Retirement Income

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How to build a share portfolio to suit yourself

<p>There is nothing like a global pandemic and the economic fallout to shake up one’s share portfolio. What worked in the past may now have to be put under the microscope. Unprecedented Central Bank interventions, record low interest rates and the highest unemployment rates since the great Depression, are a challenging backdrop to stock selection for the medium to long-term. It is reasonable to assume that share price volatility will remain as economies adjust to the post-Covid world.</p> <p>Whilst share prices have rallied, the same cannot be said of the dividends. The payout of total dividends from the ASX200 expected to fall by over 20 per cent this year. But you know that already, as a stream of companies have either cancelled, deferred or reduced their 2020 dividends. It shouldn’t come as a huge shock as the Australian dividend payout ratio has been consistently higher (circa 70-80 per cent) than the rest of the world (sub 60 per cent), post GFC. As cashflows contract companies have no choice but to reduce the dividend payout.</p> <p>So, what do you when the dividend favourites and the stalwarts of the last 20 years pose a real threat to your income? Firstly, don’t panic as it is not all doom and gloom; however, it may mean you need to restructure your share portfolio.</p> <p>As every share portfolio is different and everyone has been invested for varying periods and have different aims and goals, it is not possible to say categorically what you should do. But here are some tips to help you through the process, so that you can construct the optimal portfolio of shares for you!</p> <ol> <li><strong>How much do you need? </strong>Establish how much income you need and whether part of that income can be swapped for a capital gain. Assess your share market returns in a total sense (capital gain and income).</li> <li><strong>Assess the shareholdings you have</strong>; it took 10 years for the total Australian dividend payout to return to the pre-GFC levels. This does not necessarily mean this will the case going forward. But you do need to assess whether you can accept lower dividends from your incumbent shares and use capital instead, until the economy picks up and the flow on effects are felt in corporate profits and higher dividends.</li> <li><strong>Add some growth</strong>. Shares that are able to grow their dividend over time are the winners. As a rule of thumb these shares have a lower dividend yield, think healthcare shares versus the banks, but they have delivered a higher total return (capital gain and dividend income). It is probably prudent to add some growth to your portfolio, which can usually be found in shares that yield around 2-3 per cent but have the capacity to grow dividends over the next 10 years.</li> <li><strong>Add some defensive shares</strong>. In a post covid world, some defensive shares are probably prudent. I know the big rotation is on into the bombed-out cyclicals. However in the absence of a vaccine or improved cures, we are faced with a world that needs to accept the virus remains. Returning to a pre-covid economy and the way we work, rest and play is developing but business as usual remains a way off. The share market will be very sensitive to any covid outbreaks like we are witnessing in Beijing and parts of the USA (not to mention the continued growth in the emerging markets).</li> <li><strong>Lower for Longer.</strong> The head of the Federal Reserve, J. Powell made it very clear at the last Fed meeting, rates will stay low in the US until 2022. Whether this transpires, remains to be seen. But it is prudent to assume we will continue to a lower for longer interest rate environment, meaning a 2-4 per cent dividend yield on non-financial shares is a reasonable expectation.</li> <li><strong>High dividend yields may be a trap</strong>. Any shares that offer a high dividend yield, excluding the iron ore producers who are raking in the cash from $100 plus iron ore prices, should be treated with caution. This means there is the potential for dividend disappointment and possible capital erosion. The four large banks are a case in point.</li> </ol> <p>I like to mix up my share portfolio with some growth, some defensive shares and maybe even a quality bank, like Commonwealth. In these uncertain times, quality shares, with strong balance sheets, good corporate governance and identifiable earnings streams will offer older investors comfort. Of course, a vaccine would change everything overnight, so if you are feeling bullish about human ingenuity then you could add some deep cyclicals like an airline or travel company.</p> <p><em>Danielle Ecuyer has been involved in share investing in Australia and internationally for over three decades, both professionally and personally. Her experience and knowledge has been combined to help new or existing investors with long term wealth creation and income generation in her first book </em><a rel="noopener" href="http://www.shareplicity.com.au" target="_blank">Shareplicity: A simple approach to share investing</a> <em>(Major Street Publishing $29.95). </em></p>

Retirement Income

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Mortgage deferral, rent relief and bankruptcy: What you need to know if you have coronavirus money problems

<p>The coronavirus pandemic has wreaked havoc on the Australian economy, and the financial effects for many are deeply personal.</p> <p>Sadly, there’s no shortage of terrible advice online when it comes to personal finance. And as September 30 looms - the date by which JobKeeper, the increased JobSeeker and many negotiated rent and mortgage deferrals end - it’s important to be fully informed before you make potentially life-changing financial decisions.</p> <p>As a former financial counsellor and former consumer credit educator for the Australian Securities and Investments Commission (ASIC), here’s what I think you need to know if you’re considering mortgage deferral, rent relief or bankruptcy.</p> <p><strong>Mortgage deferral</strong></p> <p>Residential mortgages are covered by <a href="https://asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-209-credit-licensing-responsible-lending-conduct/">federal legislation</a>, under which lenders can assist when borrowers can’t afford their usual repayments due to changed circumstances — such as losing hours or employment.</p> <p>For example, you can ask your lender put on hold payments from June to September. It’s up to you and the creditor to establish clearly what happens to those payments. Are they pushed to the end of the contract, thereby extending the life of your loan? Or will you repay extra when you can afford repayments again?</p> <p>Make sure you understand how much more it will cost you in additional interest if you extend the life of your loan by deferring these payments to the end of the contract. Depending on the details of your loan, you could be adding thousands of dollars to the amount you need to repay.</p> <p>Most mortgage lenders don’t really want to repossess your house. It’s costly, time-consuming and stressful. But before asking for mortgage relief, you need to have a plan for the post-deferral period.</p> <p>What happens if you still can’t make your usual repayments? Any licensed financial professional should be able to help negotiate a deferral on your mortgage or other consumer debts such as credit cards, but you should first consider seeing a free financial counsellor who is independent of any lenders. They can be contacted on 1800 007 007 or through the <a href="https://ndh.org.au/">National Debt Helpline.</a></p> <p><strong>Rent relief</strong></p> <p>If you can’t pay your rent due to changed circumstances, you can ask your landlord to reduce or defer your rent. They can, of course, say no.</p> <p>Unlike mortgage deferral, the implementation and process is inconsistent across states and territories. It can be difficult to navigate.</p> <p>There are <a href="https://www.sbs.com.au/news/regulator-to-crack-down-on-real-estate-agents-pressuring-tenants-to-use-super">reports</a> of some landlords asking for comprehensive financial statements to support claims, or for their tenants to access the early release of up to <a href="https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/Early-access-to-your-super/#Compassionategrounds">A$10,000 in superannuation</a> to pay the rent.</p> <p>Ausralia’s corporate watchdog, the Australian Securities and Investments Commission (ASIC), has <a href="https://download.asic.gov.au/media/5546344/asic-letter-response-to-early-release-of-super-state-rei-3-april-2020.pdf">warned real estate agents</a> that advising tenants to take money from their superannuation may constitute giving unlicensed financial advice and/or be against people’s best interests, attracting possible fines and jail time.</p> <p>If you’re talking with your landlord about rent relief, be clear on whether you’re talking about rent payments being reduced, deferred or permanently waived, and whether these payments would need to be made up by a certain date. Renters can seek help from <a href="https://ndh.org.au/">free financial counsellors</a> or a <a href="https://www.tenants.org.au/covid19/guide">tenants’ union</a>.</p> <p>State and territory governments have established various schemes to help renters work out agreements with their landlord (see this <a href="https://www.commerce.wa.gov.au/consumer-protection/covid-19-residential-tenancies-mandatory-conciliation-service">Western Australian</a> scheme as an example).</p> <p><strong>Bankruptcy</strong></p> <p>Bankruptcy should be a last resort. Many creditors have shown they’re willing to provide short-term delays (for about 90 days, for example) if people need more time to pay a debt.</p> <p>Consumer credit contracts are written on the basis that life has its ups and downs and if a debtor genuinely can’t pay, the creditor can help by reducing payments, stopping interest charges, deferring payments and/or restructuring loans.</p> <p>In almost all consumer bankruptcies, there is no return to creditors so they generally don’t want debtors to go bankrupt. It’s in their interest to help debtors through a difficult period so they can return to making payments.</p> <p>Of great concern to consumer advocates is that searching “bankruptcy” or “help with debts” on the internet will often generate results for companies with a vested interest in placing you in what’s called a “debt agreement”. These should be approached with caution. It basically means you pay for a company to help you declare bankruptcy - but this is unnecessary.</p> <p>A debt agreement is an act of bankruptcy that directs fees to those companies and quite often places consumers in unmanageable and unsustainable long-term repayment plans.</p> <p>Instead, try to find free financial counsellors, some of whom work for charities. They are professional, unbiased and expert at informing people of their options when in debt. They can be found via the government’s <a href="https://moneysmart.gov.au/managing-debt/financial-counselling">MoneySmart</a> site.</p> <p>If you can’t pay your debts, there are many <a href="https://www.afsa.gov.au/debtrelief">options available</a>. The key is contacting the right person or organisation - and knowing whatever comes up first in a Google search is not necessarily the best or most impartial place to get help in a financial crisis.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/141274/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a href="https://theconversation.com/profiles/gregory-mowle-296811">Gregory Mowle</a>, Lecturer in Finance, <a href="https://theconversation.com/institutions/university-of-canberra-865">University of Canberra</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/mortgage-deferral-rent-relief-and-bankruptcy-what-you-need-to-know-if-you-have-coronavirus-money-problems-141274">original article</a>.</em></p>

Retirement Income

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3 reasons why COVID has changed the way we shop, perhaps forever

<p>It’s wrong to expect a “snap-back” at shopping centres, food courts, cinemas and other places where people used to gather to spend money.</p> <p>We’ve identified three reasons why spending in physical stores on goods like clothes is likely to remain much lower than it was for a long time.</p> <p><strong>1. Fear, much of it age-based</strong></p> <p>First, even when governments relax restrictions, lots of people will still be worried and will go out less. Unless there are zero cases for several weeks in a state or city, many people will remain reluctant to go out.</p> <p>This is why we have previously argued that there is a big dividend in <a href="https://theconversation.com/the-case-for-endgame-c-stop-almost-everything-restart-when-coronavirus-is-gone-134232">eliminating</a> COVID-19 in the style of New Zealand, the Northern Territory, and South Australia, rather than bumping along with “suppression” – and several new locally-acquired cases a day – as Victoria is still doing.</p> <p>This reluctance to go out and spend, irrespective of government restrictions, could be seen in Australia before government restrictions were imposed, as shown on the “Consumers and mobility” tab of the <a href="https://grattan.shinyapps.io/covid-econ-tracker/">Grattan Econ Tracker</a>.</p> <p>The effects of fear shouldn’t be underestimated.</p> <p>Spending in <a href="https://arxiv.org/pdf/2005.04630.pdf">Sweden</a> has fallen almost as much as in Denmark, even when Denmark was in lockdown and Sweden had minimal restrictions. Swedes are afraid to go out, particularly if they are old.</p> <p>Spending by people aged 70+ has fallen <em>further</em> in Sweden than in Denmark, and 60-69 year-olds have cut their spending by about the same amount in both countries.</p> <p>This isn’t surprising. COVID-19 is much more deadly for older people.</p> <p>Age-based fear is a challenge for retailers because older households now spend significantly more than younger households. 25 years ago it was the <a href="https://grattan.edu.au/wp-content/uploads/2019/08/920-Generation-Gap.pdf">other way around</a>.</p> <p><strong>2. Time to form new habits</strong></p> <p>Second, we are likely to keep spending on different things, and using different channels, even after restrictions are lifted.</p> <p>Habits tend to form when behaviour changes consistently. They strengthen over time, and are particularly sticky once behaviour has been consistent for a <a href="http://repositorio.ispa.pt/bitstream/10400.12/3364/1/IJSP_998-1009.pdf">period of months</a> – and we’ve been living with lockdown for that long in Australia.</p> <p>Once formed, the new habits can persist unless there is another shock.</p> <p> </p> <p>Australians have become used to doing more of their purchasing online. They have become used to spending more on living comfortably at home, and less on clothes for the office and to go out.</p> <p>After the shutdown, people are likely to continue to work from home more often.</p> <p>The habits of shopping remotely, and spending more on home furnishings and less on clothes, are likely to continue, and they would be likely to continue even if COVID-19 vanished tomorrow.</p> <p><strong>3. Global recession</strong></p> <p>Third, irrespective of COVID-19 regulations and behaviours, we are heading into an “old-fashioned”, <a href="https://openknowledge.worldbank.org/handle/10986/33748">globally synchronised, deep recession</a>.</p> <p>For the moment, <a href="https://theconversation.com/the-key-to-the-success-of-the-130-billion-wage-subsidy-is-retrospective-paid-work-135042">JobKeeper</a>, the temporarily-boosted <a href="https://theconversation.com/scalable-without-limit-how-the-government-plans-to-get-coronavirus-support-into-our-hands-quickly-134353">JobSeeker</a> payment, and a recent <a href="https://business.nab.com.au/wp-content/uploads/2020/05/NAB-Data-Insights-May-Report.pdf">bounceback</a>, have resulted in <a href="https://www.commbank.com.au/guidance/business/commbank-card-spending-data-shows-modest-lift-202006.html">spending on credit and debit cards</a> a bit more than this time last year.</p> <p>But unemployment jumped to <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0">7.1%</a> on Thursday. That official rate understates how bad things are.</p> <p>In May an extra 227,700 Australians lost their jobs (on top of 607,400 in April).</p> <p>But only 85,000 of them were counted as unemployed. When and if the bulk of those people look for work, the unemployment rate will climb further.</p> <hr /> <p><strong>Employed Australians, total</strong></p> <p><a href="https://images.theconversation.com/files/342603/original/file-20200618-41230-ffex5d.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/342603/original/file-20200618-41230-ffex5d.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption">Includes Australians regarded as still employed because they are on JobKeeper.</span> <span class="attribution"><a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0" class="source">ABS 6202.0</a></span></p> <hr /> <p>After JobKeeper <a href="https://theconversation.com/whatll-happen-when-the-moneys-snatched-back-our-looming-coronavirus-support-cliff-138527">ends in September</a> (or is <a href="https://theconversation.com/how-to-improve-jobkeeper-hint-it-would-help-not-to-pay-businesses-late-140435">phased out</a> as a result of the government’s review) many of the three million people on it will also become counted as unemployed.</p> <p>Australians who have lost their jobs are likely to spend less than they did before.</p> <p>After each of the previous two recessions it took <a href="https://grattan.edu.au/news/dont-expect-a-v-shaped-recovery-after-the-pandemic/">years</a> for employment to recover.</p> <p><strong>Spending need not recover after COVID</strong></p> <p>These three factors – fear, new habits, and recession – are present in countries and regions that seem to be well clear of coronavirus.</p> <p>Much of China has been free of most government restrictions for months. Manufacturing and infrastructure spending has largely returned to pre-COVID levels.</p> <p>But consumer activity is still <a href="https://tradingeconomics.com/china/retail-sales-annual">below pre-COVID levels</a>, and it is inching up only slowly.</p> <p>Australia might well see an “opening party” on the day each particular COVID-19 restriction is lifted.</p> <p>But after that, the best guess is that consumer spending will remain very subdued and refocused for a long time.</p> <p>For those in the hardest-hit <a href="https://theconversation.com/which-jobs-are-most-at-risk-from-the-coronavirus-shutdown-134680">sectors</a> and <a href="https://blog.grattan.edu.au/2020/06/the-latest-jobs-data-shows-urban-electorates-are-now-being-hit-hardest-by-covid-19/">regions</a> – particularly arts and recreation, hospitality, and clothing – the pain will continue long after the restrictions are lifted.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/140628/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/john-daley-1870"><em>John Daley</em></a><em>, Chief Executive Officer, <a href="https://theconversation.com/institutions/grattan-institute-1168">Grattan Institute</a></em></span></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/retail-wont-snap-back-3-reasons-why-covid-has-changed-the-way-we-shop-perhaps-forever-140628">original article</a>.</em></p>

