NEWS + VIEWS – 24/10/2025
MARKETS
Share markets have continued their grind up. The rises are being driven by momentum rather than increases in company earnings. History indicates that positive momentum can continue for some time in late-stage bull markets.
Quarterly US profit reporting kicked off in earnest this week with 15% of S&P 500 companies due to report their earnings. Apple reported strong profit on Monday and Tesla disclosed strong sales volumes although its profits were disappointing. Netflix had a day to forget with its share price falling -10% due to a tax dispute with Brazil. Given the share market heights, a solid earnings season is needed to maintain current prices.
Domestically, there is some suggestion that the Trump tariff uncertainties have positioned Australia as a relatively ‘safe haven’ (e.g. big rises in liquid bank shares) particularly for Asian exposure. Company earnings have not been the driver. Nevertheless, the share market tested its highs on Tuesday after an agreement with the US President around rare earths supply put a rocket under some miners.
Investors’ worries of choice are a private credit exodus and over-stretched AI prices that echo the 2000 technology bubble. Hopes are that inflation will remain benign and interest rates continue their downward trend.
The CBOE Volatility Index (VIX) illustrates expectations of volatility in share markets over the next three months (see chart below). While 17.87 is not a low, the chart is showing optimistic expectations over the short term. To put the reading into context, readings above the mid-20s indicate that investors are nervous.
DIVISION 296 UPDATE
The government announced some significant changes to the methodology and thresholds for the proposed Division 296 tax on superannuation balances above $3 million.
The original version of the proposal imposed an additional 15% tax on superannuation earnings on the portion of a person’s total superannuation balance (TSB) exceeding $3 million. The major controversies were around the taxation of unrealised gains (increases in the value of assets that have not yet been sold) and its lack of indexation of the $3 million threshold.
Even Labor heavyweights thought the tax on unrealised gains was a bad idea as it would discourage investment (particularly startups) and was very unfair to superannuants holding property (including farms) and businesses in their super funds.
The major changes to the proposed tax are:
a later start date of 1 July 2026
the tax would apply to realised investment earnings and not unrealised earnings
new thresholds for $3 - 10 million balances (tax of 15% on the earnings proportion of the member's TSB above $3 million) and over $10 million (tax of 25% on the earnings proportion of the member's TSB above $10 million)
both thresholds would be indexed to CPI
The change even in its amended form will require extensive redesign and assessment of impacts. For example, industry super fund systems will need considerable work, which could result in delays in releasing the final form of the legislation.
Also, the proposed legislation must be passed by the Senate. How the Greens will react is not certain.
Given the above, we recommend:
Not making any major structural changes until the legislation becomes clearer.
Where your TSB is close to or exceeds $3 million, especially those where changes cannot be made easily (e.g. property, businesses), assess what impact a change might have on your financial strategy. Depending on your circumstances outside super, it may still be preferable to continue to hold the asset inside super. Would the additional tax likely be material?
Continue to track the proposed tax as it develops.
The tax might seem a bit irrelevant to those who don’t expect to reach the $3 million cap. However, without indexing many more would have been subject to the tax over time. Additionally, taxing unrealised gains would have set a worrying precedent for other taxes. If we must have another tax (rather than cutting out-of-control spending), the changes are a big improvement on the previously poorly thought-out version.
Gerard O’Shaughnessy
P 0423 771 330
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