Update on President Trump’s Tariff Announcement

There’s a well known maxim in the markets “sell the rumor, buy the fact” — a belief that market expectations can often be worse than reality.

However, in the case of the Thursday 3 April 2025 US tariff announcement, the outcome was, unfortunately, more significant than anticipated, leading to increased volatility across global markets. Equities took a hit, and bond yields fluctuated. This is a strong reminder of the importance of diversification and maintaining a margin of safety in your investment strategy. While the new tariffs will undeniably have significant implications for global trade, economic growth, and inflation, it’s important to note that volatility can create attractive entry points for quality assets, especially for investors with a medium to long-term time horizon.

What We Know About the Tariffs

Today, the US announced a set of “reciprocal tariffs” on a range of countries, based on what it believes to be the effective tariff rates that these nations impose on US goods, including factors like local sales taxes and alleged “currency manipulation.” In Australia, with which the US maintains a trade surplus, we will face a 10% tariff (the minimum rate). Goods manufactured in the US are exempt from these tariffs. There are also some temporary exemptions, including: steel and aluminum; automobiles and auto parts already affected by Section 232 tariffs; copper, pharmaceuticals, semiconductors, and lumber; and bullion, energy, and minerals not readily available in the US.

What We Don’t Know

While President Trump did not provide a definitive timeline for the duration of these tariffs, he implied that they could remain in place indefinitely. This remains to be seen, and could be impacted by potential legal challenges and the outcome of upcoming elections.

Another uncertainty is how the affected countries will respond. Potential scenarios include retaliating by raising tariffs on US goods, prompting further US tariff increases. Another could see countries seeking to lower tariffs on US exports in exchange for concessions on their goods. At this point, the situation remains fluid and subject to change.

Initial Market Reactions

graph downwardIn after-hours trading, US stocks experienced a sharp sell-off. Unsurprisingly, companies reliant on imported goods were among the hardest hit, including Apple (-7%), Nike (-6%), Amazon (-6%), and Gap Stores (-12%). Foreign companies with significant exposure to the US market, particularly those based in China, also took a hit, such as Alibaba Group (-6.5%) and JD.com (-5.5%). US broad market indices followed suit, with the S&P 500 dropping over 3% and the NASDAQ falling by more than 4%.

However, the most significant consequence of today’s announcement might be its impact on future US Federal Reserve policy. The tariff news could potentially shift the Fed’s focus from inflation concerns to economic weakness. If this occurs, the Fed may decide to resume interest rate cuts sooner than previously anticipated.

Potential Ramifications

As a result of these changes, consumers in the US will face higher prices, leading to inflationary pressures. Further, global GDP growth could be stifled as profit margins come under pressure from increased costs.

That said, economics is rarely so straightforward. There are factors that could offset these challenges. For example, the US might respond with fiscal stimulus measures, such as additional tax cuts, to support the economy. Furthermore, the tariffs could accelerate the “reshoring” of manufacturing, which has been one of President Trump’s key goals.

What Should You Do?

Market volatility, particularly in reaction to policy shifts like tariff announcements, is a timely reminder of the crucial role portfolio diversification plays in mitigating risk. While short-term fluctuations are inevitable, a diversified portfolio can help smooth out the bumps and provide stability during periods of uncertainty. Like any other case of market volatility, we encourage a long term view, understanding that market turbulence is a feature, not a bug, of investing.

Conclusion

The US tariff announcement has added to market volatility and uncertainty. While short-term disruptions are inevitable, it’s important to recognise the importance of diversification and company fundamentals. It’s also important to remember that this situation will continue to evolve, and we’ll ensure to keep you informed of any future changes.

Take the 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.

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

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

Fintech Wrap Up for 2024

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We wish you a safe and happy break, and look forward to new beginnings in 2025.

We have prepared an end of year wrap up video. Please click on the image below to view it.

Business Hours Over the Holiday Season
Closed: Friday 20th December 2024
Re-opening: Monday 6th January 2025

For any urgent matters during this period, please call mobile 0419 833 777.

We look forward to empowering your financial success in 2025 and beyond.

Merry Christmas

What does the Trump Presidency mean for you?

You may be wondering how the re-election of Donald Trump might impact your investment portfolios and long-term financial plan. Before we dig into the events, I’d like to assure you that it is business as usual at our end.

Often the biggest risk in situations like this is reacting impulsively to the fears stoked by headlines in the media. But I’d like to remind you that politics and investing are two distinctly different areas, and we will continue to utilise the world’s leading investment research to manage your portfolios and ensure they are diversified, robust and performing well.

US Election Result

After emphatically reclaiming the White House and control of the Senate, Donald Trump and the Republicans are also inching closer to securing a majority in the House of Representatives as the final votes get tallied. If this occurs, it will give Trump a clear mandate to enact his policies.

However, we are mindful that there is huge uncertainty surrounding the actual policies President Trump might get behind and these moves may reverse.

In retrospect, Donald Trump’s landslide victory can be ascribed to policies based on the American people’s basic concerns around the cost of living, job security and border control.

Trump’s message to the American people throughout the campaign was simple and unwavering: the current administration, of which Kamala Harris is a member, is responsible for your higher grocery and petrol bills, and it has also lost control of our borders – the latter meaning you can’t feel safe in your home or on the streets, and an undocumented foreigner is probably also after your job.

His message about withdrawing US troops, and withholding American money, from far-flung wars also resonated in the country that has tired of being the world’s police officer.

Financial Markets Reaction

Financial markets have reacted with a broad rally in US equities and cryptocurrencies amid expectations of big tax cuts and less regulation, especially if the Republicans control both the Senate and the House of Representatives.

Stock Markets reaction

The US Dow Jones Index immediately jumped up 3.6%, while European and Chinese stocks saw a decline, and the Australian All Ordinaries closed up by a modest 0.30%. The US dollar has also strengthened against major currencies (including the AUD) as Trump’s stance on tariffs is expected to put upward pressure on the US dollar.

Other pockets of the market haven’t fared as well amid concern Trump’s pro-growth policies will also be inflationary, keeping interest rates higher. Promises of hefty tariffs are expected to hit China and the country’s demand for commodities.

