Issue: 203
Sent: 09-03-2010 09:58:06
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Rewarded for SuccessA How To Book Of Self Managed Super FundsBrain Rules part 3The Easiest way to do a Client NewsletterReally big decisions need timeWhy Warren Buffett won't buy a NewspaperWhy is the Henry Tax Review release delayedEmail Marketing Business Opportunity - Helen Bairstow
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Why is the Henry Tax Review release delayed

Click here to buy - A How To Book of SMSF's by Tony Negline
Tony Negline

Three topics this week

a. Henry Tax Review

As you're no doubt aware the Prime Minister has said that his Government will not be releasing the Henry Tax Review because he wants to focus on more pressing priorities.

There's been quite a lot of speculation as to the real reason for delaying publishing the report. Afterall surely Governments can focus on more than one thing (putting to one side the issue of elections).

I think the delay can be found in Henry's terms of reference. Item 3.6 of these terms asks the review panel to consider "the interrelationships between these systems as well as the proposed emissions trading system (ETS)".

My point is that the ETS is now (thankfully) electoral poison and I suspect that the Government doesn't want to release something with a policy it can no longer implement.

Yes it's true that this ETS requirement was only one part of the tax review but based on other documents released by the Government in the recent past it probably is the centrepiece of the whole document.

Take out the ETS and Henry's tax policies might end up looking like the emperor who can't find his toga.

At this juncture the Government can't afford to give the Opposition any more free shots at goal by releasing Henry's ideas if it allows the line "great new tax" to run again which it probably would. If only nice Mr Turnbull had stayed around for a few more weeks!

So the Henry Review will remain hidden until some future date and before it's released we might also see the "son of Henry". That is, Henry with the Government's new environmental policy put into it.

In any case will original Henry have considered and will the revised Henry also consider the Federal takeover of hospitals and its fairly obvious implied tax increases?

b. Dividend Returns

Below is a graph I have produced before for this publication. It shows dividend returns on $100,000 invested in March 1982.

The graph also shows the percentage annual return at three different tax rates - 0%, 15% and 46.5% for the same investment and over the same period. These after tax returns assume that the dividends received were 70% franked over the whole investment period (please ignore the fact that dividend franking was not introduced until 1986).

As can be seen less dividend income was paid during 2009 in dollar terms than the four previous years.

However in percentage terms the 2009 returns are the second highest return since 1990. The best return in this period was 2008. Who could have predicted that the best income paying period, in percentage terms, for Australian equities would occur when the market was falling so heavily?

The ASX 200 has paid an average of 5.3 percent income for a pension paying super fund over 26 years. Super funds do not have to pay pension income of more than 5% of assets until a retiree is aged over 75. And remember that twhe required minimum income is reduced by 50% until 30 June 2010.

c. When is a head-line somewhat underwhelming

Last week the Sydney Morning Herald website ran the following heading, "Median house price doubles in last 10 years".

I wonder if most people were thinking "wow" that sounds pretty good. I think the data is only a comparison of purchase prices so doesn't also consider the cost of the investment.

Perhaps people should do some simple mathematics. The rule of 72 says that if your money doubles over a 10 year period then you're investment return has been about 7% p.a. (72 divided by 10).

Funny what headlines people can get away with just because some people have forgotten these tricks.

Finally please consider purchasing a copy of my book. You can look at the contents page at the following link:

Two options are available - once only subscription - $55 inc GST - or an annual subscription will gives you access to all the updates made throughout the year ($120 inc GST).

The book can be purchased at the following link:

I have just released a new version of the book.

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