June Quarterly Market Report 2017

Jade Private Wealth, Quarterly Market Report June 2017

First off the Rank, May 2017 Federal Budget

Let’s start the quarterly update with the May 2017 Federal Budget. This was seen by a number of commentators as a “soft budget” or “Labor-lite budget”, particularly compared with former federal treasurer Joe Hockey’s severe 2014 offering. CEO’s of the five largest banks may disagree with this, as their sector will be hit by a rise in taxation, which requires them to potentially fork out $6.2 billion over four years…Like to be a fly on the wall in their boardroom to see their reaction to such a tax!

Bank taxes aside, the key measures of the Budget were as follows:

  • increased infrastructure spending
  • a housing affordability scheme
  • increases to personal income tax
  • extending the $20,000 small business asset write-off scheme
  • a commitment to fully fund the National Disability Insurance Scheme
  • a 0.5% rise in the Medicare levy from 2019 and bringing the national accounts back to surplus by 2020/21.

Although there were a number of announcements made on budget night, the following stood out in our view:

Number # 1: Accessing superannuation for home deposits: the First Home Super Saver Scheme

This is a big win for first home owners (..It’s about time)! The first measure to help first home owners afford a house is to allow them to use superannuation as a savings vehicle for a home deposit. However, the use is highly restricted and relates only to contributions made by the individual through voluntary contributions, not Superannuation Guarantee payments. From 1 July 2017, each individual can contribute up to $15,000 p.a. towards a deposit, but they are only allowed to contribute a total of $30,000, and not until 1 July 2018.

Number # 2: Increased Medicare levy to secure NDIS funding

From 1 July 2019, subject to legislation, the Medicare levy will increase from 2% to 2.5%, with the aim of raising $8.2 billion in the first two years. This is intended to fund the gap in the NDIS that, without intervention, would arise at that time. The Government is also establishing a Medicare Guarantee Fund that will be commenced with a quarantined portion of income tax revenue, and hold ongoing Medicare levy revenue.

Number #3: Pensioner Concession Card returns

Are you eligible or in receipt of an aged pension? As a result of the assets test change earlier this year, many older Australians lost access to the Pensioner Concession Card. In this Budget, the Government has announced that all of those affected will now have the benefit restored. It estimates that about 92,000 people will now have access to these concessions.

What’s Coming For Investors?

The elephant in the room perhaps, and despite strong market performance for the calendar quarter, there has, in recent times been heightened levels of share market volatility and investor cautiousness. US political uncertainty, North Korea missile tests and the Manchester Arena explosion and the London attacks are all contributing to this degree of cautiousness.  

We expect volatility to continue in 2017 as investors cope with President Donald Trump’s policy agenda, Fed rate hikes, European elections and the longer-term impact of Brexit.

The month of May began with strong US employment data, which supported the market’s expectation of a US Fed cash rate hike in June. However, the market’s optimism that Trump can enact his policy agenda faded as non-policy issues took centre stage. In Europe, Macron’s easy second-round win in the French Presidential election alleviated some concerns about Europe continuing the Anglo-American populist streak. Although, political risks remain elevated in Europe with elections approaching for UK, Italy, and Germany.  

Looking ahead, we are mindful of fragility in China and the knock-on effects for Australia. Over in Europe it will be interesting to see how Prime Minister May will form a coalition.  We remain fairly optimistic on both the EU and the US economies at present so hopefully this provides some reassurance on a global front. Stay tuned…

Final Thought…Thinking of downsizing?

In an attempt to encourage those aged 65 and over to leave their family home and move to something smaller, up to $300,000 per member of a couple from the proceeds of the sale of their home will be eligible for contribution to superannuation as a non-concessional contribution (NCC). A handy tip to keep in mind!

Further, there will be no obligation to meet a work test, and those aged over 75 will also be allowed to make this contribution.

This is a great initiative from the Turnbull government and one that we are in favour of. If you wish to consider this option further, please don’t hesitate to contact Christian or James for further advice! Until next time..

Team JPW

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