Hello, and welcome to The Australian's Money Puzzle podcast. I'm James Kirkby. Welcome aboard everybody. I notice we haven't had many questions about this week's federal budget. That's probably because there wasn't an awful lot in it that is compared to a conventional budget. Don't be mistaken, though, because there was issues in it, right, I mean, keep an eye on that. There was a tax cut, Yes it was tiny, Yes it was at the lower band, but it was
a tax cut. Nonetheless, there's a very interesting expansion of the plan to have shared home ownership that could be really interesting. That's the biggest sort of thing in the first home buyers market we've seen for a long time, and with anyone can up to one hundred thousand a year you can apply for that. So I think that's going to be a major feature of the residential property
market going forward. There was also some very interesting sort of side steps inside the budget, in other words, things that were not mentioned but were important because they weren't. Give you an example, the deming rate. The deming rates unchanged. The deming rates is unchanged since twenty twenty. This is remarkable. Basically the rate that controls pension access is unchanged since twenty twenty. That's a giveaway, folks, it's a giveaway to
older Australians. On the other hand, the coup, we call it notorious. Notorious plan to introduce a new super tax of fifteen percent on earnings above three million was nowhere mentioned in the budget papers. And I mean anywhere, because we were really digging and looking for it, myself and my colleagues inside the lock up, and we didn't see any mentioned at all. That well, I'm going to infer that it means that plan as we know, is never
going to see the light of day. That doesn't mean they won't try something, but I'd like to think they're never going to try that. We talk about that in a moment with my guest today. One thing just before we start. As we speak, news has just come out that Trump has introduced a twenty five let me read this again. I got to be sure about this. A twenty five percent tariff on foreign made automobiles in the US. Can you believe this? This is how believable. Imagine if
it was in Australia. It would be like bring us back to a hold and everybody driving a hold in or a Ford as we were back in the nineteen eighties. This is huge. This Trump tariff play. The big day supposedly, if he can stop leaking it before the big day is supposed to be Tuesday, April second. That's like the tariff day that he's supposed to deliver all the entire package. And that is just for our next show, which would
be ideally timed. My guest will be Cameron Stuart. He's the chief international correspondent at the Australia and he's a Trump expert. He's covered the Trump elections, He's been at those Trump rallies. He really understands this controversial figure who's dictating the tempo of world investment markets. So look out for that one in a few days time. Now there is only one person I talked to about the budget each year, and we're going to talk about the budget.
We're also going to talk about where we are this time of the year now that we know what was in the budget. It is of course Will Hamilton of Hamilton Investment Partners.
How are you will very well, James, thank you for having me.
You're very welcome. Great to have you. I mentioned the issues there on the budget, there was another tax cut. We've had a batch of tax cuts from the ALP. Now does that to some extent undermine the original ambitious multi year tax cut program that Josh Rodenberg and Morrison had.
No, I don't think it does, because I think what you're saying is it's they're calling it the cup of coffee tax cut. It doesn't start for sixteen months, and then it does come in at five dollars a week, and then it goes to ten dollars twelve months after that. It's at the lower tax band, and I think this goes from sixteen to fifteen and then to fourteen percent. So the thing is it doesn't erode bracket creep. That
the brecker creep at the top end. There's no erosion. Yeah, so it we've still got very substantial bracket creep and it's a big issue.
Bracket creep, folks. I hope everyone is across a before we go any further. Bracker creep is that if the tax rates remain fixed at percentages, then what happens is, as you get a pay rise, you graduate into those tax bands and that means that you continually pay more tax.
And actually if you look marvelous couple of slides from saul eslike the Independent Economist I saw this morning where he showed how the tax revenue year upon year upon year and into the future increasingly depends on income tax. So bracket creep is this controversy and the only way to plug it would be if they indexed the bands. Do you think either party whatever index to bands because it means either party could never announce the tax cut again.
Really, I see there's an article in The Australian today that Dunton's being urged to do this. I think that I know he's been everyone's everyone, everyone's urging him to do and I think tax personal taxpayer contribution. When Morrison went out of power, I think it was about forty eight point three percent. In this budget, it's forecast now for twenty eight twenty nine to peak at fifty four percent.
So that's the effect of bracket crep. Now we need major we need tax reform and I think one of the things that the Tier member and Wentworth elector Spend has been really calling for.
Is indexation of the bands.
Eah correct is that? But bigger tax reform and the thing is the people listening to this as individuals are being urged to contribute more and more to the total tax take, and that's wrong. It really is wrong. And I think that one of the biggest reasons is because there's two sides naturally to a budget. There's the revenue side and there's expenditure side, and both sides aren't tackling the spending side, and they're spending like drunken sailors.
