The Australian Government’s changes to the Stage 3 tax cuts have refocussed attention on the need for tax reform.
The Australian tax system has five key problems: it’s heavily reliant on income tax; it’s complicated by numerous tax concessions; it’s highly progressive; it has ongoing problems with “bracket creep”; and suffers from several anachronisms.
Failure to reform the tax system risks further damaging productivity growth and Australians’ living standards.
Rate hikes have worked in helping slow inflation and rate cuts are likely this year. Expect a bumpy ride though.
The risk of recession remains high at around 40% in the US and Australia.
Geopolitical risk including around the US election remains high but it’s often easy to get gloomy regarding geopolitics.
Share valuations are a bit stretched pointing to the risk of more volatile and constrained returns, but shares should ultimately be okay as interest rates come down.
Shares have made it to record highs this year but after strong gains are a bit vulnerable to a near term pull back.
However, we remain upbeat on a 12-month view as falling inflation allows rate cuts and hopefully recession is avoided.
Seven key charts worth keeping an eye on are: global business conditions PMIs; inflation; unemployment and underemployment; inflation expectations; earnings revisions; the gap between earnings yields and bond yields; and the US dollar. So far, most look ok.
We love to hear from you, so please feel free to contact us with any questions about our articles in this newsletter on 02 8067 8369 or email info@ldmwealth.com.au
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