Tag Archives: Markets

Federal Election 2025

By Robert Wright /May 23,2025/

During the Federal Election campaign, the Government made a number of election promises, which may impact your finances. There were also a number of support measures proposed in the recent Federal Budget. What could this mean for you?

These announcements are proposals only and may or may not be made law. The information below, including the policy details and proposed start dates, is based on the information announced as at 5 May 2025. You should speak to your financial adviser to discuss how these proposals could apply to you.

Election promises

Taxation

$1,000 instant tax deduction for work-related expenses, proposed from 1 July 2026.

What’s proposed?

Taxpayers who have eligible work-related expenses may be able to claim a tax deduction of up to $1,000 without having to keep individual receipts. It will still be possible to claim work-related expenses above this limit, however evidence will be needed.

Who could benefit?

The deduction will be available to people with ‘labour income’. This doesn’t include income from running a business or from investments, where the usual rules will continue to apply.

$20,000 small business instant asset write-off extension, proposed from: 1 July 2025 to 30 June 2026.

What’s proposed?

The higher instant asset write-off threshold of $20,000, which currently applies until 30 June 2025, is proposed to be extended for another 12 months until 30 June 2026. The threshold is available for more than one asset. Eligible businesses can continue to place assets valued at $20,000 or more into a depreciation pool, where a deduction of 15% can be claimed in the first income year and 30% thereafter.

Who could benefit?

Small businesses with an aggregated annual turnover below $10 million will be able to claim an immediate tax deduction for the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use by 30 June 2026.

Help for home buyers

Expanded ‘Help to Buy’ scheme, proposed from: to be confirmed.

What’s proposed?

The Government has proposed to expand access to the Help to Buy scheme to more home buyers by increasing the property price caps and income test thresholds, which determine eligibility to participate in the scheme.

The scheme is a shared equity scheme, which allows eligible home buyers to purchase a home with a smaller deposit, of as little as 2%. The Commonwealth will contribute up to 30% of the purchase price of an existing home and up to 40% of the purchase price of a new home.

The Help to Buy scheme is expected to open for applications later this year. Although the Federal Government has legislated the scheme, the States and Territories need to pass legislation for it to operate in each jurisdiction.

Who could benefit?

Increasing the income cap and property price caps will enable more people to participate in the scheme.

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 will depend on the location of the property and details can be found in the Government’s media release.

Participants must meet a number of eligibility rules and conditions, including repaying the Government when the home is sold or when certain changes occur in their circumstances. So it’s very important to understand the rights and responsibilities of participating in the scheme before making an application.

Previously announced measures

Cost of living support

The below proposals were announced by the Government in the March 2025 Federal Budget.

Energy bill relief extended for six months, proposed from: July 2025.

What’s proposed?

The Government will provide further energy rebates in addition to the bill credits people have received since July 2024. The rebate will be applied automatically to electricity bills between 1 July and 31 December 2025, in two quarterly instalments of $75.

Who could benefit?

All Australian households and eligible small businesses will receive the additional energy rebate. It’s expected the eligibility rules that apply to small businesses (quarterly power consumption) will not change.

Lower cap for PBS medicines, proposed from: January 2026.

What’s proposed?

The maximum cost of Pharmaceutical Benefits Scheme (PBS) medicines will decrease from $31.60 to $25 per script.

Who could benefit?

This will benefit people who don’t hold a concession card and would otherwise pay the maximum amount to fill a script. It doesn’t apply if the script is for a medicine not on the PBS, which may cost more than $25. Pensioners and Commonwealth concession cardholders will continue to pay the subsidised rate of $7.70 per PBS script until 1 January 2030. This is an existing measure.

Student loans to be cut by 20%, proposed from: 1 June 2025.

What’s proposed?

Student loans will be reduced by 20% before the annual indexation (at a rate of 3.2%) is applied on 1 June 2025.

Who could benefit?

The changes will benefit all people who have Higher Education Loan Program (HELP) Student Loans, VET Student Loans, Australian Apprenticeship Support Loans, Student Start-up Loans and Student Financial Supplement Scheme, based on their outstanding 1 June 2025 balance.

