V1 - AUSE01Z10MA Despite the enormous after-tax cost of THE WEEKEND AUSTRALIAN, DECEMBER 10-11, 2016 paying school fees there is surprisingly theaustralian.com.au/wealth 33 little attention paid to the issue. JAMES KIRBY WEALTH

Why the markets love Lessons to be learnt on school fees tweeter-in-chief Trump

Minutes later, you get a text from The good news is WILLIAM PESEK work: “Wow, this new tweet inflation looks to about North Korea is really Markets in tiny, sleepy crushing the Nikkei”, or “Damn, be slowing down Singapore might never be the Trump just cozied up to Pakistan same, thanks to American again — Indian markets are JAMES KIRBY tweeter-in-chief Donald Trump. collapsing”, or “Jeez, did you see WEALTH EDITOR The city-state known more what Trump said about Xi for perfectly manicured parks Jinping’s wife?” and a quirky lionfish fountain With any luck, Trump’s than frantic trading pits is advisers will wrestle the phone suddenly awash in dealing. The out of his hands. Or, at the least, catalyst: president-elect Trump’s have a staffer eyeball his 140- penchant for sharing character “Blacks Swans”. controversial views, conspiracy Markets may fear Trump’s theories and taunts, 140 bluster, geopolitical ignorance characters at a time. And that’s and thin skin, but he’s going to be How on earth will we pay the just fine by the folks who run a blast for bourses around the school fees next year? It’s a ques- Singapore’s stock bourse. globe and trading commissions. tion reverberating around many Trump “tweets every day,” Gold had its heaviest ever Australian homes this month as Chew Sutat, head of equities and dealing day 24 hours after school years come to a close. fixed income at Singapore Trump’s win, surpassing that of One sliver of good news for fee- Exchange, told Bloomberg. Brexit on June 24. CME Group paying parents is that the relent- “So things are going to in Chicago saw three of its less pace of accelerating private happen. We don’t know what’s busiest-ever trading days since school fees over the past decade going to happen, but traders like November 8. Trump wants to may finally be slowing. that.” With Trump, he adds, abolish Dodd-Frank (an Obama Figures released to The Week- “what you see is greater reform and consumer protection end Australian by eduction finance uncertainty, and the opportunity act) and other legislative steps company EdStart suggest fees to trade different sectors. We’re taken to ensure the subprime over the past year grew by 3 per really happy that some of the crisis of 2008 can’t happen again. cent, a slowdown on average an- animal spirits are back.” A To punctuate the point, he’s even nual increases of between 4 and 6 Nikkei trader in Tokyo made a hiring as Treasury secretary per cent over the past decade, t similar argument the other day. Goldman Sachs star Steven chief executive Jack Stevens says. John Maynard Keynes Mnuchin, who profited “bigly”, Stevens suggests the moder- caught economists’ imagination as Trump might say, from that ation in fee increases is based on about such instincts and sordid moment in US history. both supply and demand factors emotions in his 1936 book The Trump’s policies may spell but one key reason has been the General Theory of Employment, trouble for middle class negligible lift in wage growth over There are a number of ways of easing the pain of school costs and, as always, read the fine print Interest and Money. And Trump’s Americans and emerging the past year, the outstanding promise of massive doses of economies the world over, but costs faced by most schools. School fees growth slowing whether the family is really so Keynesian fiscal pump-priming markets are loving their mere There is some evidence the sig- much better off taking up what — including an infrastructure prospect. Even before taking nificant flows of students into the 2017 school fees: Sydney/Canberra 2017 school fees: Melbourne may be, at worst, a limited dis- boom — has markets betting on office, writes Barron’s columnist private system in recent times St Aloysius $17,624 Ivanhoe Girls Grammar $23,340 count on a school that is more ex- reflation. That’s boosting the US Kopin Tan, the Trump effect last may have cooled as fees swelled to Canberra Grammar $22,700 Camberwell Girls Grammar $25,184 pensive than might have been dollar, driving global stock week pulled off something not unprecedented levels. Kincoppal Rose Bay $28,845 Ivanhoe Grammar $25,872 required. Scholarships are aca- exchanges higher and prompting seen since December 31, 1999: One measure of the expense Meriden $29,330 demic awards granted on exam re- investment banks to redo 2017 sending the S&P 500, Dow Jones Fintona Girls School $28,228 and pressure exorbitant school PLC Croydon $30,720 sults. Bursaries are less growth projections. industrials, Nasdaq, and Russell $30,960 fees have placed on families — The King’s School $34,320 Camberwell Grammar School transparent. In theory, bursaries It could all be a big head fake, 2000 to record highs on the and on the ability of families to in- The Scots College $34,995 Lauriston Girls School $32,228 offered at the discretion of the of course. If the chaos and same day. As Tan warns, it may vest more broadly — has emerged SCEGGS