They're spending like drunken sailors. Okay, folks, you heard it here first from Will Hamilton, and actually I don't disagree with that. And the coalition's tactical electoral election policy of matching LP giveaways, particularly on the medical side, is well, basically it rulls into every time you spend, we spend too. So on that three million tax I think we have a question later on that, but it was nowhere to be seen. Do you think it's dead?
It's surprising, was probably the number one question we got yesterday from people, because you know, look, our client base, this is a very relevant proposal that was put forward and there was no mention of it, and as we all know, it's sort of stuck in the center, killed by the Senate at the moment, everyone's expecting they'll have a go at it or but there's just no mention whatsoever about resurrecting that legislation in the Upper House or trying to alter it amend it. So where does it stand?
And I think that's the big thing as far as our clients are concerned. So unless they can change the minds of Jackie Lambia at all, this thing's dead.
Okay, I have to say, will I don't think it's dead. And I think they can change the minds of those people simply by offering them something that I didn't offer before. So for instance, you could package it. This is how they do these deals in Senate. You say, Okay, you might be crazy about this tax, but we want it through. And what we'll do is we'll do a double bill, you know. And they took in other goodies with it,
which the others will find it resistible. That's political. More to the point that three m tax three million tax aren't super That is still on the agenda, and Jim Chalmers has reiterated that he wants to push it through put that on the agenda. It's not indexed either, right, so bracket creep would kick in there big time, wouldn't it.
And the transfer balance cap is indexed and like it was interesting. Okay, So the transfer balance cap which you have will Flagg James is going from one point nine to two million a concessional and non concessional contribution, So the way to get money into Super has not been altered.
Yeah, and I think that's really unfair. That was the point I'd brought up on budget coverage, even though it wasn't in the budget papers, but I wasn't going to ignore it, which is folks, I think this is really relevant. If you are older and if you have one point nine million this is individually per head in Super, and you've taxed free earnings on that, that cap is going to rise to two million on July one two million, okay. Now,
but if you are in accumulation stage. Any of our listeners who aren't retired, which is a vast majority, let me tell you the most they can put into Super pre tax each year is thirty thousand dollars. Now, a couple of things you could put in thirty thousand dollars ten years ago, twenty years ago, and how many years would it take to get two million? How many years must do the calculation of that. But basically it's loaded towards older people, isn't it. Really?
It isn't the thing that we've argued since from the point that Kelly I do ar Alter, this was the issue actually is getting money into super and that still and what they're doing and not altering these levels is making it even harder.
Yes, that's right. It's really contradictory that you're letting the amount you can have tax free swell and you're not changing year after year the amount you can put in. But we'll put that to one side. But I want people to be aware of it. I'm sure listeners are aware of it, and it's I think it's crucial in terms of again one of these things that the budget
did not cover. Okay, let's take a short break and we want to come back and just pick up one or two I think very important pre election issues for investors, because we have an election coming up in May, and we don't normally have a budget during an election campaign, and there is an election campaign on for all intents and purposes. I know it hasn't been called yet, but it will be called in a matter of days. Okay. Back in the moment. Hello, Welcome back to the Australians
Money Puzzle podcast. James Kirby here talking to Will Hamilton of Hamilton Wealth Partners. We cover the budget every year together. Often we've so much in the budget we could talk for an hour. We're not going to talk for an hour on the budget this year we will because really there isn't an hour's worth in it. There is barely ten minutes worth. I think we've touched off the big issues. I just want to zone in one one issue that I think our listeners will find very interesting. For first
home buyers. If you are one, if you want to be one, or if anyone related to you wants to be one, or a friend of yours wants to one. There's a couple of grants you can choose from. The most popular is the Home Loan Guarantee Grant Federal. These are federal grants where the government will cover will guarantee the deposit you don't have, basically so you can have a small deposit. This is the most popular off the schemes. Roughly fifty thousand people have used it, maybe more. This
is the last time I saw the figures. The other one is the first Home super Saber scheme. Some of our listeners have used that. They are heroes to use that because it is the most ghastly complicated scheme I've ever come across. However, thirty five thousand people or more have used it. They've used it because people will jump on anything that gets them into the market. The majority of people who don't have rich mom and dads who will give them quietly one hundred grand or two hundred
grand to get them going. Most people don't have that. They depend on these grants, or they depend on whatever initiatives they can have. So will The point I'm making is the government's expanded shared home ownership scheme I think will go like hotcakes. I think it will be instantly popular. The deal is you can earn up to ninety thousand, up to one hundred thousand, and you can buy a house up to one point three million, which is quite something.