Importantly, voluntary loan repayments that are processed before 1 June will reduce the loan balance that’s indexed on 1 June. However, the 20% debt reduction will be applied to the 1 June balance. So if this proposal is legislated, before making a voluntary repayment, it’s worth doing the numbers to see if it’s best to make a voluntary repayment before or after the 20% reduction and indexation is applied on 1 June. The table below provides an example which shows the difference between making a $5,000 voluntary repayment before and after 1 June, where the outstanding debt balance is $30,000.

Outstanding debt today	Voluntary repayment before 1 June	Loan balance on 1 June (after 20% reduction and indexation applied)	Voluntary repayment after 1 June	Outstanding balance
$30,000	$0	$24,768	$5,000	$19,768
$30,000	$5,000	$20,640	$0	$20,640

 

Reduced student loan repayment obligations, proposed from: 1 July 2025.

What’s proposed?

The minimum income that can be earned before student loan repayments need to be made is proposed to increase. This is in addition to the standard indexation of the income repayment thresholds which ordinarily happens on 1 July each year. Also, the way repayments are calculated will be changed.

Who could benefit?

People with student debts will benefit from lower compulsory loan repayments in 2025/26 and beyond, if their ‘repayment income’ is above the minimum threshold at which loan repayments need to be made and less than $180,000.

The minimum income threshold is $54,435 in 2024/25 and will automatically increase to $56,156 on 1 July. Also, the Government has proposed:

• increasing the minimum income threshold to $67,000; and
• calculating repayments on just the repayment income earned above the income threshold, not on total income.

The list of qualifying student loans is the same as those to be eligible for the 20% debt reduction on 1 June 2025 (see above).

Expanded ‘First Home Guarantee’ program, proposed from: to be confirmed.

What’s proposed?

Help will be extended to all first home buyers under the Commonwealth’s First Home Guarantee Scheme. The scheme enables home buyers to purchase their first home with as little as a 5% deposit. The Government provides a guarantee for the remaining portion of the deposit (up to 15%), to ensure the first home buyer doesn’t pay Lenders Mortgage Insurance.

Currently, income limits and property price caps apply and access is only granted to a maximum of 10,000 eligible participants each year. These requirements are proposed to be removed, opening the scheme to all first home buyers.

Who could benefit?

The extension of the scheme may help first home buyers to purchase their first home sooner. It’s important to understand that purchasing a home with a smaller deposit may increase the total interest that is paid over the life of the loan.

Superannuation

The below measure was initially announced by the Government in 2023, with support reconfirmed in the 2023 Federal Budget. Legislation was introduced to Parliament to make this change law in 2024 but lapsed when the election was called. The Government will need to reintroduce and pass legislation in Parliament before this change can take effect. Given the complexity of the policy and the number of days that Parliament may sit between now and 1 July, we don’t know if the proposed start date will change if the policy is reintroduced.

Higher taxes for balances over $3 million, proposed from: 1 July 2025.

What’s proposed?

Where people have more than $3 million in super (both accumulation and retirement values) from 1 July 2026, higher taxes are to be paid on investment earnings, with payment due in the 2027 financial year.

Currently, investment earnings within the ‘accumulation phase’ of superannuation are taxed at a maximum rate of 15%. With a ‘retirement phase income stream’, such as an account-based pension once retired, investment earnings are generally tax free.

It’s proposed that from 1 July 2025, where a person has a ‘total super balance’ exceeding $3 million at the end of the financial year, an additional tax of 15% will apply to a portion of the investment earnings. The new tax will be called ‘Division 296 tax’, as that is the name of the relevant section of tax law where the proposed rules are covered.

Additional tax won’t be paid where the total super balance is less than $3 million on 30 June 2026 (the end of the first year it will apply) or the end of any following financial year.

Where to from here?

It’s important to remember these changes need to be legislated to become law. The information above is based on the announcements made to date, and there may be changes to the start dates or other details if the policies are formalised. You should speak to a financial adviser to understand more about what has been announced and how these changes could apply to you.

 

Source: MLC

The absurdity and calamity of US tariff policies

By Robert Wright /May 23,2025/

US tariffs are poorly designed, badly implemented and are already damaging both the US and global economies. The economic damage will only get worse as uncertainty further undermines business and consumer confidence and results in dislocation of global supply chains.

