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The Budget Special Edition · The Money Puzzle

0:09
Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
0:13
Speaker 1: James Kirby, Wealth Editor at The Australian and welcome to
0:17
Speaker 1: our Budget Special. The Budget Special edition which I do
0:20
Speaker 1: each year and have done now for some years with
0:24
Speaker 1: Will Hamilton of Hamilton Wealth Partners. How are you Will?
0:26
Speaker 2: I'm very well James, thank you.
0:29
Speaker 1: I like that we do this 48 hours after the
0:33
Speaker 1: budget because We get to see not just what every
0:37
Speaker 1: sort of the knee-jerk reaction on the evening or the
0:39
Speaker 1: next morning, but we get to see a sort of
0:41
Speaker 1: distillation of the analysis of it where everybody has a
0:45
Speaker 1: chance to actually sit down and take a proper look
0:48
Speaker 1: at it. I mean, we're going to talk, folks, about
0:52
Speaker 1: what the budget is for investors, right, and what it
0:54
Speaker 1: means for investors. And don't ever be of the opinion,
1:01
Speaker 1: I think anyway, that the budgets don't matter, right? Every
1:04
Speaker 1: budget matters. And there is enormous information inside the budget
1:09
Speaker 1: if you know where to look. And people will often say, oh,
1:12
Speaker 1: there's nothing in the budget. Not true. Not true this
1:16
Speaker 1: year either. Even in the way that some things didn't
1:18
Speaker 1: happen is actually news in and of itself. And I'll
1:21
Speaker 1: explain that as we go into it. But first of all,
1:24
Speaker 1: I suppose on the headlines, on the big picture for
1:27
Speaker 1: any investor, people want to know, well, what's going on
1:30
Speaker 1: with rates? They were supposed to drop. Now they're drifting.
1:34
Speaker 1: Looking at this budget, which is our window into the
1:37
Speaker 1: local economy, does it suggest the rates will still drop
1:41
Speaker 1: or will they actually move higher? And that's linked with inflation.
1:46
Speaker 1: Is it an inflationary budget? So question one for Will Hamilton,
1:50
Speaker 1: is it an inflationary budget?
1:53
Speaker 2: My view is the cost of living support is diametrically
1:56
Speaker 2: opposed to inflation control. And I think everyone is focusing
2:02
Speaker 2: on the $ 300.
2:04
Speaker 1: That's right, that every household is going to get for
2:06
Speaker 1: energy bills.
2:07
Speaker 2: Correct. Spread over each quarter $ 75. And now they're saying
2:11
Speaker 2: if you've got multiple households, it could be that. There's
2:16
Speaker 2: not enough talk about the tax cuts and the tax
2:19
Speaker 2: cuts coming in as well. And I think that is meaningful.
2:23
Speaker 2: They're meaningful. I actually think the $ 300 spread across four quarters,
2:28
Speaker 2: I don't know if it's going to have any meaningful impact.
2:32
Speaker 2: But the tax cuts do have a meaningful impact. And
2:35
Speaker 2: as people are saying, it's the equivalent of two rate cuts.
2:38
Speaker 2: And putting that disposable income into the system, is it
2:42
Speaker 2: saved or is it spent? If it's spent, the inflationary
2:46
Speaker 2: impact on that. So I think it's a gamble on inflation.
2:49
Speaker 2: I really do. And I think that's what the Aussie
2:51
Speaker 2: dollar is telling us. Why?
2:53
Speaker 1: What's the Aussie dollar telling us?
2:55
Speaker 2: The Aussie dollar was mildly strong yesterday. It strengthened a
2:59
Speaker 2: little bit overnight. We're sitting at around 67. I think
3:02
Speaker 2: what they're telling you is whilst the figures that came
3:06
Speaker 2: out last night with respect to retail sales and CPI
3:09
Speaker 2: in the US, people are talking about now 96% chance
3:13
Speaker 2: of a cut in September. What the Aussie dollar is
3:16
Speaker 2: telling us is there's very little chance of a cut
3:19
Speaker 2: here in Australia. So that's all on the back of inflation.
3:23
Speaker 1: Okay, so there's very little chance according to the markets
3:26
Speaker 1: of a cut in Australia, first part. Second part is
3:29
Speaker 1: that there is a big attempt in the budget to
3:35
Speaker 1: support and support all levels of society, which is very useful,
3:40
Speaker 1: particularly at the lower end, of course. But there's also
3:42
Speaker 1: these very broad Commonwealth rent assistance, energy bill support, and
3:48
Speaker 1: the government say they're not inflationary because technically, technically, they
3:54
Speaker 1: suspend inflationary pressure. But some very top economists, I mean,
4:00
Speaker 1: a list of economists are saying, look, this does not
4:06
Speaker 1: bring down inflation. It simply halts it for a period.
4:10
Speaker 1: And the minute those supports are over, it goes back
4:12
Speaker 1: up again or the upward pressure goes back up again.
4:14
Speaker 1: Warwick McKibben, for instance, former RBA board manager. What do
4:18
Speaker 1: you think of that argument?
4:20
Speaker 2: And I also think the fact that it's... spread over
4:24
Speaker 2: the full year or four quarters. I agree on that.
4:28
Speaker 2: I think that it's more the fact that it's going
4:32
Speaker 2: to halt it rather than see that coming down. And
4:36
Speaker 2: I think, as these same economists are saying, is the
4:40
Speaker 2: RBO will look through this. They will factor that in.
4:43
Speaker 2: Just on the back of a headline, if this is
4:45
Speaker 2: how it's artificially, it has had an effect, which I doubt,
4:51
Speaker 2: they will look through this and take this into account.