Retirement Income

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5 things you can do to ensure you retire sooner

<p>Don’t work longer than you have to! With these five steps, you could retire sooner and enjoy spending more time with the people and things that matter most.</p> <p>We all dream about retiring young. Who wouldn’t want to see family and friends more often, do some sightseeing and spend more time out on or in the water rather than stuck behind a desk!</p> <p>Well, it’s all possible – and these five steps can help make it your reality:</p> <p><strong>1. Establish an emergency fund</strong></p> <p>Having an emergency fund in place may not seem relevant to retirement savings at first glance. But hear me out.</p> <p>Whether it’s redundancy, ill health or – as we’re now seeing – a global pandemic, unexpected hits to our income can and do happen. And when they do, we’re forced to seek out other means of paying the bills and putting food on the table.</p> <p>Without having an established emergency fund, dipping into our savings or superannuation is often the only other option.</p> <p>Taking out just $10,000 now can cost you $200,000 plus in lost earnings growth and interest over several decades. How long would it take you to earn that money back if you’re forced to continue working longer than you’d like?!</p> <p><strong>2. Tackle debts head-on</strong></p> <p>Debt can be crippling financially and force us to work longer to pay it off.</p> <p>You should generally tackle the most expensive debt first (that is, the one with the highest interest rate). This tends to be credit cards, short-term loans and store cards.</p> <p>Debt consolidation can also be a useful strategy, rolling multiple debts into one larger one that has a lower interest rate (such as your mortgage).</p> <p>Don’t forget to consider how debts impact your credit rating – a bad credit rating will impact your ability to borrow later. Conversely, a history of on-time repayments and paying down debt can establish you as a desirable borrower for banks and lenders.</p> <p><strong>3. Learn more, earn more</strong></p> <p>Investing in your skillset may be an up-front cost, but upskilling and gaining additional qualifications can enhance your earnings potential.</p> <p>That could be acquiring new skills or moving into a completely different field; becoming more highly specialised in a sought-after area; or gaining accreditation as a trainer to impart your skills and knowledge to others.</p> <p>These higher earnings give you more money with which to boost your wealth, whether that be through paying off debts faster or making extra investments.</p> <p>Plus, they also boost the size of your employer super contributions!</p> <p><strong>4. Invest to turbocharge your savings</strong></p> <p>You’d be surprised how many people don’t start investing until they start thinking about retiring. It’s such a lost opportunity!</p> <p>Thanks to compound interest and values growth over time, the longer you invest, the more you’re likely to have for retirement.</p> <p>There are many ways you can do this. Some options include:</p> <ul> <li>Using equity in your home to reinvest</li> <li>Taking advantage of catch-up rules to make extra contributions to your super</li> <li>Adopting beneficial tax incentives (putting more money in your pocket than in the taxman’s)</li> </ul> <p>Also, consider your living situation in retirement. Paying off a mortgage during your working years will mean you have a debt-free roof over your head in your twilight years.</p> <p>You could even invest in a property which you could downsize to later on and use the proceeds from selling the family home to fund your retirement.</p> <p><strong>5. Healthy is wealthy</strong></p> <p>Generally, when we talk about retirement, we’re thinking money: super, property values, shareholdings. But poor health habits now will cost you a fortune later in life.</p> <p>Obesity, heart disease and diabetes are major problems in Australia, but lifestyle factors are major contributors to these – such as poor diet, smoking and lack of exercise.</p> <p>By looking after our bodies (and our minds!) when we are younger, we can prevent or at least minimise our exposure to chronic health conditions – and the hefty medical costs involved with managing them.</p> <p>Think how much sooner you could retire if you weren’t having to factor in ten – if not hundreds – of thousands of extra dollars into your retirement savings for medications, doctor’s bills, physiotherapy and private carers!</p> <p><em>Helen Baker is a licenced Australian financial adviser and author of two books:</em> On Your Own Two Feet – Steady Steps to Women’s Financial Independence <em>and </em>On Your Own Two Feet Divorce – Your Survive and Thrive Financial Guide<em>. Proceeds from the books’ sales are donated to charities supporting disadvantaged women. </em></p> <p><em>Note this is general advice only and you should seek advice specific to your circumstances.</em></p>

Retirement Income

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BREAKING: Pension payments could halve in July due to COVID-19 changes to superannuation

<div class="post_body_wrapper"> <div class="post_body"> <div class="body_text "> <p>Superannuation funds are currently warning retirees that their pension payments are about to be cut by half under new changes that come into effect from July 1.</p> <p>"You know, as far as I know, I'm not cognitively impaired and I do have a tertiary education and English is my first language — and yet, I had difficulty,” explained Sandra Luntz to<a rel="noopener" href="https://www.abc.net.au/news/2020-06-15/pension-payment-could-halve-july-because-covid-19-changes/12348612" target="_blank"><span> </span>ABC</a>.</p> <p>The 76-year-old former speech pathologist had to turn to her daughter to explain the letter.</p> <p>Currently, the Federal Government requires retirees collecting on their superannuation to withdraw a minimum amount each year.</p> <p>At times of financial instability, like now with the COVID-19 pandemic, the Government has moved to reduce the minimum drawdown as one of the measures in its COVID-19 stimulus package as it can be counterproductive to force people to draw on their super too quickly.</p> <p>If they withdraw too much too quickly, the superannuation that is supposed to last the rest of their lives will not do the job.</p> <p>Retirees are able to elect to set the payment to a higher level if it suits them better, but Luntz’s daughter Ann Pearson is worried about the people who might be caught unawares.</p> <p>"So my mum's on the minimum pension and I know for certain that mum could not live on half the amount of money that she's getting at the moment," she told AM.</p> <p>As Pearson is Head of Wealth products with Australian financial services company ClearView, it’s her job to understand the superannuation system of Australia.</p> <p>"My mum is quite financially savvy, but she wasn't aware that this would be happening," Ms Pearson said.</p> <p>"And when I told her, she was horrified, and not just horrified because her income was halving, but also horrified that someone had actually made this decision on her behalf without consulting her, and [horrified at] having had her choice taken away from her."</p> <p>Jason Poole from financial planners GPA Matrix said that more could have been done to alert people about the changes.</p> <p>"It's the sort of thing that could almost have its own TV campaign, a government announcement: 'You can reduce your pension if you wish and your administrator may well just forcibly do this to you,'" he said.</p> <p>The Assistant Minister for Superannuation and Financial Services Jane Hume said that superannuation trustees should do what’s best for its members.</p> <p>"Trustees should be carefully examining what's in the best interests of their pensioner members and not risk being perceived to hold on to people's money," Senator Hume said.</p> <p>"Some pensioners may need the money now, others may want to only take the minimum drawdown."</p> <p>The way that superannuation funds will handle the changes coming July 1 will be handled differently depending on the fund.</p> <p>"They are automatically reducing people's pensions to the new minimum. For those people, it could be quite difficult for them to suddenly discover that they don't have enough money in their bank account to pay their bills," explained Pearson.</p> </div> </div> </div>

Retirement Income

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The economy in 7 graphs: How a tightening of wallets pushed Australia into recession

<p>A go-slow on spending sent the economy backwards <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0">0.3%</a> in the first three months of this year, only the fourth such decline since Australia was last in recession in the early 1990s.</p> <p>Treasurer Josh Frydenberg says Treasury has told him the next three months, the June quarter that we are in at present, will see a “<a href="http://www.tveeder.com/560/byrange?&amp;from=1591149600&amp;to=1591160400">far more severe</a>” contraction, one private sector forecasters believe could be as <a href="https://markets.jpmorgan.com/research/email/vbiu7qlb/drUs2ufOlPXL2o6BhGXEoQ/GPS-3389715-0">high as 10%</a>.</p> <p>Asked whether that meant Australia was already in recession, he said it did.</p> <hr /> <p><strong>Quarterly GDP growth since 1990</strong></p> <p><a href="https://images.theconversation.com/files/339399/original/file-20200603-133924-qy356o.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/339399/original/file-20200603-133924-qy356o.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption"></span> <span class="attribution"><a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0" class="source">ABS 5206.0</a></span></p> <hr /> <p>Most unusually for an economic downturn, incomes <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5206.0Main%20Features2Mar%202020?opendocument&amp;tabname=Summary&amp;prodno=5206.0&amp;issue=Mar%202020&amp;num=&amp;view=">rose</a> throughout the quarter, pushed higher by a 6.2% increase in government payments related to COVID-19 and the bushfires, and an 11.1% increase in insurance payouts as a result of bushfires and hailstorms.</p> <p>Household incomes even rose in per capita terms, by 0.1% after abstracting for population growth.</p> <p>But rather than spend more, Australian households dramatically increased saving in the quarter, pushing the household saving ratio up from 3.5% to 5.5% and pushing down household spending 0.2%.</p> <hr /> <p><strong>Household savings ratio</strong></p> <p><a href="https://images.theconversation.com/files/339403/original/file-20200603-130940-1ygbyfb.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/339403/original/file-20200603-130940-1ygbyfb.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption"></span> <span class="attribution"><span class="source">Commonwealth Treasury</span></span></p> <hr /> <p>Spending on goods actually increased over the three months as Australians stocked up on essentials including toilet paper in March.</p> <p>The production of “petroleum, coal, chemical and rubber products” surged <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5206.0Main%20Features6Mar%202020?opendocument&amp;tabname=Summary&amp;prodno=5206.0&amp;issue=Mar%202020&amp;num=&amp;view=">8.1%</a> as consumers stocked up on cleaning and disinfectant products.</p> <p>But spending on services plummeted, led down by dramatic falls in spending on transport and hotels, cafes and restaurants.</p> <hr /> <p><strong>Household consumption, March quarter</strong></p> <p><a href="https://images.theconversation.com/files/339388/original/file-20200603-133851-1ypiv4d.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/339388/original/file-20200603-133851-1ypiv4d.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption"></span> <span class="attribution"><span class="source">Commonwealth Treasury</span></span></p> <hr /> <p>Spending on transport services (airlines and the like) fell 12.0%. Spending on hotels, cafes and restaurants fell 9.2%, each the biggest fall on record.</p> <p>“Production” in these industries fell 4.9% and 7.5%. Profits fell 6.8% and 14.2%.</p> <p>Spending fell on ten of the 17 consumption categories.</p> <hr /> <p><strong>Household consumption by category, March quarter</strong></p> <p><a href="https://images.theconversation.com/files/339394/original/file-20200603-133875-s4trbq.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/339394/original/file-20200603-133875-s4trbq.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption"></span> <span class="attribution"><span class="source">Commonwealth Treasury</span></span></p> <hr /> <p>Most of the changes took place at the very end of the March quarter.</p> <p>A new index of the “stringency” of COVID-19 containment measures released with the national accounts shows these ramped up only in the final two weeks.</p> <p>Most have been in place for the entirety of the June quarter to date, suggesting the impacts on spending and production will be a “<a href="http://www.tveeder.com/560/byrange?&amp;from=1591149600&amp;to=1591160400">lot more substantial</a>”, in the words the treasurer used in the national accounts press conference.</p> <hr /> <p><strong>ABS stringency of containment measures index</strong></p> <p><a href="https://images.theconversation.com/files/339412/original/file-20200603-130951-fwjz4q.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/339412/original/file-20200603-130951-fwjz4q.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption"></span> <span class="attribution"><a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5206.0Main%20Features10Mar%202020?opendocument&amp;tabname=Summary&amp;prodno=5206.0&amp;issue=Mar%202020&amp;num=&amp;view=" class="source">ABS 5206.0</a></span></p> <hr /> <p>Were it not for government spending, which has climbed 6.2% throughout the year, the plunge in March-quarter GDP would have been much more severe.</p> <p>Calculations of the Bureau of Statistics suggest it would have been <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5206.0Main%20Features4Mar%202020?opendocument&amp;tabname=Summary&amp;prodno=5206.0&amp;issue=Mar%202020&amp;num=&amp;view=">twice as severe</a>, a March quarter decline of 0.6% rather than 0.3%.</p> <hr /> <p><strong>General government expenditure</strong></p> <p><a href="https://images.theconversation.com/files/339413/original/file-20200603-130929-jaamqk.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/339413/original/file-20200603-130929-jaamqk.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption"></span> <span class="attribution"><span class="source">Commonwealth Treasury</span></span></p> <hr /> <p>The treasurer described Australia as “on the edge of the cliff” in the March quarter, facing “<a href="http://www.tveeder.com/560/byrange?&amp;from=1591149600&amp;to=1591160400">an economist’s version of Armageddon</a>”.</p> <p>The treasury had been contemplating a fall in gross domestic product of 20% in the June quarter. Australia has avoided that fate by acting on health and the economy early.</p> <p>Its fall in GDP of 0.3% in the March quarter was one-third the OECD average.</p> <hr /> <p><strong>International comparisons, real GDP growth, March quarter</strong></p> <p><a href="https://images.theconversation.com/files/339391/original/file-20200603-133919-10kfhyf.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/339391/original/file-20200603-133919-10kfhyf.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption"></span> <span class="attribution"><span class="source">Commonwealth Treasury</span></span></p> <hr /> <p>The treasurer has scheduled an <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/update-economic-and-fiscal-outlook">economic update</a> for July 23 which will include the result of a review of the JobKeeper program.</p> <p>Asked whether it could be referred to as a mini-budget, he said it could be.</p> <p><em><a href="https://theconversation.com/profiles/peter-martin-682709">Peter Martin</a>, Visiting Fellow, <a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/the-economy-in-7-graphs-how-a-tightening-of-wallets-pushed-australia-into-recession-139960">original article</a>.</em></p>

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What COVID-19 means for the people making your clothes