Determining the extent of economic damage, and financial market implications, is difficult because we don’t know what tariffs will actually be implemented or how many backflips there are before then. There’s no clear, defining strategy. The justification for tariffs oscillates between reinvigorating US manufacturing, raising revenue to fund tax cuts, the cost of the US providing global security, the provision of the US dollar to support global trade and financial markets, and broadly addressing an ‘unfair’ trading system. Different justifications would lead to different structures of the tariff regime. Adding to uncertainty, key individuals in the administration have different goals for tariffs.

1. The obsession with bilateral trade deficits is baseless

President Trump’s tariff obsession is rooted in a dislike of trade deficits. The United States has run a trade deficit since the mid-1970s (Figure 1). He attributes this deficit to unfair trade policies in other countries and an overvalued US dollar, resulting from US dollar demand given its role in international trade and finance. But the trade deficit also depends on US domestic conditions, notably the US Government’s huge fiscal deficit, currently 5% of GDP.

 

 

 

 

 

 

 

 

 

Balanced national trade doesn’t need bilateral balanced trade

Even if balanced trade at the country level was desirable, there is no reason for this to apply country by country. Even countries with balanced aggregate trade run large trade deficits or surpluses with almost all of their trading partners: Belgium had balanced trade with just two countries; and Canada, Finland, South Korea and South Africa each had balanced trade with just one of their trading partners. Each of these five countries had significant bilateral trade surpluses or deficits with over 150 of their trading partners. The US goal of balanced bilateral trade with every country is, frankly, bonkers.

2. The calculation of tariff rates is absurd

• Bilateral trade balances are meaningless but determine the US ‘reciprocal tariffs’ (Figure 2).
• Even countries the US has a trade surplus with, including Australia get a 10% tariff. If Australia applied the same logic as the US, we’d impose a tariff on the US of around 50%.
• The US has a surplus in services trade of 0.25% of GDP (partly offsetting the goods trade deficit of 1% of GDP; Figure 1) but ignores services trade in its calculation of tariffs.

3. The tariffs are badly designed reflecting unclear and inconsistent goals

The US tariff regime has a mix of tariffs on specific goods (steel, aluminium, vehicles) and on specific countries (Canada, Mexico, China and the reciprocal tariffs) reflecting the varied goals of the tariffs. But many of these goals are in conflict. If, as Trump claims, tariffs raise revenue without increasing US prices by forcing foreign suppliers to absorb the tariff, then US manufacturers won’t be more competitive as US prices won’t be higher. And if tariffs are successful in boosting US production, then there would be fewer imports, and so less tariff revenue.

Several bad design elements of the tariffs mean there will be further changes:

• Different tariff rates distort trade for little benefit – for example, Apple intends to ship iPhones to the US from India rather than China as US produced iPhones would be prohibitively expensive.
• High tariffs are being applied to goods the US can’t, or won’t, ever produce – for example, some minerals and shoes (most come from China and Vietnam with 145% and 46% tariffs).
• Tariffs are being applied to inputs used by US manufacturers, increasing exporters’ costs.

4. The effective trade embargo with China will be disruptive to the US economy

The 145% punitive tariff applied to China makes most imports from China prohibitively expensive. But the US economy is not ready to disengage from China, which has supplied 13% of US imports. Factories don’t pop up overnight.

Using a fine disaggregation, breaking down goods into their constituent parts, over half of US imports are from China. Alternative suppliers just don’t exist.

For finished consumer goods with very high import shares from China, large price increases and stock shortages will be disruptive to consumers and impact consumer sentiment and support for tariffs. The economic impact will be even greater for those imports predominantly sourced from China that are used as inputs in US production, such as explosives, machinery and various chemicals. For example, China is also a key source for base ingredients used in manufacturing medicines and finished medicines.

5. The tariff regime won’t survive its poor design, but tariffs won’t go away completely

The US tariff regime is already unravelling with holes poked in the tariff wall.

• Reciprocal tariffs were paused until 9 July (the baseline 10% tariff still applies to all countries).
• Consumer frustration will mount facing higher prices and product shortages. For example, phones, computers and some other electronics have been exempted from the China tariffs.
• Businesses are getting traction lobbying on the cost to production from tariffs, for example there will be a partial rebate on the 25% tariffs on car parts used as inputs in US manufacturing.
• The US has said some 70 countries want to negotiate tariff reductions. Yet negotiating a detailed trade agreement takes time. The renegotiation of the US-Canada-Mexico trade agreement in President Trump’s first term took 18 months. A rushed negotiation will contain flaws.

