Shane Oliver

Key points

• The key changes are a wind back in negative gearing, the taxation of real capital gains, numerous moves to reduce regulation, and modest net budget cuts over five years.
• The projected deficits are now slightly lower over the budget period by around $45bn, mainly due to more windfall revenue.
• With more stimulus in the near term though the Budget does nothing to make the RBA’s job in controlling inflation easier.
• The Budget continues to lock in structurally higher spending and budget deficits for the medium term.
• The tax changes look more like tax hikes than real tax reform and there is more work to do to boost productivity.

Introduction

This Budget is the most consequential in years given the Government’s committing to address poor productivity – and by implication stagnant living standards – while also dealing with the impact of the global oil shock and issues around intergenerational equity. As such it’s seeking to improve fairness, productivity and fiscal responsibility.

Key budget measures

Many of the key measures were pre-announced or leaked, but include:

• Negative gearing for new buys from now on restricted to new homes from 2027-28 onwards. For established homes losses can be used to offset other property income and can be carried forward. Shares and commercial property exempt from the change.
• The 50% capital gains tax discount to be replaced by the taxation of real gains from 2027-28 for all assets (with a likely exception for tech and startups) purchased from now and to face a minimum tax rate of 30%. CGT on existing assets to be assessed using a proportionate mix of the old and new tax models based on holding years. CGT on new builds given a choice of the old and new models.
• A minimum tax on discretionary trust distributions of 30%.
• A phased reduction of the EV fringe benefit tax break.
• Implementation of election promises with a 1% cut to the bottom tax rate (saving $5.15/week) & the $1000 standard tax deduction.
• A $250 income tax offset for all salaried workers for 2027-28.
• $20,000 instant asset write off for small business made permanent.
• Tax loss carry back so small biz can offset losses against past profits.
• The R&D tax credit expanded.
• Numerous moves to cut red tape with the aim of cutting regulatory costs by $10bn a year.
• Incentives & deals with states for productivity enhancing reforms.
• $2bn over 4 years to provide critical housing related infrastructure and $500m to speed up environmental approvals.
• $14bn in increased defence spending, $3.8bn for Melb rail project.
• $10.7bn “off-budget” to boost fuel reserves to 50 days plus.
• Gross spending cuts of $64bn incl NDIS, inland rail & public service.

Economic assumptions

Reflecting the impact of RBA rate hikes and the oil supply shock the Government sees inflation peaking at 5% and has revised down its growth forecasts for next year to 1.75% (from 2.25%) which is above the RBA’s forecast and implicitly assumes a smaller and short hit to growth from higher oil prices. The unemployment rate is still expected to reach 4.5%, unchanged from prior forecasts. As flagged in March it has also revised up its near-term immigration forecasts due to less departures but still seems a slowing to 225,000 in forward years which will slow population growth to around 1.3% pa.  The Government kept its medium-term iron ore assumption at $US60/tonne but pushed it out to March 2027. With iron ore above that, it’s still a source of revenue upside.

Still looking at big budget deficits

The Government is continuing to benefit from a windfall due largely to higher commodity prices (and hence resources profits) than assumed resulting in higher revenue. This is more due to good luck rather than good management. Compared to the projections in the December MYEFO this windfall – called “parameter changes” in the next table – is reducing the deficit over the five years to 2029-30 by another $37bn.  This table – nicknamed the “table of truth” – also shows how much of the windfall has been spent or saved (see the “new stimulus” line). The good news is that in this Budget all the windfall is being saved and then some, with the government saving more than it spends to the tune of $8bn over the period to 2030. But all of the “savings” are in the later years, with near-term years still showing more new stimulus than previously expected.

This in turn means that thanks to the good luck of the revenue windfalls and net policy tightening for later this decade the budget is now projected to be in better shape than previously expected with a surplus by 2036.

Gross public debt of nearly $1trn or 33% of GDP is projected to reach $1.2trn or 36% of GDP in 2028-29 before trending down.

Winners and losers

Winners include: wage earners, new and small businesses, first home buyers, venture capitalists, defence industry, and illegal tobacco users. Losers include: new property investors in existing homes, older investors with limited income, high growth investors, beneficiaries of discretionary trusts, NDIS rorters and some new electric vehicle users.

Assessment

This Budget represents a good move in the right direction:

• It’s the first budget under the current Government to see all the revenue windfall saved and net budget savings over the forward estimates. So in this sense it’s more responsible than the last few budgets.
• It’s a significant package of moves to deregulate and encourage more business investment which should help boost productivity.
• There are more measures to help boost housing supply.
• It includes tentative moves towards tax reform in regards to the tax concessions – which may go some way to reduce perceptions of unfair advantage by older generations when it comes to housing.
• There is more scope for upside revenue surprise with still cautious commodity price assumptions.

And the budget deficit and debt ratios are a fraction of the averages for comparable countries, with the debt/GDP ratio being around half.

However, the Budget has several significant weaknesses.

• Structural deficits. While the budget deficits are now smaller than projected, they continue out to mid next decade despite another round of revenue windfalls and new tax measures. This sees no money put aside for a rainy day over the forecast period until 2036 which is off in the never never. The ratcheting up of spending on temporary revenue windfalls in past budgets leaves the budget vulnerable to a reversal of the windfalls.
• Government spending was cut by far less than hoped leaving it higher than normal using up capacity in the economy. In the next two financial years net policy decisions have led to policy easing due to more spending. This arguably adds slightly to inflationary pressures in the economy rather than reduces them. And over the forward years policy has only tightened by $8.2bn due to increased revenue presumably flowing from the changes to tax concessions. And at a high level, Federal Government spending as a share of GDP over the next decade has been shaved only slightly to 26.5% from 26.9% in the December MYEFO this is still well above the pre-Covid average of 24.8%. This leaves little room for a pickup in private spending in the economy without hitting capacity constraints and higher inflation. And this is probably about as good as it will get as by next year’s budget we will bumping up against the next election where the pressure will be once again to ramp up spending.