Darlinghurst $36,196 Melbourne Girls Grammar $33,996 school are for cultural impera- dysfunction of the Trump be a matter of markets pulling in the worrying trend towards tives, such as supporting poor transition is any guide, this 2017 gains forward. But there’s using debt to fund school bills. Fee increases Fee increases families or families from the bush, presidency could be little more no doubt the Twitter presidency Recent media reports show or to develop a particular initiat- than symbolic gestures and will be a boon for volatility. The Scots College 3.2% Ivanhoe Girls Grammar 3.3% that about 22 per cent of school ive, such as getting more girls into gridlock. Trump’s Twitter feed, Bond investors aren’t happy PLC Croydon 3.2% Ivanhoe Grammar 3.5% fees were paid from credit cards, Kincoppal Rose Bay the IT industry. though, will turn heads and drive as rates rise and yield curves go 3.5% Melbourne Girls Grammar 3.8% though a closer examination may Meriden 3.5% markets from Singapore to New haywire. Trump’s election, reveal the credit card facility is Lauriston Girls School 4.5% York. Since the Trump shock, though, has a decidedly 1980s SCEGGS Darlinghurst 3.5% A bigger mortgage used simply for efficiency or even Fintona Girls School 4.7% average trading volumes in deregulate-markets feel and Canberra Grammar 3.8% for the modest offset provided by Financial adviser Will Hamilton Singapore have surged 28 per reminds one of Sherman McCoy, The King’s School 4.0% Camberwell Girls Grammar 4.8% frequent flyer points. suggests there are merits to in- cent compared to the first 10 the bond trader antihero in Tom St Aloysius 5.3% Camberwell Grammar School 4.9% The latest industry survey for creasing a mortgage, especially months of 2016. Wolfe’s period masterpiece EdStart shows 37 per cent of par- Source: EdStart when coupled with an offset facil- Trump’s often erratic tweets Bonfire of the Vanities. In trying ents use some form of debt or fi- ity. He says with rates at rock bot- are sure to drum up even greater to tell his young daughter what nancial assistance to pay for fees. suggests even where school fees through the system: here are some prudent for a business to reject ist bonds are primarily adapta- tom levels, it may a good idea to fix volume at Asia’s major bourses. he does for a living, McCoy talks Here’s the breakdown. Credit are not at the so-called “elite” of the best. cash up front. For the few families tions of existing insurance a portion of the mortgage. And ruin many a vacation, too: of passing a piece of cake, while card payments where interest was level, such financial requirements that can afford this luxury, the ad- products. Though there are some Looking across this area, the really, how does a trader, fund picking up the crumbs that come paid on the cards (11 per cent), need serious strategic thought. Last minute discounts vantage has been that with school tax advantages, there may also be only good news appears to be that manager, economist, currency off and pocketing them. Trump’s “loans” or assistance from the “Three children in private fees running at multiples of infla- additional expenses with any the pace of private fee acceleration strategist or financial journalist Twitter feed is sure to produce a school (8 per cent), loans or gifts schools at, say, $20,000 each for 13 Some schools don’t know until tion, you save over the course of a product. The key bonus should be may be slowing. The bad news is ever truly escape again with a bull market in crumbs. from family (7 per cent), loans years (he’s assuming primary and near the start of term how many child’s education. However, if fees that the specialist bond can match that as a cost, it has to be taken as president prone to sharing his I can’t speak to the animal from alternative financial provid- secondary) comes to $780,000 places have been filled. According continue to slow down as they the timing of the education terms an after-tax expense. Many inves- every unfiltered thought? spirits on which SGX’s Chew is ers (6 per cent) and loans from a after tax. This requires a dedicated to schoolplaces.com.au, a private have in the last year, and inflation a lot more closely than standard tors believe education is a cost like counting. But for those hoping bank (5 per cent). investment focus,” Atkinson says. school vacancy service, “For last- picks up, this facility may be less loans. any other and you pay for the best No more quiet days for a genuine escape in 2017, Though there are signs that fee Despite the enormous after- minute vacancies, a short-term attractive. you can afford. @realDonaldTrump has other increases at schools have levelled tax cost of paying school fees, discount is frequently applied ran- Scholarships, bursaries With careful planning, those Imagine how life is about to plans. If there’s anything Trump off, the challenges of funding fees there is surprisingly little atten- ging from 10 to 50 per cent.” Specialist products costs can at least be softened. change. The scene: you, your will make great again, it’s when there is little wage growth tion paid to the issue, in contrast to Read the details of school fees on partner, nice bottle of wine, prospects for markets staying