However, President Trump strongly believes in the benefits of tariffs for promoting US manufacturing and he needs the revenue. He has committed to using tariffs to reduce income taxes, even musing that income taxes could be eradicated. But a 10% uniform tariff has been estimated to raise just $1.7 trillion over 10 years, a 20% tariff $2.6 trillion. This is substantially less than the estimated cost of $5 to 11 trillion of the tax cuts already promised by President Trump.

6. What does the future hold?

There will be many more turns in the road with backflips, reduced tariffs for goods the US won’t produce or needs and new tariffs. There will be ‘deals’ reducing (but not eliminating) individual tariffs with countries committing to reduce trade barriers and import US goods (much of which will never happen).

The pause in reciprocal tariffs, after just one week, was reportedly triggered by the turmoil in bond markets which could have precipitated a financial crisis. Trump has displayed greater resolve in the face of the large fall in equity prices than in his first term. But the risk of a financial crisis, or severe recession, and sharp falls in approval ratings are likely to remain red lines that would result in some pullback.

Challenger expects ongoing tariff uncertainty and hence further volatility in markets. Aggregate tariffs will never get to the levels initially announced, but they will also be much higher than before, reducing US and global growth. Tariffs will add to US inflation, reducing the ability of the Fed to ease. Market pricing is for almost 100 basis points of cuts this year, but there’s a good chance the Fed does not even cut this year.

Australia will also see slower growth. We have limited direct exposure to the US economy, but our largest trading partners are more exposed (Table 1). The IMF downgraded its GDP growth forecasts for 2025 by 0.5%. Slower growth, and China’s surplus manufacturing capacity reducing Australian import prices, will lower inflation opening the path to RBA rate cuts. However, market pricing for a cash rate below 3% by December is overdone. With the worst case for US tariffs unlikely to play out, three cuts bringing the cash rate to 3.35%, around its neutral level, seems more likely.

 

 

 

 

 

 

 

Source: Challenger

Megatrends for 2025 and beyond…

By Robert Wright /February 28,2025/

Megatrends are long-term structural changes that affect the world we live in. Importantly, they shape communities but they also create investment opportunities and risks. Learnings from historical megatrends include: 1) they often solve a problem through innovation; 2) the scope of the megatrend can initially be underestimated; and 3) the duration of a megatrend is typically longer than anticipated. There are numerous megatrends likely to influence markets that investors should consider: the shift to the cloud and generative AI, the ageing population, rising geopolitical tensions and so on. Today we highlight just some of the current megatrends.

The continued growth in “winners take all” dynamics

A megatrend that continues to play out is growth in “winner take all” or at least “winner takes most” dynamics in the global economy. Reduced cross-border frictions, the growth in digital goods and distribution channels, and the increasing importance of scale and network effects have allowed companies to scale to a size almost unimaginable in the past.

The rise of the so called “magnificent seven”, the group of leading US technology companies, is a good example of these forces playing out. This group now accounts for a higher share of global markets than the leading companies of the tech bubble era of the early 2000s. However, unlike that time, their size today has predominantly been fuelled by enormous growth in revenues and profitability, albeit some speculative elements may have played a part more recently.

A key risk for some of these businesses is antitrust. Microsoft, Apple and Alphabet have recently attracted the attention of the antitrust authorities, with increased competition the primary motive. We view that it is a low probability that regulators break up these businesses, meaning the underlying economic forces will continue to allow successful businesses to scale far more quickly and to far larger sizes than historically was the case. This presents a significant opportunity for global investors, as these companies can deliver outsized returns. On the other hand, these trends also increase disruption risks to legacy businesses and industries.

To benefit from the former and guard against the latter, investors should focus on quality companies that have strong and enduring competitive advantages. These advantages typically include scale, pricing power, brand strength, network effects and intellectual property.

Glucagon-like peptide-1s (GLP-1s) and solving obesity

One of the biggest health issues facing developed countries is obesity. The development of the GLP-1 class of weight loss drugs such as Ozempic promises to transform the treatment of obesity and significantly improve health outcomes for societies. GLP-1s stimulate the brain to reduce hunger and act on the stomach to delay emptying, so you feel fuller for longer, have a lower calorie intake and lose weight.

