What does the 2025-2026 Federal Budget mean for you?

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This year’s pre-election Budget proposes cost of living relief through modest tax cuts, lower power bills, reduced co-payment for medicines and other measures

albanese-chalmers photo

 

The Budget has swung into deficit with more forecast to come

The Labor Government’s finances still face significant structural challenges in addition to uncertainty from tariffs, elevated trade tensions, commodity prices, economic growth and geopolitical instability. We think these bigger issues are more important for investment portfolios than the Budget measures.

Interestingly, whilst this Budget was delivered just prior to the next Federal election (must happen by 17 May), it was not laden with the sweeteners that often accompany such Budgets, such as one-off payments to welfare recipients. The Government’s hands were somewhat tied in what they could do, so as not to add to counterproductive inflation, interest rates and other cost of living pressures.

Key economic observations

  • The Budget forecasts a deficit in 2024-2025 of $27.6bn (1% of GDP), a $0.7bn deterioration compared with the Mid-Year Economic and Fiscal Outlook (MYEFO) projections in December. This marks a notable turnaround from a $15.8 billion surplus recorded in 2023-2024 with deficits projected to continue over the forward estimate horizon. The deficit is expected to widen to $42.1bn (1.5% of GDP) in 2025-2026.
  • Most of the changes to the budget profile are the result of policy decisions with $34.9bn in net new measures since the MYEFO. Many of these have a flavour of cost of living support, including extended electricity rebates, increased Medicare funding and small tax cuts.
  • The budget continues to face significant structural challenges with strong growth in expenditure on programs such as the NDIS, aged care and defence. Off-budget items are also much higher than in the past, adding to the government’s funding task.
  • The dominant risk has shifted from the inflation trajectory to the potential impact from global trade disturbances. However, risks to the budget projections are two sided:
    1. Windfalls from commodity prices will fade but may be slower to decline, Treasury typically makes cautious assumptions on the outlook. We expect the price of iron ore to end 2026-2027 at US$85/t, above the budget estimate of US$60/t by mid–2026. Conversely, rising trade tensions and heightened policy uncertainty may precipitate an earlier decline in commodity prices and weakness across other revenue channels.
    2. More unsettled financial markets could also test the Treasury’s technical assumption for 10 year yields of 4.4%. That in turn could limit the government’s fiscal space to implement counter-cyclical measures to help absorb future shocks, as it did during the Global Financial Crisis (GFC) and COVID-19. This comes at a time when growing geopolitical uncertainty, increasing trade tensions, more frequent weather events and ongoing technological change may mean shocks are more frequent.

spending revenue as a share of gdp 1980-2025

Lower income households and Small to Medium Enterprises (SMEs) are the clear winners:

  • The government also remained focused on renewable and clean energy as part of the Future Made in Australia (FMIA) initiative.
  • Defence spending has been brought forward, but no new spending in this area was announced.
  • While not directly targeted for measures, retailers will benefit from the support to consumers, and those in the manufacturing space will benefit from the FMIA and defence spending.
  • The Budget however may not have met all expectations and hopes. Notably, no new measures for the agriculture sector were included this year, with several initiatives already in place.

Several notable omissions from the Budget

  • No superannuation-related proposals in the Budget this year.
  • No mention of the Labor Government’s plan to impose additional tax on the growth in superannuation balances over $3m, which does not currently have sufficient support to pass in the Senate. Of significant concern are two contentious points about the proposed tax:
    1. Taxation of ‘Unrealised Gains’ as at 30 June each year as part of the intended policy, and
    2. No indexation on the $3m threshold each year. This means that in 10 years time the real value of $3m would be approx $900k if not increased for inflation or 3% CPI each year, creating another setback for younger generations – many already struggling with housing unaffordability.
  • No reform to the taxation of family trusts, despite the significant uncertainty for family groups as a result of recent court decisions.
  • No trade and tariff policy of a fundamental nature given trade barriers rising around the world.
  • No GST reform, or changes to the GST base or allocation of GST revenue.
  • No mention of an extension to the small business instant asset write-off benefit which will end as planned in July 2025. The tax break allowed businesses to claim an immediate $20,000 deduction from their taxes and this is set to fall back to $1,000.

Taxation

Personal tax cuts

The Government intends to decrease the current 16% personal income tax rate to 15% in 2026-27 and 14% in 2027-28, as per the following table

Annual tax saving in 2025-26, 2026-27 and 2027-28 (compared to 2024-25)

taxable income savings table

Cost of living

Energy bill relief extended for six months

All Australian households and eligible small businesses will receive an additional energy rebate of $150. The rebate will be automatically applied to electricity bills between 1 July and 31 December 2025, in two quarterly instalments of $75. It’s expected that the eligibility rules that apply to small businesses will remain unchanged.