<p>Workers everywhere are feeling the impact of COVID-19 and the restrictions necessitated by COVID-19.</p> <p>In Australia, <a href="https://theconversation.com/which-jobs-are-most-at-risk-from-the-coronavirus-shutdown-134680">retail and hospitality</a> workers have been particularly hard hit. In other countries, it’s <a href="https://theconversation.com/the-real-economic-victims-of-coronavirus-are-those-we-cant-see-133620">manufacturing</a> workers, hit by disruptions to value and supply chains.</p> <p>A <a href="https://www.investopedia.com/terms/v/valuechain.asp">value chain</a> is the process by which businesses start with raw materials and add value to them through manufacturing and other processes to create a finished product.</p> <p>A <a href="https://www.investopedia.com/terms/s/supplychain.asp">supply chain</a> is the steps taken to get a product to a consumer.</p> <p>Most of the time we don’t think about them at all.</p> <p><strong>Cotton is complex</strong></p> <p>Our research project with the <a href="https://www.crdc.com.au/">Cotton Research Development Corporation</a> is investigating strategies for improving labour conditions in the value chain for Australian cotton.</p> <p>This is the chain in which our cotton is spun into yarn, woven or knitted into fabric, and turned into garments and other items which are sold to consumers.</p> <p>When we began our project in mid-2019 the world was a very different place.</p> <p>The changes brought by COVID-19 have had a significant impact on those working throughout the chain – particularly in garment production, but with flow on effects to other tiers.</p> <p>The tiers in the diagram are numbered backwards.</p> <p>The first is Tier 4, where Australian cotton is grown and harvested. The next is Tier 3 where it is turned into yarn, usually overseas.</p> <p>Tier 2 is the production of fabric, Tier 1 is the production of garments and other products, and Tier 0 is retailing and selling to retailers.</p> <p>Tier 0 (brands and retailers) has been hit by delays in shipments due to factory closures at Tiers 1 and 2.</p> <p>However this has been matched by a decline in demand as social distancing and lock-down arrangements discourage or prevent consumers from shopping in person.</p> <p>In Australia retailers such as <a href="https://www.countryroad.com.au/">Country Road</a>, <a href="https://cottonongroup.com.au/">Cotton On</a> and <a href="https://www.rmwilliams.com.au/">RM William</a> temporarily closed, taking short-term retail job losses to <a href="https://www.afr.com/companies/retail/djs-stays-open-as-retail-job-losses-hit-50-000-20200328-p54ew8">50,000 or more</a>.</p> <p>Globally, many multinationals have closed their doors.</p> <p><strong>Shocks along the chain…</strong></p> <p><a href="https://www.businessoffashion.com/articles/news-analysis/nikes-sales-expected-to-drop-3-5-billion">Nike</a> is expecting sales to drop by US$3.5 billion. While seemingly immune from some of the social distancing provisions, online retail is also likely to take a hit due to a drop in demand.</p> <p>Tier 1 (garment manufacturing) has been hit by falling demand as retailers cancel orders or ask for delays in payment. It has also faced disruptions in the supply of fabric, especially from China.</p> <p>Fabric producers in Tier 2 and cotton spinners in Tier 3 have had to contend with a decreased supply of raw materials and demands to retool to produce medical equipment.</p> <p>For cotton growers in Tier 4, the fall in demand has pushed prices down from US 70 cents at the start of the year to US 50 cents, the lowest price in a decade, before a partial recovery to US 58 cents.</p> <p><strong>…with human costs</strong></p> <p>Reports of losses of tens of thousands of jobs in <a href="https://www.mmtimes.com/news/more-woes-myanmar-garment-industry-eu-cancels-orders.html">Myanmar</a> and <a href="https://english.cambodiadaily.com/business/garment-workers-in-cambodia-myanmar-and-even-asia-lose-jobs-as-covid-19-hits-them-hard-162747/">Cambodia</a> paint a bleak picture.</p> <p>In <a href="https://sourcingjournal.com/topics/sourcing/bangladesh-factories-open-coronavirus-lockdown-bgmea-rubana-huq-202342">Bangladesh</a> estimates have 1.92 million workers at risk of losing their jobs as factories receive notice of US$2.58 billion worth of export orders cancelled or on-hold.</p> <p>Making things worse, many workers in Tiers 1-3 were receiving less than a <a href="https://wageindicator.org/salary/living-wage">living wage</a> defined as the minimum needed to provide adequate shelter, food and necessities. This has made it hard for them to plan or save for emergencies.</p> <p>Many are <a href="https://digitalcommons.ilr.cornell.edu/globaldocs/730/">migrant workers</a> without funds to return home.</p> <p>Even the workers who manage to hang on to their jobs aren’t in the clear. Programs set up to improve their working conditions have been disrupted.</p> <p> </p> <p>The <a href="https://bangladeshaccord.org/">Accord on Fire and Building Safety in Bangladesh</a> is a legally-binding agreement between brands and unions set up in the wake of the collapse of the the Rana Plaza factory in 2013 which killed 1,133 people and critically injuring thousands more.</p> <p>Inspections under the program have been suspended, as have <a href="https://www.sedexglobal.com/sedex-response-to-coronavirus/">audits</a> due to the closure of borders.</p> <p>The problems are cumulative – delays in orders due to interruptions in supplies will need to be addressed when factories scale back up, creating demands from buyers that might result in pressure for workers to work unpaid and involuntary overtime, or even worse, <a href="https://www.hrw.org/report/2019/04/23/paying-bus-ticket-and-expecting-fly/how-apparel-brand-purchasing-practices-drive">subcontract to the informal market</a> where there is a high risk of human rights violations.</p> <p><strong>Shoots of hope</strong></p> <p>Amid the <a href="https://www.just-style.com/news/timeline-how-coronavirus-is-impacting-the-global-apparel-industry-free-to-read_id138313.aspx">havoc</a> are some shoots of hope.</p> <p>Companies along the value chain have been asked to produce and supply medical equipment such as surgical gowns, face masks and materials and elastics.</p> <p>Dozens of brands and retailers have <a href="https://www.businessoffashion.com/articles/intelligence/in-the-face-of-a-global-crisis-what-is-the-fashion-industry-doing">donated funds</a> and activated their logistics networks to support the effort.</p> <p>As orders slowly start returning, cotton and textile associations have joined forces in <a href="https://www.just-style.com/news/cotton-textile-sectors-call-for-collaborative-action-amid-covid-19_id138758.aspx">calling for greater collaboration</a> throughout the value chain. Governments have announced <a href="https://www.businessoffashion.com/articles/news-analysis/coronavirus-crushes-asias-garment-industry">aid packages</a> for their workers, and the European Union has provided an <a href="https://www.mmtimes.com/news/eu-provides-eu5-million-emergency-cash-myanmar-garment-workers.html">emergency fund</a> to support the most vulnerable garment workers in Myanmar.</p> <p>Longer term, the supply risks highlighted by the disruption might cause companies along the value chain to diversify their suppliers and even produce locally.</p> <p> </p> <p>The crisis has demonstrated forcefully the importance for manufacturers and retailers to be agile. Yet this can best be done when workers have been well trained and have access to the best technology and equipment.</p> <p>For now, we watch and see. Cotton is as good an indicator as any other of the brittleness of supply chains and the ways in which what we produce and consume affects the livelihoods of those further down the chain.</p> <p>In the short-term, a best-case scenario would see a revaluing of garment work as “essential” in order to produce protective/medical equipment that we need in a way that benefits the people who help make them.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/134800/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a href="https://theconversation.com/profiles/sarah-kaine-19347">Sarah Kaine</a>, Associate Professor UTS Centre for Business and Social Innovation, <a href="https://theconversation.com/institutions/university-of-technology-sydney-936">University of Technology Sydney</a>; <a href="https://theconversation.com/profiles/alice-payne-7016">Alice Payne</a>, Associate Professor in Fashion, Queensland University of Technology, <a href="https://theconversation.com/institutions/queensland-university-of-technology-847">Queensland University of Technology</a>, and <a href="https://theconversation.com/profiles/justine-coneybeer-1013025">Justine Coneybeer</a>, Research Assistant - Supply Chain, <a href="https://theconversation.com/institutions/queensland-university-of-technology-847">Queensland University of Technology</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/what-covid-19-means-for-the-people-making-your-clothes-134800">original article</a>.</em></p>

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Why flour is still missing from supermarket shelves

<p>Extreme shortages of toilet paper, pasta and other pantry products defined the early weeks of the COVID-19 pandemic for many shoppers around the world. Availability of most these goods has returned to normal.</p> <p>But not for baking goods – flour in particular.</p> <p>In Britain the flour shortage has led to the thousand-year-old Sturminster Newton Mill, <a href="https://www.smithsonianmag.com/smart-news/1000-year-old-mill-grinds-again-supply-flour-uk-180974830/">established in 1016</a>, cranking back into production. Sales by small artisan outfits – such as the Shipton Mill, mentioned in the Domesday Book of 1086 – have surged. It’s the same <a href="https://www.bfmtv.com/mediaplayer/video/rhone-face-au-manque-de-farine-dans-les-magasins-les-clients-se-tournent-vers-les-meuniers-1242779.html">in France</a>.</p> <p>So why are there flour shortages from Europe to the United States and Australia?</p> <p>The answer is both simple and complex.</p> <p>It is partly to do with the basic economics of demand and supply. Demand for baking ingredients has spiked because people staying home (and not going to restaurants or cafes) cook more.</p> <p>More fundamentally it is about the structure of concentrated food distribution systems geared to supply commercial rather than retail demand.</p> <p>The inflexibility of those channels highlights a key issue in discussions about food security – that is, ensuring people have access to food. It is not just a matter of how much food is produced but how it is distributed.</p> <p><strong>Changing consumption patterns</strong></p> <p>Supermarket shortages of toilet paper and pasta were mostly attributed to a surge in demand driven by panic-buying and stockpiling, along with a lag in supply chains geared to provide just enough product to stores to avoid storing inexpensive but bulky inventory.</p> <p>As stock disappeared from supermarket shelves, other consumers afraid of being caught short also started buying more than they normally would. Responding to that surge in demand and increasing supply took producers time – usually at least a month.</p> <p> </p> <p>But a less-discussed part of the problem was the shift in consumption patterns, as stay-at-home rules resulted in toilet paper demand from workplaces and public buildings declining and home demand increasing. And the toilet paper that commercial buyers want is different to what people buy for themselves.</p> <p>In the case of flour, the split between supplying commercial and retail demand has been an even more significant factor.</p> <p>Until the pandemic, retail demand was a small (and diminishing) part of the flour market. In Britain, for example, it represented <a href="https://www.theguardian.com/food/2020/apr/14/grains-flour-shortage-tells-us-about-who-we-are">just 4%</a> of flour consumption. The rest went to commercial bakers and food manufacturers.</p> <p>While the quality of flour commercial users buy is not necessarily different, the size of the packages in which they buy is – bags of 12, 25 of 32 kilograms, rather than the 1kg or 2kg bags that home bakers prefer.</p> <p>With home demand spiking – in Australia, for example, retail flour sales rose <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/8501.0Main%20Features4Mar%202020?opendocument&amp;tabname=Summary&amp;prodno=8501.0&amp;issue=Mar%202020&amp;num=&amp;view=">140%</a> in March – the large flour-milling operations quickly reached the limits of their equipment and processes to package flour in smaller bags.</p> <hr /> <p><img src="https://images.theconversation.com/files/337531/original/file-20200526-106811-149651l.gif?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /> <span class="caption"></span> <span class="attribution"><a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/8501.0Main%20Features4Mar%202020?opendocument&amp;tabname=Summary&amp;prodno=8501.0&amp;issue=Mar%202020&amp;num=&amp;view=" class="source">ABS 8501.0 Retail Trade, Australia, Mar 2020</a></span></p> <hr /> <p>Hence the supermarket shortages – and the opportunity that presented for boutique millers.</p> <p><strong>Industry concentration</strong></p> <p>Also contributing to the slowness of flour millers in responding to higher retail demand (compared to eggs, for instance) is the level of industry concentration.</p> <p>In Australia, for example, four companies mill <a href="https://www.millermagazine.com/english/grain-and-flour-market-in-australia/.html">80% of flour</a>. In Britain the four largest millers account for about <a href="http://www.nabim.org.uk/the-flour-milling-industry">65% of flour production</a>.</p> <p>Although highly efficient, these producers have been less flexible in adjusting their product packaging and moving distribution to supermarkets.</p> <p> </p> <p>Concentration in the supermarket sector has not helped either. Increasingly, supermarket chains cut out intermediaries (wholesalers) from their supply chains and buy directly from producers. This has made changing their sources more difficult.</p> <p><strong>Production versus distribution</strong></p> <p>The rigidity of food supply chains in responding to changes in consumption by moving food distribution from commercial to retail channels can also be seen in cases of European and American farmers reportedly pouring milk down the drain and leaving vegetables to rot in their fields.</p> <p> </p> <p>As we ponder how to ensure food security, we will need to address these systemic issues. We cannot think problems are solved just by increasing supply. It is distribution that is key.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/137263/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><span><a href="https://theconversation.com/profiles/brigit-busicchia-2473"><em>Brigit Busicchia</em></a><em>, PhD, Political Economy, <a href="https://theconversation.com/institutions/macquarie-university-1174">Macquarie University</a></em></span></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/why-flour-is-still-missing-from-supermarket-shelves-137263">original article</a>.</em></p>

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Retirement village deferred management fees: Your questions answered

<p dir="ltr">Despite having been the mainstay of Australia’s retirement village industry for decades, deferred management fees remain a poorly-understood and confusing concept for many consumers.</p> <p>In fact, the first time that most consumers hear about deferred management fees is when they consider<span> </span><a rel="noopener" href="https://www.downsizing.com.au/property/sale" target="_blank">moving into a retirement village.</a></p> <p>You won’t be charged a deferred management fee when you buy a general apartment or a house - but you will more than likely be charged such a fee by a retirement village.</p> <p>Deferred management fees come in many shapes and sizes.</p> <p>The advantage of this situation is that consumers can shop around for the best deal, and work with an operator to create a pricing model which suits their needs. </p> <p>The downside, however, is that there can be an overwhelming number of choices and options.</p> <p>However, fear not.</p> <p>Downsizing.com.au has put together the ultimate dummy’s guide to deferred management fees (also known as exit fees or deferred fees).</p> <p><strong>What are deferred management fees?</strong></p> <p>A deferred management fee is a fee you need to pay a retirement living operator when you leave the village. </p> <p>Deferred management fees represent an operator’s return (potentially including profit) from the villages they develop and run.</p> <p dir="ltr"><strong>Why do village operators charge deferred management fees?</strong></p> <p>Deferred management fees are not well-understood, typically because they are such a different pricing model compared to general housing projects.</p> <p>For instance, a typical apartment developer would seek to recover its profit as a percentage of the value of the apartment, when selling it for the first time. The developer then exits the project and allows the apartment owners to manage the complex. </p> <p>However, this scenario is not really suitable when applied to retirement villages, which have a vastly different operating model. </p> <p>This is because:</p> <ul> <li>Charging a set percentage of the dwelling price when a resident moves into a retirement village (using the above model) may be unfair if the resident only stays in the village for a very short time, such as a year or so</li> <li>State legislation can be quite strict about how operators charge monthly fees, with the aim that they recoup their costs but don’t extract a profit. As a result, the deferred management fee model has been developed by the industry to get a return on the project, because they can't get this through monthly fees</li> <li>Unlike the apartment developer example above, retirement village operators both develop the project and then continue to manage the project, which means an apartment style upfront ‘set and forget’ pricing structure may not work.</li> </ul> <p>As a result of the above, the industry has developed the idea of the deferred management fee.</p> <p>The fee is linked to the length of time that the resident stays in the dwelling, which in essence is a fair and reasonable concept. </p> <p dir="ltr"><strong>What are the different types of deferred management fees?</strong></p> <p>Unfortunately, not only are deferred management fees a niche and poorly-understood feature of the retirement village industry, consumers also need to learn about the many different ways that they are charged.</p> <p>The chart below (from the<span> </span><a rel="noopener" href="https://www.propertycouncil.com.au/Web/Content/News/RLC/2019/2019_Retirement_Census_snapshot_report_released.aspx" target="_blank">Property Council of Australia 2019 Retirement Living Census</a>) shows the different ways that operators seek to charge fees, including on either the incoming or outgoing price of the dwelling, and sometimes a portion of capital gain (or loss).</p> <p><img src="https://img.seniorshousingonline.com.au/ed05692cb07d355e5bf4f6c2f2b069121ac45b14" alt="" width="400" height="314" /></p> <p>As you can see from the chart, the most popular way that a deferred management fee is charged is on the incoming contribution, with no percentage charged on the capital gain of the dwelling while the resident has been living there.</p> <p>Some people argue this option provides the greatest certainty, because it means that a person will know the fee they are going to pay, when they sign on the dotted line. This is not possible if the fee is charged on the outgoing price, given this is a future variable.</p> <p>Consumers are also well-advised to carefully read their contract, and shop around, if the operator is proposing to extract part of the fee from the village unit’s capital gain.</p> <p>Although it doesn’t often happen, some contracts have been known to state that the consumer will both pay a portion of the capital gain if the price of the dwelling goes up, but also have to pay a fee to compensate the operator if the value of the dwelling falls. In other words, the consumer pays both ways - no matter what the outcome. </p> <p>There are two schools of thought in relation to operators linking the fee to capital gain.</p> <p>Some consumers, understandably, think they should wholly benefit from any capital gain, just as they would if their family home value increased.</p> <p>In contrast, some operators argue it is actually in the interests of both the consumer and the operator for the fee to apply on capital gain. </p> <p>According to this argument, a fee linked to capital gain ensures that both the resident and the operator are motivated to keep the dwelling and village well-maintained so the dwelling appreciates in value over time.</p> <p><strong>What is the average cost of deferred management fees?</strong></p> <p>As the chart from the Property Council 2019 Retirement Living Census below shows, there are a wide range of deferred management costs. </p> <p><img src="https://img.seniorshousingonline.com.au/81ed1da922543989f76809084b527c85ef37add1" alt="" width="400" height="332" /></p> <p>The maximum fee level typically ranges between 25 and 36 per cent of your home value (noting the different pricing models explained above). So it pays to shop around.</p> <p>What’s more, operators apply this maximum fee in different timeframes.</p> <p>Around half of all villages reach the maximum fee level within six years (noting that the average stay in a retirement village is around 8-9 years). Around one in five however reach the fee within just four years.</p> <p>Obviously, you are more likely to pay more if you sign-up with an operator with a higher fee which applies in a shorter time frame.</p> <p><strong>How do I know what fee option is best for me?</strong></p> <p>Not only do you need to understand what the operator is offering, and shop around, you also need to consider your own financial circumstances.</p> <p>Operators are likely to be willing to reduce the deferred management fee amount, if you pay a higher entry price when you sell your family home and downsize into a retirement village dwelling. </p> <p dir="ltr">This is because they will make money by earning interest when they invest this higher amount, and therefore are willing to forgo a higher fee.</p> <p>The potential advantage of this approach is that, by paying a higher amount, you also won’t have too much spare cash lying around and breach the<span> </span><a rel="noopener" href="https://www.servicesaustralia.gov.au/individuals/services/centrelink/age-pension/how-much-you-can-get/assets-test/assets" target="_blank">pension assets threshold</a><span> </span>(and therefore lose all or part access to the pension). </p> <p>A good financial advisor should be able to help with calculating this.</p> <p>Separately, for some people, an option where they pay a very high fee - in some cases well over 50 per cent - but also a much lower incoming price, is preferable. </p> <p>This is because, without this lower entry price, the residents wouldn’t have been able to move into the village at all. </p> <p>In other words, the deferred management fee is simply a formula - and can be pushed and squeezed in a way which best suits your needs and financial situation. </p> <p><strong>How can I compare and contrast different offers?</strong></p> <p>Fortunately, the Macquarie University has developed a<span> </span><a rel="noopener" href="https://rvcalculator.mq.edu.au/#/calculator" target="_blank">Retirement Village Calculator</a>, which seeks to boil all the above options (and the monthly service charge) into a simple monthly cost. </p> <p>This allows you to compare and contrast different operators and scenarios.</p> <p>In addition, some operators have done away with deferred management fees altogether - see the stories below for more information:</p> <ul> <li><a rel="noopener" href="https://www.downsizing.com.au/news/654/Largest-in-Australia-270m-Canberra-care-centered-village-accepts-its-first-residents" target="_blank">"Largest in Australia": $270m Canberra care-centered vlllage accepts its first residents<span> </span></a>(2020 story)</li> <li><a rel="noopener" href="http://big%20changes%20in%20retirement%20living/" target="_blank">Big changes in retirement living</a> (2018 story)</li> </ul> <p>Also check out this<span> </span><a rel="noopener" href="https://www.downsizing.com.au/news/110/What-you-need-to-know-about-legal-title-in-retirement-villages" target="_blank">expert analysis</a><span> </span>of different sort of legal titles and fee pricing models in NSW retirement villages.</p> <p><em>Written by<span> Mark Skelsey</span>. Republished with permission of <a rel="noopener" href="https://www.downsizing.com.au/news/700/Retirement-village-deferred-management-fees-your-questions-answered" target="_blank">Downsizing.com.au</a></em><em>.</em></p>

