Friday 24 May 2013

Ripping off the consumer - the cost of internet access in Australia

My uni research has started chewing through a few extra GB of data each month, now that I'm remotely monitoring the data reduction routines running on my uni workstation. So I'm in danger of exceeding the data allowance of the 10GB/mo Optus 'data plan' we're currently on for our 3G wireless broadband. Any excess data use is charged at an exorbitant $20/GB ($0.02 per MB), which provided a nasty shock once earlier this year when I went over the limit on the final day of the month by mistake. At least the optus rate is slightly 'better' than Telstra charge of $100/GB for excess data that applies on some of their mobile broadband plans!.

So I was looking at the options for upgrading to a higher standard monthly data allowance, although I'm wary of paying an extra fee every month for extra data when most months the 10GB cap is more than adequate. I had expected that the cost per GB/mo would decrease as you contract for a higher monthly 'plan', as most commodities enjoy economies of scale, or encourage their customers to 'upsize'. And, given the fairly high monthly cost for paying off the wireless device is constant regardless of data plan size, the effect should be quite noticeable if normal economic rules applied.

Therefore I was somewhat shocked (but not particularly surprised, given the track record of telcos ripping off consumers at every opportunity in Australia) to see that both Telstra and Optus actually charge MORE per GB/mo for plans with higher data allowances. For example, Optus costs about $35 for data on their 10GB/mo plan (ie. $3.50/GB/mo), whereas the 20GB/mo plan costs $75 for data (ie. $3.75/GB)! This is highlighted in the 'cloud' region of the chart below.

It is interesting to note that the 200GB/mo and 500GB/mo NBN plans from Telstra lie close to the expected log-log line of cost per GB vs. GB/mo plan size. Unfortunately a) NBN isn't 'coming soon' to our suburb for at least 3 years, b) I only need ~15-20 GB in high use months, with normal use around 5-10 GB, so even 100GB/mo seems excessive, unless I start downloading lots of movies, or spend hours a day Skyping overseas colleagues, and c) while the Telstra and Optus plans both support 4G and fall-back to 3G where needed, our house is in a valley and only has (rather poor) 3G coverage available.

What I'd like to see is wireless broadband plan that charges, say, $60/mo for a 20-GB/mo data plan, and charges something reasonable for excess data usage, say $3.50/GB, up to a reasonable limit (eg. twice the plan's standard data allowance). That would be enough to 'tide me over' until the NBN (or the coalition's NBN-lite) is rolled out to our suburb around 2016... I won't be holding my breath though.

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Sunday 19 May 2013

Will the coalition really be costing worker's $20,000 by delaying the SGL increase 2 years?

Aside from accepting in principle all of the savings measures announced in Labor's budget, in Tony Abbott's budget reply he also flagged saving an additional billion or so by deferring the introduction of Labor's SGL increase to 12% by two years.

Labor claims this will cost young workers up to $20,000 in final retirement payout, but at the same time claims that there's no need to defer to SGL increase as it isn't really going to be paid for by business (and would therefore be a drag on economic growth), but will be essentially a diversion of part of the normal wage rises that would otherwise by paid for by business. This is essentially a case of Labor tying to have their cake and eat it too.

Either the SGL increase would be paid as an additional cost on business, and therefore should be deferred at a time when the economy isn't growing very strongly, or it is actually going to be paid via foregone wage increases - in which cases the workers could simply salary sacrifice the extra 2% (which would mean they'd be in exactly the same situation as if the 12% SGL was implemented according to Labor's schedule), or choose to contribute as an undeducted contribution, or else choose to spend the extra income on something else now, rather than lock it away until their retirement.

It's also a bit ridiculous for Labor to claim that delaying the move to 12% SGL by a couple of years will 'cost' a young worker $20,000 in final retirement benefit. Using that logic, then Labor has cost the same worker's more than $100,000 by choosing to phase in the increase from 9% to 12% over several years, rather than in one year! Let alone the 'cost' of not introducing this increase when they were first elected, or the 'cost' of not increasing the SGL to 15% as superannuation pundits have said is the amount required to ensure workers on minimum wage end up with enough superannuation to support themselves in retirement...