If inflation were to increase from current levels, the US Federal Reserve could slow the pace at which they are planning to move interest rates lower, or in an extreme case, raise rates to combat runaway inflation. Much of this concern is driven by the tariffs President-Elect Trump has championed during his campaign. In addition to tariffs, extending tax cuts domestically could increase Federal budget deficits that would require additional borrowing by the US government, which puts further upward pressure on Treasury rates.

Our approach to this event has been the same as always: Prepare rather than predict.

Fintech Financial Services delivers highly researched diversified portfolios that are not overly exposed to any single outcome. Our investment managers take the long-term view and evaluate assets based on the value of their future cash flows, recognising that elections often have only limited long-term impact. However, now that the election is over, we’re ready to respond. If markets overreact, our decisions will be guided by an assessment of long-term value rather than emotion.

Analysis of presidential cycles since 1881 shows that starting Valuations of an investment play a larger role in returns than which party is in the White House.

Elections can create opportunities for investors who are prepared to capitalise on market overreactions. Being able to act on these opportunities requires a disciplined process and preparation about an asset’s potential long-term election impact.

Post-Election: Focus on What Matters Most

How important is the presidential party elected in determining return outcomes?

Analysis of data from the past 36 US presidential terms, spanning from James A. Garfield’s inauguration in 1881 through Joe Biden’s tenure shows that there is little difference. Robert Shiller’s long-term dataset was used to examine US stock market performance incorporating the two months prior to each inauguration to account for the market response to the election outcome.

The bar graph below reveals that presidential party affiliation accounts for less than 1% of the variability in returns across presidential terms, indicating a negligible impact. In contrast, the starting Valuations of investments, as measured by the CAPE Ratio, explain 17.8% of the differences in returns across presidential cycles.

The takeaway? Valuations are a far superior predictor compared to the party occupying the White House.

Starting Valuations are more important than Party Affiliations

In the days and weeks ahead, predictions will emerge about how the Trump presidency could influence returns. This analysis serves as a reminder that Valuations are a much more reliable predictor than who’s in the White House.

Taking a Long-Term View

We will continue to monitor proceedings and will keep you informed if anything material ensues. Regarding your portfolio, it is for circumstances like this that we take a diversified approach for the management of your money.

Your portfolios hold assets like financial stocks and broad equities that are positioned to perform well if inflation rises, and the growth backdrop consolidates. There are also positions like defensive equities and government bonds that should appreciate if the global economy loses momentum.

At the same time, the portfolios have avoided going “all in” on any potential outcome. Instead, your portfolios are robust and constructed so that they might be expected to perform well over the long run, come what may.

Last, We Leave You With Two Key Points

  1. In the face of political uncertainty, it is normal to question whether you should sell, hold or buy. To our eye, the answer is simple… manage risks, stay informed and most importantly stay the course.
  2. Any turbulence in markets may create great opportunities to purchase assets that will add meaningfully to returns in the future.

We hope you find this perspective helpful, and we’ll keep you updated as events evolve. As it stands, we want you to know we’re carefully monitoring proceedings, and we are here to help with any questions you may have.

 

Fintech Yearly Wrap Up 2023

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We wish you a safe and happy break, and look forward to new beginnings in 2024.

We have prepared an end of year wrap up video. Please click on the image below to view it.

As part of our tradition, Fintech Financial Services (Fintech) has made a donation to the ‘National Breast Cancer Foundation’ (NBCF.org.au) on your behalf – instead of sending Christmas cards in the mail.

Business Hours Over the Holiday Season
Closed: Friday 22nd December 2023
Re-opening: Monday 8th January 2024

 

For any urgent matters during this period, please call mobile 0419 833 777.

The team at Fintech sincerely wish you a safe, happy and fun holiday period.

We look forward to working with you in 2024 and beyond.

Merry Christmas

2023 Federal Budget Insights

Albanese Labor Government’s Second Budget

“Stronger Foundations for a better Future”

Treasurer Jim Chalmers has delivered Australia’s first budget surplus in 15 years. The slim surplus of $4 billion represents 0.2% of GDP and an approximate $40 billion turnaround from Labor’s mini-budget delivered last October.

Please note, these changes are proposals only and may or may not be made law.

A surplus is an important achievement for Labor. It is its first since 1989-1990.

This budget was delivered against the backdrop of challenging circumstances for the nation, including uncertain global economic conditions, increasing cost-of-living pressures and interest rates, and persistently high inflation.

Despite the boost that low employment and commodity prices have delivered to the budget bottom line, Labor has stuck to its budget repair strategy of modest tax changes, and reprioritisation of programs.

Prime Minister Albanese has described the budget as one aimed at “helping people struggling to make ends meet” without “pouring fuel on the inflation fire”, a narrow framework to manage.

Inflation is forecast to fall from 6% this financial year to 2.75% in 2024-25, while economic growth will drop from 3.25% this year to 1.5% next year. Unemployment is forecast to edge higher at 4.25% in 2023–24, and 4.5% the following year.

Like last October’s mini-budget, this budget keeps focus on core areas of spending – health, aged care, defence and the National Disability Insurance Scheme (NDIS).

It also includes significant funding for Australia’s clean energy transition and building industry capability in this area – an area the Treasurer described as Australia’s largest opportunity. Labor’s renewable energy commitments now total more than $40 billion.

This was not a budget that focused on productivity or business competitiveness outside energy transition measures and social spending priorities.

The budget has also shifted spending away from the former Coalition Government’s infrastructure priorities.

Labor has warned that the budget surplus will be short lived, with the budget returning to deficit next year. The budget remains in deficit over the forward estimates.

This will ensure ongoing focus on revenue measures, including taxation and tax concessions. For this budget the areas of superannuation, multinational business operations, the petroleum resource rent tax, tobacco, and tax compliance programs were the focus.

With an election due by 2025 and a narrow majority, this budget and future ones will be aimed at continuing to build a base of strong political support, while managing the much more complex economic outlook.

Key Announcements from the Treasurer

Cost of Living

  • Federal and state governments will deliver up to $3 billion in energy bill relief for eligible households and small businesses.
  • $1.3 billion will be invested in the Household Energy Upgrades Fund. $1 billion of this will be invested in the Clean Energy Finance Corporation to create low-interest loans for energy- saving home upgrades, and $300 million for upgrades to social housing to improve energy support.
  • $1.9 billion over 5 years to expand access to Parenting Payment which will see eligible single parents receive Parenting Payment until their youngest child turns 14 (currently up to 8 years old).
  • $4.9 billion over 5 years to increase the rate of income support payments by $40 per fortnight, while also expanding eligibility for the existing higher rate of JobSeeker to recipients 55+ and over (currently applies for 60+).