Student loans to be cut by 20%

Student loans will be reduced by 20% before the annual indexation is applied on 1 June 2025. The changes will apply to all HELP Student Loans, VET Student Loans, Australian Apprenticeship Support Loans, Student Start-up Loans and Student Financial Supplement Scheme.

Reduced student loan repayments

The income that can be earned before student loan repayments need to be made will be increased from $54,435 in 2024/25 to $67,000 in 2025/26. Also, repayments will be calculated on just the income earned above the $67,000 threshold, not on total income. The list of eligible student loans is covered in the measure above.

Lower cap for PBS medicines

The maximum cost of Pharmaceutical Benefits Scheme (PBS) medicines will decrease from $31.60 to $25 per script from 1 January 2026. Pensioners and Commonwealth concession cardholders will still only pay the subsidised rate of $7.70 per PBS script until 1 January 2030.

Medicare bulk billing incentives

Incentive payments will be introduced to expand bulk billing to all Australians from 1 November 2025. Also, a new Bulk Billing Practice Incentive Program will be introduced for general practices if they bulk bill every visit under Medicare. Nine out of 10 GP visits are expected to be bulk billed by 2030.

Expanded ‘Help to Buy’ program

The Help to Buy program was established to assist eligible individuals with the purchase of a principal place of residence. Expected to commence later this year, the Commonwealth will provide an equity contribution up to 30% of the purchase price of an existing home and up to 40% of the purchase price of a new home. The income cap and property price caps used to determine eligibility will increase. For singles, the income cap will increase from $90,000 to $100,000. For joint applicants (and single parents), the income cap will increase from $120,000 to $160,000. The property price cap depends on the location of the property and details can be found in the Government’s media release.

Social security

‘3-day guarantee’ for child care subsidy

toddlers at childcare

Families will be eligible for at least 72 hours per fortnight (three days per week) of subsidised Early Childhood Education and Care (ECEC) without having to meet certain activity requirements (such as paid work, volunteering and studying). Families that still meet activity requirements, care for a First Nations child or have a valid exemption, can continue to get 100 hours of subsidised ECEC. A family income test limit ($533,280 in 2024/25) will still need to be met to be qualify for subsidised care. This measure is legislated to start from 1 January 2026.

What the budget means for the Australian economy

The economic assumptions embedded in the Budget are generally consistent with the views of the Reserve Bank of Australia (RBA). Growth is expected to be trend-like over the next year and then improve in FY27. Inflation is expected to be consistent with the RBA inflation target.

Household consumption is expected to pick up over the next 12 months. Whilst we think this is appropriate, there are risks to the rebound not being as strong if global uncertainty remains elevated. Additionally, it is possible that the interest rate cuts are shallow and do not provide as much of a boost if households prefer to maintain mortgage payments and thus reduce their debt.

Implications for your financial strategies and investments

We believe this Budget has limited consequences for investment markets this year, given the domestic uncertainty around the pending election and the global uncertainty around US trade policy and growth in China and Europe.

The tax cuts for consumers are not set to kick in until July 2026 and are not likely to have a major impact on consumer spending – especially when the savings rate is already quite low.

Taking a long term view

Fintech Financial Services remains committed to utilising market leading research providers and investment managers to not only mitigate risk in your portfolios, but look for opportunities to investment in line with your investment risk profile and objectives for the long term.

Your portfolios are robust and constructed so that they can perform well over the long run, while minimising risk, come what may.

Good financial advice takes a full spectrum approach

Importantly, we understand the interaction of all the connected parts of your financial strategy needs and how a change in one area has a flow on effect in other areas. Our comprehensive and disciplined approach to the financial strategies that deliver valuable outcomes to your needs and what’s important to you in life, is what makes the most difference above and beyond good investment returns.

Remember, things will always change in investment markets, government legislation and your personal circumstances. We are looking forward to continuing to work with you, maximising your financial outcomes no matter what the future brings Our approach helps you make smarter financial decisions.

Where to from here?

Many of the measures announced in the 2025-2026 Federal Budget need to be passed as law to take effect. With the 2025 Federal Election expected to be called shortly, there are limited days for both houses of Parliament to sit to pass these measures.

As always, please contact our office if you would like to discuss any of the above in relation to your specific circumstances.

Grant

JobKeeper changes update!