The fact that Labor has been unable to make any more sensible criticism of Abbott's budget reply suggests it was politically effective.

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Tuesday 14 May 2013

How will the budget affect me?

Many of the fine details often don't become apparent for several days after the budget is released, as I'm not about to wade through the entire budget document set (, and the media focuses on the headline items and misses/ignores some of the fine points that may actual have the biggest impact. But so far the budget doesn't look *too* bad, with some of the cost savings, such as changes to the baby bonus and family tax benefit rules, not affecting us at all. Those that are likely to impact me are:

1. Phasing out the medical 'out of pocket' expenses tax rebate. Since I pay enough tax to make use of this rebate, and my 'out of pocket' medical expenses I paid last financial year was $8,671, this change will cost me quite a bit. I suppose I'll just have to tell the kids to stop having medical problems.

2. The 'deferral' of the raising of the tax threshold will cost only a few dollars, and I wasn't counting on Labor giving middle income wage earners any tax cuts anyhow, no matter what they'd previously 'promised'.

3. There's some change to uni postgrad research scholarships - apparently changing them from grants to loans. But until I can find some details I'll assume that doesn't affect the RTS scheme, so hopefully won't affect me. The $186 million for research infrastructure *might* even be of indirect benefit to my research area.

4. The previsously announced extra 0.5% 'medicare levy' to fund the NDIS will be one of the biggest extra taxes that affect me.

Wading through the budget income and expense measures documents throws up some interesting tid-bits, such as the cost of implementing the tobacco plain packaging laws (including litigation costs) is marked as 'nfp' (not for publications), and the $8m expense in 2012-13 for an 'information campaign' regarding the "support available to families to assist with the costs of child care" and $10.0 million "to undertake a national advertising campaign to promote awareness of the Government's initiative, A Plan for Australian Jobs" ie. funding for some blanket advertising just before the federal election ;)

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Friday 10 May 2013

My SMSF account balance passes half-million dollar mark

The value of my account balance within our self-managed superannuation fund surpassed $500,000 for the first time yesterday. After the set-backs caused by the GFC and EFC (that are apparent in the chart below), the recent strength of the Australian stockmarket, and slight dip in the strong Aussie dollar (which boosts the value of our international stock investments in AUD terms), has pushed up our SMSF by more than 10% since the start of 2013. My account balance is moving in the right direction, with the lowest 'expected' rate of return (4% pa) line now looking within reach again. The middle 'expected' rate of return (7.5% pa) [which I considered the 'most likely' long-term outcome when I initially setup our SMSF in mid-2007!] still looks difficult to reach by the time I plan to retire (around 2027), and the 'stretch target' of 10% average rate of return is looking rather silly now, although if I'd taken a couple of years to 'dollar cost average' my rolled-over superannuation out of cash and into market-linked investments, rather than just six months, I might have even achieved that target. Goes to show how big an impact 'market timing' can have, and also how impossible it is to 'time the market' deliberately, rather than just by dumb luck.

Our SMSF is invested in a high-yield bank account (4%), ASX200 CFDs (6.4%), and Vanguard LifeStrategy HighGrowth Index Fund (89.6%). The current overall asset allocation is roughly:
4.0 % cash in SMSF bank account
3.6 % Aus fixed interest
5.4 % Int fixed interest (hedged)
45.7 % Aus shares
32.3 % Int shares
4.5 % Aus property securities
4.5 % Int property securities (hedged)

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Thursday 9 May 2013

Which occupations pay the 'best'?

