Rollin’ with the punches

Bruce Brammall, The West Australian, 12 February 2024

Sometimes, some people just want a break from change. I get it. Some clean air to be able to consolidate and chill, before rules start moving again.

Constant change can be tiring. Especially when it’s often the same obstacle that seem to get moved each year, almost for the sake of it. Um, like the shifting sands of superannuation.

And there are periods in life – particularly the middle bit with kids, mortgages and careers – where you’re fumbling in the dark for the pause button.

Tough love, sorry, but … get over yourself. Or go join a hippy commune. Or become Amish.

Change is only accelerating. Technology means its pathway is exponential. And when it comes to your finances, failing to accept and adjust to change is going to cost you.

Already spent it

The year has only just started and we’ve notched up two. They’re not all bad. But will bring adjustment.

Changes to the “stage 3” tax cuts and the outlook for interest rates will both have flow-on effects.

If you’re a high-income earner, you can get all cranky with Anthony Albanese about the reduced tax cut now coming in July. Or you can accept it was always likely to happen, and adjust.

An “expert” on radio the day it was announced said it was unfair for some of those on higher salaries who had “already spent” the tax cuts.

Tax cuts aimed at high-income earners? Under a Labor Government? Anyone who had spent that money, five months before receiving it, is a little naïve (no matter how many times Albo had committed to the cuts).

No-one is going to shed a tear for those top 3 per cent of income earners. They’re in the same boat as the top 2 per cent of superannuation fund members with more than $3 million in super, who got whacked last year.

Super impact

The flow on effects, including for super, will be interesting.

On lower incomes, the 19 per cent marginal tax rate is being cut to 16 per cent, applying to those who earn between 18,201 and $45,000. And the Medicare thresholds have also been lifted, so the Medicare Levy isn’t paid in full until you hit $32,500.

So, between $32,500 and $45,000, your marginal tax rate drops from 21 to 18 per cent, including Medicare.

While the tax benefit of making extra (including salary sacrifice) contributions in that range to super, which is taxed at 15 per cent, was minimal at 21 per cent, it becomes nearly meaningless at 18 per cent.

Workers in that bracket will need to consider whether they continue to make tax-deductible contributions to super, or whether they contribute as non-concessional contributions, where it doesn’t get taxed on the way in at 15 per cent, but you don’t get a tax deduction either (at 18 per cent).

In the next tax bracket, from $45,000 to $135,000, which effectively drops from 34.5 per cent to 32 per cent, people will still have a reasonable, though reduced, benefit in putting extra into super.

The tax cuts are more about handing back some relief for cost-of-living stresses. But they will come on top of pay rises for many, so the broadening of the base receiving the tax cuts will allow many to start planning for better incremental long-term finances, through either super or non-super investments.

Rate cut hype

While interest rates stayed on hold last week, and Reserve Bank governor Michele Bullock emphasised rate increases were still possible, money markets reckon the Reserve Bank is done.

Bond traders, who make their money trading interest rates, are pricing in cuts before Christmas.

One, maybe two.

But this is another case of “don’t spend it before you get it”. These same experts said, when interest rates started rising in May 2022, that the RBA would likely go too far with hikes and would be cutting by the end of 2023.

They might have only tipped the end of the rising cycle and been out on the cutting cycle by a year.

Crystal balls

It is only for a lucky few that constant change isn’t the norm in planning a household’s finances.

Don’t forget, change brings opportunity. But only for those who embrace it.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and mortgage broker. E: bruce@brucebrammallfinancial.com.au.