Retirement Income

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Most Australians struggle managing their debts amid COVID-19, survey finds

<p>The coronavirus pandemic has turned economies upside down, and Australia is no exception. More than three-quarters of Aussies said they felt stressed about their financial situation amid the outbreak, a new survey has found.</p> <p>A research by consumer insight company J.D. Power – which polled 1,415 Australian adults between April 28 and May 13 – found that 77 per cent said they experienced some level of financial stress, with 24 per cent saying they were extremely stressed.</p> <p>This stress was reflected in people’s behaviour. Since the beginning of the pandemic, 39 per cent reported feeling worried or anxious, while 35 per cent said they felt tired and were losing energy.</p> <p>More than three in five respondents (62 per cent) could not manage their debt. Nearly one in five (19 per cent) said they could no longer make their minimum monthly credit payment, while 11 per cent said they were not able to pay their mortgages. One in ten (10 per cent) said they could not afford enough food to eat.</p> <p>Most did not believe their banks were doing enough during the pandemic. Only 29 per cent said their bank had shown concern for their personal financial situation. About a third of NAB and ANZ customers said their banks showed them concern in these challenging times, while only 28 per cent of Westpac customers and 26 per cent of Commonwealth Bank customers expressed similar sentiments.</p> <p>Customers also found more difficulties getting in touch with a bank representative through the phone. One in four customers (25 per cent) said they experienced long wait times, and 17 per cent were unable to find someone to talk to.</p> <p>“Banks can make sure that they are communicating information that is in tune with customer needs, such as understanding if monthly service fees can be waived or if branches near to them are still operating,” said Bronwyn Gill, head of banking and payments intelligence at J.D. Power.</p> <p>While coronavirus restrictions are being eased across the country, it would not be enough to relieve people’s financial stress, Gill said.</p> <p>“35 per cent of Australians [said] that they feel the worst is yet to come,” she said.</p> <p>“In the meantime government income support will continue to be important, especially as 21 per cent currently say that it is a major benefit for them.”</p> <p>Many Australian workers have resorted to support from the government, including JobSeeker and JobKeeper payments.</p> <p>More than 830,000 applications for early access to superannuation have also been paid out, with the average payment now sitting at $7,629. Under the government’s new scheme, eligible applicants can access up to $10,000 from their super this financial year and a further $10,000 in the next.</p>

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Why the COVID lock-down is clearly worth the cost

<p>Will the number of lives saved as a result of the COVID-19 restrictions be outweighed by the deaths from an economic recession?</p> <p>This is a vital question to answer for governments responding to the current global tragedy.</p> <p>Without <a href="https://www.tandfonline.com/doi/full/10.1080/23812346.2020.1741940">numbers</a>, there’s no obvious way of working out whether the economic impacts of the lock-down could be more harmful than the virus.</p> <p>With health economics consultant <a href="http://paxtonpartners.com.au/who-we-are">Daniel West</a>, I have attempted to estimate the numbers involved in Australia.</p> <p>In order to provide a strong challenge to the status quo of lock-down the estimates we have used for increased deaths from a lockdown-induced recession are at the high end of the likely scale. The estimates we have used for deaths from COVID19 if the lockdown ends are at the low end.</p> <p>Our analysis suggests that continuing strict restrictions in order to eradicate COVID-19 is likely to lead to eight times fewer total deaths than an immediate return to life as normal.</p> <p><strong>Lives the lock-down could cost</strong></p> <p>The most obvious deaths likely to follow from a lock-down-induced recession are suicides.</p> <p>Studies in 26 European countries over four decades suggest that increases in unemployment of more than 3% are associated with increases in suicides by <a href="https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.1016.4083&amp;rep=rep1&amp;type=pdf">4.45%</a>.</p> <p>A similar relationship was found <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/hec.3495">in Australia</a> during the global financial crisis.</p> <p>The projections for increases in unemployment if the lock-down continues are grim, some pointing to an unemployment rate of up to <a href="https://www.abc.net.au/news/2020-04-15/how-coronavirus-crisis-compares-to-1990s-recession-australia/12148020">15%</a> which might not return to normal for up to a <a href="https://www.abc.net.au/news/2020-03-16/coronavirus-economic-impact-could-take-decade-to-recover-from/12058706">decade</a>.</p> <p>To account for the prospect that the coming recession will be more severe than most, we have used double the highest European estimate of the relationship between increased unemployment and suicide.</p> <p>This estimate suggests that an increase in the unemployment rate to 15% followed by a gradual decline over ten years would produce a distressing 2,761 extra deaths due to suicide.</p> <p><strong>Loneliness takes lives too</strong></p> <p>Continued restrictions could also significantly increase <a href="https://www.researchgate.net/publication/340487993_Increased_Risk_of_Suicide_Due_to_Economic_and_Social_Impacts_of_Social_Distancing_Measures_to_Address_the_Covid-19_Pandemic_A_Forecast">loneliness</a>, which, for those who are lonely, can increase deaths from all-causes by between <a href="https://journals.plos.org/plosone/article/file?type=printable&amp;id=10.1371/journal.pone.0190033">15%</a> and <a href="https://journals.sagepub.com/doi/abs/10.1177/1745691614568352">29%</a>.</p> <p>Research suggests that quarantine can increase the number of people showing psychological distress by about <a href="https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30460-8/fulltext">20%</a>, an estimate we have used as a proxy for the effect of loneliness, even though the lock-down restrictions are less severe than quarantine.</p> <p>This points to an additional 4,015 deaths associated with loneliness from a lock-down of six months.</p> <p>Although it would be reasonable to assume that a recession would increase the number of deaths from other causes, studies show this isn’t the case. Research into “all-cause mortality” consistently shows <a href="https://www.sciencedirect.com/science/article/abs/pii/S0277953617304495">declines in deaths</a> during recessions, due in part to a reduced number of heart attacks.</p> <p>The current lock-down might also increase deaths in specific ways, such as deaths from alcohol abuse.</p> <p>On the other hand, if hospitals are overwhelmed by COVID-19 cases, deaths from non-COVID-19 injuries and illnesses will increase as people cannot access health care.</p> <p>Because we have no data on these offsetting possibilities, we have assumed they are roughly matched in size.</p> <p>It is also worth noting that although we assume lock-down restrictions will hurt our economy more severely, cities that implemented more severe restrictions during the 1918 Spanish flu had economies that bounced back faster after the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3561560">pandemic</a>.</p> <p><strong>Lives the lock-down might save</strong></p> <p>We have estimated the number of deaths from COVID-19, suicide and loneliness under three different scenarios</p> <ul> <li> <p>an immediate return to life as normal, while still quarantining suspected cases</p> </li> <li> <p>an easing of restrictions that allows the virus to slowly spread in order to achieve so-called herd immunity</p> </li> <li> <p>the maintenance of restrictions until the virus is contained, followed by extensive tracking and tracing aimed at eliminating the virus</p> </li> </ul> <p><strong>Scenario 1. Return to normal</strong></p> <p><a href="https://images.theconversation.com/files/333315/original/file-20200507-49579-1fjeiob.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/333315/original/file-20200507-49579-1fjeiob.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=237&amp;fit=clip" alt="" /></a> <span class="caption"></span></p> <p>With no lock-down measures other than the quarantine of suspected cases, the government believes <a href="https://www.pm.gov.au/sites/default/files/files/covid19-icu-modelling-summary.pdf">68%</a> of people would contract the virus. Our estimates suggest this would result in more than 287,000 deaths from COVID-19 as the health system could not cope with the volume.</p> <p>We assume this would produce a recession lasting five years instead of ten, with 10% initial unemployment and an associated 753 extra deaths from suicide.</p> <p><strong>Scenario 2. Herd immunity</strong></p> <p><a href="https://images.theconversation.com/files/333026/original/file-20200506-49569-3hqr0p.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/333026/original/file-20200506-49569-3hqr0p.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=237&amp;fit=clip" alt="" /></a> <span class="caption"></span></p> <p>The government says that to achieve herd immunity, about <a href="https://www.health.gov.au/news/deputy-chief-medical-officer-interview-on-sky-news-on-9-april">60%</a> of people would need to eventually contract the virus. If it is done slowly, intensive care units will not be overwhelmed, keeping the death rate per infection low.</p> <p>Our estimates suggest the strategy would lead to 141,000 deaths from COVID-19.</p> <p>We assume this would result in a deep recession of ten years with 15% initial unemployment and an associated 4,015 deaths from loneliness and 2,761 deaths from suicide.</p> <p><strong>Scenario 3. Eradication</strong></p> <p><a href="https://images.theconversation.com/files/333027/original/file-20200506-49556-dmbnk.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/333027/original/file-20200506-49556-dmbnk.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=237&amp;fit=clip" alt="" /></a> <span class="caption"></span></p> <p>Under the eradication scenario, <a href="https://www.pm.gov.au/sites/default/files/files/covid19-icu-modelling-summary.pdf">11.6%</a> of people would be expected to contract the virus, resulting in 27,000 deaths from COVID-19.</p> <p>As with the herd immunity strategy, we have assumed a deep recession over ten years with 15% initial unemployment and an associated 4,015 deaths from loneliness and 2,761 from suicide.</p> <p>Note that given Australia’s current success, it is very possible that with continued prudent restrictions, the number of deaths due to COVID19 will be well below 27,000.</p> <p><strong>The calculus of death</strong></p> <p>Regardless of the strategy, the estimated number of deaths from COVID-19 far exceeds the estimated number of deaths from suicide and loneliness.</p> <p>Despite assuming that an immediate return to life as normal would prevent all further deaths from loneliness and 70% of deaths from the increased suicide rate associated with high unemployment, the life as normal scenario is predicted to result in by far the highest overall number of deaths: 288,000.</p> <p>This is almost twice the number of deaths predicted for the herd immunity scenario (148,000) and more than eight times as many as eradication (34,000).</p> <p>The <a href="https://www.theaustralian.com.au/nation/suicides-toll-far-higher-than-coronavirus/news-story/25a686904b67bdedbdcd544b1cab7f96">Brain and Mind Centre at the University of Sydney</a> has reported larger estimates for suicides from increased unemployment: an extra 750 to 1,500 suicides per year for five years. The top end of this range projects an extra 7,500 suicides, almost three times our estimate.</p> <p>Even using this higher estimate, the number of lives that would be lost from COVID-19 without lock-down measures would dwarf the number of extra suicides.</p> <p>People are understandably concerned about what the lock-down will do to their jobs, businesses and investments. That damage extends beyond lives lost.</p> <p>The lives that will be lost are important. The implementation of preventative measures will be vital to reduce the risk of suicide.</p> <p>Yet our calculations clearly suggest that, when it comes to human lives, far fewer will be lost by continuing restrictions than would be lost by ending them now.</p> <hr /> <p><em>If this article has raised issues for you, or if you’re concerned about someone you know, call Lifeline on 13 11 14.</em></p> <p><em>This article was produced in collaboration with Daniel West. An extended version can be found <a href="https://drive.google.com/file/d/1ZhF9T12ZgqSbxdtp6o9aF8pddKl4HLOt/view?usp=sharing">here</a>.</em><!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/137716/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a href="https://theconversation.com/profiles/neil-bailey-135535">Neil Bailey</a>, Research Fellow at the Epworth Centre for Innovation in Mental Health, <a href="https://theconversation.com/institutions/monash-university-1065">Monash University</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/the-calculus-of-death-shows-the-covid-lock-down-is-clearly-worth-the-cost-137716">original article</a>.</em></p>

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Should I drop my private health insurance during the pandemic?