Latest figures from the Australian Tax Office (for the 2010-11 financial year) provide details of the taxable income reported by different occupation categories. Its interesting that my salary package is almost exactly the same as the average taxable income of the two categories that I most closely match ('Auditors, Company Secretaries and Corporate Treasurers' on $95,747 or 'Other Natural and Physical Science Professionals' on $97,319 - although it is a bit odd that the essentially identical occupation category 'Natural and Physical Science Professionals (other)' has an average taxable income of only $84,148). However my 'taxable income' is a lot less than this, due to tax-deductions for investment loan interest payments, so I'd need a hefty pay-rise for my taxable income to reach these averages.

Surgeons are ranked as the highest earning occupation, with an average taxable income of $350,383 (which would make them 'ultra-rich' according to Leigh's classification system). Personally I don't begrudge them earning "four times as many train drivers, six times as many nurses and nine times as many hairdressers..." (a line which reminded me of a story in "Hitch-hiker's guide to the universe" where all the valuable occupations were evacuated from a doomed planet in the first wave of escape rockets, while such 'valuable' occupations as these were left behind, with a promise that they'd be picked up later on...).

The figures aren't quite as illuminating as they could be - for example, judges are lumped together with solicitors under 'Judicial and Other Legal Professionals' on an average of $177,702. In reality, a NSW supreme court judge earns $368,500, and the Chief Justice of the High Court, Robert French, now earns $508,250 while the chief justices of the Federal Court and Family Court, Patrick Keane and Diana Bryant, earn $430,000. So being a 'judge' as an occupation probably trumps that of being a 'surgeon'.

As with most statistics, averages can obscure more than they reveal. For example, the occupation 'chief executives and managing directors' earned an average taxable income of $164,931, which is just a fraction of what large corporations such as banks and mining companies pay their chiefs. A more representative figure would probably be the median taxable income, rather than the average.

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Tuesday 7 May 2013

Are you rich, ultra-rich or uber-rich?

According to Labor MP Andrew Leigh any Australian with an income of $210,100 per year is 'ultra-rich', and an annual income of $688,700 makes you one of the 'uber-rich'. I'd beg to differ, for two reasons. Firstly, although annual income is probably a good guide to who may be feeling 'rich' at any particular time, for a person to be really classified as 'ultra-rich' (or even just 'rich') that income would have to be sustainable, rather than transient. Consider the situation of a recently retired pensioner that has one modest $250,000 investment property that they bought 30 or 40 years earlier, and managed to paid off the mortgage during their entire working life. The year they sell of the property they would have an annual 'income' which, according to Leigh, makes them one of his 'ultra-rich'. Of course that is nonsense, as the money would usually go into a bank account and could provide maybe $10,000 annual income if they want it to last their entire retirement.

The second reason is more basic - why pick a figure of $210,100 per year income as the threshold for labelling a person as 'ultra-rich'? Leigh apparently chose this figure because 'only' 1% of Australians earned more than that according to the latest available (2010-11 financial year) tax office data. Using this criteria means that, according to Leigh, 1 in every 100 Australian should be considered 'ultra-rich'! Now, $210,000+ annual income is certainly enough for nearly anyone with that income level to be considered 'very well-off', and, if that remained their average income over several years they could have a very comfortable life-style and still save enough to eventually end up truly 'rich' (unless they are a divorcee supporting a handful of ex-wives and a gaggle of children boarding at private schools). But, while it's generally reasonable enough to class people with that level of taxable income as the 'rich', the term 'ultra-rich' seems to be pushing it a bit. Then again, as a Labor MP Dr Leigh probably wants to classify anyone who earns more than the average wage as 'rich', as it will make it easier to justify increasing their taxation and eliminate any government benefits they might still be entitled to ;)

And, what is the intent with labelling 1 out of every 1000 Australians as the 'uber-rich'? That term seems loaded with distain and implied disapproval, echoing as it does the loaded term 'uber-menschen' that was used by the Nazis. I'd have expected a former professor of economics at ANU to be more even-handed, but I suppose that would be too much to expect from a politician.

ps. As a federal MP Dr Leigh is on an annual income of $159,060 (salary and electoral allowance only, ignoring the myriad other entitlements politicians enjoy), which means he is 'obviously' one of the 'rich', and just barely avoids being classed as one of the 'ultra-rich' according to his own criteria ;)

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Sunday 5 May 2013

Benefitting from government extravagance, or paying for it?

