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A FinSec View – Market Updates, Super Tax Adjustment, Retirement Risks & more…

A Finsec View
16th May 2025

Australian Market Update

Our market outperformed the US and global markets in April, rising by 3.6% and being broad-based. This was buoyed by the relatively low direct impact from US tariffs and improved domestic inflation data, which supported expectations for further RBA easing.

Commodity prices were mixed, with gold rising sharply and oil prices falling, while the Australian Dollar (AUD) rose against the US Dollar (USD) (maintaining 64 cents since month end) as investors shifted away from US assets amidst the uncertainty.

Australian REITs (Real Estate Investment Trusts) jumped by more than 6.0% after a poor recent period, while GREITs declined by 0.4%. Global Infrastructure achieved a small positive return for April while being one of the top-performing asset classes over the 12-month period.

Australian Bonds rose 1.7% over the month. The Australian bond market was less volatile than the US, with bond yields declining to 4.17% by month-end. This largely reflected the improved inflation picture and the prospect of further RBA rate cuts. Our View remains that cuts will be fewer and slower than markets are pricing in but this is one where we would be happy to be wrong.

Australia’s headline inflation rate for the March quarter was 2.4%, while the core trimmed mean measure rose 0.7% for the quarter, taking the annual rate to 2.9%. This marked the first time core inflation had returned to the RBA target zone since December 2021, providing room for potential RBA easing.

The NAB business survey indicated that while overall business conditions remained subdued, there had been a noticeable uptick in forward orders in recent months, potentially signalling a gradual economic recovery.

Global Market Update

Trump’s first 100 days passed with the worst stock market performance of any presidential term since Gerald Ford in 1974. His “Liberation Day” trade tariffs caused US stocks to decline more than 10% in two days at the start of April – something only witnessed during the 2008 Financial Crisis and the March 2020 COVID shutdown since the millennium.

The market may have staged a breath-taking recovery after tariff rates were reduced – helped by strong earnings from Microsoft and Facebook – but a number of forward-looking indicators would warn against complacency. The odds of a 2025 recession remain elevated, and there is still speculation that empty shelves will be seen in US stores, with Chinese container bookings down 50% and threatening to cause layoffs across the transportation and supply chain. It is notable that there has been an uptick in orders since Trump announced his “deal” with China a week ago.

US GDP for the March quarter contracted by 0.3%, primarily dragged down by a surge in imports ahead of the tariffs. On a brighter note, core inflation was flat for the month,

bringing the 12-month rate down to 2.6% from 3.0%. This positive inflation news contrasted with the economic uncertainty caused by tariffs.

The US Federal Reserve has been reluctant to cut interest rates with the inflation outlook so uncertain, not so the Bank of England, which is expected to do cut again in coming months.

Europe outperformed the US, benefiting from more expansive fiscal policy, lower inflation, and cheaper valuations. April ended with the FTSE 100 rising for 15 days in a row to mark its longest-ever winning streak.

European stocks have been a bright spot this year, with the STOXX 50 index rising 11% in sterling terms. The German government has approved a massive spending plan focused on defence, national infrastructure and climate initiatives. The German DAX index has gained 19% this year as a result, with the IMF forecasting a long-term boost to economic growth.

The Japanese stock market remains fairly subdued: down very slightly this year, despite ongoing attempts to make improvements in the corporate governance and capital structure of major firms, which has led to record levels of share buybacks. It is worth noting however, that the Nikkei was up 100% over 5 years to the end 2024!

Emerging markets have had positive returns, led by Mexico, Hong Kong and Brazil, while China has underperformed. Mexico currently has the benefit of avoiding tariffs on exports covered by the United States-Mexico-Canada Agreement which Trump established in his first term.

Financial markets are said to hate uncertainty, but April may have shown that plain old bad news (high tariffs) is much worse than a wide range of possible outcomes (messy negotiations). The relief rally of the past few weeks has approached record proportions.

In the current landscape, a diversified investment approach, remaining disciplined and staying the course remain essential to navigating these evolving and volatile financial markets.

Super threat returns with Albanese and Chalmers

The re-elected ALP Government’s plan to tax earnings on the component of superannuation accounts with balances above $3 million, including the taxing of unrealised gains, is back in play after Labor’s landslide election victory that gave the Government and the Greens complete control of the Senate.

The super tax has been budgeted to take effect from July 1, despite the original legislation failing to gain support in the last Senate. Nevertheless, it was included in the budget, where it is estimated to raise $2.3 billion in its first full year (FY28), increasing steadily to reap $40 billion over a decade. It was one of the government’s few genuine revenue-raising measures, and Labor has already banked and spent the money, so it’s desperate to get the measure through the next Parliament.