That's it's regionally sectoralized. Basically Sydney's the highest makes sense, and it drops from there. The government will pay will put in thirty percent of an existing house and forty percent of a new house, right so you don't have to you share ownership. What do you think of the idea.
Well, look, it's going to get people in. And the fact that they've also lifted the single salary cap from ninety two hundred thousand, you going to see this allow a lot more people in as well. So you're right, it's going to assist this market, and it's going to assist that you're up to that one point three million, it's going to assist it substantially.
The only forty thousand spots will and that's over the budget papers.
Twenty thousand places initially. Yeah, that's right.
Yeah, th I notice demand will be strong. The demand will be strong, and I noticed real estates a councilors, et cetera yesterday asking from more spots already. So I think it will be. But let's just look at it for a moment. If you did this, so the upside would be that you could buy a house that you could not have bought previously, and that's substantial. The downside is you share, you're in a joint venture, and you're a joint venture with a government agency. What could go wrong?
What could go wrong? A lot of things. What could go wrong?
First one is if if it's reversed, but I don't see that happening. They may see if they stop, they may stop it. The other thing is is they're going to put some effectively interest rate or carry on it. I doubt that as well. So I think, what if you've got to change your government and they didn't like the scheme. I think it would just be worth ceasing it.
Yeah, it would wither on the vine. But you wouldn't care about that if you were in and I noticed that. I don't want to preach George, but governments don't necessarily do that. Like the ALP got in. They are absolutely against using your super for buying a home. The Coalition is totally for it. But the first Home super Saver scheme which was introduced by the Morrison government was not unwound. It wasn't advertised, but it certainly wasn't unwound and continues
under the EARP. So that's a precedent. I think. One of the things that perhaps is an issue with the shared ownership scheme, like any joint venture, is how does the partnership end. Would you ever actually get to completely own the house to be able to buy out that part that you that the government owns, and if the price went down, you'd be in a terrible pickle, wouldn't you. You'd be stuck in a half government own't house for who knows how long. How would you say that?
So is there effectively imagine call we don't know that. Yeah, I look, I need to see the fine print.
Yes, we don't know the details. One other thing, folks, by the way, is in the nature of these things, which are so times sort of perverse incentives, or you might say disincentives. Sometimes if you earn, if you go in let's say you're around ninety eight thousand, and you qualify for the scheme, and in the natural course of event you are promoted or you make more money as the years go buy then there is a close already in the proposal that the government will want you to
buy them out faster than this planned. Under the conventional plan, you only have to buy out the government, or at least they have to get the money back for their stake is when you sell the house. But if you get promoted, you have to give them back some of their steak faster. That's one of those classic sort of disincentive things that you've got to watch that often get built into these things by accident.
And you would expect that the people that weare the demand is for this game, they're the ones that will get Probably the cealariisers are going to be more rapid as well, so.
They're the very ones, aren't they. Yeah, because they're first home buyers, so by definition they are going to ascew younger. Okay, very good. We don't know just yet. I don't want to talk about the election just yet in terms of the choices investors have, because we don't have all the details just yet. I noticed a couple of things we're coming to you before Dutton gives the budget reply. Budget replies are normally completely boring and no one pays attention
to them. This time, people will pay attention because we aren't the middle love it, as I say, a de facto election campaign. Also, I notice that there is that what's that famous little item in the budget which is expenses on There's a phrase for it, but basically it's money they've put aside, which they have in details what they're going to do with. And there's two billion in there still unused, which may well be used yet by the government for some last minute election enticements in the
next month or so. But we'll see where we go on that. I've got some terribly good questions I really want to get to with Will. In fact, as often the case, I've been saving these for a wik because they're particularly difficult. Thank you, You're welcome. And also there's a question that's about another guest. But that's the nature of it. There'll be questions about you Will that another guest will have to answer. That's just the nature of a rolling show. All right, we'll be back in a
moment with some questions. Hello, welcome back to the Australians Money Puzzle. James Kirby and Will Hamilton here with you. Okay, folks. Now the first question is from declan I'm baffled by Roger Montgomery suggestion. Now Roger Montgomery was on the show two bad if you want to listen to it, very good as always. Roger Montgomery suggestion that people should calculate dividend heal based on the price they paid to acquire their shares, and he used Comewell Bank as an exam
rather than based on the current value. The question and the investors should be asking themselves is would it be better off continuing to hold the shares I have or should I sell them and invest elsewhere. Okay, I don't really argue with that theoretical point brought up by Detton,
but I don't have a problem either with Rogers. I mean, if I buy come Bank shares for thirty dollars, which is I think what I paid for them thirty six, and they're now nearly one hundred, and the dividend yield on paper, when I look at the tables, tellt me it's three and a half percent. But my dividend yield
on those shares is much much higher than that. If I bought a property and you said to me, you know, the rental yield is only three percent, but I know that I bought that property, you know, for half half the cost it is today, so the rent is terrific on it, It seems to me. I think both points are pretty relevant.