I tend to think that government, especially the current federal Labor government, has a natural inclination to raises taxes and spend our (the taxpayers, or shareholders in the case of company tax) money on providing services that would be better off left as 'user pays' - ie. allowing adults to choose how to spend their own money. But I suspect that elected politicians have such a strong natural inclination to control and 'run the country', that they simply can't resist any opportunity for social re-engineering or provision of additional public 'services' that they feel the public "need"(and should pay for via increased taxation, rather than winding back other areas of government expenditure). Recent examples are the NDIS, the ill-considered and unsustainable solar panels rebate scheme, and the 'gold-plated' NBN scheme. The alternative would have been to leave people to choose whether or not to spend some of their income on such discretionary items as loss of income and TPD and life insurance, having solar panels installed, or paying for a T1 internet connection if they have need for truly 'high speed' internet connectivity. Even in the area of public education, beyond the provision of compulsory education services, it should be left up to parents to decide how much 'extra' to spend on their kids education.

The funny thing, from my point of view, is that despite not being in favour of many of the more extravagant government spending programs announced in recent years, I may well end up benefitting considerably from many of them. With two sons in public school, one in a selective high school and the younger one looking likely to get into OC and then selective high school, and both likely to go on to a tertiary education, we will be net beneficiaries from public education. I also paid a very low rate of HELP fees for my Master of Astronomy degree (as science was a 'national priority' field so a discounted HELP-fee rate applied), and I (currently) pay no fees for my research MSc and PhD studies as it is covered by the federal Research Training Scheme (RTS).

And the highly-subsidised solar panels sitting on my garage roof mean that we get considerably more in payments for the electricity generated than our electricity bill has increased to pay for the scheme.

It was announced in the past week that the new 423-bed hospital planned for our area will be completed by about 2018 via a public-private partnership, and that transport services will be improved in our area as part of this development. Living less than one kilometre from the site, this is likely to push up the value of our house by the time I retire and we move to the country and either sell or rent out our house. And if we don't sell our investment rental property during the next year or so it may also benefit from a boost in prices in that adjacent suburb when the new hospital becomes a reality.

The NBN rollout has just been extended to include our suburb in the updated '3-year plan' announced by Conroy yesterday, so with two desktop PCs and four laptops all using the internet in our house, regular Skype conversations between the kids and my parents living in the country, and my use of the internet to run data reductions on my university workstation by remote connection we will probably save some money through having access to the NBN, rather than paying full-cost for additional 3G wireless connections or other upgrade to our internet connectivity of the next few years.

Even the NDIS may save me considerable money in the next couple of years. Paying for life insurance, TPD and loss-of-income insurance costs me quite a lot, so, depending on the details of the NDIS scheme, I could save more than a thousand dollars a year up to retirement age simply by being able to drop my loss-of-income insurance.

Most of these new services appear likely to come at little or no cost to me personally. My geared investments are tax effective, meaning that my taxable income is fairly low, but on the other hand any further tightening of 'middle class welfare' won't have any impact on us as we already didn't receive any family tax benefits, or the education tax refund (or the new 'Schoolkids bonus' that replaced it), or any other 'family assistance' payments due to the way that Adjusted Taxable Income (ATI) is calculated. And the 50% tax rebate on childcare payments isn't means tested and looks likely to remain so.

While I won't be surprised if I do end up paying more, possibly through changes to the taxation of capital gains, superannuation or how negatively geared investments are treated, at the moment it definitely appears not to be a case of 'user pays', or even a case of the 'better off' paying for improved public services for the poor and needy.

Aside from being very inefficient to raise tax revenue and then give the money back to those who were taxed via public services that they would otherwise have paid for privately, public works and public services often being less cost-effective than privately funded and managed projects. It seems that as both parties fight over the 'middle ground' of swinging voters and 'working families', the desire to make new programs please everyone and the sources of funding offend no-one is actually leading to greater confusion and dissatisfaction amongst voters. People are not sure exactly what benefits will flow from the proposed programs, and are also not sure if the funding will end up coming out of their pocket.