Despite the historic win and massive seat margin, the Prime Minister is not expected to recall Parliament until at least August. The government’s first legislative priority is expected to be eliminating the $16 billion in tertiary student debt. Those in the know say the super bill is likely to return to the Senate sometime after that and also warn the new tax on balances over $3 million would probably be applied retrospectively.

The tax was announced early in Labor’s first term and was a broken promise, given Albanese’s pledge before the 2022 election to leave super tax concessions alone. Nevertheless, it was clear in the campaign that the super tax was in play. In the previous Senate, the Greens wanted the tax threshold dropped to $2 million, but given the party’s now weakened state, it is expected to yield to the government’s threshold.

Albanese and Treasurer Jim Chalmers have defended the super tax measure saying it applied to only 80,000 people or 0.5% of the population. Opponents argue that without indexation, it’s akin to bracket creep and will hit a much larger number (500,000) in the future.

Diana Mousina, Deputy Chief Economist at AMP, recently did some basic calculations and wrote on LinkedIn that anyone now aged in their early 20s (e.g. Generation Z) and earning average wages for the rest of their lives would breach the $3 million threshold by the time they are 64. This is without any additional contributions and based on conservative wage inflation and compound interest (6.5% return). For additional context, it represents a $1.2million cap in today’s dollars for a 35-year-old.

What Labor’s win means for your money beyond super

  • Interest rates

The Reserve Bank is tipped by most economists to cut interest rates at this month’s meeting (May 20). But the huge pre-election spending commitments mean they probably won’t drop as much as they could have.  Further cuts are predicted for August, November and February next year. The prospect of years of deficits means interest rates will also be higher than they would be if the budget was in surplus.

  • Housing

Both parties took policies designed to win over young buyers to the election, as housing affordability continues to dominate young voters’ concerns. However, most economists argue that both parties’ policies are likely to increase prices by up to 15 per cent.

While Labor has promised an additional $10 billion to build 100,000 homes specifically for first-home buyers over the next eight years, construction and workforce snarls mean their plan will not be easy to implement.

Under Labor’ s expanded first-home buyer guarantee scheme, all buyers, not just first-home ones, will from next year be able to enter the property market with only a 5% deposit instead of the usual 20% and without the need for lender’s mortgage insurance (which will be covered by the government). Income caps have been removed, property price limits have been raised, and the limit on the number of borrowers has also been dropped.

The Help to Buy scheme, which allows first-home buyers with deposits as small as 2% to essentially buy a home with the government contributing up to 40%, will also be expanded. Under this scheme, the government recoups its contribution when the home is sold.

The shared equity scheme, which aims to help 40,000 buyers, will have its income limit raised to $100,000 for singles and $160,000 for couples. Property price caps will also be increased. The scheme will be open for applications later this year.

  • Tax cuts

As of July 1, 2026, the tax rate for the lowest tax bracket will be reduced from 16 per cent to 15 per cent.

That means that for every dollar earned between $18,201 to $45,000, you’ll pay one cent less in tax. And from July 1, 2027, that will fall to 14 per cent.

Every taxpayer will receive this tax cut. From July 2026, individuals earning $45,000 and above will receive a tax cut of $268 per year, increasing to $536 per year from July 2027.

This “small target” strategy means more fundamental changes to the tax system – such as reforming or removing negative gearing, changing the GST, or changing higher tax rates or thresholds – have been avoided.

  • Student debt

Graduates with outstanding debt will be better off because of two changes. The first is a 20 per cent cut to every student’ s debt from June this year. The second is an increase to the income threshold at which they start paying it off.

A graduate with an average HECs debt of $27,600, should save about $5520.

The government will also increase the minimum income threshold at which borrowers need to begin repaying their HECs debts – it has gone up nearly $15k to $67,000, at which point 1 per cent of income is automatically directed to paying down their debts.

This proportion of income directed to debt increases gradually, until the graduate earns $159,664 and above, when 10 per cent of their income goes to paying off the debt.

The way repayments are calculated will also change to a marginal system. For people earning $67,000 to $124,999, their repayment will be equivalent to 15c in every dollar they earn over $67,000.

People earning above $125,000 will pay $8700, plus 17c in every dollar over $125,000.

What does that mean? Someone on $70,000 would have had to make an annual compulsory repayment of $1750 under the current rules, but they will pay $450 under the new repayment structure. A higher earner on $130,000 would have paid $9750 a year under the current system, but they’ll pay $9550 under the new system.