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Extension of JobKeeper

As the COVID-19 pandemic continues to affect employment in Australia, the Government has announced an extension of JobKeeper from 28 September 2020. From this date, the flat rate of JobKeeper will reduce, payment tiers will be introduced and ongoing turnover tests for businesses will be used to determine eligibility.

Legislation is necessary to support this measure with the next sitting of Parliament 24 August 2020.

Rate of JobKeeper

Currently, JobKeeper is a flat rate of $1,500 per fortnight. It will continue to be paid to eligible recipients at this rate until the original end date of 27 September 2020. However, the extension of JobKeeper until 28 March 2021 will have two rates. The new rates will be:

  • From 28 September 2020 – 3 January 2021:
    $1,200 per fortnight for those working 20 hours or more per week (on average)
    $750 per fortnight for those working less than 20 hours per week.
  •  From 4 January to 28 March 2021:
    $1,000 per fortnight for those working 20 hours or more per week (on average)
    $650 per fortnight for those working less than 20 hours per week.

Eligible employees are those who were working in the business in the four weeks before 1 March 2020 (i.e. February 2020). The ATO will be provided discretion on alternative tests to determine an employee’s hours during the test period where the employee may not have been working, such as being on leave due to bushfires. Guidance will also be provided where employees are not paid on a weekly or fortnightly basis. All other criteria to determine the eligibility of an employee is unchanged.

Businesses will need to continue to identify those employees that JobKeeper is being claimed for and this will be extended to nominating the relevant amount which is being claimed for each employee based on hours of work.

Turnover test

Businesses will need to show a continued decline in turnover to be eligible for the extension of the JobKeeper payment. The decline in turnover is:

  • 50% for businesses with aggregated turnover of more than $1 billion
  • 30% for business with aggregated turnover of $1 billion or less, or
  • 15% for Australian charities and not-for-profit commission-registered charities (excluding schools and universities).

The decline in turnover thresholds are unchanged, however, turnover assessment will be specifically measured at two points under the extension.

From 28 September 2020 to 3 January 2021, businesses will need to have a significant fall in actual GST turnover in the June and September 2020 quarters compared to the corresponding quarters in 2019.

From 4 January to 28 March 2021, businesses will need to have a significant fall in actual GST turnover in the June, September and December 2020 quarters compared to the corresponding quarters in 2019.

The ATO will have discretion to provide alternative methods to determined turnover including circumstances where it is not appropriate to compare actual turnover in 2020 with corresponding quarter in 2019. This is consistent with the current discretion provided to the ATO.

We will keep you posted as the changes to JobKeeper are tabled in Parliament (most likely remotely).

As usual, please contact our office if you have any questions.

COVID-19 Temporary Relief for Super and Pension

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Keeping you informed during the coronavirus pandemic.

We appreciate that you and your family are dealing with a significant amount of information relating to the global COVID-19 pandemic. As a highly valued client of Fintech Financial Services, we want to share with you important changes to Super and Account Based Pensions (Pensions), and keep you informed.

You will also find the latest updates from us on COVID-19 (Coronavirus) and investment markets on our website at www.fintech.com.au/news

Government measures announced on 22 March

Prime Minister & Treasurer

Two important changes to Super and Pensions were announced by the Prime Minister, Scott Morrison and the Federal Treasurer Josh Frydenberg on 22 March 2020. The measures provide temporary relief to those experiencing financial challenges due to the economic impacts relating to the containment of the Coronavirus. This is part of the Government’s Economic Response to the Coronavirus.

We believe that this response is a considered, pragmatic and caring move for a nation under stress. The announcement also reflects the strength of our superannuation system and the fact it was built for the well being and livelihoods of Australians.

The measures include:

  • Reduced minimum Pension drawdown rates for retirees
    The Government is temporarily reducing minimum drawdown requirements for Pensions and similar products by 50% for the 2019-2020 and 2020-2021 financial years.
  • Temporary early access to Super
    Eligible individuals in extreme financial stress will be allowed early access to their Super of up to $10,000 before 1 July 2020, and up to a further $10,000 from 1 July 2020. Meaning, if eligible, you may be able to access up to $20,000 overall.

 1. Reduced minimum drawdown rates for retirees

Superannuation-Piggy

The reduction in the minimum drawdown by 50% will provide assistance if you wish to reduce the impact of drawing down on your Super during this time of market crisis and lower investment values. The measures will also assist those who have reduced expense needs during the ‘stay at home’ phase of the Coronavirus, or have access to other sources of cash and income from outside their Super Fund.

Of course for those still able to contribute to Super or who have cash available to invest, the high levels of market volatility are providing extremely attractive long term buying opportunities.

