Quick Bite –Financial Implications of Labor’s Big Win
Most people were surprised at the extent of Labor’s emphatic win in the Federal election over the weekend, and that included share market pundits. In this QB, we cast an eye over some of the proposed policies of the second Albanese government and the implications for various sectors of the economy.
Source: AFR
Interest rates
Economists expect a cut in interest rates at the Reserve Bank’s next board meeting on 20 May, from 4.1% to 3.85%. This will likely occur, and the election result has not changed the outlook. Both major parties made some expensive promises, which means that money market futures did not react dramatically to the election result. In all likelihood, we will see further cuts follow in August and November, depending on data relating to inflationary pressures post tariffs, and the slowing of the economy especially in the labour market.
Source: Trading Economics
The AUD
The election had a slight strengthening effect on the currency as markets prefer stability in the political and economic environment. Hung Parliaments are a recipe for uncertainty, and that risk was avoided. The AUD remains undervalued on fundamental factors, and may be a casualty of the slowing economy in China as it absorbs the tariff pressures. But other factors influencing the currency include relative interest rates, and the prices of our commodity exports.
Housing
Both parties have committed to bringing down house prices, but neither major party came up with a workable solution. Housing affordability rightfully dominates young voters’ concerns, and the best way to deal with that would be to ease rules and restrictions on the supply side of the equation.
But, according to the AFR, “both policies are likely to increase prices by up to 15%”. Labor has promised $10 billion to build 100,000 homes specifically for first home buyers over the next 8 years. But delays and shortages make this promise unlikely to be achieved.
Secondly, under Labor’s expanded first home buyer guarantee scheme, all buyers will be able to enter the property market with just a 5% deposit from next year. Most lenders require borrowers to have a 20%, and if they don’t, they need to take out lenders mortgage insurance, which costs the average first home buyer $23,000. Under the scheme, the government allows borrowers to buy homes with 5% deposits, with it acting as guarantor on the remaining 15% needed to avoid lenders’ mortgage insurance.
This scheme was limited to 35,000 borrowers earning $125,000 or less as a single or $200,000 as a couple. It also had price limits. The new expanded scheme removes the income caps, increases the property price limits and removes the limit on the number of borrowers.
The new scheme will be open for applications later this year, and is likely to push up prices.
Source: CoreLogic
Your Super
Labor’s big policy proposal is the plan to double the tax rate on superannuation balances greater than $3 million from 15 to 30%. The proposal will initially affect only 0.5% of people with super accounts and raise $900 million in its first year, rising to $2.3 billion in 2027-28, according to the government.
BUT … the higher rate will apply to unrealised gains, meaning paper profits on property or shares held in super will be subject to the higher tax.
Labor is committed to getting the measure through parliament, and will probably seek the support of the Greens in the Senate to do so. The Greens are requesting that the threshold at which the new tax rate will apply should be at $2 million, plus they want to limit the ability of self-managed super funds to borrow to invest in property.
Tax cuts
From July 1, 2026, the tax rate for the lowest tax bracket will be cut from 16% to 15%. From 1 July 2027, that falls to 14%. Every taxpayer receives this tax cut.
Student debt
Students with outstanding debt get a 20% cut to the debt level, and also an increase to the income threshold at which they are required to begin paying it off. This is expected to reduce $16 billion of debt for 3 million Australians. For a graduate with an average HECs debt of $27,600, that is a reduction of $5,520.
The government will also increase the income threshold at which borrowers need to begin repaying their HECs debts. Currently, once borrowers begin earning $54,435, 1% of their income is automatically directed to paying down their debts.
This proportion of income directed to debt increases gradually, until the borrower earns $159,664 and above, at which income they need to direct 10% of their income to paying off the debt. But as of July this year, the minimum threshold at which borrowers begin paying back the debt will increase to $67,000.
Home batteries
Beyond the already announced energy bill rebate of up to $150 for households in the 6 months to December 31 that rolls over from last year, Labor pledged to offer a 30% discount on the cost of installing a battery with a home solar system.
That will mean a saving of $4,000 on the cost of a typical solar-charged home battery for households. The saving will add to existing state-based incentives of up to $2,400 in NSW and interest-free loans in Victoria.
The government estimated 1 million households will take up the scheme.
Health
A main plank of Labor’s cost-of-living pitch was to spend $8.5 billion to increase its payments to doctors to make 90% of doctor visits free of charge. The bulk-billing change is scheduled to begin in November. It will also cut the costs of medicines listed on the Pharmaceutical Benefits Scheme to $25 from $31.60.