What do you think, will, I think you've got to look look what Roger's saying in some respects is right. I think that and CBA, the dividend you're late late last year went down and then it's gone up because the share price is adjusted, I mean, and the share prices recently it's recently fallen twenty percent. So yeah, it's by that nature gone up. But I think you've got to look at I have an issue with people just purely looking at dividend yield when they look at a stock.
At equities, you invest in equities for growth, so one component of the return is income, the other is growth. Now people were scratching their heads when CBA was going up, and why is it going up? It's ten year EPs growth average has been half a percent. So you look at se earnings per share and you look at the yield, and I think that's what You've got to look at the total return that you're expecting from that and make
a judgment from it. Right, if you paid thirty six dollars for the stock, the dividend you're getting is based off that thirty six dollars, So it's relevant.
I know whatvant of course that there are. People will always say that, look at your share portfolio, would you buy that stock today? Very powerfuct point, of course, it is. I think with dividend machine stock which come bank is and all the banks are, that particular point is diluted to some extent. That's where I would come from at least. But it's a very good question. Thank you. Debt all right, James.
James asks about six months ago you had an accountant on the show, Duncan Perkins tax Time Accountants. I believe I found it very informative and with one eye on the end of the financial year, I'd love to hear more about putting the appropriate structures in place now to minimize your tax liabilities down the line. In addition, I'd love to hear more about debt recycling and the associated tax benefits in additions to the risks involved. I think
appropriate structures aren't just for one James. You should be looking if you're going to put a tax structure in place, it's for a long term, not just for one year. Yeah. So if you're presently investing in your own name and you going forward and looking at a family trust, that's you're with that trust for a number of years and likewise transferring assets from your name into a trust realizes capital gains.
Yeah, okay, but maybe perhaps you might explain to the general listener of what debt recycling is.
So on debt recycling, it's are you moving debt for also from one entity to another?
Why would you do that.
Due to tax? So, for instance, your mortgage that you have in your own name is being paid in after tax dollars. And whereas if you've got debts, this is in you know that you put that in a family trust, or it's on against an investment portfolio or property in your own name that is being paid in pre tax dollars. Debt.
Yeah, correct, okay, yeah.
And that's the big thing to ensure that you efficiently run. You have your debt structured in an efficient way. We have a number we have a number of people, so we have a number of people coming in and you know that they've got that ability to pay off their home loan and look at debt in other vehicles and they never thought of it, that hold on that debt of my home loan is in after tax dollars and therefore there's no efficiency in it.
So what's the worst sort of debt?
It is the worst sort of debt if you can afford it.
So is it by definition the first sort of debt you should get rid of?
Correct?
Yes, So that's absolutely.
You get rid of that after the debt that's been paid off in after tax dollars. And if you wanted to take on debt, make sure and you've got the ability to make sure that it is therefore in tax deductible or pre tax on the repayments.
What about the reciting part. Is there something more that he's alluding to there? Maybe when rates change or whatever.
That's another thing. Yeah, as well, when you're looking at your locking when rates change, and we are going through a rate changing at the moment, so you're not wanting to know you've had fixed rate loans as interest rates go up, as rates go down. You want it to have variable but our rates. But the gamble there is how farabile rates go.
You're skeptical about them dropping.
I think there'll be one more, but I don't one.
More zero point two five percent cut? That means the entire site think cutting is a half a percent.
Yeah, we didn't go We didn't go up as far as others did. James. Yeah, we were one hundred basis points less on our aid increases. Yeah.
Yeah, very interesting. But the economists are still hanging on to two or three more cuts. You skeptical about that?
I am skeptical where if we're going to get more cats, it means that the economy is struggling.
To say, Yeah, I was going to say, why are you skeptical because the economy.
I think it's it's effectively going sideways. I'm just not saying that. Yeah, that extreme weakness was I'm not, don't get me wrong. I actually think on a relative basis, Australia is a under performing the rest of the world, and that's a that's for a different podcast. But I think that it's effectively flat lining.
