The last few years have been a rollercoaster ride of instability. 2025 holds hope, but not a guarantee, of greater stability and certainty. We explore some of the key changes and challenges.
An election
Welcome to political advertising slipping into your social media, voicemail, and television viewing – most likely with messages from the opposition asking if you are better off and from the incumbents telling you all the reasons why you are.
The 2025-26 Federal Budget has been brought forward to 25 March 2025. This suggests an election will be held in either April or May 2025 but no later than 17 May 2025.
Legislation in limbo
The Senate pushed through 32 Bills on the final sitting day of parliament for 2024, including seven directly relevant to business and some Australians’ financial interests. However, two key announcements remain in limbo:
$3m tax on earnings in a superannuation fund
The proposed Division 296 tax, which imposes a 30% tax rate on future earnings for superannuation balances above $3 million, is proposed to commence on 1 July 2025. However, the Bill enabling the new tax is stalled in the Senate. It’s unlikely that this tax will pass parliament before the election, at which point the Bill will lapse. Then, it becomes a question of whether the elected Government chooses to rectify the concept or let it fade into oblivion as a bad idea.
$20,000 instant asset write-off for small business
In the 2024-25 Federal Budget (May 2024), the Government announced the extension of the $20,000 instant asset write-off threshold for small businesses for a further year to 2024-25. The concession enables businesses with an aggregated turnover of less than $10 million to immediately deduct the full cost of eligible depreciating assets costing less than $20,000. Without this measure, the threshold returns to $1,000. This concession was never legislated and was removed by amendment from the enabling legislation at the last minute in the final sitting of Parliament of 2024. The removal of this measure is unfortunate, as, once again, SMEs now have no confidence about the tax treatment of investments in assets that they might be looking to make or have made in the current financial year.
Interest rates
At the last Reserve Bank Board (RBA) meeting, RBA governor Michele Bullock recognised the stability of the monthly CPI indicator at 2.1% over the year to October 2024. However, she suggested that with underlying inflation of around 3½ per cent, the economy still has some way to go before inflation is sustainably within the 2% to 3% target range. The RBA appears wary of volatility and wants to see inflation trend down sustainably before making any move. Commbank predicts a February 2025 rate cut, ANZ and Westpac in May 2025, and NAB in June 2025.
Cost of living pressures
The National Accounts released in early December surprised economists: Living standards grew by a mere 0.2% in the September quarter—the expectation was much higher. Discretionary spending only increased by 0.1%.
The personal income tax cuts that went into effect on 1 July 2024 helped households, as did energy subsidies, but the impact is still being felt. At the same time, mortgage costs continue to rise as past increases continue to impact them.
Australia’s economy grew 0.8% during the year, the lowest rate since December quarter 2020, when COVID-19 affected the country. Current economic activity is heavily dependent on Government spending.
Slow and steady is the expectation for 2025.
The ‘Trump effect’
President-elect Trump will recite his oath of office on 20 January 2025. The Trump administration will hold the presidency, Senate and the House.
For Australia, the question is the likely impact of some of President-elect Trump’s stated policy objectives, including the imposition of tariffs. On social media, Trump has said:
- “…as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States and its ridiculous Open Borders.”
- “…we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America.” This is in response to claims that China is responsible for massive amounts of drugs, in particular, Fentanyl, being sent into the US.
The issue for Australia is the secondary impact of a trade war. China is Australia’s largest two-way trading partner, accounting for 26% of our goods and services trade with the world in 2023. A slowdown in the Chinese economy impacts Australia and the region generally.
The idea of a trade war immediately impacted a decline of the AUD/USD, currently at around 61c.
Fuel efficient cars
New standards for vehicle manufacturers went into effect on 1 January 2025. They now have a set average CO2 target for all new cars they produce, which they must meet or beat. The target will be reduced over time, and car companies must offer more choices of fuel-efficient, low- or zero-emission vehicles.
Suppliers can still sell any vehicle they choose but with more fuel-efficient models offsetting any less efficient models. If suppliers meet or beat their target, they’ll receive credits. If they don’t, they will have two years to either trade credits with a different supplier or generate credits themselves before a penalty becomes payable.
Wage theft criminalised
As of 1 January 2025, the intentional underpayment of workers is now criminalised.
Employers commit an offence if:
- They’re required to pay an amount to an employee (such as wages), or on behalf of or for the benefit of an employee (such as superannuation) under the Fair Work Act, or an industrial instrument; and
- They intentionally engage in conduct that results in their failure to pay those amounts to or for the employee on or before the day they’re due to be paid.
Employers convicted of wage theft face fines of up to 3 times the amount of the underpayment and $7.825 million.
