If you are a client of mine, you have seen me use financial modelling to illustrate where you are now and where you are likely to be in future. You would have also heard me describe our models as indicative only and stress that we will revisit the numbers regularly as there are many variables that are subject to change.

With this in mind, I want to talk about Treasurer Jim Chalmers’ financial modelling.

We have all seen the war in the Middle East push up oil prices, push down growth and expose weaknesses in the global economy as oil production fell by 8 million barrels.

In response, Treasury ran the numbers on the barrel cost potentially moving from its current price $100 to $80 by June next year. They then ran a second scenario based on the price increasing to $200 per barrel and taking three years to fall. This was referred to as the ‘severe scenario’ which admittedly would not trigger a recession, yet unemployment would rise and inflation could peak at 7%.

So, unemployment would rise, to around 4.5% at worst, and nominal wages would still be expected to grow at 3%. The actual inflation estimate is 5% in June this year, assumed mid conflict, so 7% is highly unlikely. Yet, our tax system is being turned on its head ‘with urgency’ in response to economic pressures.

Tax Increase/Reform

• Replacing the current 50% Capital Gains Tax discount with inflation adjusted indexation.
• Applying a minimum 30% tax rate on Capital Gains from July 2026.
• Applying a minimum 30% tax rate on Discretionary Trusts from July 2027.
• Residential negative gearing limited to new builds from July 2027.

Tax Benefits

• $250 tax offset paid to employees from July 2027.
• $1,000 instant tax deduction to employees.

Until you have a real-life scenario to consider it’s difficult to describe just how imbalanced these tax changes will be. The ‘give with one hand, take with another’ analogy comes to mind, where in this scenario the government are giving let’s say $620 in hand, if your marginal tax rate is 37%, and  then taking thousands from the future sale of your investment property or from the proceeds of your shares or the small business you run through a Discretionary Trust.

To ‘fulfil obligations and responsibilities to the generations to come’, they are planning to take from the generations before. I find little sense in this strategy given children will eventually inherit their parent’s assets.

Jim Chalmers mentioned that since 1999 house prices have risen over 400%, so how much increased Capital Gains Tax do the government expect to generate from our properties? $63.8 billion in ‘savings’. There are no income tax increases, because there doesn’t need to be.

What is not generated from CGT will be ‘saved’ through the ‘difficult but necessary reform’ of the National Disability Insurance Scheme when the government removes $37.8billion from the system to make it ‘more sustainable’. There is that giving with one hand thing again.

Back to the modelling, the Treasurer tells us all of this is necessary as it will reduce the gross government debt ‘for the next 11 years’.

To model one of my clients’ financial positions in 11 years’ time I would need a crystal ball. The modelling is flawed and, in my opinion, so is the logic.

Jim Chalmers referred to this time as ‘an era when people feel like the system works against them’

The $25 billion to be invested into the public hospital systems, the $5.9billion to the Pharmaceutical Benefits Scheme and the 137 Urgent Care Clinics are for all of us.

The $10 billion investment in the Strengthening Australia’s Fuel Resilience Package is for all of us.

This ‘hard road’ of tax reform is supposedly for the wealthy. This is supposed to create a fairer tax system so young people can get into the property market and pay less tax.

What about intergenerational wealth? What about people who have worked for the last 40 years and now the system is changing. Doesn’t that work against them?

We can find some solace in the fact that Capital Gains Tax within super remains unchanged and pay day super will see us accumulating wealth in that tax effective space faster, but it is hard not to be disappointed that we are the recipients of the biggest tax penalty in a quarter of a century.

If you want to discuss how the Budget changes could affect you, please phone our office on 08 6245 9245.

Ciara

“Our economy is turning the corner while the global economy is taking a turn for the worse.’

Treasurer Jim Chalmers may have used these words hoping Australians would take comfort in the ‘exceptional’ fiscal improvement that has been made over this government term, but I know many are left wondering how the threat of a global trade war and general unrest in the United States could affect us.

Chalmers comment that Australia is ‘neither uniquely impacted nor immune’ from these pressures is well founded.

In times of pressure, which, admittedly we are becoming accustomed to, we need local certainty. Initiatives that make us more resilient and better able to withstand change are the only way we can even hope for this ‘soft landing’ the Treasurer keeps referring to. I personally think it will be a bumpy ride for some time.

As a Financial Adviser I am of course always hoping for legislation that will improve the financial position of my clients and their families in some way. The Budget was light on in terms of tangible benefits but here are some positives.

Medicare Levy

Low-income thresholds will be increased for singles, families, seniors and pensioners this financial year, making more families exempt from paying the levy.

Taxation

The lowest individual marginal tax rate will be reduced over two financial years from 16% to 14%.

From 2026/27 individuals could see a tax reduction of $268. From 2027/28 this will increase to $536 per year.

Energy Costs

The current energy bill rebates will be extended for another six months until 31 December 2025. Eligible households and around 1 million small businesses will receive $75 per quarter/ $150 from 1 July 2025.

Health Care

From 1 January 2026, the maximum co-payment for medicines under Pharmaceutical Benefits Scheme will be lowered from $31.60 to $25.00 per script. It will remain at $7.70 for concession card holders.

9 out of 10 GP visits will be bulk billed by the end of the decade and the number of Urgent Care clinics will increase to reduce the pressure on our hospitals.

There were several other initiatives announced including pay increases for Aged Care and Child Care workers, childcare subsidy improvements and student debt reduction measures.

Never was a truer word spoken when the Treasurer admitted that ‘the aggregate numbers don’t immediately translate to how people are feeling and faring’.

Loosely translated; ‘We are still doing it tough’.

The national minimum wage may have increased by around $7,500 per year but what is that money worth when you factor in inflation and the rising cost of living?

Although the hard numbers don’t offer us much relief, relatively, we are sitting in a good place.

We need to stay focused on becoming ‘the primary beneficiaries of the churn and change’ as global economic growth is projected to be the lowest it has been since 1990.

My favorite quote is ‘a mind stretched to new experiences can never return to its former dimensions’.

While we experience constant and inevitable change, we learn to find new opportunities as they present themselves.

We are fortunate our future is made in Australia.

Ciara