4:52
Speaker 2: They have to.
4:54
Speaker 1: Yeah, they have to. So basically, to some extent, it's
4:59
Speaker 1: politically deft that the measure of inflation that we all
5:03
Speaker 1: talk about will be affected by these. But in terms
5:09
Speaker 1: of the market pressures, when these supports are taken away,
5:14
Speaker 1: unless they leave them in forever, then the inflation just
5:16
Speaker 1: basically comes pouring back out.
5:18
Speaker 2: Chris Bowen has said as much, like it's reported in
5:20
Speaker 2: The Australian this afternoon, that Chris Bowen on a radio
5:22
Speaker 2: interview yesterday said, well, we're doing this to create a
5:25
Speaker 2: headline in inflation. Well, he's admitted what they're trying to
5:28
Speaker 2: do and the RBA will take that into account. Yeah.
5:32
Speaker 1: Okay. Very good. So, folks, we're going to talk about
5:35
Speaker 1: what the investor should know about this budget and this
5:41
Speaker 1: new financial year, which obviously the budget papers presage. Now,
5:46
Speaker 1: the big thing, as Will says, the biggest thing of all,
5:49
Speaker 1: by a mile for investors, is the tax cuts. And
5:54
Speaker 1: Everyone should keep it in mind that how it works, basically,
5:58
Speaker 1: the amount you pay, by the way, no tax upon, interestingly,
6:02
Speaker 1: you think this doesn't matter perhaps as an investor, it
6:05
Speaker 1: really does. 18,200 a year, the first 18,200 you make
6:11
Speaker 1: per year, there's no tax paid on that. And it
6:14
Speaker 1: hasn't changed, even though the other bands have changed and
6:17
Speaker 1: there are tax cuts across the bands. What I'm alluding
6:20
Speaker 1: to here, Will, of course, is that people might start
6:22
Speaker 1: taking money out of super for various reasons in the future.
6:25
Speaker 1: And maybe that was one of the reasons the government
6:28
Speaker 1: held it at that. Just to finish on the tax, folks.
6:30
Speaker 1: So the starter band for tax will be 18,000 to 45,000, right?
6:33
Speaker 1: The rate will be 16%, down from 19%. And after that, 32.5%
6:35
Speaker 1: rate will drop to 30, for 45,000 to 135,000. Okay,
6:36
Speaker 1: are you with me so far? The 37% rate will
6:37
Speaker 1: kick in at 135,000. It used to be 120,000. And
6:54
Speaker 1: the 45% rate now cuts in at 190 up from 180,
6:59
Speaker 1: to which a lot of people will say, big deal.
7:01
Speaker 1: We thought it was going to be better than that.
7:03
Speaker 1: The implicit promise was that the top end would get
7:06
Speaker 1: these tax cuts as well. But of course, the government
7:08
Speaker 1: rearranged them a few months ago. And politically, that has
7:11
Speaker 1: gone down well. And so I think we'll see more
7:16
Speaker 1: of this sort of engineering in the future. But basically,
7:19
Speaker 1: the new tax cuts are there. Everyone should be aware
7:22
Speaker 1: of them. They should be aware of their new taxability
7:25
Speaker 1: if you like with the new bands familiarize yourself with
7:28
Speaker 1: those bands and what do you think it means for
7:30
Speaker 1: investors generally will on the tax cuts nab put out
7:35
Speaker 1: a survey saying that people are more likely to save
7:40
Speaker 1: than spend the tax cuts i thought that was interesting
7:44
Speaker 1: that would also mean investing them.
7:45
Speaker 2: Yeah well if that's the case um yeah you you
7:50
Speaker 2: will reduce that inflationary impact. There's no doubt about that.
7:52
Speaker 2: But no individual with taxable income of $ 135, 000 or less
7:56
Speaker 2: is going to have a marginal tax rate of more
7:58
Speaker 2: than 30%. And 30% seems to be this magical race
8:03
Speaker 2: that the government seems to be aiming everything at. We've
8:06
Speaker 2: talked about the proposed superannuation changes, et cetera. So what
8:10
Speaker 2: they're trying to do is look at this 30% seems
8:13
Speaker 2: to be this rate that– they seem to be aiming at.
8:17
Speaker 2: I think that seems to be the big thing.
8:18
Speaker 1: The flat rate as such, if they were to bring
8:21
Speaker 1: in a flat rate. And originally, the original plan, of course,
8:23
Speaker 1: was that that would be larger, the group in that,
8:26
Speaker 1: but they rearranged things. Okay, interesting. So keep that in mind, folks. Now,
8:31
Speaker 1: after that, then, there is an enormous amount of money
8:34
Speaker 1: going into housing. Most of it is social housing, Commonwealth
8:39
Speaker 1: Rent Assistance, But it's an enormous figure. And there's also
8:43
Speaker 1: initiatives for the construction industry at various levels. I mean, specifically,
8:50
Speaker 1: there's 10 billion alone going into social housing. And the
8:54
Speaker 1: thing I want to just point out from an investor's
8:57
Speaker 1: point of view, again, Will, do you think that if
9:00
Speaker 1: this housing comes to pass, does it take some pressure
9:04
Speaker 1: off the vacancy rate in property, which is currently 1%
9:08
Speaker 1: in residential property, which is one of the reasons people
9:10
Speaker 1: are so investors at least, be so secure in property
9:13
Speaker 1: because you can rent anything and you can get rent
9:16
Speaker 1: increases each year.