The reduced minimums are now available to everyone with an Account Based Pension, Allocated Pension, Transition To Retirement (TTR) Pension and Term Allocated Pension as per the table below.

Pension Table

Note: The above minimum withdrawal factors are indicative and subject to change by the ATO. The method for calculating the reduced minimum drawdown amount for market linked income streams or Term Allocated Pensions (TAPs) will be different. For more information go to ato.gov.au.

Next steps / action required

Please contact our office by email to ad***@*********om.au or by calling us on telephone 07 3252 7665 if you would like to change your pension payments relating to the periods below:

NB: If you wish to maintain your current Pension arrangements ongoing, you need do nothing more.

a) From Now to 30 June 2020
If you have received monthly Pension payments throughout the financial year, you may wish to cease the remaining months of May and June 2020.

b) From 1 July 2020 to 30 June 2021
You also have the option to reduce your Pension drawdowns by up to 50% of the minimum relating to your Age for the period 1 July 2020 to 30 June 2021, as per the table above.

2. Application for early release of up to $10,000 from Superannuation available from 20 April 2020

centrelink queue

The Government has also announced that individuals suffering from extreme financial stress will be allowed early withdrawal of up to $10,000 from their super on compassionate grounds, in each of the 2019-2020 and 2020-2021 financial years, subject to certain eligibility criteria.

For more details on eligibility or to apply for early release, please go to ato.gov.au/coronavirus.

For anyone considering early withdrawal, there are a number of things to consider, including the impact on any insurance held in super, and the fact that withdrawing funds from super will reduce retirement savings.

We are here to provide the best possible advice and financial outcomes for you

Please contact us on 07 3252 7665 if you have any questions about any of the above.

For full details on the Australian Government’s Economic Response to the Coronavirus, visit https://treasury.gov.au/coronavirus.

Please take care of yourself and your family while the Coronavirus runs its course.

Interest Rates Stay on Hold for February 2020

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The Reserve Bank of Australia (RBA) has left the official interest rates on hold at it’s first meeting for 2020 today.Reserve Bank of Australia

The cash rate decision comes at a time when the bushfire emergency and coronavirus outbreak weighs heavily on the Australian economy.

Improved employment data likely buoying the reserve bank’s outlook, even though economic growth has remained subdued.

This means the cash rate remains at 0.75% for the time being. As we have previously outlined, the cash rate is likely to remain “lower for longer” as inflation around the world has remained at stubbornly low levels.

Fintech Financial Services believes that it is unlikely that this will be the end of the RBA’s successive cuts (0.25% cut in the months of June, July and October 2019). Prior to October last year the RBA held the official cash rate at 1.50% for 30 consecutive months. The recent natural disasters, including droughts, floods and bushfires and the economic ramifications of the coronavirus outbreak make another cut in the near future likely.

With the economy a long way from the RBA’s full employment and inflation objectives, the bushfires likely to slow growth in the short term and the China coronavirus posing a new threat to global growth and tourist arrivals, the RBA had many reasons to cut rates at today’s meeting.

Going forward, the RBA is also likely to be considering the impact that another cut could have on consumer confidence, which has been down; given that the general public can perceive this as a message that the economy is going badly and we are in for tough times ahead. However, this is more due to the bank’s inability to communicate its intent.

Deloitte signageDeloitte Access Economics reported in their Business Outlook in January that there’s a large gap between what the RBA is saying, and what families and businesses are hearing. The RBA is boosting the economy both because it is weaker and because it is different. The first factor on its own is a concern for families and businesses, but the second, a different economy with more profits and more jobs – but less in terms of wages growth – is actually a mixed blessing.

If the next rate cut occurs as expected, it will bring the official rate cash rate to 0.50%, just a single cut from the point where RBA Governor Philip Lowe has said he would consider instituting a Quantitative Easing program (printing money). With the Australian economy now beset on all sides, it seems likely that there will be another cut soon.

This means that those holding Cash at bank or in Term Deposits to generate income, are going to find it even harder to maintain their income needs and lifestyles as a consequence.

This also means that investors will continue to look for ways to earn higher levels of income from other sources like dividends from Shares, rents from Property & Infrastructure and returns from higher risk Mortgages and Debt Instruments like unsecured Corporate Bonds. These assets class types have been pushed higher over the past 2 to 3 years as sustained low interest rates have created a ‘yield chase’ scenario. Some of these investment types are looking fully value or sitting above fair value as a result.

Therefore, it is very important for your portfolios, not only to be in line with your ‘Investment Risk Profile‘ and the reasons / objectives why you are investing, but to be made up of individual investments that represent ‘fair valuation’ or better, and utilise the leading investment research houses to deliver this to clients.

