Hi Aussies,
Any thoughts on the Australian budget from last night? A couple of ways that its shaping my thinking:
1. Medicare levy increasing to 2.5%. This means that once earning over $37k, marginal tax rates are 35%. The small company tax bill that has been passed cuts company tax to 27.5%, and its been legislated to taper to 25% by the mid 2020's. That means that for compounding investing earnings, the difference between a low earner and a company is 35% vs 25%. So, in a company, you are retaining 15.3% more earnings. This reinforces my desire to invest non-super stashes in a trust with a company beneficiary. It also increases the incentive to use a DRP in a trust, rather than a BSP in an individual name.
2. Both sides of politics have it in for large cap Australian companies at the moment. Bringing in additional taxes on your largest tax paying businesses only encourages shifting earnings out of those companies. See the example from media - large tax costs for traditional media, almost zero on new media. Good reasons to have some international diversification as a hedge.
3. The screws are tightening on residential real estate investing. Will be interesting to see how that plays out. I see few drivers to drive further capital gains, which has been the main driver of Australian resi real estate for some time now. I'm not unhappy having limited exposure to this sector.
My main action out of this has been to re-run the payback time for selling old stocks in my own name, paying the CGT, and reinvesting in the trust. Stocks with even 50-100% unrealized capital gains are sitting on a 3-5 year payback - hence I'm going to do a bit of this in the new financial year, and unwind the stocks where I have been using BSPs.
Any other observations from the MMM community? Any other actionable insights?