  • Home batteries

In addition to the energy bill rebate of up to $150 for households that rolls over from last year, from July 1, households are eligible for a 30 per cent discount on the cost of installing a battery with a home solar system – an estimated saving of about $4000 that will be added to any existing state-based incentives.

If you’ ve already got home solar, you should still save about $1100 a year by installing a battery, government modelling showed. A household with both rooftop solar and a battery should save as much as $2300 a year on power bills.

A typical home-sized battery of 10-kilowatt-hours would cost about $10,000 before subsidies, according to energy comparison company Solar Choice.

  • Health

Central to Labor’s cost-of-living package was spending $8.5 billion to increase payments to doctors to make nine out of 10 visits to the doctor free of charge.

The bulk-billing change is scheduled to begin in November. It will also cut the costs of medicines listed on the Pharmaceutical Benefits Scheme to $25 from $31.60.

  • Work expenses in tax returns

For FY27, workers should receive an automatic deduction of $1000 for work-related expenses without the need for receipts. This will result in an instant deduction, rather than requiring individual claims on a tax return and the need to retain proof.

Currently, workers can claim up to $300 in work-related expenses without substantiation. That doesn’t apply to car expenses, travel, or meal allowance expenses.

In practice, many taxpayers will still need to retain invoices or receipts until the end of the tax year, when they complete their return.

This is also a standard deduction, not a simple refund of $1000. The refund amount depends on your tax rate eg someone who pays tax at 30% will get $300 (30% x $1000).

While this change starts from July 2026, taxpayers won’t be able to claim the actual deduction until after June 30, 2027.

This is the approximate number of people living in Asia.  Making it the most populous continent, accounting for nearly 50% of the global population.

The world’ s population has surpassed 8 billion, yet it is far from evenly spread across the globe. A compelling map visualises this by dividing the Earth into two halves—each home to roughly 4 billion people. One of these halves, shaded in yellow, covers a relatively small section of Asia, including nations such as China, India, Indonesia, Bangladesh, and nearby regions. The other half, in orange, spans the rest of the entire planet.

What is remarkable is the sheer population density packed into 20% of the world’s landmass. Asia’s dominance in human concentration has profound implications— not only culturally and politically, but also economically and financially.

As a resource miner and financial hub Australia is perfectly positioned to benefit from the rising living standard of 50% of the world population.

Retirement risks that shouldn’t be overlooked

Retirement brings with it some obvious financial concerns—chief among them running out of money (longevity risk) or retiring during a market downturn (sequencing risk). We have covered these risks in previous additions but we thought is useful to package them together with some less visible threats that can undermine your financial security. Here are six to consider:

  • Longevity Risk

Australians are living longer, with many retirees needing income that lasts 20 to 30 years. A layered income strategy—using superannuation, annuities, and the age pension—can help ensure a sustainable income stream. Government-backed programs such as the Home Equity Access Scheme also allow retirees to tap into home equity at relatively low interest rates.

  • Sequencing Risk

Market losses early in retirement can be particularly damaging. Diversification, asset allocation, and a bucketing strategy (setting aside cash for short-term needs) can reduce the need to sell assets in downturns. Financial advice can also keep retirees from making panic-driven decisions.

  • Investment Risk

Portfolios should align with each retiree’s risk tolerance. Being overly conservative can hinder growth and reduce income over time. While some may explore private credit or inflation-linked assets, others rely on traditional diversification across shares, bonds, and cash.

  • Inflation Risk

Inflation erodes purchasing power—especially in areas such as healthcare, which consistently outpaces the Consumer Price Index (CPI). Shares and property can act as hedges, and the age pension and Commonwealth Seniors Health Card help provide some inflation protection.

  • Extreme Conservatism

Living too frugally or investing too defensively can lower quality of life and erode financial well-being over time. It’s essential to build confidence in spending by planning that strikes a balance between growth and security.

  • Unexpected Expenses

From home repairs and health costs to financially assisting adult children, surprise expenses are common. Setting up and maintaining an ‘emergency or contingency fund and discussing potential financial commitments with family are ways to minimise impacts. Divorce later in life— a growing trend in Australia—can further stretch retirement budgets.

Ultimately, retirement planning should go beyond just saving and investing—it’s about managing a broad range of evolving risks. Having your financial adviser regularly review your strategy is key to ensuring peace of mind and financial independence throughout retirement.

Friday Funny

More Calvin & Hobbes, but Bill Waterson has an uncanny knack of reading our minds.
Published On: May 20th, 2025Categories: The FinSec View