Please contact us if you would like to discuss this in relation to your specific circumstances.
Grant

Donald Trump Stunned The World And Headed For Victory

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World financial markets swung wildly yesterday afternoon as Donald Trump stunned the world and headed for victory over Hillary Clinton to secure the top job at the White House. 

A gracious tone in the first speech by US President elect Trump had a calming effect on the markets, and there was a surprisingly fast recovery following initial sell-offs.

Trump sounded more Presidential than at any stage during the long winded US election campaign:

  • Trump congratulated his Democratic rival, saying that Hillary Clinton waged “a very very hard-fought campaign”. He also commended her for having “worked very long and very hard” over her political career.
  • “Now it’s time for America to bind the wounds of division – to get together,” he said. “To all Republicans and Democrats and independents across this nation, I say it is time for us to come together as one united people”.
  • Trump, who had been criticised by opponents for rhetoric characterised as divisive and racist, pledged, “I will be president for all Americans, and this is so important to me”.

The Australian sharemarket initially dropped by almost 4% but recovered to end up down 1.94% at close of trade. The US dollar and European markets also recovered from early dips as markets continued to digest Trump’s victory for the Republicans including winning control of the House and Senate.

The Trump result eerily emulated the ‘Brexit’ experience in Britain earlier this year. There was a sense of complacency, surprise and panic, followed by swift recovery. In fact, it has happened more quickly this time.

However, it is yet to be seen whether Trump will be a much better President than some people were expecting less than 24 hours ago, and if there are enough positives from the result including the absence of a congressional deadlock. Markets around the world will be looking for Trump’s actions to reflect the words in his victory speech, with less of the maverick behaviour that he portrayed throughout the campaign.

Will Trump’s policies get traction?

Trump’s policy platform lacks the cohesion of a “typical” Presidential candidate reflecting his relative isolation from the Republican Party. This is further exacerbated by the fact that he has also been both a registered Democrat and Republican voter in the past.

There have also been some major shifts in policy during the campaign which makes it difficult to determine his core beliefs, although these shifts have largely been around immigration, social policies and foreign affairs.

Trump’s major economic policies include:

  • Lowering the corporate tax rate to 15% from 35%, and eliminating loopholes and deductions.
  • Cutting the top personal income tax rate to 33% from 39.6% and simplifying personal income tax by collapsing the current seven tax brackets to three.
  • Repealing estate tax laws.
  • Repealing or renegotiating trade deals including the North American Free Trade Agreement (NAFTA) between Canada, Mexico and the United States, and the Trans-pacific Partnership.
  • Increasing tariffs on exports to the US (and leaving the World Trade Organisation if it rejects the proposal).
  • Replacing the Affordable Care Act (Obamacare) with a more market-based health insurance system.

Congressional support for many of Trump’s policies may be difficult to achieve once he is in the White House

Some uncertainty remains:

  • The Mexican Peso has fallen almost 12% hitting at a record low. This is not so much reflecting Trump’s threat to “build a wall” along the border between Mexico and the US, but rather his intention to slap a tariff of 35 per cent on Mexico’s exports to the US.
  • Trump’s promise to launch a trade war against China, by declaring it a “currency manipulator”. He’s also threatened to impose tariffs of up to 45 per cent on everything China exports to the United States, something he can do under existing legislation.
  • Trump’s fiscal policies will add significantly to the US budget deficit and US public debt, potentially leading to higher long term US interest rates (which would in turn be negative for stock prices).
  • Trump’s repeated personal attacks on US Federal Reserve Chair Janet Yellen and the call to “audit the Fed” threaten to undermine market confidence in the Federal Reserve. President Trump will have the ability, almost immediately upon taking office, to reshape the Fed by filling the two vacancies on the Federal Reserve Board. Previously replacements for the board have been blocked by the Republican-controlled Senate in the outgoing Congress.

Reasons that markets are not likely to have a complete meltdown: 

  • The US economy is in reasonably good shape, with unemployment still low and growth rising in the last quarter.
  • Real economic growth has picked up in recent months while the unemployment rate, at 4.9%, is close to any economist’s definition of full employment.
  • S&P500 earnings have rebounded smartly from the oil & dollar induced slump of 2015 and inflation is still moderate.
  • The global economy is also showing signs of life with the global manufacturing PMI index hitting a two year high in October. All of this, absent political uncertainty, would be positive for stocks and negative for bonds.

What does this mean for your investments?

While ongoing uncertainty associated with the Trump presidency is likely to put a hand brake on equities markets, there is a concern that if passed, the combination of tax cuts and trade policies would see US budget deficits increase and the economy hurt by retaliatory trade actions.

