Real After Tax Term Deposit Returns for Australian Savers are Negative; Savers Punished. Debtors Rewarded. Tax and Inflation Work for Borrowers and Against Savers.
Tweet Topic Started: 6 Mar 2012, 11:00 AM (20,810 Views)
Granny flats are practicaly illegal now. Only if your granny is in it, then when gone must be pulled down in most cases. Cant be any real stats on them.
Really? Why would the residence need to be demolished, assuming it was built in conformance with building regs?
Granny flats are practicaly illegal now. Only if your granny is in it, then when gone must be pulled down in most cases. Cant be any real stats on them.
not in NSW. in fact in NSW new legislation makes it very hard for councils to refuse owners building them who meet minimum size and set backs.
whether they're illegal or not, when i do a buy or rent search for my suburb (brisbane) there is usually at least one listed.
Those links are wrong. Doing a simple subtraction gives an approximate answer for small returns and low inflation. It doesn't work for large returns over long periods as I explained previously.
Here's the correct method, exactly as in my previous posts:
I better call my finance lecturers and the authors of my finance books at uni as well then (I studied finance as well as accounting) and refer them to your opinion.
Quote:
An accountant should really know this.
Actually they shouldn't. But I'll pass your opinion to my accounting lecturer and the authors of my accounting books at uni as well.
I better call my finance lecturers and the authors of my finance books at uni as well then (I studied finance as well as accounting) and refer them to your opinion.
Actually they shouldn't. But I'll pass your opinion to my accounting lecturer and the authors of my accounting books at uni as well.
Yes, it is a common error. It becomes clear if you consider returns over a long period. The following example exposes the issue. Suppose someone made an investment of $1000 20 years ago in 1992. Suppose that has grown to $10,000 today. That's a nominal return of 900%. Assume for the example that CPI grew from 100 to 500 over that period - a growth in inflation of 400%.
Using the simple subtraction method would indicate a real return of 500%.
However, if you apply the CPI factor to the $10,000 of today it is clear that it is only $2000 in 1992 dollars. $2000 inflated by 400% (CPI) results in exactly $10,000 today. Therefore the original investment has increased from $1000 to $2000 in REAL TERMS (in 1992 dollars). That is a real return of only 100% - not 500% as your simple subtraction suggests.
The correct method I provided above gives the correct real return of 100%.
Yes, it is a common error. It becomes clear if you consider returns over a long period. The following example exposes the issue. Suppose someone made an investment of $1000 20 years ago in 1992. Suppose that has grown to $10,000 today. That's a nominal return of 900%. Assume for the example that CPI grew from 100 to 500 over that period - a growth in inflation of 400%.
Using the simple subtraction method would indicate a real return of 500%.
However, if you apply the CPI factor to the $10,000 of today it is clear that it is only $2000 in 1992 dollars. $2000 inflated by 400% (CPI) results in exactly $10,000 today. Therefore the original investment has increased from $1000 to $2000 in REAL TERMS (in 1992 dollars). That is a real return of only 100% - not 500% as your simple subtraction suggests.
The correct method I provided above gives the correct real return of 100%.
Quote:
not 500% as your simple subtraction suggests.
My "simple subtraction" is based on the Fisher method ( http://en.wikipedia.org/wiki/Fisher_hypothesis and is used to forecast a future event where a person doesn't know what the future value of the investment will be or the exact rate of inflation. Your method looks back in time to determine what the real return was on the investment when you know all the variables, such as inflation and return. So your method is useful when you are using hindsight. The Fisher method is useful for someone looking to approximate a return on an investment that they are thinking of making. Which is why it is commonly used in the finance world.
Your original question was about a future hypothetical investment, and you yourself rounded the rate of return. Now it seems that you are arguing just to prove me wrong.
There's no point to discuss this further. Why don't you write to all those websites that "got it wrong" as well.
I better call my finance lecturers and the authors of my finance books at uni as well then (I studied finance as well as accounting) and refer them to your opinion.
Actually they shouldn't. But I'll pass your opinion to my accounting lecturer and the authors of my accounting books at uni as well.
