March 2023 Update
Every time I put out a market update, the introduction tends to read along the line of ‘there is a lot of volatility in markets’. This update is no different.
A graph of the ASX for the last 12 months shows a lot of ups and downs and a small gain over the period. This is not to be unexpected in an environment of high inflation, rising interest rates and fears of worldwide recession. The ASX All Ordinaries index is up 2.3% over the last 12 months. The previous twelve months was down 3.6%.
In comparison to US markets, the ASX has performed well. The Dow Jones has just gone into the black for the last 12 months, up 1.8% and the Nasdaq remains 9% down. The Nasdaq was down some 25% so has at least made something of a comeback.
The December quarter saw inflation up to 7.8%. The RBA really only has one measure to fight inflation and that is to increase interest rates. They did just that at the March 2023 meeting and the official cash rate now sits at 3.6%.
Those with experience know this is not high by comparison to the rates over the last 30 years, aside from the last 10 years. But those who took out a mortgage in the last 10 years are feeling the pinch, or they are about to as fixed rates mature. A 3.6% increase on a $500,0000 mortgage is an additional $18,000 in interest repayments, which of course is payable after tax.
The Australian economy remains in a sound position despite rising rates and high inflation. Unemployment remains low and many employers would love some additional workforce. Australia looks well positioned and may well avoid a recession or at least have a soft landing. Let’s hope people keep their jobs and homes.
The doomsayers and naysayers are as loud as ever with many once again predicting the end of the world as we know it. It won’t, but many are certainly doing it tough.
What’s happening to Super and tax?
I’ve lost count of how many legislative changes to super have happened over the last 15 years but it’s definitely well over 50.
Whilst governments via legislation make the rules, there will always be changes. Some are reasonable, some are not.
Labor will always go after the so called ‘haves’ because it is any easy win and the majority of the population will agree. But Liberal have also made changes that affect the so called ‘wealthy’ after they raised contributions tax to 30% for anyone earning over $250,000 a year.
Treasurer Chalmers believes the 15% tax rate for those with high super balances is too low and he calculates it could save the budget billions by increasing it to 30%. I’m not so sure about that because this assumes people keep their money in super and not look elsewhere for tax concessions.
An investor with $4m in super could quite easily withdraw $1m and invest in term deposits. The tax rate would be 11%. Twiggy Forrest will pay 17.5% on his $750m Fortescue dividends thanks to franking credits. It doesn’t take long to come up with strategies that don’t involve super and a 30% tax rate. A lot of water to go under the bridge here but expect to see some large withdrawals from super and not a lot to be raised in additional taxes.
I must say I am surprised but franking credits have been raised again. But fear not as the government wants to remove franking credits from capital raisings and share buy backs. There has been no mention of taking franking credit refunds from those not paying tax. It would be political suicide after the failures from 2018. But, never say never!
It’s OK for some!
Bernard Arnault is officially the richest person in the world. He is the CEO and Chair of LVMH (Moet Hennessy Louis Vuitton).
I might have sipped some Moet and Hennessy but I’ve never purchased Louis Vuitton, not even the SE Asian knock off variety!
But many people obviously are as the gap between the haves and the have nots would appear to be widening.