In the short-term, the US Federal Reserve is likely to delay interest rate increases including the potential December hike, in response to the renewed uncertainty. However, in the longer term, deterioration in the deficit and higher inflation would likely see bond yields rise.

Your Integrated Financial Solutions investment portfolios reduce risk by utilising market leading research to identify high quality stocks that are diversifying across asset classes, regions and sectors in line with your risk profile.

To maximise your long returns, your portfolio is designed to deal with short term equities volatility that comes with geopolitical and other risks such as a the Trump Presidency result. This removes the need for panic sell-downs and mis-timed portfolio changes after markets have already fallen, crystalising losses. A well-diversified mix of highly researched, quality companies and stocks will benefit from market bounce backs that follow sharp declines over time.

Please contact our office if you would like to discuss your current investments or to take advantage of buying opportunities that arise.

Super Changes Open A Window Of Opportunity

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Treasurer Scott Morrison

The bringing back of annual NCCs and ’2 year bring-forward’ rules

Sound confusing? Well it is quite complex, as there are a number of ways the changes can be applied depending on your circumstances. Let me explain.

On 15 September 2016, Treasurer Scott Morrison and Minister for Revenue and Financial Services Kelly Dwyer announced significant changes to the largely unpopular superannuation reforms proposed on Federal Budget night in May this year.

Below is a summary of the key changes announced and what they mean:

  • The scrapping of the proposed Lifetime $500,000 Non-Concessional Contribution (NCC) limit per person, which was made effective on Budget night.This is very good news, as this lifetime cap was retroactively back-dated to include all NCCs (or personal after-tax contributions) made to each individuals super accounts from 1 July 2007 onwards. Not only was this measure difficult to calculate but it was unfair on those people planning to contribute more than $500,000 to super over their lifetime from future inheritances, sales of businesses, properties or other investments in order to fund a dignified retirement without relying on Government welfare or handouts
  • From 1 July 2017, there will be a new annual Non-Concessional Contribution cap of $100,000 (reduced from the current annual cap of $180,000) and if you are under the age of 65, you will still be able to use the ‘2 year bring-forward’ rules going forward.This means that if you are under age 65 and have not triggered the NCC bring forward cap by contributing over $180,000 in any of the past 3 financial years, you can contribute up to $540,000 for the last time this financial year (before 30 June 2017).
  •  From 1 July 2017, only those with a superannuation account balance below $1.6 million (assessed as at the previous 30 June) will be able to make Non-Concessional Contributions. Importantly, if your individual super balances are close to, or already exceed $1.6 million, this represents a final opportunity to make NCCs up to $540,000 each (3 x $180,000) utilising the ‘2 year bring-forward’ rules before 30 June 2017.And from 1 July 2017, based on the current information available, if you have less than $1.6 million in super as at the prior 30 June, but more than $1.5 million, you can still contribute a total amount of $100,000 as a Non-Concessional Contribution (not just the shortfall to the $1.6 million total).
  • The Government will retain the existing requirement that you must meet the ‘work test’ to be able to contribute to super between ages 65 and 74 (they had originally proposed to remove this requirement).This is a disadvantage for those in the 65 to 74 age bracket who have funds to contribute to super but cannot meet the work test rules (i.e. being gainfully employed on at least a part time basis for 40 hours in a 30 day period, during the financial year in which contributions are made).
  • There are no changes to the proposals around tax-deductible Concessional Contributions (including lowering the cap from $35,000 to $25,000 per annum) other than delaying the “catch-up” opportunity for those with less than $500,000 in super by 12 months to a 1 July 2018 commencement.

Examples of bring-forward NCCs transitional arrangements

Where an individual has triggered the bring forward in 2015-2016 or 2016-2017 but has not used it fully by 30 June 2017, transitional rules will apply.

Where an individual triggers the bring forward in 2016-2017, the transitional cap is $380,000 (the current annual cap of $180,000 plus $100,000 annual cap in 2017-2018 and 2018-2019). See examples 1 and 2 in the table below.

If an individual triggers the bring forward in 2015-2016, the transitional cap is $460,000 (the current annual cap of $180,000 in 2015-2016 and 2016-2017 plus $100,000 annual cap in 2017-2018). See example 3 in the table below.

table_01

More on the $1.6 million eligibility threshold

Individuals are unable to make further NCCs where their total superannuation balance is $1.6 million or more (tested at 30 June of previous financial year). Where an individual’s balance is close to $1.6 million, they can only make a contribution or use the bring forward to take their balance to $1.6 million but not beyond.

table_02

It’s important to be aware these proposed changes are not yet law but are expected to be introduced into Parliament by the end of 2016. There is likely to be a consultation draft released prior to that time which is expected to have more detail on the changes.

