Newsletter - March 2025
- Certus Financial
- Mar 26
- 7 min read
From Hock & Susan:
The recent Australian Budget reflects an election-driven focus, blending modest new measures with existing commitments. A standout is the tax cut reducing the bottom bracket from 16% to 14% by July 2027, aimed at easing cost-of-living pressures. Key spending includes $7.9 billion to enhance bulk billing (largely in later years), a $1.8 billion extension of electricity subsidies through 2025, and moderate, back-ended infrastructure investments.
There were no new announcements or changes in relation to superannuation or social security in this budget.
The Budget’s economic impact shifts from a supportive impulse in 2024-25 to a neutral stance in 2025-26, potentially becoming a drag thereafter. The RBA will likely focus on private sector recovery and labour market strength, with a general consensus pointing to a potential 25-basis-point rate cut in May, guiding the cash rate to 3.1% by 2026 if inflation trends as expected.
The minimal gap between the Coalition and Labor’s economic policies suggests limited market impact from a change in government. Market movements will likely continue to be driven by U.S. developments under Trump. The key risk lies in a hung parliament, where reliance on minor parties or independents could delay productivity reforms or, in the case of a minority Labor government, lead to less business-friendly policies.
Regards
Hock & Susan
Australian Federal Budget 2025
It is important to note that at this time, any proposed measures are not yet law and could change.
Tax Cuts
The lowest individual marginal tax rate will reduce over two financial years from the current 16% to 14%. From 1 July 2026, the 16% tax rate, which applies to taxable income between $18,201 and $45,000, will reduce to 15% and from 1 July 2027, this tax rate will reduce further to 14%.
If legislated the reduction in the lowest marginal tax rate means that in 2026-27, individuals will see a tax reduction of $268 and in 2027-28 and future years, a reduction of $536 per year compared to the 2024-25 tax rates.
Thresholds | Rates in 2024/25 and 2025/26* | Rates in 2026/27* | Rates in 2027/28* |
$0 - $18,200 | 0% | 0% | 0% |
$18,201 - $45,000 | 16% | 15% | 14% |
$45,001 - $135,000 | 30% | 30% | 30% |
$135,001 - $190,000 | 37% | 37% | 37% |
>$190,000 | 45% | 45% | 45% |
*Individual resident taxpayer excluding 2% Medicare Levy
Energy Bill Relief
The Government will extend energy bill relief for eligible Australian households and small businesses until 31 December 2025. This support will total $150, distributed as $75 per quarter over the final two quarters. This measure builds on the energy relief initiatives introduced in the 2024–25 Budget.
Student Debt Reduction
The Government will reduce all outstanding Higher Education Loan Program (HELP) and other student debts by 20%, effective 1 June 2025. From 1 July 2025, the income threshold for loan repayments will rise from $54,435 to $67,000 in the 2025-26 financial year.
Medicare Levy Low-Income Thresholds
The Government will raise the Medicare levy low-income thresholds for singles, families, and seniors and pensioners, effective retrospectively from 1 July 2024. This standard adjustment ensures low-income individuals remain exempt from the Medicare levy or qualify for a reduced rate.
Pharmaceutical Benefits Scheme (PBS)
The Government will boost funding to reduce the PBS general patient co-payment from $31.60 to $25.00, effective 1 January 2026. Concession card holders will maintain their PBS medicine cost at $7.70.
Centrelink Deeming Rates
Social security deeming rates are currently frozen at 0.25% and 2.25%. The freeze on deeming rates is scheduled to end on 30 June 2025, whilst there was speculation that the Government would make an announcement regarding a possible extension, no announcement was included in the Federal Budget, although there has been media commentary that the current levels will be frozen for a further 12 months until 30 June 2026).
Non-Compete Clause
Starting from 2027, employers will be prohibited from imposing non-compete clauses on employees earning under $175,000, the current Fair Work Act high-income threshold, and from using loopholes to prevent staff from joining competitors. Announced in the Federal Budget, this ban targets clauses deemed unjustifiable and wage-suppressing, aiming to boost wages. It’s estimated to affect around three million workers across sectors like childcare and construction.
Investment Commentary
Following robust double-digit gains in 2023 and 2024, global and Australian shares face a more subdued 2025. Global share markets dropped sharply earlier this month, driven by uncertainty over U.S. President Trump’s policies and heightened recession fears, particularly as valuations were already elevated. Still, central bank rate cuts, including the RBA, stronger growth later in 2025 supporting profits, and Trump’s tax and deregulation policies could bolster U.S. and local equity returns.