• Reliance on bracket creep and higher taxes to return to budget balance. Revenue is projected to start trending up from 2028-29 reaching a record 27% of GDP by 2036-37 as bracket creep kicks in. The rising burden on Millennials & Gen Z is unfair and unrealistic. Politicians will eventually want to give some back as “tax cuts”. But then how will we get back to surplus then?
• Off budget spending. This remains a big issue as governments have been allocating increasing spending as “off-Budget” on the grounds that it’s an “investment”. This is resulting in a widening gap between the underlying cash balance (referred to above) and the headline balance (which includes “investments”). In fact, for the next financial year the headline deficit is projected to be $64.1bn compared to the underlying cash deficit of $31bn. However, much of this spending is not wise investment but it adds to public debt.

• Tax hikes are not tax reform. While curtailing access to tax concessions is a move in the direction of tax reform (as the CGT discount was arguably too generous and some rorted negative gearing) without addressing other failures in the tax system they amount to little more than a tax hike and are not tax reform. They have done nothing to ease Australia’s high reliance on income tax and will further add to the already very progressive nature of the Australian tax system – where the top 5% of taxpayers pay 32% of income tax collected and the top 10% pay nearly 50% – which will act as a further disincentive to work effort. Tax reform should be aimed at improving the tax system’s efficiency – so it distorts economic decisions and resource allocation less – by relying less on income tax and more on the GST. While income earned from assets may be taxed lightly relative to income earned as a wage and salary earner this should be addressed by lowering the taxation of income where our income tax rates are quite onerous compared to similar countries. Eg, the top marginal tax rate is well above the median of comparable countries and kicks in at a relatively low multiple of average earnings.
• More needs to be done to confidently boost productivity growth. To boost productivity growth – which is essential if we want to see faster growth in per capita GDP and hence living standards – the key things we need to see are: a reduction in the size of the public sector in the economy to free up resources for the more efficient private sector; tax reform to make the tax system simpler (so easier to comply with) and more efficient (so it distorts economic decisions less); and a range of reforms to make it easier for the private sector to grow and employ. The Budget saw some improvement but its modest overall: the public sector is still projected to remain larger than pre-Covid; the curtailment of the tax concessions may have boosted perceptions of fairness and improved simplicity but have done nothing to reduce the distortion to work incentive caused by our high reliance on income tax; and the moves to reduce regulation and encourage investment will help but there has been no move to address excessive labour market regulation. And “Future Made in Australia” subsidies run the risk of reducing productivity over time. So, all up there is likely a lot more to be done to confidently get sustainable productivity growth back to around 1.5% growth per annum.
• Housing. The changes to negative gearings and the CGT discount could result in a 5% of so fall in home prices in the short term as investors retreat due to a fall in the perceived after-tax return to property investment and this will no doubt be chalked up as a win for the policy change. But it’s doubtful that the moves will boost housing affordability much over the longer term – as the basic driver of this is a shortage of housing relative to underlying population driven housing demand. While negative gearing is to remain for new homes it’s likely to result in unintended consequences by eg making it harder for first home buyers to get into new housing. And policies that reduce investor interest in property overall will likely lead to less housing supply not more – with even the Budget papers estimating that the tax changes will reduce supply by 35,000 homes over a decade. Rather the focus should be on addressing the fundamental housing demand-supply imbalance, but the Budget is now projecting slightly higher immigration and so more demand and it’s not clear that it will improve supply despite the $2bn for new housing infrastructure and given the hit from the tax changes. The Government was right in its first term to focus on boosting supply but now two years into the Housing Accord goal to produce 240,000 homes a year we have been running around 60,000 below target and so making no inroads into the undersupply of housing which we estimate to be between 200,000 to 300,000 dwellings.

• Fairness. The move to wind back housing tax concessions may be popular with younger voters but its more about optics than fundamentals. Older generations have got the benefit of these tax concessions to grow their wealth and now they are being curtailed for the young! What’s more as noted above the property tax changes are unlikely to fix the undersupply of housing. The key ways to improve intergenerational equity are to: boost productivity growth so living standards grow at a rate older generations experienced; get the housing balance right with more supply and less immigration; and raise the GST so as to raise more tax from older self-funded retirees – and yes that will include one of us in a few years’ time! – and cut income tax in order to lower the tax burden on workers. And as already noted the tax hikes may also be judged unfair for older higher income workers because they amount to a tax hike at a time when the income tax system is already highly progressive.

Implications for the RBA

While the new $250 Working Australia Tax Offset is trivial and doesn’t kick in until 2027-28, the near-term fiscal easing shown in the “table of truth” above (ie $6.5bn over the year ahead) won’t make the RBA’s job any easier. Nor will the handouts already announced in various state budgets. That said, it’s not enough to change our base case for just one more RBA hike in August. However, with poor household and consumer confidence levels and the Budget unlikely to add much to economic growth in the near term along with the ongoing blockage of oil through the Strait of Hormuz risking a recession we remain of the view that the RBA will be cutting rates next year.