9:17
Speaker 2: We need to design the houses. We need to get
9:20
Speaker 2: planning for the houses. Then we need to build the houses.
9:23
Speaker 2: And we need the people. I think they've allowed, is
9:26
Speaker 2: it 1,700 on a migration basis to builders to come in? Yes.
9:31
Speaker 2: And they're saying that the Master Builder Association is not
9:35
Speaker 2: saying that is enough. So we need the people to
9:37
Speaker 2: build the houses. And the lag, you know, It's fantastic
9:42
Speaker 2: that they're doing this, but it's not going to happen.
9:45
Speaker 2: We're not going to wake up tomorrow and it's happened.
9:47
Speaker 1: Right. So you think the vacancy rates are going to
9:51
Speaker 1: be where they are, super tight for the foreseeable future?
9:55
Speaker 2: Correct, yeah. Because I said it's the design, planning, and
9:58
Speaker 2: then build.
9:59
Speaker 1: Yes.
10:00
Speaker 2: So you're probably looking three years to be optimistic.
10:04
Speaker 1: Okay, very interesting. I think that's very important, folks, for
10:08
Speaker 1: property investors to keep that in mind, that really for
10:13
Speaker 1: us in property investment, the big dynamics were around rates, immigration, which,
10:22
Speaker 1: of course, kept the market particularly tight. And the forecast
10:26
Speaker 1: is for immigration to fall. And that's an important part
10:29
Speaker 1: for property investors to know. Look, the signals are that
10:33
Speaker 1: what will change will ease vacancy rates going forward, but
10:37
Speaker 1: they will be slow and we will have to see
10:41
Speaker 1: how they pan out. But there are signals, at least,
10:43
Speaker 1: that they will that the vacancy rate will ease. By that,
10:47
Speaker 1: I mean it'll increase from its 1%. But it's not
10:50
Speaker 1: going to go to 5% or 10%. Sorry, Will.
10:53
Speaker 2: I think the regulatory one is the big issue. And
10:56
Speaker 2: they need to reduce the red tape so we can
10:59
Speaker 2: get these things built. And that thing gets down to
11:02
Speaker 2: state governments and local governments. And that hasn't been settled.
11:06
Speaker 1: Yes. Okay. Just before we talk about some individual measures
11:12
Speaker 1: that every investor should know, I think we might just
11:15
Speaker 1: take a look at on super. There was a few
11:17
Speaker 1: things that everyone should know on super. First thing is
11:20
Speaker 1: that your compulsory super moves up, of course, to 11.5%
11:26
Speaker 1: on July 1 on its way to 12% a year later.
11:29
Speaker 1: That's important. The amount you can contribute into super is changing.
11:34
Speaker 1: That is the amount you can contribute on a pre-tax basis,
11:38
Speaker 1: what they call concessional moves from 27,000 now 27,500 now
11:43
Speaker 1: to 30,000 on July 1. But that only brings us
11:46
Speaker 1: back to where we were a long time ago, Will.
11:50
Speaker 1: Isn't that right? It used to be higher than 30.
11:54
Speaker 2: Correct. I think that listeners have heard me say many
11:57
Speaker 2: times the issue is not in super. It's getting money
12:01
Speaker 2: into super. And it's very difficult to get money into super.
12:04
Speaker 2: And on a non-concessional basis, they're lifting that from 110,000
12:06
Speaker 2: to 120,000.
12:06
Speaker 1: Yeah.
12:10
Speaker 2: That's the issue. These changes were brought in actually by
12:13
Speaker 2: the coalition government. They made it harder to get in
12:16
Speaker 2: to super. And I think that's the biggest issue.
12:20
Speaker 1: Yes. And these increases in the amount you can put in,
12:25
Speaker 1: they're not structural. They are indexing for inflation. They are
12:31
Speaker 1: only matching the inflation changes. So in real terms, the
12:35
Speaker 1: amount you can put in hasn't changed in any significant fashion.
12:39
Speaker 2: Correct, and also the transfer balance cap increases to 1.9 million.
12:44
Speaker 1: Yes, it increases to 1.9 million. That is the amount
12:49
Speaker 1: you can have in super before you pay the first
12:52
Speaker 1: tax band, which is 15%. It's hard to keep all
12:56
Speaker 1: this in mind, folks, I know, but you need to
12:57
Speaker 1: learn it if you want to play the system. So
13:00
Speaker 1: in super, you are not taxed on your earnings in
13:04
Speaker 1: super when you retire up to 1.9 million. And then
13:07
Speaker 1: there is a new plan, believe it or not, to
13:09
Speaker 1: bring in a second ban at three million from the
13:13
Speaker 1: 1st of July 2025. Very controversial for the simple reason
13:17
Speaker 1: that it's not just another tax. It's taxed in a
13:19
Speaker 1: different way on unrealised gains. It's about to be really
13:22
Speaker 1: kicked around in Parliament. Allegra Spender has moved a motion
13:26
Speaker 1: today and I think it will be debated. But I
13:30
Speaker 1: don't know because the Senate signed it off absolutely unchanged.
13:34
Speaker 1: That is the Senate inquiry. So what do you think
13:38
Speaker 1: the realistic chances are that it will be amended in
13:41
Speaker 1: any fashion, Will?
13:42
Speaker 2: I said that it wouldn't be changed. Then I was hoping, I.
13:45
Speaker 1: Think it was more hope, when.
13:47
Speaker 2: I heard about the Senate inquiry, that they would see
13:49
Speaker 2: common sense and that we wouldn't be taxing unrealized gains.
13:52
Speaker 2: I think that is just unconscionable. I really do.