And it's tipping along. And I suppose on the upside, unemployment or employment, whichever way you look at it is also flat lining in and around four percent, and the forecast and the budget leave it there. Okay. I hope that's useful to you, James. Now Sam says, I am struggling to find had to then there's an answer to the following question, Sam and all the Sam's out there. We never give advice on the show. This is information only. Is interest on a loan taken out to pay a
sole trader's tax debts tax deductible? Is interested on a loan taken out to pay a soul traders tax debts, including quarterly payments with bas tax deductible.
You need to get accountants advice on this one. We can't. We're not let your text advice James. Sorry, Sam, that's really it's legally we're going down a dangerous pass.
I made the assumption i'd get an answer there. That's all right. Put that on the put that to one side. I will come back to you, Sam, don't worry. I will be so organized that I will put this back into the questions folder that we get all the time. Every day we get questions, and I'm delighted to see
them all right now. Bouncing along to Andrew. If you have a loan or loans from a bank, fully offset with deposits at the same bank and not paying any interest, and the bank goes busted, are you still liable for the loan? Oh my, Look two parts to that. Let's just answer it straight first of all, and then we'll answer it in a more realistic way.
For the net ad standing balance. You're liable.
You're liable, yeah, correct. But if the bank went under, it would have included your loan, wouldn't it. And it still would have gone under.
And there's a thing that code a receiver or liquid ida that will be appointed, and the first thing they'll be doing is chasing your date.
The first thing they do is is chase your date if the bank was in receivership. However, in the real world, Andrew, and we don't mean to be complacent. Don't be complacent at all. However, Number one, there's a bank guarantee, which I'm sure you know about, and that's on the positive course, two hundred and fifty thousand per person per bank. But also there isn't an explicit guarantee about loans, et cetera.
But there is a de facto, extremely strong historical priests in this country that banks are not allowed to go under. And anytime banks have been in trouble right back, you can go as far back as you like. Stay in Bank of Victoria I think late nineteen eighties. Was it Bank West in the GFC that comeback basically had to takeover I think bank I say, sure, all the state banks really, once upon a time, bank I say, spectacular one, once upon a time. But the point I'm making is
that it doesn't happen. The government ensures that the big four banks will take over a bank that's in trouble. If one of the big four banks is in trouble, another bank will take it over. If they don't, the government will step in. If the banking system collapses, the economy collapses. They don't let it happen. In the historical
precedent is that separately, there's a government guarantee on deposits. However, strictly to answer your question, Andrew, you bet they will be chasing you further loan if there was a receiver appointed to the biggest receivership imaginable, which would be Big four bank. But there have been times, haven't there will? I mean Westpacland very close to the line, very close? When was that ninety one two?
Yeah, Peka came in and bailed them out.
There you go, you see, But somebody will invariably come in. Because the other thing is, of course, that there is an oligopoly in the Australian banking system. There's four banks. They don't even try to expand outside Australia. They're completely domestically focused. It's a mortgage machine, it's government guaranteed. Really, it's a pretty good.
Business on the dead side. Now they're a lot more conservative than there were, especially even compared to the GFS.
Yes, because the capital adequacy rules have continually been ramped up by APPRA, the regulator, the Australian prudential with Australian Prudential Regulation Authority. Worth knowing all that, Andrew, what a good question, which is in a way a theoretical question. All right, terrific. Hey, thank you, Will.
You're welcome, James. You started the podcast in talking on terror. Yes, And I found a great quote by Ivan Calhoun. Well, Ivan Cahoune.
Posted remind our listens who he is.
He was a NAB but before that he was the chief economist at Deutsche Bank, and he posted a quote from David Kelly, the JP Morgan Asset Management Global Chief strategist, and he said, the trouble with tariffs, to be descind is that they raise prices, slow economic growth, cut profits, increase unemployment, worseen inequality, diminished productivity, and increase global tensions. Other than that, they're fine.
That's right. I used that quote about three weeks ago on the weekend. I saw it somewhere and I said, oh boy, that's a corker. But more than that, it's not just that it's a corker, it's who it's from, the heart of Wall Street, the heart of Wall Street JP Morgan, and one of the biggest jobs in that investment bank take it on board folks. A lot more more coming on that one, and we will be talking about that with Cameron Stewart in a few days. Okay,
thank you. Keep the emails rolling. You're very shy on the voice memos. It's very easy, you know, it's very easy, and we'd love to hear you. But we're always happy to read you out of course, what we'd love to hear you too, So think about that. Here's the email the money puzzle at the Australian dot com dot Au. Today's show was produced by Leah Samuel Gluuke. Talk to you soon,