Implications for investors – negative gearing & CGT

The changes to negative gearing, the CGT discount and the minimum tax on trust distributions have potentially big implications for many investors. I will leave the details to those with more expertise regarding taxation, but the changes to negative gearing are probably the most significant with about 1.2 million taxpayers reporting a loss for tax purposes on property. However, whether the CGT discount change is significant going forward will depend on the interaction of the rate of property price growth and inflation. Since the introduction of the discount in 2000 it has been beneficial to most investors as asset price gains were high and inflation was low. But if we go back into a period where property price growth is more constrained (say 5% pa) and inflation higher (at say 3% pa) then under scenarios where the holding period is 12 years or less investors may actually end up better off.

Where the CGT tax change may bite is in relation to shares and businesses – particularly those which don’t meet any carve out for startups. The removal of the 50% discount could take the CGT rate for a high-income earner from the low end of comparable countries to the high end. This in turn could work against growth shares and small businesses and attracting talented workers to such businesses which could work against the Budget’s objective to boost productivity.

Implications for Australian assets

Cash and term deposits – no major implications.

Bonds – the projection for smaller medium term budget deficits imply slightly less upwards pressure on bond yields.

Property – the curtailment of negative gearing and the CGT discount by making property less attractive to investors could knock around 5% off property prices in the short term as investors retreat due to lower after tax returns. This is likely to be compounded by the backdrop of RBA rate hikes. However, the dip is likely to prove temporary as the supply imbalance reasserts itself.

Shares – since shares (and all assets apart from property) are not affected by the changes to negative gearing they will benefit as an investment destination relative to property. The CGT change will boost the appeal of high dividend stocks over growth stocks. Super will also benefit as an investment destination versus property as it tax rules are unchanged.

The $A – the Budget is unlikely to change the rising trend for the $A.

By Dr Shane Oliver, Head of Inv Strategy and Chief Economist & Diana Mousina, Deputy Chief Economist & My Bui, Economist.

The post The 2026-27 Budget – responsibility, productivity and fairness – or is it? appeared first on AdviserVoice.

Melinda Howes

New findings from AMP’s Retirement Confidence Pulse reveal a sharp divide in how financially confident Australians feel about life after work, with women significantly more worried and less likely to seek help than men.

Headline results released earlier this year showed only 41% of women are financially confident about retirement, compared with 59% of men. The latest findings confirm women report higher levels of worry across every measure:

• 73% of women are worried about having enough super for retirement, compared to 56% of men.
•  71% of women fear they won’t be able to afford their desired retirement lifestyle, compared to 53% of men.
• 51% of women hold back on day‑to‑day spending for fear of running out of money in
  retirement, compared to 42% of men.

Despite these concerns 66% of women say it’s important to leave a financial legacy for future generations, compared to 57% of men.

Knowledge and engagement gap weighs on confidence

While lower super balances, driven by pay gaps and time out of the workforce, clearly impact confidence, the research also points to lower knowledge and engagement among women:

• Only 34% of women understand or understood the concept of compounding returns before age 40, compared to 61% of men.
• 55% of women are confident in Australia’s superannuation system, compared to 71% of men.
• 26% of women have sought financial advice for retirement, compared to 34% of men.
• 30% of women don’t know who their super is with or don’t engage with their provider, compared to 23% of men.

Divorce or separation increases worry for women more than men

Across all ages, just 36% of single women feel financially confident about retirement, compared to 45% of single men. For separated or divorced women in their 40s only 21% are confident about retirement versus 50% of men in that same situation. For single women with kids in their 40s the number drops to 19%, compared to 40% for men. This shows how relationship breakdown and caring responsibilities is compounding the gender confidence divide, particularly in the 40s – the sandwich generation’ age group.

Australia’s gender financial literacy gap

The findings align with a report by AMP’s Deputy Chief Economist, Diana Mousina on financial literacy citing research that shows Australia’s gender gap in financial literacy is larger than in peer countries such as the US, Germany, and the UK. The report also notes a statistically significant relationship between financial literacy and retirement savings.

Melinda Howes, AMP’s Group Executive, Superannuation and Investments, said: “We cannot accept a future where Australian women remain more worried than men about their financial futures.

“Our research shows women are more anxious on every measure, and it’s no surprise given they retire with smaller super balances after years of pay gaps, part-time work and time out caring for others.

“Structural change is happening, from stronger pay-equity policies to reforms that help boost women’s super – but it’s not enough on its own.

“Women can take back control by engaging with their super, knowing their fund, checking their balance and investment options, and feeling confident to ask for help. These are areas where women still lag men, an unfortunate hangover from a bygone era where men typically managed the finances.

“The good news is help has never been more accessible. Many super funds, including AMP, now offer digital and phone-based financial advice at no extra cost.

“We encourage any woman who feels uncertain to start by contacting her fund, exploring the support available and building knowledge. With the right information and a few simple steps, they can take control and feel more confident.”

Diana Mousina, AMP’s Deputy Chief Economist, said: “The retirement confidence gap we’re seeing among women is the predictable result of a longrunning financial literacy gap.

“More than one in three Australian adults are financially illiterate and, worryingly, women
consistently score lower than men – with Australia’s gender literacy gap larger than in many comparable countries.

“That lack of knowledge is clearly contributing to a lack financial confidence in the future.

“The encouraging part is that literacy is fixable – through better education in schools, workplace programs and the support super funds can provide.

“Every time we help a woman understand concepts like compound interest, risk and diversification, we’re giving her the tools to build wealth, independence and real confidence.