13:56
Speaker 1: Just explain why. Because someone who isn't very familiar with
14:00
Speaker 1: tax and investments might say, hey, listen, someone's got $ 3
14:03
Speaker 1: million in super. What's their problem? And why are they,
14:07
Speaker 1: you know, what's wrong with them, this new tax? What's
14:09
Speaker 1: wrong with it?
14:10
Speaker 2: Yeah, I think everyone's been concentrating on property, but I
14:12
Speaker 2: think Robert Godleibson's really talked about private equity, and I
14:15
Speaker 2: think that's probably a really good example. You've got a
14:18
Speaker 2: liquid growth investment in there, so it's growth without returning income,
14:24
Speaker 2: and the value of that goes from $ 3 million to,
14:29
Speaker 2: let's say, $ 4 million. But you're going to get taxed
14:31
Speaker 2: at 30% on that, so $ 300, 000. without any cash flow
14:37
Speaker 2: from it. But you have to find that cash flow,
14:39
Speaker 2: pay that tax. By the way, if it went backwards,
14:44
Speaker 2: you don't get a refund. You get only a credit.
14:47
Speaker 2: I think everyone needs to pay taxes. In life, everything
14:53
Speaker 2: needs to be fair. But this just is not fair.
14:55
Speaker 1: So it's not fair because it's on unrealized paper gains.
14:58
Speaker 1: It's on paper gains, right? So to make it simple...
15:03
Speaker 1: If I invested in a company with my super and
15:07
Speaker 1: it was a great little company and I loved it
15:09
Speaker 1: and everybody in it, I thought they were brilliant. The
15:12
Speaker 1: thing is, and if they went up in value each year,
15:15
Speaker 1: though I couldn't get any money out, I'd be taxed
15:17
Speaker 1: on the amount of value increase that they are managing. Okay.
15:22
Speaker 1: And that's just out the window in terms of how
15:24
Speaker 1: the tax system works. So we've never seen that before.
15:27
Speaker 2: And I think in investments, we all would agree that
15:30
Speaker 2: a profit is not a profit. until it's realized. But
15:32
Speaker 2: they're telling you, well, hey guys, every year we want
15:36
Speaker 2: you to revalue your asset and your unrealized gain will
15:40
Speaker 2: be taxed.
15:41
Speaker 1: I wonder, Will, though that's an interesting angle, the numbers
15:46
Speaker 1: suggest there isn't much investment in private enterprise and startups
15:50
Speaker 1: by self-managed super funds. It's all in property. I think
15:53
Speaker 1: it's in property. It's really going to pinch.
15:56
Speaker 2: Yes, but I think where Robert Godlebson's coming on this angle, it's...
15:59
Speaker 2: Private equity and start-ups have a broad effect because they're growth,
16:04
Speaker 2: and that's what the economy needs.
16:05
Speaker 1: Yes.
16:06
Speaker 2: And if you're starving the economy of growth, that has
16:11
Speaker 2: far-reaching consequences.
16:12
Speaker 1: It chokes off incentives, which is the problem that's all
16:16
Speaker 1: across this budget, I think people are saying. There's no incentives.
16:20
Speaker 1: There's an incentive to go on the pension. There's an incentive–
16:25
Speaker 1: you know, for this and that, but they're not incentives.
16:28
Speaker 1: As such, they are incentives to take part in social welfare,
16:33
Speaker 1: which is miles away from what we're talking about, investor incentives.
16:36
Speaker 2: Yeah, aspiration. They're absolutely choking us, and I think that's
16:40
Speaker 2: the problem.
16:41
Speaker 1: Okay. Also, folks, to cover off on super, the other
16:46
Speaker 1: thing that has come in is, of course, parental leave.
16:50
Speaker 1: We've been talking about this for so long that you
16:52
Speaker 1: might think it's already done. It's not. It's finally confirmed.
16:56
Speaker 1: And how it works is that the superannuation will be
17:00
Speaker 1: paid on parental leave, government-funded parental leave, for 26 weeks.
17:06
Speaker 1: And it begins, it actually doesn't begin until July 1,
17:11
Speaker 1: 2025 for all the headlines, but in any event, there
17:13
Speaker 1: it is. coming through. That's one other piece of news
17:17
Speaker 1: on super. OK, that's a bit to digest. We'll let
17:21
Speaker 1: everybody have a break and we'll be back to you
17:24
Speaker 1: with some very interesting parts of the budget that probably
17:26
Speaker 1: haven't been aired as much and you might find very interesting. Hello,
17:33
Speaker 1: welcome back to The Australian's Budget Special. I'm James Kirby,
17:38
Speaker 1: the Wealth Editor at The Australian. I'm talking to Will
17:40
Speaker 1: Hamilton of Hamilton Wealth partners, and we are doing our
17:44
Speaker 1: budget special, which we do each year. Okay, Will, here's
17:47
Speaker 1: some random thoughts and observations on the budget that are
17:52
Speaker 1: really unusual. I just wanted to talk about, first of all,
17:58
Speaker 1: talking about social welfare or helping people. The $ 300 energy rebate,
18:04
Speaker 1: of course, that goes to every house in the country,
18:06
Speaker 1: that would include every single person on the rich list.
18:09
Speaker 1: That would include all the billionaires. Anthony Pratt, Gina Reinhart,
18:13
Speaker 1: they'll all get their $ 300 rebate, which would seem daft.