<p>Many Australians, especially those experiencing financial hardship due to COVID-19, are asking whether they can afford to keep their private health insurance.</p> <p>Others don’t know if they should drop or downgrade their cover, especially if they cannot or don’t want to access services they’ve paid for.</p> <p>Now consumer group Choice <a href="https://us4.campaign-archive.com/?u=270103a13e38b9f6643b82a8e&amp;id=d9e5af4fa1">is recommending</a> <a href="https://www.abc.net.au/news/2020-04-24/calls-for-private-insurance-rebates-amid-coronavirus-pandemic/12178828">people think about</a> dropping extras cover, dropping or downgrading hospital cover and asking their insurance company for hardship considerations, which include waiving premiums or suspending their policy.</p> <p>What options do you have? And what are the implications of dropping or downgrading your cover?</p> <p><strong>What services can I use?</strong></p> <p>Our <a href="https://theconversation.com/do-you-really-need-private-health-insurance-heres-what-you-need-to-know-before-deciding-93661">research</a> shows people take out private health insurance because of shorter waiting times for elective surgery, choice of doctor or hospital, access to a private hospital room, and extras like dental and physiotherapy services.</p> <p>Although some elective surgeries are due to <a href="https://www.health.gov.au/ministers/the-hon-greg-hunt-mp/media/elective-surgery-restrictions-eased">resume this week</a>, it’s unclear how long it will take hospitals to clear the backlog, which surgeries will be performed and where. This raises questions about whether consumers will be able to access the benefits they value in having private health insurance.</p> <p>While a key reason for taking out private health insurance is to avoid waiting times, people may now have to <a href="https://theconversation.com/what-elective-surgery-will-be-allowed-now-the-coronavirus-situation-has-improved-its-up-to-your-surgeon-or-hospital-137077">wait</a> while hospitals and health care providers resume a staged approach to resuming elective surgery and general treatments impacted by the pandemic.</p> <p>People may also be worried about whether they will receive the care they need if they have COVID-19. However, they should be assured that emergency treatment will be provided through the public system. Many private health insurance companies will also now <a href="https://www.moneymag.com.au/coronavirus-private-health-insurance">cover COVID-19 related treatments</a>.</p> <p><strong>How are private insurers responding?</strong></p> <p>Modelling by the <a href="https://www.tai.org.au/sites/default/files/P910%20Private%20eyes%E2%80%A6%2C%20hips%2C%20etc%20%5BWEB%5D.pdf">Australia Institute</a> shows private health insurers could make considerable savings due to a reduction in claims paid to, or on behalf of, consumers during the pandemic.</p> <p>This is because services, such as elective surgery, and general treatments, such as dental services, are not available or are limited. And it recommends some of these savings should be passed on to policy holders.</p> <p>Private health insurance companies have <a href="https://www.privatehealthcareaustralia.org.au/health-funds-postpone-1-april-premium-increase/">assured</a> consumers that any increase in premiums will be delayed by at least six months.</p> <p>They have also said that some funds resulting from the cancellation of elective surgery or allied health services will be <a href="https://www.privatehealthcareaustralia.org.au/health-funds-committed-to-providing-financial-relief-for-members-impacted-by-covid-19/">returned to customers</a>. It isn’t clear, though, how this will be done and over what period.</p> <p><strong>What options do I have?</strong></p> <p>It’s not surprising if you’re confused about whether to keep, drop or downgrade your private health insurance.</p> <p>Our research consistently shows consumers find changing private health cover <a href="https://theconversation.com/confused-about-your-private-health-insurance-coverage-youre-not-alone-49493">confusing</a>. Increasing costs of premiums, value for money and difficulties understanding policies are <a href="https://theconversation.com/explainer-why-do-australians-have-private-health-insurance-38788">common concerns</a>. People aren’t certain what they need cover for, what is a reasonable price to pay, and how much difference there is between the public and private systems.</p> <p>If you are thinking about downgrading your hospital cover or stopping extras cover, think about what services you may need in the future.</p> <p>Remember that if you downgrade your hospital cover to a lower level of cover some services may be excluded (for instance, pregnancy). If you decide to increase your level of hospital cover in the future you may also need to re-serve waiting periods for those services excluded at the lower level of cover.</p> <p>If you drop your hospital cover and take it up again in the future, you may pay more due to the <a href="https://www.privatehealth.gov.au/health_insurance/surcharges_incentives/lifetime_health_cover.htm">Lifetime health cover</a> loading (if you do not take private health insurance up again <a href="https://www.privatehealth.gov.au/health_insurance/surcharges_incentives/lifetime_health_cover.htm">within 1,094 days</a> of dropping your cover).</p> <p>Choice is also recommending people <a href="https://us4.campaign-archive.com/?u=270103a13e38b9f6643b82a8e&amp;id=d9e5af4fa1">drop</a> their extras cover. But your decision about this will depend on the types of services you typically use.</p> <p>If you decide to drop your extras cover, you may also be required to <a href="https://www.ombudsman.gov.au/__data/assets/pdf_file/0017/35612/Waiting-periods-DL-Fyler-Web.pdf">re-serve waiting periods</a> if you take up extras again in the future.</p> <p>This means you may need to wait two months for general dental services or physiotherapy, but 12 months for major dental procedures. However these waiting periods vary according to procedure and insurer. So to find out what waiting periods apply, ask your health fund.</p> <p>If you are experiencing financial hardship you may be able to ask your fund to temporarily waive your premiums or suspend your policy. However, you won’t be covered while your health insurance is suspended.</p> <p><strong>What happens after the coronavirus?</strong></p> <p>The pandemic highlights issues with Australia’s health-care system, and how private health insurance operates and is funded.</p> <p>There has been much critique of government policy encouraging Australians to take out private health insurance, and in particular the <a href="https://theconversation.com/private-health-insurance-rebates-dont-serve-their-purpose-lets-talk-about-scrapping-them-91061">subsidising of premiums</a> through the private health insurance rebate.</p> <p>At a time when more consumers are experiencing financial hardship they will question the value of their private health insurance even more than before.</p> <p>There may be <a href="https://theconversation.com/elective-surgerys-due-to-restart-next-week-so-nows-the-time-to-fix-waiting-lists-once-and-for-all-136835">other ways</a> of providing health-care, including fixing waiting lists, that meet the needs of all Australians, while retaining the best aspects of both public and private care.</p> <hr /> <p><em>As decisions about whether to change your private health insurance depend on your personal circumstances, please discuss your options and their implications with your health fund or read the fine print on policy documents.</em></p> <p><em>For independent advice and consumer resources, see the government’s private health insurance <a href="https://www.privatehealth.gov.au/">website</a>, health department <a href="https://www.health.gov.au/resources/collections/private-health-insurance-reforms-consumer-resources">website</a> or consumer organisation websites such as <a href="https://chf.org.au/blog/gold-silver-bronze-making-health-insurance-easier-navigate">Consumers Health Forum of Australia</a> or <a href="https://www.choice.com.au/money/insurance/health">Choice</a>.</em><!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/137156/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><em><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></em></p> <p><em><a href="https://theconversation.com/profiles/sophie-lewis-111177">Sophie Lewis</a>, Senior Research Fellow, Centre for Social Research in Health, <a href="https://theconversation.com/institutions/unsw-1414">UNSW</a> and <a href="https://theconversation.com/profiles/karen-willis-16116">Karen Willis</a>, Professor, Allied Health Research, Melbourne Health, <a href="https://theconversation.com/institutions/la-trobe-university-842">La Trobe University</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/should-i-drop-my-private-health-insurance-during-the-pandemic-137156">original article</a>.</em></p>

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Why staying at home for months is unlikely to lead to an eye-watering electricity bill

<p>Electricity demand in Australia has barely budged since COVID-19 took hold. Many may be wondering: after months spent largely at home, are huge household power bills on the way?</p> <p>The answer, largely, is no. But as the pandemic forces hundreds of thousands of Australians into unemployment, some will still struggle to pay their electricity bills.</p> <p>A mass failure to pay would threaten the viability of electricity retailers. If some folded, this would reduce market competition and drive up energy costs for everyone.</p> <p>So let’s take a look at how stay-at-home measures are affecting energy demand, and what the coronavirus pandemic means for electricity consumers in Australia.</p> <p><strong>A mixed bag</strong></p> <p><a href="https://www.vepc.org.au/blog-1">We’ve assessed</a> how social distancing restrictions have affected both demand for electricity and “mobility” (the movement of people) in Australia, New Zealand, the US and the UK.</p> <p>Interestingly, changes in electricity demand and mobility go together and were significantly different across the countries after strict stay-at-home rules were imposed in late March.</p> <p>Grid-based electricity demand in both the UK and New Zealand has declined significantly (20% and 15% respectively). Demand is largely unchanged in Australia and has declined about 5% in the US overall, relative to the baseline.</p> <p>Among Australian states, electricity demand has declined in New South Wales by around 5%, and increased slightly in Western Australia and Tasmania. Demand is largely unchanged in Victoria, South Australia and Queensland compared to the baseline.</p> <p>The relative strictness of social distancing policies seems to be the main driver of changes in electricity demand. For example, unlike New Zealand, Australia’s construction industry was not subject to lockdown restrictions, which meant electricity use in that sector has continued.</p> <p>Of course, many factors affect electricity demand, and further analysis is required to isolate the precise impact of social distancing policies.</p> <p><strong>Out and about</strong></p> <p>To crosscheck changes in electricity demand, we examined the change in the movement of people to retail, recreation and workplace locations as measured in Google’s <a href="https://www.google.com/covid19/mobility/">COVID-19 Community Mobility Reports</a>. These reports use location history data from users to create a picture of how people are moving around the community.</p> <p>Mobility changes are consistent with the change in electricity demand: since stay-at-home restrictions were imposed, falls in mobility have been about twice as large in New Zealand and the UK as in Australia.</p> <p>Mobility in the US states of New York and California has declined more than in Australia, but less than in the UK and New Zealand.</p> <p><strong>What to expect this winter</strong></p> <p>In Australia, electricity demand from households has increased slightly as millions of people stay at home, prompting warnings of <a href="https://www.abc.net.au/news/2020-04-11/coronavirus-lockdown-driving-up-electricity-costs/12137488">bill shock</a>. But activities such as boiling the kettle and cooking more often, and keeping lights on all day, do not make a big difference to consumption.</p> <p>This will change in winter, when we need to keep our houses warm. Households using split-system air conditioners for heating can expect seasonally adjusted electricity bills to be around 10-20% higher if they’re heating the house 24 hours a day, rather than just briefly in the morning and again in the late afternoon and evening.</p> <p>But demand will vary greatly depending on weather and a home’s size, insulation, efficiency of heater and so on.</p> <p>Averaged across all Australian households (and assuming social distancing regulations continue to apply in winter), we expect total residential electricity consumption to be a little higher this winter than in previous years.</p> <p>Differences will be more pronounced in the colder states: Victoria, Tasmania, South Australia and to a lesser extent New South Wales. The warmer states of Queensland, Western Australia and the Northern Territory will see little change.</p> <p>Overall, slightly higher demand for electricity in Australian households over winter will probably offset lower commercial and retail demand.</p> <p><strong>Threat to competition</strong></p> <p>While overall electricity demand might not shift much in Australia, skyrocketing unemployment may create a surge in the number of households struggling to pay their energy bills, even with Jobkeeper payments.</p> <p>Long before the pandemic, regulators, governments, retailers and customer groups had worked to improve consumer protections such as hardship policies. These measures are now likely to be put to the test.</p> <p>There are signs that electricity retailers are already anxious about looming non-payment. For example, <a href="https://www.globirdenergy.com.au/bonus-boost/?utm_source=Existing%20Customer&amp;utm_medium=SMS&amp;utm_campaign=Prepaid%20Boost">some retailers</a> have offered incentives for customers to take up direct debit, or cash-back for bills paid in advance.</p> <p>Retailers pay for both the electricity produced, and its transport. If many thousands of customers can’t pay their bills, some retailers may become financially unviable. The smaller retailers have the weakest balance sheets and are most at risk.</p> <p>But these small companies are the lifeblood of competition in Australia’s retail electricity markets. Losing them would, in time, translate into higher prices.</p> <p>In Queensland, the government has announced <a href="https://www.qld.gov.au/__data/assets/pdf_file/0023/122099/electricity-relief-qanda.pdf">assistance to electricty consumers</a> in response to COVID-19.</p> <p>If utility non-payment spirals and retailer viability is seriously threatened, governments and regulators might consider ways to share the risks more broadly, to protect competition and consumers.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/136943/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a href="https://theconversation.com/profiles/bruce-mountain-141253">Bruce Mountain</a>, Director, Victoria Energy Policy Centre, <a href="https://theconversation.com/institutions/victoria-university-1175">Victoria University</a>; <a href="https://theconversation.com/profiles/kelly-burns-1043264">Kelly Burns</a>, Senior Research Fellow, <a href="https://theconversation.com/institutions/victoria-university-1175">Victoria University</a>, and <a href="https://theconversation.com/profiles/steven-percy-611961">Steven Percy</a>, Senior research fellow, <a href="https://theconversation.com/institutions/victoria-university-1175">Victoria University</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/dont-worry-staying-at-home-for-months-is-unlikely-to-lead-to-an-eye-watering-electricity-bill-136943">original article</a>.</em></p>

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Coronavirus contact-tracing apps: Why most of us won’t cooperate unless everyone does

<p>As governments look to ease general social-distancing measures and instead use more targeted strategies to stop coronavirus transmission, we face a social dilemma about the limits of cooperative behaviour.</p> <p>Consider the controversy over contact-tracing phone apps, which can help authorities identify people with whom someone diagnosed with COVID-19 has recently come into close contact.</p> <p><a href="https://045.medsci.ox.ac.uk/for-media">Oxford University research</a> suggests such apps could effectively stop the epidemic if 60% of the population use them, though even with lower uptake they still have some value.</p> <p>The Australian government’s goal is for <a href="https://www.sbs.com.au/news/coronavirus-mobile-tracking-app-may-be-mandatory-if-not-enough-people-sign-up-scott-morrison-says">40% of the population</a> to use its app. It is hoping people will do this voluntarily.</p> <p>That’s double the uptake so far achieved in Singapore, which launched its <a href="https://www.tracetogether.gov.sg/">TraceTogether</a> app <a href="https://www.straitstimes.com/singapore/about-one-million-people-have-downloaded-the-tracetogether-app-but-more-need-to-do-so-for">on March 20</a>. This despite a six-nation survey (including Australia) suggesting Singaporeans are the most relaxed about the <a href="https://www.consultancy.asia/news/3126/singaporean-attitudes-to-personal-covid-data-differ-to-overseas-counterparts">personal privacy concerns</a>.</p> <p> </p> <p>My research into cooperative behaviour suggests there’s no reason to believe voluntary uptake will be higher anywhere else.</p> <p><strong>What is a social dilemma?</strong></p> <p>Economists define a <a href="https://www.annualreviews.org/doi/pdf/10.1146/annurev.ps.31.020180.001125">social dilemma</a> as a situation where individual interests conflict with collective interests. More specifically, it is a situation in which there is a collective benefit from widespread cooperation but individuals have an incentive to “free ride” on the cooperation of others.</p> <p>For example, we would have collectively benefited if everyone had shown self-restraint in buying toilet paper and other items in the early weeks of the crisis. But selfish behaviour by some created a crisis for everybody else.</p> <p>Economists, political scientists and evolutionary biologists have used social dilemma paradigms for more than half a century to study the evolution of cooperation in societies.</p> <p>One of the most influential contributions to the field was a 1981 paper, <a href="https://ee.stanford.edu/%7Ehellman/Breakthrough/book/pdfs/axelrod.pdf">The Evolution of Cooperation</a>, by political scientist Robert Axelrod and evolutionary biologist William Hamilton. The paper’s key point is this: cooperation depends not on altruism but reciprocity.</p> <p><strong>Most cooperation is conditional</strong></p> <p>My <a href="https://www.sciencedirect.com/science/article/abs/pii/S0165176518302453">research</a> (with behavioural economist Christian Thöni of the University of Lausanne) confirms this.</p> <p>Based on reviewing 17 social dilemma studies involving more than 7,000 individuals, we estimate no more than 3% of the population can be relied on to act cooperatively out of altruism – independent of what others do.</p> <p>About 20% can be expected to act selfishly (i.e. free ride).</p> <p>The majority – about 60% – are “conditional cooperators”. They cooperate if they believe others will cooperate.</p> <p>Another 10% are so-called “triangle cooperators”. They behave similarly to conditional cooperators, but only to the point where they believe enough people are cooperating. They then reduce their cooperation.</p> <p>The remainder – about 7% – behave unpredictably.</p> <hr /> <p><img src="https://images.theconversation.com/files/329637/original/file-20200422-82672-vo1c6z.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /> <span class="caption">This infographic illustrates the four cooperation types and levels of cooperation over time. Altruistiic cooperation does not depend on others. Conditional cooperation depends on others cooperating. Triangle cooperation is similar to conditional cooperation to a point, then falls away. Free-riding behaviour is always uncooperative and can only be modified by the fear of punishment.</span> <span class="attribution"><span class="source">Stefan Volk</span>, <span class="license">Author provided</span></span></p> <hr /> <p><strong>The need for punishment</strong></p> <p>The most important group to consider in social dilemma situations is, of course, the majority.</p> <p>Conditional cooperators are very sensitive to what they believe others will do. They will only pay taxes, save water, donate to charities or protect the environment if they believe most others are doing the same.</p> <p>To maintain their cooperation, therefore, it is essential to uphold their beliefs in equality and egalitarianism, where everyone does their part, nobody gets preferential treatment, and nobody gets away with free riding.</p> <p>Research by Swiss economists Ernst Fehr and Urs Fischbacher has found just a small minority of free riders is sufficient to cause a <a href="http://eebweb.arizona.edu/Faculty/Dornhaus/courses/materials/papers/Fehr%20Fischbacher%20human%20altruism.pdf">breakdown of cooperation</a> over time.</p> <p>Conditional cooperators will reduce their own cooperation as soon as they realise one or a few others are not complying with the collectively agreed rules. This in turn causes others to reduce their cooperation. It creates a downward spiral.</p> <p>What stops this happening more is that many conditional cooperators will punish free riders, even at their own expense.</p> <p>Fehr and Fischbacher <a href="https://www.sciencedirect.com/science/article/pii/S1090513804000054">demonstrated this</a> through experiments involving “ultimatum games”.</p> <p>They observed games in which one person got to propose how to split a pot of money between two players. If the other player rejected the split, neither got money.</p> <p>In another scenario, the allocator was free to make the split however they liked. But a third party unaffected by the split could spend money from their own allocated pot to deny the allocator income. In 55% of cases, third parties were prepared to spend money to punish allocators who didn’t split the money fairly. Fehr and Fischbacher called this “altruistic punishment”.</p> <p>Their results also showed anticipation of punishment deterred non-cooperative behaviour by free riders and reassured conditional cooperators’ beliefs in maintaining their commitment to collective cooperation.</p> <p><strong>Two-factor validation</strong></p> <p>The evidence from behavioural economics research indicates two mechanisms are essential to ensure cooperative behaviour on COVID-19 measures.</p> <p> </p> <p>First, the majority of us must be reassured others are doing the right thing. This involves showcasing exemplary acts of cooperation and granting no preferential treatment to any kind of interest group.</p> <p>Second, we must be assured others aren’t getting away with uncooperative behaviour. In other words, free riding must be swiftly and visible punished.</p> <p>Without these conditions, an expectation of widespread cooperative behaviour is merely a hope.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/135959/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a href="https://theconversation.com/profiles/stefan-volk-883484">Stefan Volk</a>, Associate Professor and Co-Director Body, Heart and Mind in Business Research Group, <a href="https://theconversation.com/institutions/university-of-sydney-841">University of Sydney</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/coronavirus-contact-tracing-apps-most-of-us-wont-cooperate-unless-everyone-does-135959">original article</a>.</em></p>