Energy and Renewables

  • $2 billion to position Australia as a world leader in hydrogen production.
  • Funding for the Capacity Investment Scheme’s first initial auctions to unlock new investment in firmed renewable generation.
  • Leveraging of existing funds to allocate $12 billion to transformational transmission projects and over $1.4 billion to regional net-zero growth opportunities.
  • $400 million to fund a Net Zero Authority to help workers, communities, and investors in their decarbonisation efforts.
  • $46.5 million to the Australian Energy Regulator to regulate energy markets and protect consumers.
  • $1 billion to Tasmania’s Battery of the Nation projects.
  • $1.5 billion to renewable energy zones and offshore wind in Victoria.
  • $4.7 billion to unlock critical transmission in NSW.
  • $1.3 billion investment in Household Energy Upgrades Fund.
  • $7.4 million to support the introduction of a Fuel Efficiency Standard.
  • Extension of the clean building managed investment trust withholding tax concession to eligible data centres and warehouses where construction commenced after Budget night.
  • Developing a Future Gas Strategy to support Australia’s energy system to reach 82% renewables by 2030.
  • $57.1 million to develop Critical Minerals International Partnerships.
  • $38.2 million to establish a Guarantee of Origin scheme to underpin markets for green energy, including hydrogen and other low emissions products.
  • $14.8 million to establish the Powering Australia Industry Growth Centre to support Australian businesses to manufacture, commercialise and adopt renewable technologies.
  • $400 million under the Powering the Regions Fund to be allocated to the Industrial Transformation Stream to support the growth of new clean energy industries in regional areas and decarbonise existing activities.
  • $400 million under the Powering the Regions Fund to the Critical Inputs to Clean Energy Industries stream to provide grant funding to support the development of clean energy industries by investing in sovereign manufacturing capability of critical inputs, such as steel, cement, lime, and aluminium.
  • $600 million under the Powering the Regions Fund to the Safeguard Transformation Stream to support trade exposed facilities covered by the safeguard mechanism to reduce their onsite emissions and boost competitiveness.

Health

  • $5.7 billion over 5 years to strengthen Medicare.
  • $3.5 billion to triple the bulk billing incentive paid to GPs to bulk bill consultations for families with children under 16, pensioners and other concession card holders.
  • $824.4 million in digital health, including funding to make the Australian Digital Health Agency ongoing, plus an upgrade for My Health Record.
  • A series of measures aimed at reducing the prevalence of vaping and smoking, which includes
  • $63.4 million for national public health campaigns, $141.2 million to expand the Tackling Indigenous Smoking program, and $29.5 million to increase and enhance supports to quit.
  • $263.8 million over 4 years (and up to $101.1 million per year ongoing) to establish and maintain a national lung cancer screening program.
  • $358.5 million for Medicare Urgent Care Clinics, which will fund 8 new clinics.
  • Pharmacy dispensing regulations will be modified to enable approximately 6 million individuals to purchase two months’ worth of medication for the cost of one prescription. The resulting budget savings of $1.2 billion that will be redirected to community pharmacies.
  • $2.2 billion over 5 years for new and amended listings to the PBS and a further $449.4 million for new and amended listings to the National Immunisation Program.
  • $91.1 million to commence the establishment of the Australian Centre for Disease Control.

Aged Care

  • $11.3 billion package will be delivered to fund the Albanese Government’s pledge to deliver on the Fair Work Commission ruling that lifts workers’ pay for residential aged care and in-home care which will see more than 250,000 frontline aged care staff receive 15% pay rises from 1 July.

Disability

  • $31.4 million to improve the National Disability Data Asset and $57 million to enable the supported employment sector to evolve.
  • $732.9 million in initiatives developed with the National Disability Insurance Agency in consultation with the NDIS Review Co-Chairs. This will improve capability and systems, as well as better support participants to manage their plans and fight fraud.

Industry

  • $15 billion for the National Reconstruction Fund to diversify and transform Australia’s industry and economy, through investment in priority areas of renewables and low emissions technologies, medical science, transport, value-add in agriculture, forestry, and fisheries, value- add in resources, defence capability and enabling capabilities.
  • $392.4 million will fund a new Industry Growth Program to support Australian small to medium- sized enterprises and startups to commercialise their ideas and grow their operations.
  • $286 million to renew and revive Australia’s arts, entertainment and cultural sector through its landmark National Cultural Policy Revive: a place for every story, a story for every place.

Defence and Strategic Policy

  • $19 billion will be allocated to the Defence Strategic Review’s (DSR) recommendations.
  • $3.4 billion over 10 years from 2023–24 to establish the Advanced Strategic Capabilities Accelerator within the Department of Defence to lift capacity to translate disruptive new technologies into Defence capability rapidly, in close partnership with Australian industry.
  • $4.5 billion over 10 years from 2023–24 (and $482.7 million per year ongoing) to support the initial steps in Australia’s acquisition of a conventionally-armed, nuclear-powered submarine capability.
  • $397.4 million over two years from 2023–24 to support the retention of Defence personnel and the achievement of Defence’s workforce growth target.
  • $1.9 billion over 5 years to expand Australia’s engagement with Pacific Island countries.
  • $376.9 million over 4 years (and $77.3 million per year ongoing) to maintain and improve delivery of core activities of the Department of Foreign Affairs and Trade.
  • $101.6 million over 5 years (and $11.8 million per year ongoing) to support and uplift cyber security in Australia. Including $46.5 million over 4 years from 2023–24 (and $11.8 million per year ongoing) to establish the Coordinator for Cyber Security to ensure that the Commonwealth’s cyber security efforts are strategic, coordinated, timely and effective.
  • $34.2 million over 3 years for the Australian Space Agency to continue to lead the national policy and strategy coordination of Australia’s civil space sector activities.
  • $80.5 million over 4 years from 2023–24 to support the Australian critical minerals sector to build diverse and competitive supply chains, attract international investment and transition to net zero.