18:17
Speaker 1: But obviously, giving them the benefit of the doubt, it
18:21
Speaker 1: sounds like it would be very difficult to administer it
18:25
Speaker 1: in a more precise fashion. But the one that caught
18:28
Speaker 1: my eye was the tax credits for the minors. $ 7
18:34
Speaker 1: billion into tax credits for critical minerals, lithium and nickel
18:40
Speaker 1: in particular. And the shares immediately moved on this. So
18:45
Speaker 1: we have the government through the prism of Made in
18:48
Speaker 1: Australia and protecting things and all that sort of thing,
18:51
Speaker 1: but they're picking winners. Is that, from an investor point
18:54
Speaker 1: of view, what do you think of a government picking
18:57
Speaker 1: winners and apportioning billions of dollars in different areas? like
19:01
Speaker 1: the quantum computing as well, which of course is a
19:03
Speaker 1: spectacular example of it.
19:05
Speaker 2: I don't think governments have a good track record in
19:07
Speaker 2: picking winners and, you know, I think pumping money into
19:12
Speaker 2: things where I think private enterprise, otherwise I think has
19:15
Speaker 2: played a far better role and a far more efficient
19:19
Speaker 2: role and they've taken the risk on. I think that
19:26
Speaker 2: there's over the, over history, there's plenty of reasons we
19:30
Speaker 2: can sort of bring up things where they've made a mistake. Now,
19:34
Speaker 2: I don't agree with that at all.
19:36
Speaker 1: Sorry, you don't agree with the provision of picking a
19:40
Speaker 1: sector and giving it special treatment?
19:42
Speaker 2: No, I don't. But on the other hand, I do see–
19:46
Speaker 2: I know why they've picked critical minerals in particular. There
19:51
Speaker 2: is a defence reason around a lot of this, and
19:55
Speaker 2: especially with AUKUS and with the agreements we've got with
19:59
Speaker 2: the United States, there are some agreements there that that's
20:03
Speaker 2: the reasons why– certain minerals have got benefits there.
20:09
Speaker 1: I mean, the US themselves are doing it, aren't they? Well,
20:12
Speaker 1: to be fair, that's the ultimate free market, but they're
20:15
Speaker 1: actually doing it too. So there is an element of
20:17
Speaker 1: national security here on this one. But at the end
20:21
Speaker 1: of the day, you're giving special treatment to stock market
20:23
Speaker 1: listed companies. And hey, is it any surprise that there
20:28
Speaker 1: was immediate action on the market this week, folks, on
20:32
Speaker 1: those stocks that were getting government help. I'll name them. Some,
20:39
Speaker 1: of course, it's at the margins because they're so big,
20:41
Speaker 1: like BHP or West Farmers. Pilbara Minerals will get money.
20:46
Speaker 1: But as it gets smaller, Liontown Resources, etc., as the
20:50
Speaker 1: companies get smaller, they are more directly pumped, if you like,
20:56
Speaker 1: by this move by the government. Okay, now, I wanted
20:59
Speaker 1: to talk quickly about a couple of things that didn't
21:02
Speaker 1: happen Often in a budget, there is news in what
21:07
Speaker 1: didn't happen. And if you remember at the start of
21:10
Speaker 1: the show, Will was talking about inflation and we were
21:13
Speaker 1: mentioning how the inflation indexing has changed some things already
21:19
Speaker 1: in the budget. For instance, you'll be able to put
21:22
Speaker 1: in 30,000 pre-tax into your super because of inflation, because
21:28
Speaker 1: it's been adjusted up from 27 and a half. Now,
21:31
Speaker 1: here's the thing. The government, it's entirely random how they index.
21:35
Speaker 1: They can index whatever they want. There's no rules. And
21:39
Speaker 1: they index one thing and they don't index the other. So,
21:43
Speaker 1: for instance, there's two interesting things. For older Australians, deeming
21:48
Speaker 1: is the mechanics by which you can access the pension
21:54
Speaker 1: or how much you get in a pension, a part pension,
21:56
Speaker 1: is deeming. And what deeming is, is how the government
22:00
Speaker 1: makes a deemed assessment of how much you've made on
22:02
Speaker 1: your investments. They apply that and it then will dictate
22:08
Speaker 1: your access to the pension. It would reduce it, for instance.
22:13
Speaker 1: The top rate's 2.25%. 2.25%, yeah. 2.25%. The bank bill,
22:14
Speaker 1: the cash rate in the RBA is 4.35%. This rate
22:17
Speaker 1: was screaming to be raised. I talked to the... Association
22:27
Speaker 1: of Independent Retirees, Wayne Stratquist, on Monday, he said, we
22:32
Speaker 1: assume it's going up and it didn't move. It didn't move.
22:36
Speaker 1: So what does that mean for investors? Well, could you
22:42
Speaker 1: explain why it's a curiosity, but also why it's useful
22:47
Speaker 1: in some ways?
22:48
Speaker 2: Well, it's the government's assumed return on your investments. And
22:53
Speaker 2: you've just talked about the risk-free rate. So people only
23:00
Speaker 2: need to take into account 2.25 as the deeming as
23:04
Speaker 2: opposed to what they're actually returning. So it's got a
23:07
Speaker 2: positive effect, so I've heard, 500,000 pensioners.
23:11
Speaker 1: Yeah, so basically... You're going to be better off on this.
23:14
Speaker 1: You'll be better off because in the natural order of things,
23:18
Speaker 1: it should have gone up. And it should be considerably
23:21
Speaker 1: higher than that. But they've left it alone for one
23:24
Speaker 1: more year. So keep that in mind for older Australians.