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Coronavirus: Your guide to winners and losers in the business world

<p>As we adjust to life with the new coronavirus around us, our behaviours and habits are quickly changing. What will be the impact of these changes on the organisations and industries around us?</p> <p>We broadly see three business categories:</p> <ul> <li>The winners: sectors that will benefit;</li> <li>The losers: sectors that will suffer;</li> <li>The inbetweeners: sectors that could go either way depending on how they respond.</li> </ul> <p>The third category is the most interesting, as actions they take now will move them into one of the first two categories. Let’s look at each in turn.</p> <p><strong>The winners</strong></p> <p>These sectors have found themselves serendipitously on the right side of history. By applying a basic level of competence, they should thrive. The natural strategy for these companies is to aggressively invest in opportunities and growth.</p> <p><strong>Ecommerce marketplaces</strong></p> <p>People are moving online to do their shopping. Already, Amazon <a href="https://www.cnbc.com/2020/03/16/amazon-to-hire-100000-warehouse-and-delivery-workers.html">is adding</a> 100,000 new jobs to manage the extra demand. Some other marketplaces are struggling to add capacity. For example, online grocer Ocado <a href="https://www.bbc.com/news/business-51941987">has suspended</a> new orders until it can clear its backlog of deliveries.</p> <p>Some marketplaces are turning to technology for help. Chinese ecommerce giant JD.com <a href="https://technode.com/2020/02/07/jd-completes-first-unmanned-delivery-for-coronavirus-aid-in-wuhan/">is using</a> unmanned vehicles to deliver food and medical supplies in Wuhan.</p> <p><strong>Pharmaceuticals</strong></p> <p>Pharmaceutical companies are inevitably playing a large role in the crisis. Gilead, which owns the rights to treatment drug Remdesivir; Moderna, actively working on a vaccine; Roche, a major supplier of testing kits; and Fujifilm, with existing treatment drug Avigan, are all poised to benefit.</p> <p><strong>Logistics/delivery</strong></p> <p>As people around the world are blocked from leaving their homes, products and services will need to be delivered. Cainiao, Alibaba Group’s logistics arm, launched the <a href="https://www.alizila.com/cainiao-green-channel-speeds-medical-supply-delivery-coronavirus/">Green Channel initiative</a> on January 25 in response to the increased demand for protective clothing and medical supplies, especially for front-line medical staff in Hubei province. In just nine days, Cainiao received more than 7,000 calls and shipped over 5 million medical products to Wuhan and neighbouring cities.</p> <p>Meanwhile, UK food delivery app Deliveroo has <a href="https://www.independent.co.uk/topic/deliveroo">launched a</a> “no-contact drop-off service”. This provides restaurants with additional packaging and seals for orders to be left on customers’ doorsteps.</p> <p><strong>Video conferencing</strong></p> <p>Videoconferencing start-up Zoom has benefited massively. The <a href="https://www.fool.com/investing/2020/03/04/zooms-q4-earnings-crush-estimates.aspx">company’s sales</a> and <a href="https://finance.yahoo.com/quote/ZM/">share price</a> are already up over 50% in 2020. <a href="https://blog.node4.co.uk/blog/the-rise-and-rise-of-cisco-webex">Webex</a> from Cisco and <a href="https://news.microsoft.com/2020/02/26/microsoft-update-on-q3-fy20-guidance/">Skype and Teams</a> from Microsoft are also seeing major upticks in sales. Most are offering special deals for their conferencing services during the outbreak.</p> <p><strong>Entertainment streaming and gaming</strong></p> <p>Platforms like <a href="https://www.forbes.com/sites/greatspeculations/2020/03/13/will-coronavirus-really-help-or-hurt-netflix-stock/#313202d922aa">Netflix</a>, <a href="https://www.rollingstone.com/product-recommendations/lifestyle/hidden-amazon-prime-features-967087/">Amazon Prime video</a>, and <a href="https://nypost.com/2020/02/28/how-coronavirus-benefits-netflix-and-other-in-home-services/">Disney+</a> all report increased viewership. Online gaming platforms <a href="https://edition.cnn.com/2020/02/13/intl_business/gaming-china-coronavirus/index.html">are also experiencing</a> record volumes.</p> <p><strong>The losers</strong></p> <p>For the losers, their managements will need a Herculean effort to pull them through the crisis. Even if they succeed, many will be seriously damaged. The natural strategy in these sectors will be to cut costs, de-risk operations and be ready to return when conditions improve.</p> <p><strong>Airlines, trains and cruise ships</strong></p> <p>The global airline industry <a href="https://www.scmp.com/business/companies/article/3075730/global-airline-industry-needs-aid-us200-billion-survive">has said it will need</a> up to US$200 billion (£171 billion) in emergency support, and Boeing <a href="https://www.businesstimes.com.sg/transport/boeing-calls-for-us60b-lifeline-for-us-aerospace-industry">has called for</a> US$60 billion (£51 billion) in assistance for aerospace manufacturers as the international travel industry bleeds cash. Norwegian <a href="https://media.uk.norwegian.com/pressreleases/norwegian-to-cancel-85-percent-of-its-flights-and-temporarily-layoff-approximately-7300-colleagues-2982294">has already cut</a> 85% of its routes and laid off 90% of its staff. Virgin Atlantic <a href="https://thehill.com/policy/transportation/487852-virgin-atlantic-reducing-flights-by-80-percent-asking-staff-to-take">intends to</a> park up to 85% of its fleet during the month of April and is asking staff to take up to eight weeks unpaid leave over the next three months to avert job losses.</p> <p>IAG, parent company of British Airways, Iberia, Aer Lingus, Level and Vueling, <a href="https://www.businesstraveller.com/business-travel/2020/03/16/willie-walsh-to-delay-retirement-as-iag-sets-out-coronavirus-response/">will cut capacity</a> by 75% in April and May, while the Air France-KLM group <a href="https://www.businesstraveller.com/business-travel/2020/03/16/coronavirus-air-france-klm-to-cut-capacity-by-up-to-90-per-cent/">is set to</a> cut capacity by between 80% and 90%. Most cruise ship operators <a href="https://www.telegraph.co.uk/travel/cruises/articles/cruise-lines-suspending-operations-over-coronavirus/">have ceased</a> operations, and bankruptcy is likely for some.</p> <p><strong>Tourism</strong></p> <p>The US Travel Association <a href="https://thehill.com/policy/transportation/488063-tourism-industry-predicts-46-million-travel-related">is projecting</a> that close to 5 million travel-related American jobs will be lost. This is more than 25% of the 15.8 million Americans who work in the sector. The situation is equally dire elsewhere. For example, <a href="https://www.telegraph.co.uk/travel/news/france-ski-resorts-close-coronavirus/">all ski resorts</a> in Italy, France, Austria and Switzerland are effectively closed for the season.</p> <p><strong>Oil and gas</strong></p> <p>On January 1, a barrel of crude oil sold for US$67.05 on New York’s NASDAQ exchange. At the time of writing, it was <a href="https://www.bbc.co.uk/news/topics/cmjpj223708t/oil">trading at</a> around US$26 per barrel. So companies’ oil reserves are worth less than half that of the start of the year. The value of giants like BP reflects this – on March 19, it <a href="https://www.hl.co.uk/shares/shares-search-results/b/bp-plc-ordinary-us%240.25">was worth 51%</a> of what it was at the start of January.</p> <p><a href="https://www.iea.org/news/global-oil-demand-to-decline-in-2020-as-coronavirus-weighs-heavily-on-markets">According to</a> the International Energy Agency, global oil demand is set for its first annual drop since 2009. Contrast this with the agency’s <a href="https://www.offshore-technology.com/news/opec-cuts-oil-price-russia-summit/">February prediction</a>, when it expected annual growth of 825,000 barrels per day.</p> <p><strong>Investment banking</strong></p> <p>Hundreds of London and New York investment bankers are set to lose their jobs amid a slump in deal-making. Shares of leading US banks <a href="https://www.cnbc.com/quotes/?symbol=JPM">JPMorgan Chase</a>, <a href="https://www.cnbc.com/quotes/?symbol=BAC">Bank of America</a> and <a href="https://www.cnbc.com/quotes/?symbol=C">Citigroup</a> are all down more than 30% from January highs.</p> <p><a href="https://www.fnlondon.com/articles/bankers-set-to-lose-jobs-as-ma-activity-tumbles-on-coronavirus-fears-20200316">Financial News</a> spoke to senior London investment bankers who predicted a drop in fees of up to 50% in the first six months of 2020. That would mean around <a href="https://www.fnlondon.com/articles/bankers-set-to-lose-jobs-as-ma-activity-tumbles-on-coronavirus-fears-20200316">US$10.7 billion (£9 billion)</a> in lost revenues across equity deals – the worst first half of a year since 2009.</p> <p><strong>Traditional retail</strong></p> <p>With people confined to their homes, there isn’t much point keeping traditional retail stores open. The largest US mall owner, Simon Property Group, <a href="https://eu.usatoday.com/story/money/2020/03/18/coronavirus-mall-closings-simon-closing-malls-starting-wednesday/2867904001/">announced on</a> March 18 that it would close all its malls across the country. Similar decisions have been made across Europe and Asia. Apart from grocers and pharmacies, it will take a long time for traditional retail to recover.</p> <p><strong>Professional sports and entertainment</strong></p> <p>Italy, Europe’s worst-hit country, <a href="https://www.bbc.co.uk/sport/51605235">cancelled</a> all sporting events until at least April 3. <a href="https://www.france24.com/en/20200313-sporting-events-around-the-world-cancelled-due-to-coronavirus">France</a>, <a href="https://www.bbc.co.uk/sport/football/51853524">Spain</a>, <a href="https://www.dw.com/en/coronavirus-chaos-forces-widespread-sporting-cancelations/a-52328912">Germany</a> and <a href="https://www.telegraph.co.uk/sport/0/coronavirus-cancelled-premier-league-six-nations-london-marathon-2020-postponed/">the UK</a> quickly followed suit. This year’s Copa America and Euro 2020 football tournaments <a href="https://www.nytimes.com/2020/03/17/sports/euro-2020-postponed.html">have been postponed</a> until 2021.</p> <p>North America’s Major League Soccer, the National Basketball Association and National Hockey League <a href="https://www.nytimes.com/2020/03/12/sports/coronavirus-sports.html">have suspended</a> their seasons, and restricted locker room access to players and “essential staff” only. The African Nations Championship 2020 soccer tournament scheduled for April in Cameroon <a href="https://nationalpost.com/pmn/health-pmn/african-nations-championship-2020-postponed-due-to-coronavirus">has been postponed</a> indefinitely. Long cancellations mean major losses for sports channels and the traditional cable TV ecosystem, as live sports has kept millions of viewers from cutting the cord on cable.</p> <p><strong>Cinemas</strong></p> <p>Analysts <a href="https://www.hollywoodreporter.com/news/film-industry-facing-5-billion-loss-coronavirus-outbreak-1282038">predict that</a> the global film industry is facing a US$5 billion (£4.2 billion) loss from diminished box office revenues and production restrictions. That could grow if more countries force people to remain at home or order public space to close.</p> <p><strong>The inbetweeners</strong></p> <p>These sectors will probably struggle if they continue as is. Many companies will fail, though a few will adapt their business models to take advantage of new and emerging opportunities. In some cases, this will build a solid foundation for continued success.</p> <p><strong>Banking</strong></p> <p>Most banks will lose money as individuals and businesses struggle to pay back loans. If the world economy enters a recession, which <a href="https://edition.cnn.com/2020/03/16/economy/global-recession-coronavirus/index.html">seems very likely</a>, the market for financial products will also fall.</p> <p>Banks can, however, generate goodwill with businesses that need assistance, and create relationships with new customers. Several UK incumbents, including Barclays, Santander and RBS, <a href="https://e.businessinsider.com/click/19644859.4/aHR0cHM6Ly93d3cudGhlZ3VhcmRpYW4uY29tL3dvcmxkLzIwMjAvbWFyLzAzL2JhbmtzLWlzc3VlLWVtZXJnZW5jeS1sb2Fucy10by1maXJtcy1oaXQtYnktY29yb25hdmlydXMtY3Jpc2lz/5d233c18f730436f2414784fBec4debd6">are already</a> offering emergency loans and overdrafts to at-risk business customers. Many consumers will need temporary solutions, which could yield a spike in demand for small and medium-sized loans.</p> <p><strong>Healthcare</strong></p> <p>Some players in this sector emerge with new ideas that could improve healthcare. Others will be pushed past breaking point and will never return.</p> <p>Chinese digital firm Baidu is among those that has been quick to innovative. It <a href="https://www.cnbc.com/2020/03/04/coronavirus-china-alibaba-tencent-baidu-boost-health-tech-efforts.html">launched a</a> Fight Pneumonia app to help the public get accurate and useful information about the epidemic in real time. It is also offering its online medical advice platform free to users seeking COVID-19 consultations. This has seen over 100,000 doctors across China responding to tens of millions of inquiries.</p> <p>Baidu has also released an intelligent healthcare unit that responds to common questions through a conversational chatbot. This so-called “call bot” makes automated phone calls to ask people about their recent travels, health condition and contacts.</p> <p><strong>Manufacturing</strong></p> <p>Many manufacturers will struggle as the goods they produce are no longer in demand, but more agile operators will shift to making different products. For example, Chinese car manufacturer BYD <a href="https://www.energylivenews.com/2020/03/20/chinese-ev-maker-byd-builds-worlds-biggest-coronavirus-face-mask-factory/">has opened up</a> production lines for surgical masks and hand sanitisers. It was one of 2,500 Chinese companies to respond to a <a href="https://www.inkstonenews.com/business/coronavirus-china-ramps-mask-production-and-reminds-world-it-manufacturing-king/article/3074900">call from</a> President Xi Jinping for a “people’s war” against the virus.</p> <p>GM, Ford and Tesla are <a href="https://edition.cnn.com/2020/03/19/business/ford-gm-ventilators-coronavirus/index.html">talking about</a> producing ventilators. LVMH, the French luxury goods company behind Louis Vuitton, Christian Dior and Givenchy, <a href="https://www.theguardian.com/world/2020/mar/15/perfume-giant-lvmh-to-make-hand-sanitiser-to-give-to-french-hospitals">is also shifting</a> to produce hand sanitisers, and aims to make 12 tonnes within the first week of production. LVMH is giving the product to French authorities to distribute at hospitals at no charge.</p> <p><strong>Education</strong></p> <p>Most schools, universities and private education providers have closed their doors, but not necessarily their operations. As more and more people are confined to their homes, there is a golden opportunity for education institutions to expand the scale and scope of their operations online.</p> <p>In China, Kuaishou, a social video platform valued at US$28 billion (£23.5 billion), has <a href="https://hbr.org/2020/03/how-chinese-companies-have-responded-to-coronavirus">promoted online education offerings</a> to compensate for school and university closures. The company and other video platforms have partnered with the ministry of education to open a national online cloud classroom to serve students.</p> <p>Zhejiang University, one of China’s leading universities, officially started online teaching on February 24 in line with the term calendar. This covers all ZJU students, although many courses are open to learners worldwide. Two weeks in, the university was offering more than <a href="https://www.weforum.org/agenda/2020/03/coronavirus-china-the-challenges-of-online-learning-for-universities/">5,000 courses</a>. 2,500 graduate students are expected to defend their theses in the spring, and will also be able to do an online oral defence to graduate as planned.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/134205/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a href="https://theconversation.com/profiles/michael-wade-445001">Michael Wade</a>, Professor of Innovation and Strategy, Cisco Chair in Digital Business Transformation, <a href="https://theconversation.com/institutions/international-institute-for-management-development-imd-3333">International Institute for Management Development (IMD)</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/coronavirus-your-guide-to-winners-and-losers-in-the-business-world-134205">original article</a>.</em></p>