Tax

  • The Government is reforming the Petroleum Resource Rent Tax to ensure a fairer return to the Australian community from Australia’s liquefied natural gas resources while providing certainty to industry and investors to support domestic gas supply and ensure Australia remains a reliable trade and investment partner. From 1 July 2023, the Government will cap the level of deductions that PRRT LNG projects can use to ensure that projects pay PRRT sooner.
  • From 1 January 2024, large Australian multinationals and the Australian operations of large foreign multinationals will pay an effective tax rate of at least 15%. From 1 January 2025, Australia will also tax the foreign operations of large foreign multinationals that operate in Australia to ensure they pay at least 15% tax in line with the OECD’s proposed minimum international corporate tax reforms.
  • The Government is proposing to reduce superannuation earnings tax concessions for those with superannuation balances exceeding $3 million. From 1 July 2025, earnings on balances exceeding $3 million are proposed to attract an increased concessional tax rate of 30%. In that scenario earnings on balances below $3 million would continue to be taxed at the concessional rate of 15%.

Data and Digital Economy

  • $2 billion in modernising outdated legacy platforms, foundational work, and new digital solutions to enhance service delivery and maximise future investment value for taxpayers.
  • $86.5 million to establish a National Anti-Scam Centre, boost the Australian Securities and Investments Commission’s work to disrupt investment scam websites, and establish Australia’s first SMS Sender ID Registry to prevent scammers imitating trusted brand names.
  • $44.3 million to the Office of the Australian Information Commissioner to take appropriate regulatory action, enhance its data and analytics capability, and support a standalone Privacy Commissioner.
  • $26.9 million in 2023-24 to expand Digital ID which is a secure and voluntary way to verify a person’s identity online, while minimising the collection of personal details.
  • $88.8 million over 2 years in the Consumer Data Right to support the CDR in banking, energy, and the non-bank lending sectors and deliver a cyber security uplift.
  • $101.2 million over 5 years to support the development and uptake of technologies that are enabling capabilities across Australian industries – commencing in quantum and artificial intelligence.

Women

  • The government will abolish ParentsNext from 1 July 2024 and develop a replacement voluntary program, to provide high-quality pre-employment support.
  • From July 2023, the Government’s Cheaper Child Care and Paid Parental Leave changes will take effect.
  • The Government is investing in affordable, high-quality health care for women and girls. The government will support research and data collection for women and girls’ health outcomes and will make it cheaper to test for the risk of recurrent breast cancer.
  • $589.3 million for women’s safety, which includes supporting implementation of the National Plan to End Violence Against Women and Children 2022-23 that builds on the $1.7 billion provided in the October Budget. This includes $194 million for a dedicated Aboriginal and Torres Strait Islander Action Plan, as well as $68.6 million over 2 years to support the Family Violence Prevention Legal Services providers to deliver legal and non-legal support for First Nations victim-survivors of family, domestic and sexual violence.

Housing

  • Increase to the maximum rates of Commonwealth Rent Assistance by 15% at a cost of $2.7 billion over 5 years.
  • Renters’ rights to be enhanced through the National Cabinet commissioned reforms to strengthen renters’ rights.
  • Encouraging build-to-rent by reducing the withholding tax rate for eligible fund payments from managed investment trusts attributed to newly constructed build-to-rent developments from 30 to 15%.
  • Encouraging build-to-rent by increasing the capital works tax deduction rate from 2.5% to 4% per year, increasing the after-tax returns for newly constructed build-to-rent developments.
  • Investing in social and affordable housing with an increase to the National Housing Finance and Investment Corporation’s liability cap by $2 billion to a total of $7.5 billion.
  • Expanding eligibility criteria of the Home Guarantee Scheme and Regional First Home Guarantee to any 2 eligible borrowers beyond married and de facto couples, and non-first home buyers who have not owned a property in Australia in the preceding 10 years, including for Australian Permanent Residents.

Childcare and Parental Leave

  • $72.4 million to build and support the skills of early childhood education and care workforce
  • From 1 July 2023, Parental Leave Pay and Dad and Partner Pay will combine into a single 20- week payment with a new family income test of $350,000 seeing an additional 3,000 parents eligible.
  • Commitment to increase Paid Parental Leave to 26 weeks by 2026.

Environment

  • $200 million to support projects that improve Australia’s resilience against natural disasters. Additional allocations under the government’s 5-year $1.1 billion dollar commitment to the National Heritage Trust to protect threatened species and habitats.
  • $262.3 million for Commonwealth National Parks.
  • $1 billion in additional funding for biosecurity.

Education

  • Funding for a further 300,000 TAFE and vocational education training places to become fee- free.
  • The Australian Skills Guarantee will set national targets for apprentices plus specific targets for women apprentices and trainees on major Government-funded construction and ICT projects. These targets will aim to double women in apprenticeship and traineeship roles in construction projects, and triple trade apprenticeships roles by 2030.
  • $9.3 million, on top of $328 million previously announced for the National Teacher Workforce Action Plan. These investments are designed to attract, train and retain people in the teaching profession.
  • $40.4 million to improve school attendance, engagement and learning outcomes for students in Central Australian schools.
  • $38.4 million to pilot community-led and culturally appropriate distance learning models in remote locations.
  • $21.6 million will extend the Indigenous Boarding Providers grants program for one year.

Migration

  • Allocating around 70% of places in the 2023–24 permanent Migration Program to skilled migrants.
  • An extra 2 years of post-study work rights to Temporary Graduate visa holders with select degrees, to improve the pipeline of skilled labour in key sectors.
  • Increasing the Temporary Skilled Migration Income Threshold to $70,000.
  • Exempting international students working in the aged care sector from the capped fortnightly work hour limit until 31 December 2023.
  • Additional training places for Pacific Australia Labour Mobility scheme workers in priority sectors for the Pacific and Timor-Leste and where there are job shortages in Australia. Re-scoping 2 Skills Assessment Pilots to provide onshore migrants with fast-tracked skills assessments, free employability assessments, and access to further training.
  • Mechanism for the Mutual Recognition of Qualifications will ensure students from India and Australia will have greater certainty that the qualifications they attain will be recognised by both countries.

Aboriginal and Torres Strait Islander Communities

  • $250 million to deliver the plan for A Better, Safer Future for Central Australia. In partnership with local First Nations communities, the Government will work to address the decline in services and investments in the region over the past decade.
  • $1.9 billion over 5 years from 2022–23 to help closing the gap by delivering sustained, practical actions to improve the lives and economic opportunities of Aboriginal and Torres Strait Islander people.