23:27
Speaker 1: And similarly, in a very similar sort of non-event that
23:33
Speaker 1: turns out to be news because it didn't happen, the
23:35
Speaker 1: government's reverse mortgage scheme, the Home Equity Access Scheme, the
23:39
Speaker 1: lending rate on that is 3.95%. And in the commercial market,
23:45
Speaker 1: all the rates are about 8 or 9, and they
23:47
Speaker 1: didn't move that either. Do you think they just forgot
23:49
Speaker 1: to move it, Will?
23:50
Speaker 2: Well, I just need to remind people that the next
23:54
Speaker 2: 12 months is there's going to be an election. And
23:56
Speaker 2: as I said, 500,000 people have been positively impacted from
24:00
Speaker 2: the deeming rate, let alone those that you just mentioned
24:03
Speaker 2: as well. Yeah.
24:04
Speaker 1: So, look, what can I say, folks? It's there to
24:06
Speaker 1: be used. As I say, it's always worth reading budget
24:11
Speaker 1: and budget coverage because … opportunities arise right, left and
24:15
Speaker 1: centre if I knew it across them. They are some
24:20
Speaker 1: of the bigger issues in the budget in terms of
24:24
Speaker 1: how the government played this. But what would you like
24:28
Speaker 1: to have seen, Will, that wasn't there?
24:32
Speaker 2: I suppose the biggest thing for me was this... I
24:35
Speaker 2: think the biggest issue out there at a federal level
24:38
Speaker 2: is this unrealised capital gains. And I was... And there
24:42
Speaker 2: just wasn't a mention of that $ 3 million level. So
24:45
Speaker 2: I think when it comes to super, it's about what
24:47
Speaker 2: wasn't discussed. And as you rightly said, amendments have been
24:51
Speaker 2: put forward in the last 24 hours by the Teals.
24:54
Speaker 1: By the Teals, yeah. And they're hoping to get amendments.
24:58
Speaker 1: So specifically, folks, what they're trying to get in terms
25:01
Speaker 1: of amendments, and as Will says, its importance is not
25:05
Speaker 1: so much that it's a particular tax on super at
25:09
Speaker 1: a particular level. It's the nature of the tax that
25:11
Speaker 1: if you start taxing paper gains, where does it stop?
25:18
Speaker 1: How would we invest or make any plans long term?
25:20
Speaker 1: This is the argument against it. So the two key amendments,
25:23
Speaker 1: as I understand, Allegra Spender has pushed for in Parliament today,
25:28
Speaker 1: is that it is not only unrealised gains, and the
25:33
Speaker 1: second one is that it's indexed, because funnily enough, as
25:37
Speaker 1: I said a minute ago, they index whatever they like
25:39
Speaker 1: and don't index other things and they plan not to
25:42
Speaker 1: index this new tax. Have you heard of any alternative
25:47
Speaker 1: mechanism that you could introduce this new super tax that
25:51
Speaker 1: doesn't involve unrealized gains, Will?
25:56
Speaker 2: No, I think that it was well flagged what was
25:59
Speaker 2: coming in and it's amazing how when it was brought in,
26:04
Speaker 2: the number of individuals of our clients that have said, okay,
26:07
Speaker 2: we'll accept it. It's only fair. We've had it so
26:10
Speaker 2: good for so long. But when the fine print was seen,
26:18
Speaker 2: it should be a 30% above that level on realized
26:21
Speaker 2: gains like it is on everything else within companies, on
26:25
Speaker 2: your own personal taxation, et cetera, et cetera. And then
26:28
Speaker 2: to index it, you're right. because what's 3 million? I think,
26:33
Speaker 2: like Chris Bender said, what's 3 million going to be
26:35
Speaker 2: worth in 2064? I think that was the very word
26:38
Speaker 2: she used.
26:38
Speaker 1: Yes, right. Or even five years' time. Yeah, sure, of course.
26:42
Speaker 1: And the other, I suppose, absurdity here is that the
26:46
Speaker 1: lower band super tax, being 15%, is not indexed. Is indexed,
26:55
Speaker 1: I'm sorry. It is indexed. So it's just going to
26:58
Speaker 1: swell today. each year and get bigger and bigger. It's
27:01
Speaker 1: already gone from 1.6 to 1.9.
27:04
Speaker 2: I've had a view on this that what's happening is
27:06
Speaker 2: they're going to let that just get to the 3
27:07
Speaker 2: million level and then you're going to have zero and 30%.
27:10
Speaker 1: Right. Yes, I see.
27:11
Speaker 2: And then you'll then start seeing it being indexed after that.
27:14
Speaker 2: I think that's probably what the long-term game is.
27:17
Speaker 1: Okay. All right. Yeah. Yeah, it is a real curiosity.
27:20
Speaker 1: We'll see. As I understand it from a parliamentary voting
27:24
Speaker 1: point of view, It's going to be very hard to
27:28
Speaker 1: stop this. And the Senate committee that examined it signed
27:31
Speaker 1: it off unchallenged without any amendments. There is some, the Teals,
27:38
Speaker 1: David Pocock is, apparently he's important. It's not clear where
27:44
Speaker 1: he's coming from. It's clear where Allegra Spender at least
27:47
Speaker 1: is coming from and perhaps some other Teals. So that
27:49
Speaker 1: will play out in the days ahead. Okay, very interesting.
27:54
Speaker 1: Anything you think that we didn't cover there, Will, for
27:57
Speaker 1: investors in the budget? I know it was a very
27:58
Speaker 1: technical session, folks, but that's the nature of it.