Yes, it is a common error. It becomes clear if you consider returns over a long period. The following example exposes the issue. Suppose someone made an investment of $1000 20 years ago in 1992. Suppose that has grown to $10,000 today. That's a nominal return of 900%. Assume for the example that CPI grew from 100 to 500 over that period - a growth in inflation of 400%.
Using the simple subtraction method would indicate a real return of 500%.
However, if you apply the CPI factor to the $10,000 of today it is clear that it is only $2000 in 1992 dollars. $2000 inflated by 400% (CPI) results in exactly $10,000 today. Therefore the original investment has increased from $1000 to $2000 in REAL TERMS (in 1992 dollars). That is a real return of only 100% - not 500% as your simple subtraction suggests.
The correct method I provided above gives the correct real return of 100%.
Consumers looking for higher returns on their savings may consider moving funds into a term deposit ahead of a potential Reserve Bank rate cut next month.
RateCity calculates that a $20,000 balance on a savings account would pay $50 less over the course of a year, if the RBA’s cash rate dropped to 4 per cent, from 4.25 per cent, as expected.
“Average rates are going to come down over the next few months,” said Damian Smith, chief of rate tracking company RateCity. “If you could get a longer-term term deposit now that might not be a bad place to park some money because it’s probably the case that by next month, the rates on new term deposits might be a little bit lower than they are today.”
Despite the decline in deposit and savings rates, data from RateCity shows that recently they have fallen less dramatically than the Reserve Bank’s cash rate or the standard variable rates of the big four banks.
While the RBA’s cash rate has dropped 50 basis points since November and the average standard variable rate of the big four has fallen by 40 basis points, three-month term deposits have fallen only 20 basis points, according to data from RateCity.
“The banks are clearly still chasing deposits,” said Mr Smith.
The Gillard Government is expected to draw the ire of the nation's banks as it shelves a $923.5 million tax break which had been aimed at directing more savings into bank deposits.
The move comes as the superannuation sector has also been asked to foot the bill for a round of reforms imposed on the sector, a decision that is forecast to claw back $470 million for the government over the next seven years.
The funds had been mostly earmarked to overhaul computer systems at the Australian Tax Office which drive the so-called Super Stream changes. The previously announced Super Stream shake-up is aimed at fixing the financial plumbing of the sector, making it easier for fund members to make additional payments in super or switch investments.
Meanwhile, banks have been left short-changed after Treasurer Wayne Swan quietly scrapped a plan to introduce a 50 per cent discount on interest income from July next year.
The government decided not to push ahead with the scheme after a feedback from industry and consumer groups raised concerns with the scheme's complexity and overall effectiveness, the budget papers said.
Analysts have said the tax break which applied to interest earnings of up to $1000 would have been "a marginal positive" for banks.
Still, this means income generated from interest will remain the least favourable tax treatment of all asset classes.
I redrew my chart with a tax rate of 31.5 instead of 35%. The change is barely even visible. It really makes no difference to the analysis.
That's because your CPI number is still wrong. I'm looking at:
6401.0 Consumer Price Index, Australia TABLES 1 and 2. CPI: All Groups, Index Numbers and Percentage Changes
From the first link you posted, and I don't see your CPI numbers anywhere on the data sheet. Which spreadsheet did you use, what column, and what methodology did you use to calculate your inflation rate? (CPI is an index, not a percentage).
I know you like to use spurious misnamed metrics to support your point.
That's because your CPI number is still wrong. I'm looking at:
6401.0 Consumer Price Index, Australia TABLES 1 and 2. CPI: All Groups, Index Numbers and Percentage Changes
From the first link you posted, and I don't see your CPI numbers anywhere on the data sheet. Which spreadsheet did you use, what column, and what methodology did you use to calculate your inflation rate? (CPI is an index, not a percentage).
Look harder.
Tables 1 and 2, Percentage Change from Corresponding Quarter of Previous Year, All groups CPI, Australia
Quote:
I know you like to use spurious misnamed metrics to support your point.
Incorrect. In this 100 post thread, you are the only person to have any difficulty interpreting the chart.
Maybe it's too late for you... are you 'tired' again.
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