The above budget initiatives have the potential to deliver benefits to you depending on your financial situation, personal circumstances and stage in life.

Please contact us if you would like to discuss any of this further.

As usual, we are looking forward to continuing to assist you confirm the important financial strategy areas relevant to you and provide advice to maximise your outcomes in the long term future.

What would a recession mean for your financial strategies and investments?

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As global economies adjust to the withdrawal of trillions of dollars of stimulus post-Covid, inflation is remaining stubbornly high alongside ongoing conflict in Ukraine, elevated energy and commodities prices and China’s reopening from Omicron BF.7.

Wuhan -- Hankou station after lockdown

Central banks around the world are continuing to raise interest rates in an attempt to contain inflation. The US is leading the way as the Federal Reserve Chairman continues to hold a firm line against higher prices and persistently strong employment & wages growth. Australia’s Reserve Bank is on a similar path but to a lesser degree, given that the US is doing some of the heavy lifting for Australia as it slows global growth overall.

The pressing questions on everyone’s lips are:

  • How high will interest rates go?
  • Are we heading into a recession?
  • Will it be a soft or hard landing?
  • Are we already in a recession?

As long as core inflation stays above the major central banks’ target levels (typically 2-3%), there are likely to be several more interest rate increases interjected with a pause or two across the 2023 calendar year.

Whether interest rates continue to rise, stay level or even drop again beyond 2024 is unknown depending on economic data, the lag effect and the answers to the questions above.

Professional economists are forecasting the possibility of a recession at a higher rate than anytime over the past decade and Google searches of the word “recession” hit an all-time high in 2022.  A key indicator for an impending recession is a sustained period of ‘yield curve inversion’, which is where short term Government bond rates (2 yr) are higher than the long term (10 yr) rates. This has been the case in the US since the end of last year and points to economic growth slowing in the longer term, more than in the short term, and a pending recession.

The Good News

If a recession does come, it will happen with a backdrop that includes a historically strong employment market, which would hopefully bring about a less severe, shallow recession. In Australia’s case we also have an abundance of natural resources that the world needs and we are benefiting from higher commodity prices and the strong US dollar. This may assist us avoid a technical recession altogether i.e. two consecutive quarters of negative economic growth. However, this remains to be seen and will also depend a lot on what happens in the US and other major economies around the world.

feather making a soft landing

The employment market is only one piece of evidence that counters the recession narrative. There are others as well, which include:

  • LVMH (parent company of Louis Vuitton, Tiffany & Co, Fendi) reported record numbers in the first nine months of last year. Consumers are spending aggressively on luxury items.
  • Airline fares, up 28% versus last year represent the second fastest growing category in the inflation index (behind fuel oil), and travel demand has soared despite the cost.

arrow with slight upward trend held in hands

Lagging Data

These results do not necessarily feel like a recession. However, we note that the data is lagging and captures what has already happened. It’s possible the environment could be much different six months from now, emphasising that it’s not possible to predict outcomes, but that taking a long-term view is key to being adequately prepared.

From an investment standpoint, we take solace in the fact the stock market and economic cycle don’t move in unison. The worst performance of the stock market is usually observed in the 12 months leading up to a recession rather than during the recession itself. There have been exceptions, but markets generally tend to be forward-looking while economic data is backward-looking.

Stunning sunset on a beach in Thailand

Let’s not forget lessons from recent history. Only two years ago we had an economic deterioration while the stock market moved higher. It’s certainly possible the same thing could happen again this year.

We are hopeful 2023 will be a smoother ride than 2022. But we are confident that together, we can navigate whatever the future holds, and we look forward to supporting you throughout the journey.

As usual, please contact us if you would like to discuss any of the above in relation to your circumstances, your financial advice and strategy areas, or your structures and investments.

Fintech Yearly Wrap Up 2022

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We wish you a safe and happy break, and look forward to new beginnings in 2023.

We have prepared an end of year wrap up video. Please click on the image below to view it.

As part of our tradition, Fintech Financial Services (Fintech) has made a donation to the ‘Beyond’ (Anxiety, depression and suicide prevention support – Beyond Blue) on your behalf – instead of sending Christmas cards in the mail. Red Cross support the most vulnerable people in our local communities here in Australia and across the Asia Pacific.

 

Business Hours Over the Holiday Season
Closed: Friday 23rd December 2022
Re-opening: Monday 9th January 2023

 

For any urgent matters during this period, please call mobile 0419 833 777.

The team at Fintech sincerely wish you a safe, happy and fun holiday period.

We look forward to working with you in 2023 and beyond.

Merry Christmas

The October 2022 Federal Budget

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Balancing a revenue windfall, pre-election promises, structural spending demands & persistent inflation pressures

Jim.Chalmers.2022

The Labor Government under Anthony Albanese has implemented its election policies and expects lower budget deficits in the next two years thanks to increased tax revenues from higher commodity prices and other savings.

However, future years are expected to bring significant deterioration to the economy as structural spending pressures, higher interest rates and lower productivity impact growth. As the Treasurer Jim Chalmers foreshadowed, this is largely a “bread and butter” budget with no changes to personal income tax rates. Any other significant reforms being planned by the Labor Government across income tax rates or superannuation were not addressed in this budget and if they are applicable could be announced in next year’s 2023 Federal Budget in May.

Observations

  • Yet another revenue windfall from high commodity prices and the offsetting of new spending with the savings, has resulted in sharply lower budget deficits over the next 2 years (the deficit this year has been revised down to $36.9bn from $78bn forecast in March 2022). This avoids adding to inflation and the pressure on the Reserve Bank of Australia (RBA) to keep raising interest rates.
  • Budget deficit projections are now worse beyond 2024-2025 and will most likely lead to the Treasurer Jim Chalmers looking for was to increase fiscal (tax) revenues or cut spending in next May’s budget.
  • There has been a realistic attempt to highlight the structural pressure on the budget whilst focussing on the cost of living pressures affecting less affluent Australians.
  • The economic assumptions used in the budget look reasonable and Australia’s public debt remains low compared to other comparable countries, which will assist the Government retain its triple A credit rating.
  • Commodity price assumptions used in the budget remain well below current levels and so could be a source of surprise to reduce the deficit further.