28:02
Speaker 2: Yeah, for small businesses, they're extending the $ 20, 000 instant asset
28:06
Speaker 2: write-off for small business. Again, I think that's important. I
28:10
Speaker 2: didn't expect that, and I'm pleased to see that they're
28:13
Speaker 2: doing that. Of course, you know, and so it's for
28:17
Speaker 2: businesses that have a turnover of less than $ 10 million.
28:19
Speaker 2: And the other thing which actually I think is fair,
28:21
Speaker 2: which was pre-announced, and that's HECS relief. So the lower
28:27
Speaker 2: of CPI or what the average wage increase is, and
28:34
Speaker 2: I do think that is actually a fair thing to do.
28:37
Speaker 2: But again, the government's calling this cost of living relief.
28:40
Speaker 2: It doesn't change what you actually pay back.
28:43
Speaker 1: Yes.
28:43
Speaker 2: So it's not cost of living relief. It's just that's
28:46
Speaker 2: a matter of fairness.
28:47
Speaker 1: I don't think– the reason I didn't actually even mention
28:51
Speaker 1: HEX there in that list was it's not any restructuring
28:55
Speaker 1: of HEX in any substantial degree. I know it got
28:59
Speaker 1: a lot of headlines just because it was leaked in advance.
29:01
Speaker 1: But really, this is only the smallest variation in how
29:05
Speaker 1: you apply indexation. I hope– nobody's under the illusion that
29:10
Speaker 1: they've made major changes to HECS because I don't think
29:13
Speaker 1: they have. And actually, the minister, Justin Clare, he said
29:16
Speaker 1: when they announced it that Sunday afternoon, he said there
29:20
Speaker 1: would be more about HECS coming down the line, but
29:22
Speaker 1: I don't see another thing, actually. So it's, folks, all
29:26
Speaker 1: you can say is that, you know, there'll be a
29:28
Speaker 1: slightly fair, there'll be a fairer method of indexing HECS
29:33
Speaker 1: for inflation, which should have been there all the time,
29:36
Speaker 1: but I would be careful not to say that it's
29:41
Speaker 1: been greatly improved in any fashion okay all right we'll
29:45
Speaker 1: take a short break we've got some questions which we
29:47
Speaker 1: do want to deal with though it's a special show
29:52
Speaker 1: people love the questions so we'll be back to you
29:53
Speaker 1: in a moment Hello, welcome back to the Australian's Money
30:04
Speaker 1: Puzzle podcast. I'm James Kirby, the wealth editor at The Australian,
30:07
Speaker 1: and we have been talking about the budget. And if
30:11
Speaker 1: you are now utterly sort of weighed down and swamped
30:14
Speaker 1: with budget detail, we'll give you some light relief with
30:18
Speaker 1: our weekly segment where we deal with the listeners' questions.
30:21
Speaker 1: And there's some great questions, so I just want to
30:23
Speaker 1: put them to Will. Ben says, in a recent podcast...
30:30
Speaker 1: Your guest was looking for government support for people who
30:33
Speaker 1: retired at 60 in the budget. Get me the world's
30:36
Speaker 1: smallest violin, he says. I think the last thing we
30:39
Speaker 1: should be doing is incentivising people to retire at 60. Well,
30:45
Speaker 1: Ben and all the Bens out there, I did make
30:47
Speaker 1: the point that the incentives in the budget tend to be,
30:51
Speaker 1: you know, to take up more social welfare and the
30:55
Speaker 1: incentives to invest are missing today. And in fact, as
31:00
Speaker 1: Will says, there's active disincentive built into the plans for
31:03
Speaker 1: the new super tax. So thank you for that, Ben.
31:05
Speaker 1: Anything to add to that one, Will?
31:08
Speaker 2: It's a brave government that goes out there to increase
31:11
Speaker 2: the retirement age.
31:13
Speaker 1: Especially in France. Yeah, yeah, absolutely. Yes, indeed. OK, Steve asks,
31:22
Speaker 1: can you see those questions, Will? Would you like to
31:24
Speaker 1: read Steve's answer?
31:26
Speaker 2: Yeah, so Steve asks, perhaps the most crucial component of
31:29
Speaker 2: anyone's investment strategy is the performance of our super fund.
31:33
Speaker 2: Because these funds are so big and so diverse, is
31:36
Speaker 2: it a situation similar to a broad market ETF or
31:40
Speaker 2: managed fund where in a normal year, the best result
31:42
Speaker 2: one could hope for would be a return somewhere around
31:45
Speaker 2: the return of the market? Or would it be a
31:48
Speaker 2: fair target to aspire to in reviewing one's super performance?
31:54
Speaker 2: It's not about just the market. The super funds, these
31:58
Speaker 2: super funds invest in Australian equities, developed market equities, emerging
32:02
Speaker 2: market equities, private equity, diversified credit, direct property, bonds, cash,
32:09
Speaker 2: defensive alternatives. So it's about a blended benchmark. So each
32:13
Speaker 2: one of these asset classes has a benchmark or several
32:17
Speaker 2: benchmarks within those components. And so it's about the blended benchmark.
32:23
Speaker 2: for the basket of investments that it has.
32:25
Speaker 1: I suppose also keep an eye on what Big Super
32:32
Speaker 1: is achieving. They're doing about 8% a year in recent times,
32:36
Speaker 1: the big funds, the best funds. And in a way,
32:41
Speaker 1: you would like to see that you match that and
32:44
Speaker 1: you might allow for some fee difference if you were
32:46
Speaker 1: exclusively in ETFs. By that, I mean the ETFs charge
32:50
Speaker 1: you less fees. But that's in terms of a target
32:53
Speaker 1: to aspire to in reviewing your performance. That's the thing, Steve.