means the cumulative sums re- mortgages or superannuation. Pre-payments For all the effort by the finance in- private school websites carefully. Wealth editor James Kirby hosts a impossibly perfect ocean view open 24/7. quired for schools are very steep. However, with the advent of dustry to create the impression Some are all-inclusive. The same live investment Q+A every and the phone rings. “Hey, did Richard Atkinson of Austock Life, specialist finance services, a hand- Few private schools will reject the there are highly advantageous goes for details of scholarships and Wednesday at 12.15pm at you see what Trump tweeted This article first appeared in a provider of insurance bonds, ful of useful ideas have filtered offer of prepayment. It is rarely education products, most special- bursaries: the essential question is www.theaustralian.com.au about the Chinese yuan?” Barrons.com Contractor may be eligible for As growth declines, opportunities shine among mid-caps the employer’s contribution attracted by lower rents. Now an If dividends don’t grow, your ROGER MONTGOMERY owner of a new apartment close to income won’t grow, and if your in- the city is receiving a lower yield come doesn’t grow your purchas- Average super balance able fringe benefits total and re- and the owners of the apartments ing power will be eroded. $ portable employer super contri- without a tenant have a yield of Many investors believe that THE Self employed 120,000 butions in the income year that zero. blue-chips are safe. But what could Salary earners COACH the contribution is made. This is Those numbers will only get be riskier than being virtually cer- 100,000 referred to as the “less than 10 per worse as more than 13,000 ad- tain to have less purchasing power 80,000 cent” test. ditional apartments are due to be in the future? Even though you describe completed in the next 18 months. Now to where I expect future I am a self-employed IT contrac- 60,000 yourself as a self-employed con- When income on a leveraged returns to be highest. tor with my own ABN. I contract tractor, when it comes to working asset falls, that’s when financial In the past 60 to 90 days the pri- to one company and the current 40,000 out your eligibility to claim a per- Investors are notoriously bad at stress is experienced. ces for some of highest quality contract has been in force for 20,000 sonal tax deduction for super picking turning points: we tend to And anecdotes of mounting mid-cap and small-cap growth more than 12 months. As a self- contributions, you will be consid- believe the future will look like the pressure abound. companies have been pummelled employed person am I able to 0 ered to be engaged in an employ- recent past and so many of us Real estate agents in Mel- as large institutional investors claim a tax deduction for contri- Male Female All ment activity if you are engaged make decisions about the future by bourne are demanding developers were forced to sell down their butions I make to superannu- Source: ASFA in an activity that results in you looking in the rear-view mirror. pay 100 per cent of their selling holdings to fund additions to ation? I receive no superannu- being treated as an employee for If the rear-view mirror were a commissions into trust accounts underweight positions in the ation from the company I con- nuation section and contractors. superannuation guarantee pur- useful tool to make investment de- upfront rather than the usual prac- banks, BHP and Rio amid a per- tract to. While the result may come as poses — and this includes a per- cisions then you would con- tice of 50 per cent upfront and 50 ceived improvement to their for- a shock to one or both of the par- son who is engaged under a centrate your share portfolio in per cent when settled. Rear-view tunes. You may have seen quite a lot of ties, the outcome is definitive and contract that is wholly or princi- high-dividend-yielding large-cap Developers already are dis- mirrors aren’t iSentia has declined more than coverage this week on the subject should not be ignored. If a liability pally for labour. stocks and you would leverage counting, offering frequent-flyer a particularly 30 per cent in the past month, as of unpaid super. to make SG payments is deter- As such, depending on the your savings to buy an apartment. points, holidays to Asia and 10- useful tool for has APN Outdoor and Vita Group. The broader question is mined, the liability exists for the exact nature of your arrange- But the next few years will look year rental guarantees to lure buy- investment Healthscope has fallen 32 per cent whether you should be receiving entire period that the contribu- ment and other personal circum- very different from the recent past ers. Banks are restricting lending decisions from a high of $3.14 to a low of the 9.5 per cent super guarantee tions should have been made. In stances, it may be that you will and it may be the case that selling to certain borrowers and black- $2.15, REA Group and Carsales are contributions from the company addition, the employer will be li- not satisfy this “less than 10 per those high-yield shares and selling listing entire suburbs. What to do next? companies are cyclical, which is down 27 per cent and 28 per