Key proposals

  • Reducing eligibility age for Downsizer Contributions from 60 to 55.
  • Increasing Commonwealth Seniors Health Card income thresholds.
  • Allowing pension age social security recipients to earn more from employment before their payment is impacted.
  • More generous eligibility rules for Child Care Subsidy and Parental Leave Pay.
  • More favourable Centrelink assessment of home sale proceeds.
  • Continued support for homebuyers, and
  • Increased funding for the National Disability Insurance Scheme (NDIS).

Please note: The announced changes are proposals only and may or may not be made law.
The successful implementation of the measures will require successful negotiation through the Senate where the Government does not hold a majority. Therefore, The final version of these measures may differ from the current announcements.

albanese-chalmers photo

 

Summary

Personal Taxation

  • No changes to personal income tax: The Budget did not contain any measures announcing changes to personal income tax. This includes:
    • No changes to the Stage 3 tax cuts (announced by the former Liberal Government) which are still tabled to take effect from 1 July 2024, and
    • No extension of the Low and Middle Income Tax Offset, which ended 30 June 2022.
  • Helping enable electric car purchases: For purchases of battery, hydrogen, or plug-in hybrid cars with a retail price below $84,619 (the luxury car tax threshold for fuel efficient vehicles) after 1 July 2022, fringe benefits tax and import tariffs will not apply. Note: Employers will still need to account for the cost in an employee’s reportable fringe benefits.

No changes to personal tax rates and thresholds

personal-tax-rates chart

Home Ownership

  • Housing affordability measures: A key focus of the Budget were measures to help individuals secure housing. This is expected to occur largely via the Housing Accord – which will bring Federal, State and Local Governments together to work on housing affordability and homelessness. Measures announced include:
    • A commitment to the ‘Help to Buy’ scheme which will support first home buyers to buy a home with the Federal Government being a part owner, resulting in a lower balance to be funded by the individual themselves.
    • A Regional First Home Buyer Guarantee from 1 October 2022 which, similar to the existing First Home Deposit Guarantee scheme, is expected to provide up to 10,000 first home buyers with a guarantee over their mortgage, removing the need for lenders mortgage insurance

Superannuation

  • Expanding eligibility for the Downsizer Contribution: Legislation has been introduced to reduce the Downsizer Contribution eligibility age from 60 to 55 years of age. This measure will allow more people to make a further contributions of up to $300,000 each to their Superannuation after selling their family home owned for more than 10 years. The measure is proposed to take effect from the first quarter after passing into law, which is expected to be 1 January 2023.
  • SMSF and tax residency: The Government confirmed its intention to continue with the 2021/22 Budget measure of extending the temporary trustee absence period from two years to five years and removing the ‘active member’ test. These changes will help SMSFs continue to maintain their Australian tax residency even while members are overseas, and allow them to continue to contribute to their funds even if they become non-tax residents.
  • Three-year audit cycle for SMSFs not proceeding: Originally announced as part of the 2018/19 Budget, it was confirmed the current Government will not proceed with this measure.

Social Security

Childcare subsidy graph

  • Child care subsidy changes: As part of a package of reforms to encourage parents to return to the workforce, the maximum child care subsidy from 1 July 2023 will increase to 90% for families earning less than $80,000. For every $5,000 earned over this threshold the subsidy will reduce by 1% – reducing to zero for incomes $530,000 or above. The higher rate of subsidy for families with multiple children in care will continue under its current arrangements, ceasing once the eldest child reaches six years old or has been out of care for 26 weeks.
  • Paid parental leave increases: Announced before the Budget, from 1 July 2024 the Paid Parental Leave Scheme will increase the maximum period of leave by two weeks each year – reaching a maximum of 26 weeks by 1 July 2026. Further, from 1 July 2023 both parents will be able to access leave at the same time or enter into more flexible arrangements than currently available under the limited Dad and Partner Pay limits, and requirements to take 12 weeks as a continuous period. The paid parental leave income test will also be extended to include a $350,000 family income test, which can be used to help families who do not meet the individual income test.
  • Reducing assessment of former home proceeds: For individuals on social security benefits, the temporary assets test exemption of home sale proceeds is to be extended from 12 months to 24 months. Additionally, these proceeds will only be deemed to earn a return at the lower deeming rate (currently 0.25% per annum) for this period. Note: This exemption only applies to the portion of the proceeds expected to be used in a new home purchase.
  • Work Bonus deposit for older Australians: Announced as an outcome from the Jobs and Skills Summit, age pensioners and veterans over service pension age are expected to receive a one-off credit of $4,000 into their Work Bonus income bank. The Work Bonus typically offsets $300 per fortnight of income earned from employment or self-employment activities, allowing pensioners to receive a higher age pension whilst still working.
  • Increased income thresholds for Commonwealth Seniors Health Card: The Government has committed to increasing the income thresholds to qualify for the Commonwealth Seniors Health Card from $61,284 to $90,000 for singles, and from $98,054 to $144,000 combined for couples. This measure creates an opportunity for more senior Australians to access reduced costs for healthcare, pharmaceuticals, utilities and transport and more.
  • Deeming rate freeze: The Government has also confirmed its intention to retain the current deeming rates until at least 30 June 2024.
  • Plan for cheaper medicines: From 1 January 2023, the general patient co-payment for Pharmaceutical Benefits Scheme treatments is expected to reduce from $42.50 to $30.