The Integrated Financial Solutions group will keep you informed of any further developments and the passage of the legislation through Parliament and the Senate

If you would like more information, click on the following link to the Government’s Superannuation Reform Fact Sheet: http://www.treasury.gov.au/Policy-Topics/SuperannuationAndRetirement/Superannuation-Reforms.

In the meantime, if you have any questions contact our office on telephone 07 3252 7665.

Grant

What Does The Brexit Vote Mean for Your Investments?

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As you may be aware form the extensive media reports, Britain has voted to leave European Union (EU) and Prime Minister David Cameron has resigned.

The Brexit Leave campaign secured 51.8% of the total vote, in somewhat of a surprise outcome as the general market consensus was that the result would be close but that the British people would end up voting to stay in the EU.

Prime Minister David Cameron, addressed the British nation watched on by his wife Samantha at 5:20pm AEST. The British Cabinet will meet on Monday and a timetable for David Cameron stepping down will be drawn up.

In his speech outside 10 Downing Street, Mr Cameron included the following statements…

“I am very proud to have been Prime Minister of this country for six years….

The British people have voted to leave the EU and their will must be respected…

Across the world people have been watching the choice that Britain has made…

This will require strong, determined and committed leadership…

I have held nothing back…

I was absolutely clear about my belief that Britain is stronger, safer and better-off inside the European Union…

I made clear the referendum was about this and this alone, not the future of any single politician including myself…

I think the country requires fresh leadership…

I will do everything I can as Prime Minister to steady the ship in coming weeks and months…

I do not think I can be the captain to take the country to its next destination…

In my view I think we should have a new prime minister in place by the start of the Conservative conference in October.”

Mr Cameron also added that he would attend the European Council next week to explain the decision that the British people have taken and his own decision, stating that “those on the losing side of the argument, myself included, should help to make it work.” Mr Cameron ended his stoic speech with a quiver of emotion as he stated his love of Britain.

Michael Fallon, the Defence Secretary, stated ” it’s extremely sad news and I would have preferred him to stay on to help make this decision work but it’s his decision and I think it’s the honourable and decent thing to do.” “He lost the argument in the referendum campaign and it does answer your question as to who is best placed to take this renegotiation forward.” Mr Fallon added, however, that “it’s too early to speculate” on who will replace Mr Cameron.” “What’s important now is that we reassure the country, we stabilise the markets and the economy and we reassure our allies that Britain is not turning its back on the world.”

The Bank of England governor Mark Carney has made the following statement…”It will take some time for the UK to establish a new relationship with Europe and the rest of the world. So some market and economic volatility can be expected as this process unfolds, but we are well prepared for this. Her Majesty’s Treasury and the Bank of England have engaged in extensive contingency planning and the chancellor and I have remained in close contact including through the night and this morning. The Bank of England will not hesitate to take additional measure as required, as markets adjust.

Donald Tusk, the president of the European Council, has appealed for calm and says the must be no “hysteria” about the British result. Mr Tusk stated that there will be “no legal vacuum” and EU law will continue to apply until Britain formally leave. There are serious “political consequences” for the UK but leaders are “prepared”.

While England voted overwhelmingly for Brexit, Scotland and Northern Ireland voted strongly to Remain. The city of London also voted 59.9% to Remain but the turnout there was lower than expected because of bad weather. However, the British Midlands and North East regions voted overwhelmingly to Leave. Harry Potter author J. K. Rowling has hinted that she may switch to supporting Scottish independence in a second referendum in the hope of keeping the country in the EU. She suggests that many people who voted no in the last referendum could well switch sides.

Market impacts and your investments

Following the announcement late this afternoon, the British pound immediately crashed to the lowest level since 1985 and the FTSE 250 index plunged a whopping 11.7% in the first few minutes of trading.

In Australia, the news of the pending British exit from the EU caused the All Ordinaries to crash 3.17% before close of trading earlier in the day. From what started off as a positive session in the Australian share market, all sectors finished the day in negative territory with the big miners and big four banks being heavily sold off. BHP shed more than 8% and the major banks dropped between approximately 3% and 4%. The S&P/ASX 200 index closed 168 points down to finish at 5,113. However, over the week the index lost 50 points.

In other markets, the Australian dollar fell by 4%, and Australian bond prices rose by 2-3%, gold rose 5% and oil prices fell by a similar amount.