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Friday 3 May 2013

Net Worth Update: April 2013

Due to a strong stock market boosting both my geared stock portfolio and our self-managed superannuation fund, plus a couple of months' worth of employer superannuation contributions being deposited into our SMSF bank account during April, my net worth increased 3.47% for the month, reaching the highest level since May 2008. It is also higher than at any time prior to Dec 2006. On the other hand, this shows that the impact of the GFC has been for my net worth to not have increased at all over a period of more than six years (longer if you adjust for inflation), despite my 'saving' around 50% of my salary (either directly via superannuation salary-sacrifice, or as interest paid on money borrowed to invest). All-in-all I'd have been much better off to have left all my money sitting in a term deposit and simply saved my superannuation in a fixed interest RSA account! Historically this is definitely an abberation, with investing in a diversified portfolio of higher-risk assets generally providing a higher return than the risk-free rate. Not much of a consolation when this 'interesting' anomaly has occupied 20% of ones working life (and not over yet). Makes one look back fondly at the market 'crash' of 1987!

Our property portfolio performed poorly over the month, with the estimated valuation of our investment property declining substantially (down $17,000 from the previous month). It's possible that this is just a temporary 'blip' due to the mix of properties sold over the past 12 months in that suburb, but there seems to be some weakness re-appearing in the Australian property market in general. And the few offers we have received for our investment property during the nine months it has been on the market have all been well below my estimated valuation, suggesting that the real value of that asset is only about 90% of my monthly valuation figure. The impact of capital gains tax when we eventually sell that property will also reduce my net worth, so the 'cash' figure for my net worth if I liquidated all assets in the current market would probably be about $70,000 less than my listed value.

Assets$ Amount $ Diff% Diff
Stocks *$24,843+$17,201n/a
Debts$ Amount $ Diff% Diff
Home Mortgage(s)$363,340-$89-0.02%
Net Worth$1,038,229+$34,801+3.47%
* the Stocks figure is portfolio value - margin loans

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Thursday 2 May 2013

A modest proposal?

The Labor proposal to fund the NDIS (National Disability 'Insurance' Scheme) via an increase in the medicare levy of 0.5% sounds like a modest impost on taxpayers, especially when Julia Gillard says its 'only' $1 per day for someone earning $70,000 a year. However, that represents a 33% increase in the medicare levy, or an increase of almost 2.5% in total tax paid by someone on $70Kpa, since their average tax rate is only 20.4% (its less than their 32.5% marginal tax rate due to the tax free threshold and 19% marginal rate on much of their taxed income). It also adds up to an extra tax impost of over $16,000 over your working life if you earn an average of $70,000 while working from 18 to 65! Not really such a trivial amount.

Paying $350 pa to fund other people's 'insurance' cover for TPD or loss of income also seems a bit steep - especially for those, like me, who are already forking out a large amount of money each year by 'doing the right thing' and having adequate death, TPD and loss of income insurance cover in place. It will be another case of the middle income PAYG workers having to pay for something many people should be paying for themselves. While government assistance for parents looking after children born with a disability seems reasonable (I know this can be expensive, since we had 'out of pocket' medical expenses over $8,600 last year due to our kids medical conditions), I'm getting sick of reading that 'anyone' could be in need of the NDIS if they happened to have a car accident and lose both legs, had a stroke, etc. and couldn't work anymore. This is not true for anyone that bothers to pay for private TPD and loss of income insurance - but most workers choose to spend their disposable income on other things, and then expect the government to 'insure' them against life's adversities.

So, as usual, it looks like middle income PAYG workers will end up footing the bill for a massive social welfare scheme that costs a huge amount mainly due to rorts by many who should be paying for private insurance, but instead choose to spend their income on eating out, $100/mo mobile phone plans or other 'needs'.

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