Four practical steps women can take now

1. Get to know your super: Log in to your account, check your balance, fees and investment option, and make sure your super is all in one place. Knowing where you stand is the first step to feeling in control.
2. Ask for help – early: Many super funds now offer digital financial advice and phone-based advice no additional cost. Talking to your fund or a licensed financial adviser early – especially before major decisions like career breaks or downsizing – can make a big difference over time.
3. Empower your future self where you can: Even small, regular extra contributions – such as salary sacrificing, super splitting with your spouse or diverting a pay rise into super – can add up significantly thanks to compounding over time. Building a plan around these contributions can help turn worry into a sense of progress.
4. Get a boost for your balance: Visit the ATO’s website to learn more about the range of polices in place to help you boost your super, including super paid on Government Paid Parental Leave, Government co‑contributions, Low Income Superannuation Tax Offsets (LISTO), spouse contribution tax offsets, spouse contribution splitting, and downsizer contributions for those 55+.

The post ‘Quietly worried’: New research exposes stark gender retirement confidence divide appeared first on AdviserVoice.

Sean O’Malley

Key insights

• 1 in 3 Australians feel financially secure, down from half during the pandemic
• 1 in 3 Australians have cancelled streaming subscriptions and gym memberships, with more
• Australians turning to family, friends and social media for important financial decisions
• Focus on short-term financial demands impacting longer-term planning

Financial stress levels in Australia are at their highest point in 10 years, according to AMP’s latest Financial Wellness report.

Now in its 10th year, the biennial research examines both the rising challenges and economic impact of financial stress among Australians aged 18 and over. Just one in three working Australians indicated they were financially secure in this year’s report, down from half of working Australians in 2020.

The flow on impact of financial stress also has a hidden cost, affecting the mental wellbeing of working Australians and their families, with a lack of willingness to seek professional help about important financial matters.

Almost one in three Australians who were ‘severely’ or ‘moderately’ stressed turned to friends or family members to help inform important financial decisions, with just one in nine speaking to their super fund and only one in 20 seeking help from a financial adviser.

Equally, one in three Australians have not used any information sources to inform important financial decisions, even if those sources were easily accessible such as podcasts, social media or a Google search.

With rising financial pressures and people focused on meeting major short-term expenses, long-term planning is being compromised with one in three saying they are never or are rarely planning for their financial futures.

AMP Bank Group Executive, Sean O’Malley said: “It’s clear more Australians aren’t feeling secure with their finances, not surprising given cost of living pressures and housing unaffordability challenges.

“And while the research tells us that most are meeting their mortgage repayments, we know that savings rates are down and many are cutting back expenditure on household basics such as groceries, and other more discretionary items such as streaming services and holidays.

“Amid these cutbacks, it’s also evident that many aren’t taking advantage of the support available to them, with a tendency to bottle up their financial worries, in-turn impacting their mental wellbeing.

“We’d encourage more Australians to explore the options available to help them feel more in control of their finances. From a home loan perspective, this could be contacting a bank or broker to see if there is a better rate available on their loan, or different features which are better suited to particular circumstances.  What seem like small things can make a big difference.”

AMP Group Executive, Super and Investments, Melinda Howes said: “What’s also apparent from the research is that with a focus on paying the bills and keeping their heads above water, more Australians are understandably planning and thinking less about their longer-term financial goals.

“The wonderful thing about Australia’s compulsory superannuation system, is with Australia’s high employment levels, most are continuing to automatically build their retirement nest eggs. While Australians should take comfort from this, there is more to be gained from our superannuation system.

“At AMP, we offer our members the ability to get close to your super and feel more in control of their financial circumstances, with digital tools and simple advice available at no extra cost. We also offer a ‘Retirement Health Check’ with dedicated financial wellbeing support available for customers, at no extra cost.

“Services like this can help more Australians optimise their super, gain valuable insight into the magic of compound interest and how just a little extra contributed now can multiply in value over the long term. We encourage all our members to get in touch and speak with one of our friendly experts today.”

Other findings

Transition to retirement remains complex

After a short period of relief between the ages of 51 and 54, stress levels lift sharply. In fact, Australians approaching retirement age have the highest levels of stress of any age group surveyed, with almost two in five being moderately to severely stressed. For many Australians, this fear is heightened when the rising cost of living eats away at your lifetime savings.

Sharp rise in stress for those earning between $100,000 and $150,000

A growing number of Australians earning between $100,000 and $150,000 reported to be less financially secure. Nearly one in four Australians in this income bracket said they were ‘severely’ or ‘moderately’ financially stressed, up by 150% in the space of just two years and nearly triple of those who reported the same during 2020 – raising further questions around how much is needed to feel financially secure.

Financial secrets

The findings also point to a growing number of financially stressed Australians keeping secrets about their finances. Close to one in three have financial secrets, worries, or behaviours they have not shared with anyone else. Of those, almost two in three said they feel ‘embarrassed’ or ‘guilty’ about them and almost one in four believe there is no need to share them.

Letting go of discretionary spend

Faced with the rising cost of living, more Australians are drawing down on accumulated savings and cutting down on their everyday spending, finding new ways to save on non-essential services.  Three in five Australians spent less on groceries this year, two in five went without a holiday and one in three spent less time engaging in regular hobbies and interests. Meanwhile, over half of Australians strongly agree that the cost of living will continue to rise significantly, with less than a third saying they will be financially secure over the next two years.  In addition, one in three have cancelled streaming subscriptions and gym memberships due to financial pressures.

More ‘alone time’

Financially stressed Australians are more likely to reduce both spending and social behaviours or reach out for professional support. Half of those that were ‘severely’ or ‘moderately’ financially stressed spent less time with friends, two in five were more likely to internalise their stress and spent more time in isolation, while over one in three spent less time with family.