Take up is likely to be strong over coming years as supply constraints ease and continued innovation delivers a more convenient oral pill and mitigates potential side effects such as nausea. Growing clinical evidence of health benefits, such as lower risk of heart problems, will also encourage governments and insurers to cover the cost of the drugs. These developments have dramatically changed the outlook for obesity, with the US recording its first fall in obesity rates since at least the 1970s, a dramatic turnaround from predictions of just a few years ago.

 

 

 

 

 

Source: CDC, OECD, WHO, IHME, Harvard

The development also has some significant investment implications. Most obvious are the potential investment opportunities in the drug manufacturers, although given high expectations we need to carefully monitor scientific developments and the pricing environment. There are also several investment risks to consider, with the potential for lower demand for certain medical device companies, food manufacturers and quick service restaurants.

The unrelenting rise in sovereign debt

Not all megatrends are positive for investors; one megatrend to be wary of is rising sovereign debt. In many parts of the world fiscal responsibility is no longer a priority as governments focus on more immediate issues and winning elections. In the US the national debt has been rising since the 1980s. In 2010, following the government’s response to the Global Financial Crisis, it first exceeded 90% as a percentage of GDP – the level identified by academics Reinhart and Rogoff as associated with a worsening in growth outcomes. A further spending binge during the 2020 COVID pandemic has resulted in the US national debt rising to more than 120% of GDP.

 

 

 

 

 

Source: Federal Reserve Economic Data

With the US Federal budget deficit expected to hit $1.8 trillion in 2024 and both parties promising billions more in spending, debt is likely to continue to build. US national debt has not been a major issue for markets to date, but the risk of a debt crisis, accompanied by rising bond yields and volatile markets, increases as debt levels continue to rise. Many other countries are in a similar position, with debt to GDP exceeding 100% in the UK, France, Spain, Italy and Japan. Australia is relatively well placed with the national debt at 38% of GDP.

What does this mean for investors? Governments have three ways to “solve” excessive national debt: (1) austerity – cutting spending and raising taxes; (2) default; or (3) financial repression – printing money to inflate the problem away. The first is politically unpalatable and appears unlikely, the second would be an outright disaster and can be avoided by countries that issue debt in their own currency such as the US. Thus, the most likely outcome is money printing, or central bank financing of budget deficits in more technical terms, resulting in a period of structurally higher inflation.

While it’s impossible to be precise in terms of the timing of a potential debt crisis, investors can seek to protect themselves by investing in real assets, such as property and equities, with a focus on high quality companies with pricing power that can protect investors in times of high inflation.

These are just a few of the megatrends shaping markets today and in the future. As investors, a long-term focus and active management are key to both taking advantage of the opportunities these trends provide and avoiding risks that may arise.

 

Source: Magellan

Market volatility during COVID-19

By Robert Wright /November 17,2021/

Market volatility refers to extreme price movements over a given period. These movements may occur in a particular area, such as real estate or shares, and may be upward or downward.

Ever since COVID-19 started spreading across the world in late 2019, affecting every aspect of our lives, the term ‘market volatility’ has been hitting headlines.

But, what does market volatility mean? And what might it mean for your finances?

Market volatility can feel like a one-off crisis. However, it’s important to remember that volatility is in the very nature of markets. Fluctuations are bound to occur and, sometimes, they’re rather extreme.

For instance, in February and March 2019, markets dropped 37%, but fast-forward to the June quarter, and they picked up 16%. That’s quite a wild swing. Anyone who panicked and withdrew from the market at the end of March would have missed out on the subsequent gains.

In the scheme of things, three months isn’t long at all. In the 141 years since the ASX was established, there have been 28 negative years, and the rest have been positive. In other words, each year, the average investor has a 1 in 5 chance of a setback, but a 1 in 4 chance of making gains.

Further, in the 20 years leading up to 2018, the ten best days in the market were responsible for 50% of returns.

During downturns, it’s easy to be swayed by the news. Headlines often focus on the negatives. When the COVID-19 pandemic began, the emotional impact of worrying financial news was intensified by the fact that the virus itself was new and unknown. Plus, so many people were unable to go to their workplaces, or catch up with friends and relatives.

If you were reading the headlines and not speaking to anyone about them, you may have been susceptible to making big financial decisions based on your emotional reactions.

That’s why it’s important to speak to your financial adviser, who will remind you of your long term plan—and that a downturn is just a short term blip, when you think of the next 20 years.

Source: TAL