32:56
Speaker 1: And also, you can also go on MySuper, of course,
33:00
Speaker 1: or you can go on the ATO website and see
33:03
Speaker 1: how the super funds perform against each other. And though
33:05
Speaker 1: that is an exercise which is imperfect, it is marvellous
33:10
Speaker 1: that it actually exists. And for many years, there was
33:12
Speaker 1: nothing at all in a way to compare one super
33:15
Speaker 1: fund to another. So that's very useful, I hope. And remember, folks,
33:18
Speaker 1: this is always information. It's not advice. But I think
33:22
Speaker 1: it's safe to say to someone like Steve that you
33:24
Speaker 1: should be able to measure a super performance or targets
33:29
Speaker 1: quite easily now with the ability to look at the
33:34
Speaker 1: heat maps, et cetera, on super. And you get the
33:37
Speaker 1: public figures from the big funds and you get ETF
33:40
Speaker 1: returns quite easily as well. All right. Final question from Martin.
33:46
Speaker 1: If you had two options... give $ 5, 000 to an 18-year-old
33:51
Speaker 1: living at home and studying, what would be your choice?
33:55
Speaker 1: Pay it into HECS or pay it into super? Oh,
33:59
Speaker 1: that's such a great question, especially that we are all
34:02
Speaker 1: alert to HECS all of a sudden because, well, the
34:06
Speaker 1: average HECS bill is $ 26, 000. The average HECS bill is
34:08
Speaker 1: $ 26, 000 and lots and lots of our listeners would have
34:10
Speaker 1: HECS bills of $ 50, 000, $ 70, 000, $ 100, 000. I ask people all
34:19
Speaker 1: the time when I meet them, what's your Hex bill?
34:21
Speaker 1: Especially younger people. And it's really quite serious what their
34:26
Speaker 1: bills are becoming. So, Will, million dollar question. What does
34:32
Speaker 1: a person in Martin's position do?
34:36
Speaker 2: Normally, I would be saying super, put it always, put
34:40
Speaker 2: it into super for the long term. But I think
34:43
Speaker 2: one of the things that has changed with Hex in
34:46
Speaker 2: the last, five years or so, is this restricts an individual's,
34:51
Speaker 2: your balance restricts an individual's ability to borrow.
34:54
Speaker 1: Oh, yeah, in the bank, at the bank from a mortgage. Yes,
34:57
Speaker 1: of course.
34:58
Speaker 2: Correct. So I think that in fairness to the fact
35:02
Speaker 2: that this individual is 18 and they're in 10 years'
35:08
Speaker 2: time will definitely want to have purchased a property and
35:13
Speaker 2: this is going to have a negative effect on their
35:15
Speaker 2: borrowing ability. I think that's something you need to take
35:18
Speaker 2: into account as well.
35:19
Speaker 1: Sounds like you're awfully close to saying HECS over super.
35:21
Speaker 1: I am. You are. Yeah, yeah. Very interesting. And it's
35:26
Speaker 1: a killer point, I think, folks, that Will has just made.
35:30
Speaker 1: People say, oh, it doesn't matter. It's on HECS. It's okay.
35:34
Speaker 1: There's no interest on that. Yeah, yeah, sure. But there's
35:36
Speaker 1: an inflation indexing on it. And they say, yeah, yeah,
35:39
Speaker 1: but it's okay. It doesn't really get in the way
35:42
Speaker 1: of other things. It does. It is assessed when you
35:45
Speaker 1: go to the bank. Let me tell you something interesting, Will.
35:49
Speaker 1: On the show, I said once or twice APRA demanded
35:53
Speaker 1: the banks include the assessment of HEX, your HEX bill,
35:58
Speaker 1: in their assessment of your ability to take a home loan.
36:02
Speaker 1: And APRA came on to me and said, you have
36:04
Speaker 1: to correct that. It's not true. We expect, we expect...
36:10
Speaker 1: the banks. We don't demand the banks. And I will
36:13
Speaker 1: leave with that our listeners to make this semantic difference
36:16
Speaker 1: there because it's very important to APRA. All right. So
36:19
Speaker 1: you know what I'm saying. In any event, folks, HECS
36:22
Speaker 1: has become terribly important. So keep an eye on it.
36:24
Speaker 1: If you can pay it back, do. And it's interesting.
36:27
Speaker 1: I thought Will's answer very, very interesting. It shows that
36:31
Speaker 1: HECS has become, the bills have become bigger and their
36:34
Speaker 1: impact has become wider because they affect your ability to
36:37
Speaker 1: get a mortgage. If you learned one thing from the
36:39
Speaker 1: show today, that would be well worth taking home with you.
36:43
Speaker 1: Thanks very much, Will. Terrific to have you, as always,
36:45
Speaker 1: on The Budget Show. I don't know, how many times
36:48
Speaker 1: have we done it? Three or four? Four or five?
36:50
Speaker 2: We must have done it about four times.
36:51
Speaker 1: Now, yeah. Well, thank you very much. And I hope
36:56
Speaker 1: you'll be with me the next time. Terrific, as always.
36:59
Speaker 1: That was Will Hamilton of Hamilton Wealth Partners. Okay, folks,
37:03
Speaker 1: believe it or not, I have a shortage of questions.
37:05
Speaker 1: I had too many for too long, and now I
37:07
Speaker 1: have the capacity... To answer more, send them in. Surely
37:11
Speaker 1: there's questions on what we just covered. The architecture of
37:15
Speaker 1: the tax system as we know it from the budget.
37:18
Speaker 1: Here's the email themoneypuzzle at theaustralian.com.au Talk to you soon.