Tips for building financial wellbeing

1. Speak to a Super Coach to get reliable information and support: AMP Super coaches can help you get close to your super, with digital tools and simple advice all with no extra fees. AMP also offers a free ‘Retirement Health Check’ with dedicated financial wellbeing support available for customers. Learn more at Superannuation – AMP.
2. Check your home loan is right for you: Speak to your bank or broker and learn how a better rate on mortgage can help you save more. There are a range of home loan products on the market which come with different features based on customers’ preferences, needs and eligibility. Consider what loan options best suit you and your individual circumstances.
3. Get assistance when you need it: There’s plenty of research showing that people who draw on expert advice are less financially stressed and make better decisions. Use reputable sources such as your financial institution, government resources, and trusted third-party comparison websites.
4. Subscribe to our podcast: AMP’s Simplifying Investing podcast with Shane Oliver and Diana Mousina features regular insights from two of Australia’s leading economists to help you demystify the world of superannuation, investing, retirement, home loans and beyond.
5. Check out our Insights Hub: Helpful resources are often available on lenders’ websites, and budget/tracking apps can provide a clear view of your spending patterns. Some examples include AMP’s Insights Hub, our budget planner calculator and expense planner calculator, and ASIC’s MoneySmart tools.

The post Financial stress among working Australians at ‘decade highs’ appeared first on AdviserVoice.

Diana Mousina

While Australia remains one of the richest nations in the world, a new Econosights report from AMP’s Deputy Chief Economist, Diana Mousina highlights the need to improve financial literacy standards.

 The report also highlights the significant gap in financial literacy levels between men and women, with women facing lower levels of income and smaller superannuation balances.

Analysing market research and data, the Econosights report examines the relationship between financial literacy and retirement savings. It found that more than one third (36%) of adults in Australia are financially illiterate, more than Germany (34%), the UK (33%) and Norway (29%).

Globally, women usually have lower financial literacy compared to men, known as the “financial literacy gender gap”, however in Australia this gap is noticeably higher relative to our global peers.

In Australia, the gap between adult male and female financial literacy is 8% which is greater than the gap in Italy (7%), Germany (6%), the US (5%) and China (1%).

Financial literacy can affect how you retire

The report shows the implications of the financial literacy gender gap as applied to the retirement savings of Australian men and women.

Women in Australia retire on smaller superannuation balances than men, with their average superannuation balance at age 60-64 being 21% less than men at the same age – a balance of $406,000 for men compared with $321,000 for women. Women’s wages lag men, contributing to lower retirement balances and this issue is made worse by the financial literacy gap.

Today’s retirees can expect to live another 25 years after retiring^[1], yet a growing number are failing to get the help they need or plan for their savings to last for longer. This can lead to poorer investment decisions, lower wealth accumulation and smaller retirement savings.

Diana Mousina, AMP’s Deputy Chief Economist said: “Despite having one of the highest GDPs and average wealth per household, millions of Australians remain financially illiterate, with women well behind men.

“Lifting levels of financial literacy and closing this gender gap are important challenges for our society and would improve retirement outcomes for many.

“Underlining the importance of lifting literacy for women is that their superannuation balances remain well below men at all ages, compounded by the fact that they generally earn less than their male counterparts.

“Improving financial literacy across our community requires a coordinated approach from Government, schools, financial institutions and parents. This includes more dedicated grassroots financial literacy tuition in schools and systems that encourage more girls and women to study financial related subjects and courses.

“Broader take up of paid parental leave measures which enable both parents to take time out of the workforce will also help reduce the superannuation gap.

The implementation of measures from the Quality of Advice Review should also help make affordable financial advice more accessible.

“Financial services organisations also have a broader role to play in providing their customers with access to simple and intuitive information which helps them understand and engage more with their mortgages, investments, superannuation and retirement planning.”

“Parents can then share their knowledge with their children to build their financial awareness and understanding at a young age.”

Improving literacy for everyday Australians

Findings from AMP’s 2022 Financial Wellness research^[2] found one in four women and one in four single parents say they are financially stressed.

The report showed the number of workers severely stressed about their finances (approximately one million Australians) was at record highs, having more than doubled since 2020.

Anxiety levels among Australians have increased, the data shows, due to concerns with cost-of-living pressures^[3], including rising inflation and interest rates.

Financial literacy improves with more knowledge, which is why a greater focus needs to be placed on grassroots initiatives to improve financial awareness and understanding across our community.

Five tips to improve your financial literacy

There are several publicly available resources that can help you raise your understanding of basic investment and financial concepts to help alleviate signs of financial stress:

1. Tune into AMP’s new podcast series with Diana Mousina. Our latest Simplifying Investing episode with Diana^[4] together with her blog^[5].
2. View AMP’s Insights Hub^[6] here. You’ll find lots of useful financial tips, tools and news to keep you informed and help achieve your financial goals.
3. Sign up to our two weekly blogs Econosights and Oliver’s Insights^[7]. Shane Oliver’s recent Personal Finance 101 blog shares 15 common sense tips to help manage your finances^[8].
4. Check out ASIC’s Money Smart website^[9] for detailed guides on how to manage your money, reduce your debt and plan for your future.
5. Have a look at AMP’s biennial Financial Wellness report^[10], with important insights around how to improve your financial wellbeing^[11].