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How will the coronavirus recession compare with the worst in Australia’s history?

<p>In a normal year we would be weeks away from the May budget and the official forecasts for the financial year ahead.</p> <p>This year there will be no official forecasts until October 6, the date of the postponed budget.</p> <p>It might be just as well.</p> <p>The finance minister Mathias Cormann says it is <a href="https://www.financeminister.gov.au/transcript/2020/04/08/abc-radio-national-breakfast">nigh impossible to make realistic and credible forecasts</a> in the current environment.</p> <p>He might also be worried that publishing negative forecasts creates the risk of self-fulfilling prophecies. (It’s an important difference between economic and weather forecasting – predicting rain does not make rain more likely.)</p> <p>But on Tuesday Treasurer Josh Frydenberg saw fit to release details of Treasury forecasts of a <a href="https://www.smh.com.au/politics/federal/unemployment-to-hit-10-per-cent-1-4m-aussies-out-of-work-treasury-20200413-p54jd6.html">10%</a> rate of unemployment, which he said would have been 15% were it not for the JobKeeper allowance, so such concern can’t be universal.</p> <p>Even before COVID-19, the Australian economy was tepid, with the bushfires and weak wages growth dampening consumer spending.</p> <p>Now the cat is out of the bag.</p> <p>Overnight the International Monetary Fund released shocking <a href="https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020">updated forecasts</a>. Australia’s 2020 recession will dwarf those that came before it.</p> <hr /> <p><strong>Australian calendar year economic growth</strong></p> <p><img src="https://images.theconversation.com/files/327983/original/file-20200415-153302-1x818d8.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /> <span class="caption">Growth through the year to December, IMF through-the-year-forecasts for 2020, 2021.</span> <span class="attribution"><a href="https://www.imf.org/~/media/Files/Publications/WEO/2020/April/English/StatsAppendixA.ashx" class="source">ABS National Accounts, IMF World Economic Outlook April 2020</a></span></p> <hr /> <p>The IMF expects real gross domestic product to shrink by <a href="https://www.imf.org/%7E/media/Files/Publications/WEO/2020/April/English/StatsAppendixA.ashx">7.2%</a> throughout 2020.</p> <p>This is much larger than the falls in real GDP in the early 1980s drought-related recession (2.2% throughout 1982) or “<a href="https://www.smh.com.au/opinion/twentyfive-years-on-from-the-recession-we-had-to-have-20151201-glc9kn.html">the recession we had to have</a>” (1% in 1991).</p> <p>To find larger falls it is necessary to go back to the depressions of the 1890s and 1930s.</p> <p><strong>The Great Depression is one parallel</strong></p> <p>Australia’s <a href="https://www.rba.gov.au/publications/rdp/1999/pdf/rdp1999-06.pdf">1890s depression</a> was the result of a global slowdown, the bursting of a speculative property bubble (particularly in Melbourne), bank failures and the prolonged <a href="https://www.nma.gov.au/defining-moments/resources/federation-drought">Federation Drought</a>.</p> <p>Australia’s 1930s <a href="https://www.britannica.com/event/Great-Depression">Great Depression</a> also followed some speculative excesses but was primarily a response to the global economic slump.</p> <p>Both depressions predated the acceptance of <a href="https://www.investopedia.com/terms/k/keynesianeconomics.asp">Keynesian economics</a> in which it was understood that the best way to deal with a decline in private spending was for governments to increase public spending.</p> <p>Instead, back then, governments tried to get their budgets to balance by cutting their spending, making matters worse.</p> <p>Those depressions occurred well before statistical agencies compiled national accounts.</p> <p>But a survey of <a href="https://www.researchgate.net/publication/282613606_Business_Cycles_in_Australia">retrospective estimates</a> I did with Robert Ewing suggested that during the Great Depression real GDP may have contracted by 10% to 20%.</p> <p><strong>The Asian Economic Crisis is another</strong></p> <p>A more recent parallel to the size of the current fall in Australia’s GDP is the experience of some of our neighbours in the <a href="https://www.rba.gov.au/publications/rdp/1998/9805.html">1997 Asian financial crisis</a>. In 1998 it brought about huge falls in real GDP in Indonesia (13%), Thailand (8%), Malaysia (7%), Hong Kong (6%) and South Korea (5%).</p> <p>The current contraction has been unusually rapid and it is hoped that the recovery will be too.</p> <p>The IMF predicts Australia’s GDP will expand by <a href="https://www.imf.org/%7E/media/Files/Publications/WEO/2020/April/English/StatsAppendixA.ashx">8.4%</a> in 2021 after falling 7.2% in 2020. It believes we are in the worst of the recession now and the recovery will begin in the September quarter that starts in July.</p> <p>In year-average terms that understate the size of swings the IMF expects real GDP to shrink 6.7% in 2020 compared with 2019 and then to grow 6.1% in 2021 compared to 2020.</p> <p>It has revised down its forecast for global growth this year from an increase of 3% to a contraction of 3%. (By contrast, during the global financial crisis global GDP slipped by only 0.1%)</p> <p>What it terms the “Great Lockdown” is the worst global economic scenario since the Great Depression.</p> <p><strong>Worse outcomes “possible, even likely”</strong></p> <p>The US economy should contract 5.9% this year before bouncing back 4.7% in 2021. China’s economy should barely grow in 2020 (1.2%) before bouncing back 9.2% in 2021.</p> <p>Output and incomes in emerging economies are predicted to return to pre-pandemic levels in the second half of the year. The advanced economies generally won’t return to where they were until the end of 2021.</p> <p>These are forecasts that might prove optimistic. Depending on conditions and programmes in place in each country, it is likely many business will not survive and many consumers will decide to remain cautious about their spending for some time.</p> <p>IMF chief economist Gita Gopinath <a href="https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020">warns</a></p> <blockquote> <p>much worse growth outcomes are possible and may be even likely – this would follow if the pandemic and containment measures last longer, emerging and developing economies are even more severely hit, tight financial conditions persist, or if widespread scarring effects emerge due to firm closures and extended unemployment.</p> </blockquote> <p>Rarely has the trajectory of a downturn been harder to forecast.</p> <p>Much will depend on the virus itself, on the way in which countries adjust their restrictions to deal with it, and on us. At the moment few of us are feeling good.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/136379/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a href="https://theconversation.com/profiles/john-hawkins-746285">John Hawkins</a>, Assistant Professor, School of Politics, Economics and Society, <a href="https://theconversation.com/institutions/university-of-canberra-865">University of Canberra</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/how-will-the-coronavirus-recession-compare-with-the-worst-in-australias-history-136379">original article</a>.</em></p>

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4 ways to be a good landlord in a time of coronavirus

<p>The COVID-19 pandemic is creating major challenges for our residential rental system. The lockdown of businesses has meant an almost overnight loss of jobs or reduced hours for many Australian workers. Many tenants are <a href="https://pursuit.unimelb.edu.au/articles/australian-homes-on-the-line">struggling to pay their rent</a>.</p> <p>While the release of a government package to help residential renters has been <a href="https://www.canberratimes.com.au/story/6699657/rent-help-set-to-be-part-of-third-package/?cs=14231">mooted for weeks</a>, the only concrete outcome so far has been a <a href="https://theconversation.com/what-if-i-cant-pay-my-rent-these-are-the-options-for-rent-relief-in-australia-135312">halt on evictions</a> and some <a href="https://www.abc.net.au/news/2020-04-13/nsw-coronavirus-to-announce-440-million-dollar-rental-assistance/12143646">progress</a> in <a href="https://www.domain.com.au/news/queensland-introduces-a-raft-of-new-measures-to-protect-tenants-support-landlords-during-covid-19-crisis-948013/">individual</a> <a href="https://www.sbs.com.au/news/what-happens-if-the-coronavirus-pandemic-impacts-your-ability-to-pay-rent">states</a> and <a href="https://www.abc.net.au/news/2020-04-02/act-government-covid19-coronavirus-spending-package-announced/12114504">territories</a>. The rapid sequence of events has left renters – that’s about <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/4130.0%7E2017-18%7EMedia%20Release%7EMore%20households%20renting%20as%20home%20ownership%20falls%20(Media%20Release)%7E10">one in three Australian households</a> – and landlords in uncharted territory; they must renegotiate their terms.</p> <p>We asked stakeholders from across the rental market – landlords, tenants, advocacy groups, housing researchers – for ideas on what ethical landlords might do in these highly <a href="https://www.theguardian.com/australia-news/2020/apr/11/utterly-unjust-why-australian-renters-and-their-landlords-need-certainty-on-residential-tenancies">uncertain circumstances</a>. We discuss some of these ideas later in this article.</p> <p><strong>Landlords are taking a hit too</strong></p> <p> </p> <p>But, first, it’s important to remember it isn’t just renters who are struggling. Some <a href="https://www.domain.com.au/advice/what-landlords-can-do-if-tenants-cant-pay-rent-due-to-coronavirus-947902/">landlords are too</a>. For many of Australia’s more than <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/4130.0">1 million “mum and dad” landlords</a>, COVID-19 has dealt a blow to their relatively safe bricks-and-mortar investment.</p> <p>On the other hand, landlords may have access to <a href="https://www.domain.com.au/advice/what-landlords-can-do-if-tenants-cant-pay-rent-due-to-coronavirus-947902/">mortgage holidays</a> and low interest rates. Some are also calling for <a href="https://www.abc.net.au/news/2020-04-02/act-government-covid19-coronavirus-spending-package-announced/12114504">relief on rates</a> and other costs associated with their investment properties so they can better support their tenants.</p> <p>At the coalface, responses from landlords, letting agents and property managers have reportedly varied widely. The <a href="https://eliteagent.com/reia-president-speaks-out-in-defence-of-the-real-estate-industry/">official position</a> of the Real Estate Institute of Australia is that a “a moratorium on evictions during these challenging times is the correct thing to be doing”. However, there have been <a href="https://www.abc.net.au/news/2020-04-03/eight-million-tenants-wait-to-learn-coronavirus-rent-bill/12114082">widespread</a> <a href="https://thenewdaily.com.au/news/2020/04/04/coronavirus-rent-agents/">reports</a> of threatened evictions, suggestions renters draw on super or use savings to pay rent, or that rent reductions will only come in the form of deferred loans.</p> <p><strong>Pulling together in a crisis</strong></p> <p>Australians have rallied together in this crisis – checking up on older neighbors, for instance, or delivering groceries or home-baked bread to isolated friends and relatives. This is grassroots stuff, which has largely happened separately from, and in advance of, formal government responses. People see COVID-19 as a shared challenge, and there is a lot of goodwill.</p> <p>In this environment, while landlords are rightly concerned to protect their investment and keep paying their mortgages, many also have a competing concern to help out their tenants.</p> <p>The problem is, in such a dispersed system of ownership, there is no template for how they might help, and no library of what other landlords are doing, so each mum and dad investor is responding in different ways. Anecdotal evidence suggests some letting agents have been contacting landlords for direction on how to respond to requests for rent reductions and gauging attitudes to eviction.</p> <p>An added complication is that many of the responses that aim to help out tenants may be counter to the best interests of letting agents, who receive a percentage of rental income.</p> <p><strong>4 ways landlords can help</strong></p> <p>Here are some ideas in response to our questions of rental stakeholders:</p> <ol> <li> <p>Talk directly with tenants if you can, or at least ask to be included in the conversation.</p> </li> <li> <p>Everyone will have different pressures. Work out what position you are in. Find out what concessions your bank may be offering, what inflexible costs (such as council rates) you have, what landlord insurance covers you for, and how much of the pain you are prepared to share – and for how long. Ask your tenants to do the same. This will form a good, and hopefully fair, basis on which to compromise.</p> </li> <li> <p>Use letting agents who reflect your values as a landlord. You may wish to have a chat to your agent and ask that they notify you if tenants are having trouble. Some landlords have gone further and requested that all communication between agent and renter is cleared by them first.</p> </li> <li> <p>Share success stories. One of the motivations for this article was the lack of information for mum and dad investors who are trying to be good landlords. Options to offer tenants as part of negotiations might include rent reductions, or deferred rent, but there aren’t many examples of what other landlords have done out there.</p> </li> </ol> <p>It would be helpful if landlords shared the solutions they have developed, what worked and what didn’t. Even though every case will be different, having positive case studies available for other landlords to emulate will be valuable.</p> <p>The full extent of COVID-19 and its effect on employment, housing and the economy just isn’t known. And neither is the full detail of what government assistance may be provided – or the <a href="https://www.realestate.com.au/news/coronavirus-who-will-pay-for-mammoth-rental-rescue-plan/">implications for landlords, tenants and agents</a>.</p> <p><strong>Impacts are affecting everyone</strong></p> <p>It’s worth remembering that we’re all in this together. Everyone in the rental system – tenants, landlords and agents – will feel the effects of the pandemic.</p> <p>Many households have already been tipped into post-COVID unemployment, many landlords will also have lost their jobs, many agents are overwhelmed by trying to keep businesses afloat while quickly mediating temporary solutions. And many want to do the right thing – tenants and landlords alike.</p> <p>Everyone is waiting to know the shape and impact of any government response. Although it is difficult to adequately plan long-term responses to hardship, individual landlords can do a lot in advance of government help, and in addition to it.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/136040/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a href="https://theconversation.com/profiles/emma-baker-172081">Emma Baker</a>, Professor of Housing Research, School of Architecture and Built Environment, <a href="https://theconversation.com/institutions/university-of-adelaide-1119">University of Adelaide</a> and <a href="https://theconversation.com/profiles/rebecca-bentley-173502">Rebecca Bentley</a>, Professor of Social Epidemiology, Centre for Health Equity, Melbourne School of Population and Global Health, <a href="https://theconversation.com/institutions/university-of-melbourne-722">University of Melbourne</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/4-ways-to-be-a-good-landlord-in-a-time-of-coronavirus-136040">original article</a>.</em></p>