cent, you contract to. It is a common able to penalties on unpaid or cent” test, meaning you may be any apartments you own, and buy- Meanwhile property doyens why even though shareholders respectively, from their highs. misconception that SG contribu- overdue SG payments. ineligible to claim a tax deduction ing the high-quality, high-growth including John Gandel (Chad- The simple rule of investing is the and lenders have given BHP two Now, you can see these sell-offs tions are not payable to contrac- In relation to your specific in- for personal contributions to stocks that have fallen by more stone), John Symonds (Aussie higher the price you pay, the lower times as much equity and 3½ times as risk or you can see it the way I do tors registered with an ABN. quiry, to be eligible to claim a tax superannuation. than 25 per cent during the past Home Loans) and Harry Triguboff your return. the debt, respectively, since 2007, — as opportunity. I am often told However, where a contract is deduction for superannuation as Please note that in the recent few weeks, will prove to be a wise (Meriton) have all sold or are try- I also fear for investors who the company’s profit next year is that I will never get the oppor- predominately labour related, an a self-employed person, you need changes to superannuation legis- decision. ing to sell significant properties or have share portfolios filled with expected to be less than half that of tunity to buy quality at cheap employer-employee relationship to satisfy several conditions. For lation that passed parliament on Around the country the apart- their property businesses. large-cap companies such as the 2007. prices because the market is ef- is deemed to exist for the purpos- example, if you are considered to November 23, this 10 per cent test ment oversupply (which I have At the same time that we have banks, BHP Billiton and Rio Tinto, If my thesis on property is right, ficient. But when the market treats es of SG contributions. be engaged in an employment ac- has been removed from July 1 been writing about regularly) has record property prices, we also Telstra, Woolworths and Wes- the banks will struggle to grow at that which could be temporary as Determining whether an indi- tivity during the year you will next year. So from then you started to hit the market and it is have record mortgage debt, record farmers. Things may look good so impressive rates for a while. permanent, an opportunity is pre- vidual contractor is an employee need to meet a maximum earn- should be eligible to claim a tax already affecting developers and credit card debt and record prop- far but things also look good for Many of the so-called “blue- sented. for SG purposes can be complex ings test. deduction for personal contribu- investors. erty supply. The scenario cannot the man who has jumped from the chip” large caps have something in I’d rather be buying high-qual- and subject to intense debate. This maximum earnings test tions made to superannuation In Brisbane, for example, in the coexist for long. roof of a building and is passing the common; their payout ratios are ity, high-growth companies at The Australian Taxation Of- means a deduction can be provided you satisfy all other first three quarters of this year, Remember economist Herb 20th floor. very high. Very high dividend pay- beaten-down prices than leverage fice provides an employee/con- claimed only where the sum of conditions. 5200 apartments have been com- Stein, who said: “If something can- You see all these companies out ratios mean retained earnings to buy an overpriced and soon-to- tractor decision tool to assist both your assessable income, report- pleted within 5km of the CBD. The not go on forever, it will stop.” have limited growth potential — for growth are very low. be oversupplied apartment or a parties in determining whether able fringe benefits total and re- Visit the Wealth section at impact is already being felt by As for passive apartment inves- no Woolies, I don’t think you’ll get At the same time investors large-cap, low-or-no-growth so- an individual under contract portable employer superannu- www.theaustralian.com.au to owners of apartments in the band tors — those not in the business of margins back to 5 per cent, ever. In have pushed up prices, in pursuit of called blue chip. qualifies to receive SG contribu- ation contributions attributable send your questions to Andrew 5km to 15km from the CBD where developing, subdividing, restoring fact I am not sure I believe entirely their yields, while the growth is de- tions. to the employment activities is Heaven, an AMP financial vacancies have more than doubled or renovating — I do not expect the margins being reported today. clining. And if growth is declining Roger Montgomery is founder and The tool can be found at less than 10 per cent of the total of planner at WealthPartners from 2.3 per cent to 4.7 per cent as them to make great returns in the Telstra hasn’t increased its or non-existent, dividends won’t chief investment officer at www.ato.gov.au in the superan- your assessable income, report- Financial Solutions. renters migrate closer to the city next few years. profit for a decade and resources grow. www.montinvest.com.