Bonds are set to offer returns around or slightly above their running yield in 2025. With inflation cooling toward target levels and central banks easing rates, fixed-income assets should provide steady, if unspectacular, performance.
Unlisted commercial property returns are expected to improve in 2025. Office values, hit hard by high bond yields and the shift to remote work, have largely adjusted, setting the stage for a recovery in this asset class.
Australian home prices appear to have begun a modest upswing, supported by lower interest rates. However, poor affordability is likely to limit gains, with prices projected to rise by approximately 3% over the year.
Cash and bank deposits are forecast to yield around 4% in 2025, though returns will likely decline as the cash rate falls in response to monetary easing.
The Australian dollar will likely face volatility, torn between shifting Fed-RBA rate cut expectations, the drag of U.S. tariffs and a potential global trade war, and possible uplift from decisive Chinese stimulus. It may hover between $US0.60 and $US0.70, with downside risks intensifying if Trump ramps up tariffs.
Investors should keep in mind that:
market pullbacks are normal and beneficial;
without a recession, a prolonged bear market is unlikely;
selling after a decline locks in losses;
timing the market is challenging;
downturns offer chances to buy shares at lower prices; and
equities continue to provide appealing income.
Bank Hybrids
The Australian Prudential Regulation Authority (APRA) is phasing out $43 billion in bank-issued Additional Tier 1 (AT1) hybrids, with new issuance stopping by 1 January 2027 and a full exit by 2032.
This move was prompted by global lessons like the 2023 Credit Suisse wipeout and aims to simplify bank capital and enhance stability. For investors, it marks the end of a high-yield, franked-income staple long favoured by SMSFs and retirees.
Bank hybrids, frequently offering yields around 3% above the RBA cash rate, will be replaced by simpler instruments like Tier 2 subordinated debt and equity. The transition is gradual—50% of current holdings mature between 2029 and 2032, with $42 billion returning to investors as call dates kick off from June 2026.
Corporate hybrids, untouched by APRA’s ruling, are gaining ground, with issuers like Scentre Group tapping demand for funding projects like energy transition infrastructure.
Since APRA’s December 2024 announcement, Tier 1 hybrid spreads have tightened by ~16 basis points as investors lock in yields. Corporate hybrids could see a boom, offering attractive risk-adjusted returns.
Volatility may rise as the market adjusts, but opportunities are emerging. We will be monitoring Tier 2 debt (lower yield, safer), fixed-income ETFs and potentially non-bank hybrids to help clients maintain an income stream - though franking credits will be harder to replace.
Source: Macquarie Asset Management (2025)
Superannuation
Superannuation Guarantee
Superannuation Guarantee (SG) will increase to 12.00% from 1 July 2025. This will be the final increase to SG contribution as announced by the previous Gillard government in the May 2012 Federal Budget.
Superannuation Contribution Caps
Contribution caps remain the same and are as follow:
Concessional Contribution - $30,000 per financial year. This cap includes any employer contribution and salary sacrifice contributions made.
If you have unused concessional cap amounts from previous years, you may be able to carry them forward to increase your contribution caps in later years if your total superannuation balance is less than $500,000 as at 30 June the preceding financial year.
Non-Concessional Contribution - $120,000 per financial year or $360,000 over three financial years. Individuals need to have a total superannuation balance of less than $1.76m - $2.00 million (as at 30 June 2025) to be eligible.
Transfer Balance Cap / Total Super Balance Cap
The general Transfer Balance Cap (TBC) and Total Super Balance (TSB) Cap will increase from $1.9 million to $2.0 million from 1 July 2025.
Individuals with unused cap space may see an increase in their personal TBC based on a proportion of the $100,000 increase. From 1 July 2025, first-time pensioners will have a personal TBC of $2 million. Personal TBC details can be accessed via ATO online services through MyGov.
Division 296 - $3 Million Super Tax - Still Pending
The Division 296 tax bill, which applies to superannuation balances over $3 million, remains stalled in the Senate. The bill was originally set for debate in November but has faced delays, with the next possible discussions in late March or May—just before the federal election deadline on 17 May.
The bill's passage requires 39 votes, but the government and Greens together have only 36, needing support from three independent senators.
We continue to recommend clients refrain from any action until legislation is passed and are in a position to make an informed decision.
Any bill that has not been passed when an election is called will lapse and it is expected the Prime Minister will visit the Governor General this weekend.
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The information on this site is general in nature. It does not take into account your specific needs/circumstances into consideration. You should review your financial position, objectives and requirements and seek financial advice before making any financial decisions.