——–

Notes:
[1] https://www.amp.com.au/content/dam/amp-au/documents/financial-hub/bernard-salt-report-what-wealthy-means-to-australians-in-2023.pdf
[2] https://corporate.amp.com.au/newsroom/2022/august/s–stress-leading-to-positive-change–with-more-people-engaging-/s–stress-leading-to-positive-change–with-more-people-engaging-
[3] https://corporate.amp.com.au/newsroom/2022/september/financial-wellness-research-explores-drivers-of-financial-stress
[4] https://open.spotify.com/show/5r4Aw9tLHc89w1oYxSjSnO
[5] https://www.amp.com.au/insights-hub/blog/investing
[6] https://www.amp.com.au/insights-hub
[7] https://www.amp.com.au/insights-hub/blog/investing
[8] https://www.amp.com.au/insights-hub/blog/investing/olivers-insights-personal-finance-101
[9] https://moneysmart.gov.au/
[10] https://corporate.amp.com.au/newsroom/2022/august/s–stress-leading-to-positive-change–with-more-people-engaging-/s–stress-leading-to-positive-change–with-more-people-engaging-
[11] http://www.amp.com.au/financialwellness

The post Addressing Australians’ financial literacy and the gender literacy gap appeared first on AdviserVoice.

Shane Oliver

Key points

• The budget this year is expected to return to a surplus of $4bn thanks to a continuing revenue windfall.
• Key measures include cost-of-living support, more spending on aged care and a move to slow NDIS growth.
• Implications for inflation and hence the RBA are minimal.
• Despite savings measures structural budget deficits remain in the medium term as the revenue windfall fades.

Introduction

This Budget yet again benefits from a huge revenue windfall allowing a surplus this year for the first time in 15 years and cost-of-living relief. At the same time, medium term deficits, while lower, remain leaving the budget vulnerable to anything that upsets the “rivers of gold” flowing to Canberra.

Key budget measures

Key measures, many of which were announced prior, include:

• $14.6bn over four years in cost-of-living support for mostly low to middle income households, including $3bn (shared with states) in one off energy bill relief for 5mn low-middle income households and 1mn small businesses, an additional $3.5bn to Medicare over 5 years to allow better access to GP’s through a lift in the bulk billing incentive, cheaper medicines, a boost to rent assistance, subsidies to move from gas to electric appliances, increased support for single parents costing $1.9bn over 5 years and a modest increase in Jobseeker with more for over 55s
• increased spending on aged care partly flowing from a 15% pay rise for aged care workers which will cost $14.1bn over four years
• a $20,000 instant asset write-off for small businesses
• a ramp up in defence spending on missiles and submarines, offset by a reallocation of defence spending
• some measures to help boost housing affordability – with tax changes to boost build-to-rent housing and wider access to the Home Guarantee Schemes
• a lift in renewables investment through $2bn for the Hydrogen industry and incentives for developers to build “greener” houses
• measures to support impact investing to tackle social problems, and
• $498mn to crack down on vaping and reduce smoking.

Budget savings include:

• reform of the Petroleum Resource Rent Tax to raise $2.4bn over 4 yrs;
• extension of the GST compliance program, saving $3.8bn over 4 years;
• a 5% rise in tobacco excise raising $3.3bn;
• measures to slow NDIS growth to 8% pa from 13.8% currently;
• the 30% tax on super fund earnings where balances exceed $3mn;
• increasing the payment frequency of super and lifting compliance.

Economic assumptions

Changes to the Government’s forecasts have been modest with higher inflation and lower unemployment this financial year, but no changes to its forecasts for economic growth. It has revised up its wages forecasts for the next financial year and now sees the return of real wages growth in mid-2024. Unemployment is still seen as rising to 4.5% but doesn’t get there until mid-2025. We are a bit less optimistic on growth in the year ahead and hence see higher unemployment earlier. Either way Australia is set to enter a per capita recession. The Government now sees net immigration of 400,000 this year up from a forecast of 235,000 in October, taking population growth to 2% for the first time in 14 years, slowing to 315,000 in 2023-24. The Government revised up its medium-term iron ore price assumption but only to $US60/tonne. With the iron ore price now about $US105/tonne, it’s still a potential source of revenue upside.

Budget projections – fastest improvement since WW2

This Budget like all of those since 2020 has benefitted from huge revenue flows coming from a combination of higher personal tax collections due to stronger jobs and wages growth, higher commodity prices and higher non-mining profits than assumed. It looks like “rivers of gold” flowing to Canberra, but it’s really good luck flowing from conservative forecasts regarding jobs, wages, inflation and commodity prices. This windfall (see the line called “parameter changes” in the next table) is estimated to reduce the deficit this financial year by $42bn compared to last October’s forecast, with carry over to next year before slowing as unemployment rises.  Some of the windfall has been spent (see the line called “new stimulus”) but 86% of it out to 2026-27 has been saved. As a result, the budget is now projected to be in surplus for this year – its first since 2007-08, a massive turnaround from the $99bn deficit projected less than 18 months ago and the fastest improvement as a share of GDP since the end of WW2 when the deficit went from 10.5% of GDP in 1944-45 to 0.8% in 1946-47. While there is net new stimulus going forward (mainly in 2024-25) due to the cost-of-living measures it turns negative by 2026-27 (as Budget savings kick in) and over the next four years is swamped by the revenue windfall resulting in lower budget deficits going forward.

Projections for spending as a share of GDP remain above the pre-Covid average of 24.8% but are lower than previously with Budget measures restricting spending growth to 0.6%pa out to 2026-27. Revenue trends higher (partly due to tax measures in the Budget) as a share of GDP reaching its 1986-87 record of 26.2% in a decade.

While the Budget has seen a rapid turnaround from deficit to surplus this year and has made better progress in reducing the medium term structural deficit, it still persists through the next decade only gradually falling.

Thanks to lower deficits, gross public debt is now projected to be far lower as a share of GDP, with the $1trn level now pushed out two years to 2026.