Retirement Income

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The concept that could help small businesses survive the pandemic

<p>As governments around the world maintain health measures to limit the spread of the coronavirus, more businesses are struggling to keep up with the changing circumstances. Some have been forced to close their doors, while others look for other ways to keep their engine running through the pandemic.</p> <p>One of the ways businesses could survive is by relying on customers through ‘forward pay’.</p> <p>The concept is based on the idea that customers could pay upfront – through voucher, subscription or other means – for goods and/or services that they can use in the future.</p> <p>“A business could seek to sell products or services, for example in the form of vouchers, to get some cashflow now to help get through this tough period,” said Lacey Filipich, author and founder of Money School.</p> <p>“It means delivering those products or services ‘for free’ when trading can resume, so that extra commitment needs to be accounted for. But it might be enough to switch a business from failing to surviving.”</p> <p>According to Filipich, small businesses looking to avoid going into debt could benefit the most from this approach.</p> <p>However, some precautions need to be taken. By taking payments, the business commits to deliver the promised products or services after social distancing eases up.</p> <p>“By then, the money you’ve taken in ‘forward pay’ may have been absorbed in simply keeping the business afloat during pandemic lockdown,” Filipich said.</p> <p>“So, you’ll need to account for the extra resources in the future if you spend the money now.</p> <p>“It would be worthwhile being transparent about the risk of the business not being able to make good on its pre-paid services if it was unable to continue trading after the pandemic.”</p> <p>Filipich also recommended getting professional advice to avoid breaching laws.</p> <p>Other reliefs for businesses in these turbulent times include <a href="https://www.business.gov.au/risk-management/emergency-management/coronavirus-information-and-support-for-business/temporary-relief-for-financially-distressed-businesses">a ‘softening’ of trading insolvency laws and increased debt thresholds for a statutory demand</a>.</p>

Retirement Income

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The coronavirus super loophole you should know

<p>How would you feel if you were having a Zoom meeting with your accountant and they asked “how would you like to save more than $5,000 in income tax over the next six months?”</p> <p>While probably a bit sceptical (did I hear right? Maybe this technology is faulty? What’s the catch? Surely this is too good to be true?) you might be intrigued. You might even turn up the volume to make sure you hear the next bit.</p> <p>What about if they followed up with, “It’s completely legal. The Australian government will be picking up the tab as part of the stimulus packages! Plus, you can do it mostly risk-free. But you do have to rearrange your financial affairs a bit, and deal with some bureaucratic hurdles.”</p> <p>What the accountant would be referring to is a generous incentive that is on offer now over the next six months.</p> <p>It is linked to the decision to temporarily allow the <a href="https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Early_Access_to_Super_1.pdf">early release</a> of A$10,000 in super this financial year and $10,000 the next.</p> <p>When parliament approved the <a href="https://parlinfo.aph.gov.au/parlInfo/download/legislation/bills/r6521_aspassed/toc_pdf/20044b01.pdf;fileType=application%2Fpdf">Coronavirus Economic Response Package Omnibus Bill 2020</a> last week, they put no new restrictions on how people could contribute into super.</p> <p>This means that it’s possible to voluntarily contribute $10,000 of your pre-tax income into super over the next three months, and also apply to withdraw a $10,000 lump sum from super tax-free at some point before June 30.</p> <p>You still end up with $10,000 in your pocket. But if you contribute through a salary sacrifice arrangement with your employer and stay within the <a href="https://moneysmart.gov.au/grow-your-super/super-contributions">concessional contributions limits</a>, your voluntary contributions will be taxed at 15% rather than your marginal personal tax rate.</p> <p>When you pull out the funds from super, the withdrawal is tax free. And, you will be able to do the same thing again between July 1 and late September.</p> <p>In a working paper released by the ANU’s Tax and Transfer Policy Institute, we described these kinds of situations – where people assume a different legal form in order to receive a lower marginal tax rate – as “<a href="https://taxpolicy.crawford.anu.edu.au/publication/ttpi-working-papers/16280/australian-tax-planning-playbook-volume-1">tax arbitrage</a>”. They are completely legal, and widespread.</p> <p>Like other tax arbitrage opportunities, there are sizeable tax savings available from the pursuing of the super equivalent of the <a href="https://www.google.com/search?q=hokey+pokey&amp;rlz=1C1CHBF_en-GBAU863AU863&amp;oq=hokey+pokey&amp;aqs=chrome..69i57j46l2j0l5.1489j0j4&amp;sourceid=chrome&amp;ie=UTF-8">Hokey Pokey</a>.</p> <p>This chart illustrates the sums involved.</p> <hr /> <p><strong>Potential tax saving in one specific scenario associated with salary sacrificing up to $10,000 into super and withdrawing it in the same financial year</strong></p> <p><a href="https://images.theconversation.com/files/324470/original/file-20200401-66169-10a2vw8.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/324470/original/file-20200401-66169-10a2vw8.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption">Personal income tax calculations include the Low Income Tax Offset, Low and Middle Income Tax Offset and the Medicare Levy.</span></p> <hr /> <p>It applies to a very specific scenario: a working age individual who is on 9.5% compulsory super contributions, has an annual salary below $158,000, has made no previous voluntary contributions to super in 2019-20, and who elects to make a “simultaneous” (within 2019-20) pre-tax contribution to and withdrawal of the maximum possible $10,000 from super over the next three months.</p> <p>It suggests that, as long as an individual in this situation has an annual income of approximately $30,000 or more, there is a prospective tax saving from rearranging his or her financial affairs over the next three months.</p> <p>The tax savings can be risk-free, if that’s what you want. If you were worried about the stock market falling further and taking away your contributions to super with it, you can direct your super fund to hold all new contributions purely as cash.</p> <p>In all, its not a bad return for three (or six) month’s efforts – especially as it results purely from a change in legal fiction rather than any change in underlying economic activity.</p> <p><strong>Who can do it?</strong></p> <p>As always with these kinds of arrangements, the devil is in the detail, but there is a lot we already know.</p> <p>First, the arrangements are targeted at those who have been adversely impacted by the coronavirus. On or after January 1, 2020 working hours (or turnover for sole traders) have to have been fallen by at least 20%.</p> <p>And it benefits those willing to embrace the bureaucratic hurdles (or outsource the embracing to their accountant). Consistent with Australia’s self-assessment tax system, the onus is on the applicant to certify that they qualify. The Tax Office will then make a determination that the funds be released by the super fund.</p> <p>There appears to a fair bit of discretion left to the ATO as to what impacts from coronavirus will be considered sufficient.</p> <p>One thing is that isn’t clear is what the base period for comparison is, although some <a href="https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Early_Access_to_Super_1.pdf">examples</a> provided by treasury compare outcomes over a month in 2020 against the average over the six months at the end of 2019.</p> <p style="text-align: center;"><a href="https://images.theconversation.com/files/324479/original/file-20200401-66109-dm30kr.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img style="display: block; margin-left: auto; margin-right: auto;" src="https://images.theconversation.com/files/324479/original/file-20200401-66109-dm30kr.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption"></span> <span class="attribution"><a href="https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Early_Access_to_Super_1.pdf" class="source">Early access to super fact sheet, Commonwealth Treasury, March 2020</a></span></p> <p>It seems quite straightforward if your workplace has cut back your hours or the business you own has had its trade (say) halved, but it is less clear cut if you have voluntarily scaled back your hours because of childcare or if you have returned from working overseas because of the virus.</p> <p>The second key condition is you need to be fortunate enough to hold on to a job providing you with taxable income (or if you are self-employed, generating pre-tax income) of up to $10,000 over the next three, and maybe six, months. The new <a href="https://www.ato.gov.au/general/gen/JobKeeper-payment/">JobKeeper</a> wage subsidy will help.</p> <p>And you need to be able to handle the “cash flow” gap - between when you start salary sacrificing income (which reduces take-home pay) and when your super fund is able to release the income to you.</p> <p>But sole traders whose business is suspended and are ceasing earning income may not be able to do so. And salary sacrifice isn’t an option if you become unemployed and move on to a government welfare payment which doesn’t allow salary sacrifice.</p> <p>The third key condition is you need to have enough assets in super to be able to withdraw $10,000 per quarter for the next six months. You can only make one application for an Australian Tax Office determination between now and June 30, and one application between July 1 and September 25.</p> <p><strong>What are we meant to make of it?</strong></p> <p>Taking it all together, a (probably unintended) consequence of the super changes has been to create a sizeable tax loophole for those who are relatively mildly impacted by the coronavirus, still earning taxable income, and have the financial capacity to salary sacrifice into super.</p> <p>While it might initially sound like a niche opportunity, it could be of interest to a significant number of the estimated six million recipients of the JobKeeper payment.</p> <p>The people who benefit will probably welcome their windfall. Some might, quite reasonably, point out that they should be expected to pay only the minimal tax legally applicable. They might even invoke the spirit of <a href="https://www.smh.com.au/business/kerry-packers-approach-to-tax-20160215-4akgt.html">Kerry Packer</a>.</p> <p>At a system-wide level, though, this sort of tax planning is grossly unfair and leads to a tax system that is less efficient, more complex and less sustainable.</p> <p>Income tax is easily the <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201920/RevenueOverview">most important</a> source of Commonwealth government revenue. Loopholes in it feed through into company tax reveune through refundable imputation (something Labor tried to wind back in the 2019 election). There is no inheritance tax. And the main consumption tax is set at a low rate, is far from comprehensive and doesn’t fund Commonwealth government spending.</p> <p>We ought to worry about actions that erode the collection of personal income tax.</p> <p>The policy process has moved astonishingly quickly in the past three weeks. There were always going to be mistakes, and during a recession its often wise for decision makers to not let the perfect become the enemy of the good.</p> <p>But equally, we must safeguard against details that are objectively bad.</p> <p>Now we’ll see how the government responds to error.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/135306/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><em><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></em></p> <p><em><a href="https://theconversation.com/profiles/robert-breunig-167291">Robert Breunig</a>, Professor of Economics and Director, Tax and Transfer Policy Institute, <a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a> and <a href="https://theconversation.com/profiles/tristram-sainsbury-297343">Tristram Sainsbury</a>, Research fellow, Tax and Transfer Policy Institute, <a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/the-australian-government-opens-a-coronavirus-super-loophole-its-legal-to-put-your-money-in-take-it-out-and-save-on-tax-135306">original article</a>.</em></p>

Retirement Income

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The coronavirus response calls into question the future of super

<p>Understandably, given we are in a crisis, the government has baulked at including <a href="https://treasury.gov.au/coronavirus/jobkeeper">superannuation contributions</a> in the A$140 billion worth of $1,500 per fortnight wage top-ups it will be directing to six million Australians.</p> <p>As the JobKeeper <a href="https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet_supporting_businesses_4.pdf">fact sheet</a> puts it:</p> <blockquote> <p>It will be up to the employer if they want to pay superannuation on any additional wage paid because of the JobKeeper Payment.</p> </blockquote> <p>This is in the middle of a treasury led <a href="https://treasury.gov.au/review/retirement-income-review">Retirement Income Review</a> that is considering, among other things, whether the current 9.5% of salary contribution should be increased to 10% and then to 10.5% and then in a series of annual steps to 12% by 2025.</p> <p>In considering the idea (it is actually leglislated – if the government decided not to go ahead it would need to unleglislate it) it helps to go back to basiscs.</p> <p><strong>The blinding power of money</strong></p> <p>The trouble with money is most people are so busy looking at it they are blind to what’s going on in the real economy - by which I mean the production and distribution of goods and services.</p> <p>Our current material standard of living depends almost entirely on our current ability to produce goods and services (assuming for a moment imports are funded by exports).</p> <p>Similarly, our standard of living in 2050 will depend almost entirely on our capacity to produce goods at that time. This means it has little to do with how much money is in our superannuation accounts.</p> <p>Part of the justification for superannuation is to get us more resources in retirement, and it will for those who have big super balances, but it won’t do much to change the total amount of resources available at the time.</p> <p><strong>The limits to saving</strong></p> <p>Often it’s put another way. We are told <a href="https://en.wikipedia.org/wiki/Baby_boomers">baby boomers</a> need to fund themselves in retirement, instead of relying on pensions paid for by those who are still in the workforce.</p> <p>But imagine a perfect scenario where every retired baby boomer has $1 million in super, freeing those still working from the tax burden of funding the pension.</p> <p>When the boomers are using their super to buy services and goods, who are they going to take them away from?</p> <p>You guessed it, those still working.</p> <p>They’ll be giving up resources to support the retirement of boomers, whoever supplies the cash.</p> <p><strong>In the main, saving can’t create resources</strong></p> <p>If there was no superannuation and the government instead taxed current workers in order to fund retiree consumption, the real cost to workers would be the same. That cost is the provision of goods and services to retired people instead of workers.</p> <p>Individuals can indeed save for the future by foregoing some goods and services today in order to have more of them later. Financial planners refer to it as <a href="https://www.investopedia.com/terms/c/consumption-smoothing.asp">consumption smoothing</a>.</p> <p>But an entire society can’t save for the future through consumption smoothing.</p> <p>If Australia as a whole consumes fewer goods and services in one year, it is likely to reduce rather than increase its future wealth because it is fully utilised labour and capital that drives investment and productivity.</p> <p>That’s what lies at the core of misunderstandings about the superannuation system. Foreign investment aside, it can’t allow an entire society to save for the future to support itself in retirement.</p> <p>It can skew the distribution of resources in future years, away from those of working age and those with low super balances towards those with (tax concession subsidised) high super balances.</p> <p><strong>Boosting productivity can help</strong></p> <p>If our goal is an adequate and sustainable income in retirement for all Australians, our main priority ought to be ensuring that those remaining in the workforce are productive enough to support themselves, their children, those without work and those who have retired.</p> <p>In other words, if you’re worried about the economic impact of our ageing population on our material standard of living (and there are reasons <a href="http://press-files.anu.edu.au/downloads/press/n2121/pdf/ch04.pdf">not</a> to be worried) you would want our focus to be on productivity, rather than retirement savings.</p> <p>To the extent retirement savings are used for productivity enhancing investment, that’s good. The reality is much of our retirement savings are funnelled relatively unthinkingly into an already bloated financial system where they expand speculative bubbles.</p> <p>Elsewhere I’ve referred to it as <a href="https://overland.org.au/2013/07/australias-first-compulsory-ponzi-scheme/">Australia’s first compulsory Ponzi scheme</a>.</p> <p>Like most important economic questions, the best retirement income system is not, at its core, solely an economic question, it is also a moral and political question about distribution and inequality.</p> <p>So, with that in mind, here’s what my personal moral (plus economic) analysis tells me would be the best retirement income system.</p> <p><strong>We could give the money back, slowly</strong></p> <p>The best way would be to get rid of compulsory superannuation, give all the money back to account holders (slowly to avoid too much inflation), mandate a 9.5% pay rise in its place and redirect the tens of billions of dollars we currently spend on superannuation tax concessions toward rent assistance, a higher Newstart allowance and a higher pension.</p> <p>With retired renters better looked after, a moderate (say 20%) increase in the pension, and continued indexation of the pension to wages, no retired Australian would be living in poverty.</p> <p>It’d be sustainable so long as we ensured sufficient worker productivity, primarily through full employment, appropriate infrastructure investment and well-supported education, training and research.</p> <p>There, problem solved.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/133906/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><em><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></em></p> <p><em><a href="https://theconversation.com/profiles/warwick-smith-95344">Warwick Smith</a>, Research economist, <a href="https://theconversation.com/institutions/university-of-melbourne-722">University of Melbourne</a></em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/the-coronavirus-response-calls-into-question-the-future-of-super-133906">original article</a>.</em></p>

Retirement Income