for Single Touch Payroll to kick
off 1 July 2018? Not quite a tax planning tip, but definitely something our employer clients should be well aware of
and ready for. Not sure what’s involved? Contact your Maxim advisor.

Remember that a few of these have a lead time, so don’t leave it to the last minute. ACT NOW!

Please contact your Maxim Advisor if you wish to discuss any of the above points further, we are here to help.

PAGE 2 WILSON MONTHLY

JUNE 2018

"Put simply, overall GDP
growth is in a very large

part being driven by
population growth"

Big Pie, Small Slice
Explaining the dichotomy between economic growth and
consumer caution

by Greg McKenna

Australia’s run of record growth continued for another quarter in the first three months of 2018 with GDP printing a
better than expected 1% in the March quarter which saw the year on year growth rate accelerate to 3.1%. By
historical standards that’s still relatively weak growth, that’s why the RBA still has the official cash rate at 1.5%.

But the improvement in the quarterly and yearly growth rates to 7 year and 2 year highs respectively highlights that
the RBA’s positively outlook appears to be justified. For the moment at least anyway given the headwinds facing
households from weak wages growth, high debt levels, and falling house prices.

The simplest explanation for the divergence between the overall level of Australian growth and what households
feel is summarised in this chart from Westpac’s economics team.

Sure jobs are plentiful in the economy at the moment, 2017 saw record employment growth and a surge in
workforce participation, but households feel like they are missing out because their slice of the pie is getting
smaller.

Consumers can feel that real and nominal growth rates have taken a step lower since the GFC. But the gap
between the red and grey lines since 2008 highlights that GDP per-capita is underperforming the overall rate of
growth. In layman’s terms it suggests while the economy is still growing – and in some sectors strongly – the
overall stanard of living Australian households feel is growing more slowly.

Put simply overall GDP growth is in a very large part being driven by population growth. That means the growth is
spread across a bigger population which in term means that GDP per capita growth is down.

Put another way the pie is getting bigger but each Australian's slice is smaller.

PAGE 3

JUNE 2018

So, What Does That Mean For Business?

by Greg McKenna

There is very much a multi speed economy happening in Australia at the moment. B2B sales – outside retail - are
likely to have been solid over recent quarters but may be slowing as Q2 progresses and as the NAB business
survey shows business confidence and conditions slip a little from their recent highs.

At a consumer facing level though what the ABS reported and the data shows is that the growth in Q1 2018 was
driven by increased spending on non-discretionary items like utilities and communications. And what the data also
showed is that spending on discretionary items like hotels, cafes, and restaurants fell 1.8% over the course of the
March quarter. Alcohol too was down substantially.

When you overlay this with low wages and a fall in the savings rate to 2.1% - the lowest level since the December
quarter of 2007, before the GFC really bit – and we see a household sector which is under some stress.

So while at an aggregate level (the Pie) the economy is growing, offering more opportunities for business, the
reality is that Australian households are not feeling that same level of growth (smaller Slice). In other words
because of population growth individuals and household level Australians don’t feel they are getting the full benefit
of Australia’s growth.

But, the next big question is:

what happens now that Australian housing
is falling and especially now that Sydney,
in particular, and Melbourne property
prices are falling as well?

Behavioural economics will tell us that the
endowment effect – the value people place
on things they own - would suggest that
households will genuinely fell the loss
associated with the fall in property prices.

This is where the “wealth” effect that more
traditional economists talk about kicks in.

Consumers feel wealthier and are thus prone to spend more as property prices rise and are thus likely to fell less
wealthy as prices fall.

Behaviourally this means Australians are being circumspect with their purchases. Non-discretionary items are
eating into overall consumption. Small luxuries, cheaper offerings (or those that offer better VALUE) seem likely to
do best in this environment.

For the moment the overall health of the economy should forestall any real reduction in consumption. But the risks
are rising that as house price falls continue the overall health in other sectors of the economy will not be able to
forestall a period a economic weakness driven by household retrenchment.

PAGE 4 WILSON MONTHLY

JUNE 2018

What Does The RBA Do?

by Greg McKenna

The RBA has to manage the aggregate economy but pay attention
to specific sectors. In Mining Boom Part 1 the then governor
Stevens said expressly he was raising rates to reduce household
spending and make way for the mining. This was done so as not to
push inflation sharply higher.

As Mining Boom Part 2 ended the RBA lowered rates to facilitate a
transfer of workers from the mining investment boom to a housing
construction boom. What it didn’t expect was the associated surge in
house prices which then needed to reined in by APRA clamping
down on investment and interest only lending.

As we head toward the second half of 2018 then the RBA has to set
rates for an economy which has a relatively robust outlook but which
is burdened with households worried about falling house prices, low
wages growth, and debt.

At the end of the day it means rates at
1.5% for another 6-12 months at least

until the outlook becomes clear.

PAGE 5 WILSON MONTHLY

UPCOMING EVENT

RMECSCERAIRNCDHL  E

THURSDAY, 11
OCTOBER 2018

Business Confidence
Briefing Event 

A Maxim and McCrindle
Research Partnership 

A snapshot of how
businesses see
themselves both now and
into the future! 

Survey released 9 August
2018. Help support this
event. 

MAXIM AROUND THE WORLD

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AND GRAB ONE.

HAPPY TRAVELS :-)

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