Assessment

Winners include: low and middle income households; pensioners; single parents; medicine users; GPs; aged care workers; low income renters; JobSeeker recipients; small businesses; the build to rent sector; skilled migrants; & the environment. Losers include: gas producers; vapers & smokers; some prospective NDIS recipients; consultants to the public sector; high balance super members; & travellers ($10 more to leave Aust).

The Budget has a lot commend it: the cost-of-living measures will help ease pressure on the most vulnerable and some (energy, medicine and rent relief) will lower measured inflation; the budget is now back in surplus for this financial year; by “saving” the bulk of the revenue upgrade budget deficits are lower and this cuts interest costs; the Government has slowed structural spending growth (eg in the NDIS) and raised extra revenue; and there is still scope for revenue surprise with commodity price assumptions.

However, the Budget has several weaknesses:

• While some of the cost-of-living measures will directly help lower measured inflation (by around 0.4%), the new fiscal stimulus next financial year of $12bn risks boosting demand and adding to inflation – but it’s hard to be adamant as overall the Budget is taking more out of the economy compared to the projections last October.
• While the medium-term structural budget deficits have been sharply reduced they are still large – despite this being the Budget in the political cycle to address this issue as next year’s budget will be in the run up to the next election. It’s a bit of a lost opportunity and leaves the budget vulnerable should economic conditions prove weaker than expected and doesn’t provide much hope for actually paying down debt to put money aside for a rainy day.
• In particular, after several years of upside surprise to revenue, the risk is that this reverses in the year ahead if the economy slows more.
• While the rise in Government spending as a share of GDP has been capped it’s still projected to settle at a level well above that seen pre pandemic thereby locking in a bigger government sector which risks further slowing productivity growth over the medium term.
• More broadly, there is not much new here to turnaround Australia’s deteriorating productivity performance. This is the key to growth in living standards but needs urgent reform in terms of tax reform, competition, the non-market services sector, industrial relations, education and training and energy generation. Fortunately, the Government is moving on the last two but not much on the rest.
• While the housing measures are welcome, they are unlikely to make much of a difference in the next few years to housing affordability with the supply shortfall intensifying with very high immigration levels.

Implications for the RBA

With the Budget overall taking more out of the economy than it’s putting back in compared to what was projected last October, its hard to see significant implications for the RBA but it will be wary of the boost to households from the cost-of-living measures which could boost spending.

Implications for Australian assets

• Cash and term deposits – cash and bank deposit returns have improved substantially with RBA rate hikes but are still relatively low.
• Bonds – budget deficits add to upwards pressure on bond yields, but at least they have been lowered near term so there should be no new pressure.
• Shares – the Budget is a small positive for household spending but not enough to offset the negatives impacting the sector and overall there is not really a lot in it for the share market.
• Property – the housing measures are unlikely to alter the property price outlook which is dominated by supply shortages and surging immigration versus the impact of rate hikes. We see roughly flat home prices this year.
• The $A – the Budget is unlikely to change the direction for the $A.

By Dr Shane Oliver, Head of Investment Strategy and Chief Economist and Diana Mousina, Deputy Chief Economist

The post The 2023-24 Budget – return to surplus with fastest improvement since end of WW2, cost of living help but structural deficits remain (albeit smaller) appeared first on AdviserVoice.

Shane Oliver

North’s contemporary wrap, MyNorth has been awarded Chant West’s highest platform rating of 5 Apples as part of the launch of Chant West’s platform ratings. It comes as the North team is set to commence a National Retirement Roadshow, accessible to all advisers.

5 Apples platform rating

Chant West’s 5 Apples platform rating of MyNorth reflects the quality and ongoing enhancements to the platform’s investment choice, including its growing range of managed portfolios, low and transparent fees, ease of functionality and expert support.

Chant West is one of the industry’s most respected independent ratings agencies and the 5 Apple platform rating should provide advisers with confidence that in North they’re recommending a market leading wrap platform to their clients.

Retirement Roadshow

North’s National Adviser Roadshow will see AMP’s team of experts address the critical financial issues facing retirees and retirement strategies. The Roadshow commences in Hobart today and will travel to all major capital cities over the coming three weeks. All licensed financial advisers are welcome to attend and can register here.

Ben Hillier, AMP’s General Manager, Retirement Solutions, will address the key financial issues facing retirees and how AMP’s new retirement solutions, to be launched later this year, will help provide clients with income certainty and confidence in retirement.

AMP Economists Dr Shane Oliver and Diana Mousina will provide their expert views on the economic and investment landscape, while AMP’s industry renowned superannuation expert John Perri will demonstrate how different retirement income strategies can be applied, including how they work in sync with the aged-pension.

AMP’s Director of Platforms, Edwina Maloney, will also discuss how we are continuing to evolve North’s platform to be more responsive to adviser needs and working with our advisers to build smarter practices.

Edwina Maloney, said: “We’re delighted MyNorth has received a 5 Apples platform rating by Chant West – recognition of the significant investment and enhancements we’re continuing to make to North, which are informed by our engagement and feedback from the advice community.

“This includes the need to better help the increasing number of retiring Australians with greater financial confidence to drawdown income without the fear of outliving their savings – arguably the most important challenge our industry needs to solve.

“There is a fantastic opportunity for the financial adviser community and product providers, such as AMP’s  North platform, to work together to help more Australians retire well – a key objective of the Roadshow.

“North is fortunate to have some of the best minds in the wealth industry who are looking forward to sharing their knowledge with advisers. This includes Ben Hillier, one of Australia’s foremost financial experts on retirement income strategies.

“Ben and the North team are developing, what we believe, are breakthrough retirement income solutions. To be launched later this year, they will provide advisers and their clients with certainty they can access higher levels of retirement income, and the confidence they will not outlive their savings.