Implications for asset classes and investments in Australia

  • Cash and term deposits: Returns on Cash accounts are improving thanks to the current RBA interest rate hikes but still remain historically low. Term Deposits rates being paid by some banks for longer terms such as 12 Months, are becoming more attractive at 3.8% and higher levels.
  • Bonds: The RBA has hiked interest rates rapidly from 0.10% to 2.60% since April 2022, and are widely expected to increase rates further in November and December 2022 by 0.25% or 0.50% before pausing early in early 2023.
    • The need to keep increasing rates is due to persistently high inflation, full employment and overheating markets following the trillions of dollars of stimulus injected into the economy along with interest rate cuts following the breakout of the COVID-19 pandemic in early 2020.
    • Further rate hikes and forecast budget deficits (albeit deficits may now be lower than expected) will continue to add upwards pressure to bond yields in the near term.
    • Investors who purchased fixed rate and long duration bonds purchased before the recent interest rate increases have lost capital value in those bonds. In fact, bonds have dropped over -12% in the last 6-9 months. Bond markets are reaching the peak in this cycle and have now pricing in yields around 4% (compared to 0.20% 6 months ago).
    • As the impacts of higher interest rates and other Government austerity measures are felt, inflation and the economy growth will start to show more signs of contraction. Current bonds yields at around 4% and higher are becoming attractive in anticipation of this, and we are positioned to take advantage of buying opportunities as they arise for your portfolio.
  • Shares: The budget is positive for childcare and construction companies but beyond that there is not really a lot to impact the share market. However, we are continuing to focus on high quality Australian and International companies that have strong competitive positions in their markets, resilient earnings, positive cash flows and low levels of debt.
  • Property: The confirmation of more homebuyer schemes and more immigrants offset by long term housing supply measures in the budget are unlikely to alter the dominant negative impact of rising mortgage rates in driving a cyclical downturn in home prices into 2023.
  • The Australia Dollar (AUD): the Budget is unlikely to change the direction for the AUD, particularly against the strong USD as inflation remains high and the US Federal Reserve continues to hike interest rates.

The above budget initiatives have the potential to deliver benefits to you depending on your financial situation, personal circumstances and stage in life. Please contact us if you would like to discuss any of this further.

As usual, we are looking forward to continuing to assist you confirm the important financial strategy areas relevant to you and provide advice to maximise your outcomes in the long term future.

 

Key points from the 2022-23 Federal Budget

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As the post-pandemic economic recovery continues to take shape, Australian Federal Treasurer Josh Frydenberg has handed down the 2022-23 Federal Budget

Among the proposed changes, the Morrison Government has announced a pre-election cash splash and plans for lower budget deficits in the coming years.

The additional spending relates mainly to this calendar year, and given the stronger than expected economy it looks to be more motivated by politics than economics. “Fiscal repair” kicks in for the medium-term but this takes the form of restrained spending growth in contrast to the last two budgets, rather than austerity. Despite this, the Government is able to announce lower budget deficit projections thanks to a windfall from faster growth and higher commodity prices which is resulting in faster tax collections and lower welfare spending.

Key points

  • A budget windfall has allowed both more spending and projected lower budget deficits, with the 2022-23 budget deficit expected to be $80bn (down from $99bn in December 2021).
  • Key measures include one-off “cost of living” payments, a temporary cut to fuel excise, more spending on infrastructure & defence, more help for home buyers, and the continuation of the 50% reduction in minimum Pension drawdown rates from superannuation.
  • Relying mainly on nominal economic growth to reduce the deficit and debt, the Government runs the risk that it could take a very long time to get back to budget surpluses and repay the almost $1 Trillion debt to a reasonable level.

Economic assumptions

  • The Government revised up its growth forecasts for this financial year (from 3.75% to 4.25%) and kept 2022-23 GDP growth unchanged at 3.5%.
  • Unemployment is expected to fall to 3.75% by June 2023 (down from 4.25%).
  • Inflation and wages forecasts have also been revised up significantly.
  • Net immigration (estimated to be +41,000 this year rising to +235,000 by 2025-26) becoming more of a growth support.
  • The Government pushed out its $US55/tonne iron ore price assumption to September quarter 2022. While iron remains around $US135/tonne, it is a source of revenue upside.

Table of Economic Assumptions for Real GDP - Inflation - Wages - Unemployment

Read on for a round-up of how the proposals might affect your household expenses and financial future.

Remember, many of these proposals could change as legislation passes through parliament.

Superannuation

Temporarily extending the minimum Pension drawdown relief

Proposed effective date: 1 July 2022

The temporary reduction to the minimum income drawdown requirement for superannuation Pensions will be further extended until 30 June 2023.

This will allow people to minimise the need to sell down assets given ongoing market volatility. It applies to account-based, transition to retirement and term allocated superannuation Pensions.

For the 2022-23 financial year, the proposed minimum Pension drawdown will be:

Table showing the proposed minimum pension drawdown

 

Tax

  1. Temporarily cutting fuel excise

    Proposed effective date: 30 March 2022
    Fuel excise will temporarily be cut by half, or 22.1 cents per litre, to save families an estimated $30 a week. This measure will end on 28 September 2022.

  2. Increasing the Low and Middle Income Tax Offset (LMITO)

    Proposed effective date: 1 July 2021

    • The LMITO will be increased to up to $1,500 for the 2021-22 financial year. All eligible LMITO recipients will benefit from the full $420 increase, referred to as the Cost of Living Tax Offset.
    • The benefit for those earning up to $37,000 will be $675 (currently $255).
    • For those earning between $37,000 and $48,000, the offset will increase at the rate of 7.5 cents per $1 above $37,000 to a maximum of $1,500 (currently $1,080).
    • Those earning between $48,000 and $90,000 are eligible for the maximum LMITO benefit of $1,500 (currently $1,080).
    • For income above $90,000, the offset phases out at a rate of 3 cents per $1 and is not available when taxable income exceeds $126,000.
    • The LMITO is due to end on 30 June 2022 and has not been extended.
    Personal tax rates, thresholds and offsets
    Table showing Personal Tax rates and Thresholds

    The Low Income Tax Offset (LITO) remains unchanged at $700 and will be reduced at a rate of:
    — 5 cents per $1 for income between $37,500 and $45,000, and
    — 1.5 cents per $1 for income between $45,000 and $66,667.
    Effective tax-free threshold (2021-22) with LMITO and LITO:
    — $25,437 for individuals below Age Pension age (some Medicare levy may be payable).

  3. Increasing the Medicare levy low-income thresholds


    Proposed effective date: 1 July 2021
    Low-income taxpayers will generally continue to be exempt from paying the Medicare levy.
    — Singles will be increased from $23,226 to $23,365
    — Families will be increased from $39,167 to $39,402
    — Single seniors and pensioners will be increased from $36,705 to $36,925
    — Families (seniors and pensioners) will be increased from $51,094 to $51,401.
    For each dependent child or student, the family income thresholds increase by a further $3,619.

Social security, families and aged care

  1. Introducing a one-off cost of living payment

    Proposed effective date: 28 April 2022 onwards

    To help with higher cost of living pressures, the Government will provide a one-off tax-free payment of $250 to Australians who receive qualifying social security payments or hold eligible concession cards, including:
    — Age Pension
    — Disability Support Pension
    — Carer Payment
    — Carer Allowance Jobseeker Payment
    — Pensioner Concession Card holders
    —  Commonwealth Seniors Health Card holders.

