Banks in the firing line, super out of range

Banks in the firing line, super out of range

Earlier this week, Scott Morrison delivered what has been coined a “strangely Labor” budget.  Supported by firmer economic expectations, largely on the East Coast, the budget appears to be on track for surplus in the foreseeable future. 

Superannuation was left largely untouched after the major changes announced in last year’s Federal Budget - a sigh of relief for retirees and their advisers.  This means strategic work planned to date can continue to be implemented. 

Whilst the new levy of 0.06% on bank liabilities was the major talking point, the Treasurer also introduced several measures to support older Australians. 

The big banks have met the new "tax" with predictable fury.  What is less clear is whether the cost will be passed onto consumers, we are guessing it will.  Analysts believe the levy would hit bank profits by between 3% and 6% in the short term. 

While this may seem like a slug on the banks, over the years, support by the Federal Government has enabled them to significantly lower the cost of their borrowings.  The Government has effectively underwritten the bank’s borrowings at no cost to them.  A levy or “insurance premium” for this protection is long overdue and will further strengthen our banking system.

There were a number of initiatives to tackle housing availability and affordability.  This included some tinkering with superannuation:

  • People over age 65 who are downsizing their homes can make non-concessional contributions to super of up to $300,000 per member.  These will be exempt from existing age and work tests. 
  • Individuals saving for their first home will be able to make before tax contributions of up to $15,000 per annum (and $30,000 in total over their lifetime) to super from 1 July 2017.  This may result in meaningful tax savings, boosting the size of the deposit.

These measures are not game-changers but do present an opportunity for those with the right circumstances.

Other relevant changes proposed include, the Medicare Levy is set to increase by 0.5% (from 2% to 2.5%) on 1 July 2019 and the temporary budget repair levy (2% on taxable incomes over $180,000) will be removed from 1 July 2017 as planned.

Each year following budget night, the Redwood team put aside two days to assess all our client strategies.  This ensures that proposed changes are considered and action required prior to financial year end is taken.  We will be doing this next week.

On the investment front, we will pay careful attention to the impact of the bank levy on share prices and dividend forecasts.  We will also work through the healthcare initiatives and the impact on our investments in this space.  Announcements like these serve to highlight the importance of our thorough investment review and portfolio management process.

If you have any concerns or questions regarding the impact of the budget changes on your portfolio or strategy, please contact us.

Share facebook twitter google plus linkedin