“We expect these solutions to be the first lifetime income product to provide full investment choice, with the ability to select any option from North’s extensive super and pension menu, including managed portfolios. They will also expand the range of clients who can benefit from tax and Centrelink strategies.

“Ben will share more information about these new offers during the Roadshow.

“The team and I look forward to meeting with as many advisers as possible across the country, not only to share our expertise, but most importantly, help us understand how North can best support the delivery of high-quality advice and practice efficiency.”

The post North wrap awarded 5 Apples platform rating by Chant West, as National Retirement Roadshow kicks off appeared first on AdviserVoice.

This report digs below the headline numbers and compares outcomes across Australia’s States and Territories.

CBA Economics analyses how the states and territories are performing across a range of economic indicators and details their key economic forecasts for each region.

This report is published quarterly.

Click here to read the report.

The post State and territory perspective appeared first on AdviserVoice.

• The goods and services trade deficit came in at $2.3bn in September. Total exports rose by 3.4% and total imports rose by 1.7%.
• A recovery in iron ore prices lifted export receipts over September. The start of new LNG plant production means further upside to resource volume exports.
• The tourism balance continues to improve and is tracking in line with changes in the Aussie dollar.

The September goods and services trade deficit came in below market expectations ( $‑2.9bn vs CBA (f): $‑3.2bn). The ABS has made some notable revisions to history which has made trade deficits over recent months look smaller. Australia has been running a goods and services trade deficit for 2015. But, the trend over recent months has been towards smaller deficits.

Goods exports rose by 4.1% over September, the largest monthly increase since early 2014. A 7.9% surge in iron ore exports drove the outcome thanks to a pick‑up in iron ore prices. Iron ore export volumes also remain at high levels. Metal exports (excluding gold) also recorded a 31% lift over September (but from a lower base). Rural exports were 1.1% higher over September.

New LNG shipments will lift resource export volumes over coming months. In October, Gladstone LNG began exporting and will show up in the trade numbers over the next few months.

On the import side, consumption goods rose by 3.2% in September driven by a large increase in non‑industrial transport equipment. Capital goods imports rose by 2.2% while intermediate goods were 1.5% lower over the month. There was a large fall in fuel and lubricants imports (because of low oil prices).

On the services side of the ledger, the tourism balance continues to move in line with trends in the Aussie dollar (see right hand chart). Tourism exports are lifting (international visitors spending in Australia) and tourism imports have flat‑lined (domestic residents spending overseas). This trend is positive for domestic retailers and also the states that have a specialisation in tourism (in particular QLD).

Based on today’s trade data, along with other indicators, the current account deficit looks like it was smaller in QIII. And the terms of trade fell again over the quarter. A falling terms of trade means an drag on the income side of the economy. Our commodities strategists are expecting some further weakness in Australia’s key commodity prices over 2016.

Alongside this expectation is our forecast for the Australian dollar to depreciate further which puts more upward pressure on imported prices and also helps to lift AUD‑priced exports. This means that the income drag from a lower terms of trade has further to run and looks most likely to ease in late 2016.

The post Stronger iron ore prices lift export receipts appeared first on AdviserVoice.

We recently wrote about how further mining capex is expected to decline (see report here).  Based on current indicators, Australia appears to be about 30% of the way through the mining capex decline.  The remaining downturn in mining investment will make a significant detraction from the economy, from a GDP perspective, but also from the impact on the labour market.  The labour‑intensive nature of the mining investment upturn means that a major risk from declining investment resides in the potential job losses.

To date, the labour market has held up reasonably well.  While the unemployment rate has increased by 0.1ppts over the past year (as the participation rate has increased by 0.3ppts), annual employment growth is running at a solid 2.1% (or 220K).  This outcome is a noticeable step up from the 1%pa employment growth a year ago.  Job gains in construction areas (related to the residential construction upturn) along with parts of the services industry (health, professional services, tourism) are more than offsetting mining‑related job losses.

The questions now are how many more mining‑related job losses will flow through the labour market? And will the labour market be strong enough to absorb these potential job losses?

Resource construction versus resource production employment

One of the offsets to declining resource construction jobs is the pick up in production/extraction jobs created as the mining boom enters the final (or third and operational) phase of the mining boom cycle.  But, the operational stage of the mining process requires much fewer jobs compared to the workforce required in the construction phase.

The post How far through the mining jobs decline are we? appeared first on AdviserVoice.

The moderate increase in retail spending came in below market (and our own) estimates for a 0.5% increase.  Retail spending trends have disappointed over the past three months given all the positive influences on consumers at the moment.  These include lower interest rates, softer petrol prices, a lower Aussie dollar, higher housing construction lifting household goods‑related spending and a supportive Federal Budget for small business spending.  But at the same time, consumer sentiment remains sluggish driven by high unemployment concerns and wages growth is low.

Some of these positive influences were evident in the May data.  Household goods spending rose by 0.8% over the month thanks to an increase in areas related to residential construction (furniture, floor covering, houseware & textile goods and hardware, building & gardening supplies).  Higher construction drives household goods spending as consumers furnish their new homes.  The lift in dwelling prices also means that the costs of moving have increased and households are instead choosing to renovate.  The impacts of the petrol stimulus are not as evident as prior historical episodes would suggest.

Annual retail trade growth (at 4.7%) looks more respectable, especially given headline inflation running sub 2% at present.

Anecdotal evidence suggests that the small business package in the Federal Budget has had a positive influence on small business asset spending (e.g. electronics).  This impact should be more evident in the June data.

The post Retail trade disappoints in May despite positive influences on consumers appeared first on AdviserVoice.