    An individual can only receive one payment, even if they’re eligible for multiple benefits or concession cards.

  2. Enhancing the Paid Parental Leave scheme

    Proposed effective date: 1 July 2023

    Currently, the Paid Parental Leave scheme is made up of two payments for eligible carers of a newborn or recently adopted child:
    — Parental Leave Pay of up to 18 weeks at a rate based on the national minimum wage.
    — Dad and Partner Pay of up to 2 weeks at a rate based on the national minimum wage.

    The Government plans to create a single scheme of up to 20 weeks, fully flexible and shareable for working parents within two years of their child’s birth or adoption. Single parents will also benefit from the extended 20-week entitlement.

    The income test will also be broadened. Parents who don’t meet the individual income threshold (currently $151,350) can still qualify for payment if they meet a family income threshold of $350,000 a year.

  3. Lowering the Pharmaceutical Benefits Scheme (PBS) threshold


    Effective date: 1 July 2022

    The Government will reduce the PBS safety net thresholds to support people who have a high demand for prescription medicines due to their health needs.

    This means approximately 12 fewer scripts for concessional patients and 2 fewer scripts for general patients a year.

    On reaching the PBS safety net, concessional patients will receive their PBS medicines at no cost for the rest of the year, and general patients will pay the concessional co-payment rate (currently $6.80 per prescription).

Housing Affordability

Expanding the Home Guarantee Scheme

Proposed effective date: 1 July 2022 or 1 October 2022 depending on the specific scheme

The Home Guarantee Scheme allows first home buyers to build or purchase a newly built home with a low deposit, replacing the need for commercial lenders’ mortgage insurance.

The Government is expanding the scheme to make available:
  • 35,000 guarantees each year (up from the current 10,000) from 1 July 2022 under the First Home Guarantee, to support eligible first homebuyers to build or purchase a newly built home with a deposit as low as 5%.
  • 10,000 guarantees each year from 1 October 2022 to 30 June 2025 under a new Regional Home Guarantee, to support eligible homebuyers (including non-first home buyers and permanent residents), to purchase or construct a new home in regional areas with a deposit as low as 5%.
  • 5,000 guarantees each year from 1 July 2022 to 30 June 2025 to expand the Family Home Guarantee. This program enables eligible single parents with dependants to enter or re-enter the housing market with a deposit as little as 2%.

Eligible first home buyers may also be able to take advantage of the First Home Super Saver Scheme which allows them to use the concessionally taxed super system to save their first home deposit. Other federal and state grants and stamp duty concessions may also be available.

Assessment and summary

This is very much a pre-election Budget with few direct losers (e.g. tax avoiders) and lots of winners – including low and middle income taxpayers, welfare recipients, motorists, first home buyers, parents with young children, older super members, apprentices, builders, small business owners, defence industries, transport users, tourism operators, and even Koalas.

The Budget has a number of things to commend it:
  • Medium term structural spending is no longer being ramped up faster than the economy.
  • Most of the budget windfall from stronger growth and higher commodity prices is being put to deficit reduction and hence long-term debt stabilisation (unlike last year when it was mostly spent), and
  • The annual addition to infrastructure spending along with measures like the Apprenticeship Incentive Scheme will provide some boost to productive potential.
However, at a micro level the Budget may be criticised on the grounds that:
  • The temporary fuel excise reduction is bad economic policy in that, it may be very hard to reverse if oil prices keep rising or stay high, it will make no sense if oil prices fall back on say a Ukraine peace deal, and it sets a bad precedent.
  • Many welfare recipients are arguably getting compensated for “cost of living” pressures twice – via the one of payment and via the indexation of payments to inflation, and
  • The housing measures continue to focus more on demand than supply which will result in higher than otherwise home prices (even though they are unlikely to prevent the cyclical downturn in prices now starting) and will boost debt levels.
At a macro-economic level there are two big risks flowing from the Budget:
  1. Firstly, the pre-election cash splash (which is about 1% of GDP in terms of new stimulus in the Budget for this calendar year, but is actually a bit more if spending of the $16bn in “decisions taken but not yet announced” in the Mid-Year Economic and Fiscal Outlook (MYEFO) are allowed for) risks overstimulating the economy at a time when it is already strong, further adding to inflationary pressures and adding to the amount by which the Reserve Bank of Australia (RBA) will have to hike interest rates, and
  2. Secondly the reliance on growing the economy to reduce the budget deficit and debt is unlikely to reduce debt quickly enough and is dependent on interest rates remaining low relative to economic growth. 10-year bond yields have already gone up more than four-fold since their 2020 low warning of a sharp increase in debt interest payments beyond the medium term. And economic growth is unlikely to be anywhere near strong enough to reduce the debt burden like it did in the post-WW2 period unless there is another immigration boom or 1980s style focus on boosting productivity – both of which look unlikely. In the meantime, the strategy would be highly vulnerable if anything came along to curtail the commodity boom. So at some point tough decisions are likely to be required either to reduce spending as a share of GDP or raise taxes.

Implications for the RBA

It is now likely that the RBA will start raising interest rates in the period June to August 2022, with the cash rate expected to reach 0.75% – 1.00% by year end and 1.50% – 1.75% in 2023. The extra stimulus in the Budget increases the chance that the first rate hike will be 0.40% rather than 0.15% (taking the cash rate to 0.50% after the first increase).

Implications for Australian Assets

  • Cash and Term Deposits – Cash returns are poor but they will start to rise as the RBA starts hiking from mid-year.
  • Bonds – Ongoing budget deficits add to upwards pressure on Bond yields. Where the rising trend in yields results in capital loss, total Bond returns (income + capital) will remain low for the medium-term.
  • Shares – More fiscal stimulus (tax breaks), strong growth and relatively low interest rates all remain supportive of Australian shares. However, rising Bond yields and RBA rate hikes will result in a more constrained and volatile ride.
  • Property – More home buyer incentives are unlikely to offset the negative impact of poor affordability and rising mortgage rates in driving a cyclical downturn in home prices.
  • The Australian Dollar (AUD) – Strong commodity prices point to more upside.

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