In each of the above cases, the prices falls and rises after the vote merely reversed falls and rises of similar amounts over the past week, so there was actually little change from this time last week. As stated above, the All Ordinaries index of Australian shares was down 3.17% today but it just gave back what it had gained over the prior week as the Brexit vote looked like going the other way. Similarly Japanese shares were down 8% on Friday, but they had risen 5% over the prior 5 days. There were similar patterns in other Asian markets. European stock markets will probably fall by around 5% when they open on Friday but they had gained 7% over the previous 6 days. (It is a quirk of human nature that we tend to focus on the losses more than we do the gains!)

The benefits of having a high quality and well-diversified portfolio

Events such as the Brexit vote highlight the value of having a high quality, well-structured diversified portfolio utilising market leading research.

Not only are you diversified across asset classes, investment sectors and regions, you are also buffered by currencies during Global market events. Given that the Australian dollar usually sells off along with shares in global shocks, falls in international share prices are usually largely offset by currency gains as the Australian dollar falls. We have been largely un-hedged on currency risk for international shares in your portfolio, which means that falls in international share prices are partially offset by falls in the dollar in sell-offs.

This has occurred in many prior market shocks, and it happened again today. Asian shares fell be around 4% (and European and US shares are also expected to sell off when their markets open Friday night our time). However the Australian dollar also fell by 4% on Friday, so the Australian dollar value of international shareholdings in portfolios was largely unchanged as the currency gains largely offset share price falls.

Another buffer in portfolios is bonds. In broad market shocks, bonds generally gain in value, helping to offset falls in share prices. All your diversified portfolios contain holdings in high quality corporate bonds. Losses on Australian shares were partially offset by gains in Australian bonds in your portfolios. Also, when European and US markets open tonight our time, international bond prices are expected to rise, and this will further help offset falls in international shares in your portfolios.

Other impacts in Australia
Direct impacts in Australia are likely to be relatively minor. The British pound fell 9% on the news of the vote, and that will benefit British exporters to Europe. But the days when Britain was a major trade partner with Australia are long gone. For the first 150 years of Australian history Australia was a British colony and benefited from preferential trade ties with the mother country. But that was all undone when Britain joined Europe. Britain leaving the EU now will have very little direct impact on Australia as the vast majority of Australian trade is now with Asia. The people of Australia are likely to gain some confidence once the Federal Election is decided on 2 July and create a stabilising influence on our economy and markets.

Medium term impacts
More than likely the sudden sell-off in shares and offsetting sudden rally in bonds is likely to stabilise and reverse. Even the bombing of Wall Street on September 11, 2001 and the Japanese tsunami and nuclear crisis in mid-March 2011 were quickly forgotten as markets recovered within a few weeks.

If the Brexit leave vote is confirmed. A full British exit of the EU is likely to require many hundreds of pieces of legislation and administrative steps that may take many months or years to complete. In that time other more pressing issues are likely to take over the headlines. These include the pace of the US economic recovery (following their Presidential election in October this year), the Chinese stimulus program, the military build-up in the South China Sea, and so on.

Aside from the immediate impacts on markets, the likely substantive impact of the Brexit is likely to be a general slowdown in business investment, hiring and consumer spending in Britain and Europe as businesses and consumers wait to see the practical outcome of the vote. The downside of this is that it is likely to slow economic growth and employment, but the upside is that it will also probably lead to lower interest rates for longer – in both Europe and in the US. Thus the impacts on company revenues and profits is likely to be mixed. We will continue to ensure your portfolios have exposure the companies that are best positioned to benefit from these changes.

Longer term impacts
Over the long term the Brexit may well turn out to be the start of a fragmentation of the EU system. The idea of a pan-European economic block had clear advantages in promoting trade, investment and economic growth, especially in the 1970s and 1980s. But the downside has been the crippling creep of increased regulation and taxes, which has hampered productivity growth and innovation. It may well be that the best days for the EU are over and Britain, along with other countries that follow the exit, may progress more quickly free of the stifling bureaucracy of Europe.

The British exit does not provide a clear template for Greece to exit the EU because Greece uses the Euro, whereas Britain has always retained its own currency

Your investments
Given that your portfolios have built-in buffers to soften the short term impact of sudden market sell-offs, we see no need to make knee-jerk reactions when the mechanics for a British exit and their implications on markets are so unclear at this stage.

We will continue to monitor what is happening economically and politically in Australian and the rest of the world, and ensure your portfolios are positioned in line with your Investment Risk Profiles to get the best possible long term outcomes from the prevailing market conditions.

Please contact me if you have any questions regarding the Brexit and your specific circumstances.

Grant