Navigating Economic Shifts and Opportunities

As we step into the final quarter of the financial year, global and domestic economic forces continue to shape Australia’s financial landscape. From the ripple effects of US tariffs and demographic challenges to the transformative potential of artificial intelligence, businesses and investors must remain agile. In this edition, we explore key economic trends, recent changes in banking policies, interest rate adjustments, and essential end-of-year tax planning strategies to help you stay ahead in an evolving market.

We also highlight an extraordinary resource that exists for anybody who has worked three years or more in the UK – the state pension. But you need to be quick! Applications need to be submitted by 5 April 2025.

Cross Currents on the Australian Economy: Tariffs, Demographics and Artificial Intelligence (AI)

President Trump’s tariffs are likely to have significant implications for the Australian economy and stock market, despite Australia not being directly targeted. The impact of these tariffs will primarily be felt through indirect effects and global economic shifts. We are also mindful of the longer-term trends of Artificial Intelligence (AI) and demographics (ageing populations, increased government healthcare spending, fiscal deficits, and debt), which will have implications for economic growth, inflation and interest rates. In this note we summarise both the challenges from tariffs and demographics, as well as the opportunities from Artificial Intelligence (AI).

Trade and Exports

Increased trade tariffs would slow global trade, negatively affecting Australia’s export-oriented economy. Australia’s largest trading partner, China, would likely experience reduced economic growth due to increased tariffs on their exports, potentially decreasing demand for Australian raw materials, particularly iron ore, coal, and natural gas.

Economic Growth

Weaker Australian economic growth is expected by 58% of surveyed economists over the next few years. The OECD estimates that a 10% reduction in global trade could lead to a 1.2% reduction in Australia’s GDP.

A longer-term positive tailwind for economic growth would be the mass adoption of AI, which will significantly boost productivity and economic growth, and counterbalance near term tariff headwinds. We are optimistic on this front and refer readers to a historical comparison with the “roaring 1920’s”, which saw some analogues to today’s environment – including reduced immigration rates and rising trade tariffs, which were more than offset by productivity gains from the adoption of electricity, the transformative technology of the time.

Inflation and Interest Rates

Higher US inflation and interest rates are expected because of higher trade tariffs. This could lead to imported inflation in Australia, as global prices for goods, especially those reliant on Chinese production, may increase. One offsetting factor is that discounted Chinese exports may find their way to other locations. Higher rates of inflation could lead to higher cash rates here in Australia, which would slow consumption and economic growth. In addition, demographics pose upside risks to inflation via increased government deficits, healthcare spending, debt levels as well as reduced labour pool.

We expect AI to enhance productivity and be a deflationary force over the coming decade as businesses adopt AI tools that lower operating costs per unit of output. This is a once in generation technological step change for business and consumers alike and will flow through over the coming years.

Conclusion

Trade Wars and increased geopolitical uncertainty are bad for business and consumer confidence, as well as inflation. These near-term headwinds must be put in context with longer term opportunity from transformative Artificial Intelligence technology.

The net impact of tariffs, demographics and AI will depend on how trade tensions evolve and how quickly and cost effectively businesses can adopt and roll out AI applications. We remain optimistic over the longer term as history has shown that transformative technology has the potential to offset headwinds from economic headwinds, including trade tariffs and demographics, however, suggest that volatility and risks will increase over the short to medium term.

Macquarie Bank no longer accepts foreign currency

Incoming international transfers in a foreign currency are no longer permitted as Macquarie supports payments sent in Australian dollars only.

All payments made in foreign currency will be returned to sender. Returns can take up to 10 working days and, while Macquarie won’t deduct any fees, fees may be incurred from intermediary banks. This means the sender may receive less funds than what was originally sent.

Foreign currency transfers

If you need to receive a foreign currency transfer at a future date, please see the alternative options below:

You can request that your payer converts the funds to Australian dollars before sending them to your account
If your transfer can only be paid in a foreign currency, you can look to use a third-party service to convert the funds to AUD before sending them to your Macquarie account (eg OFX).

Financial Decisions can assist – simply give your adviser a call.

Interest Rate Reduction

In welcome news for mortgage holders, the RBA cut rates for the first time since the Covid pandemic in February 2025, dropping the official cash rate from 4.35 per cent to 4.10 per cent. The big banks quickly followed suit and announced they would all cut their home loan rates by 0.25 per cent.

Is your mortgage working out for you?

Whether entering into a mortgage or servicing an existing one, everyone can benefit from the current climate by giving some thought to their current situation. To build confidence in your strategy and ensure you’re getting the most out of your mortgage, consider the following:

Affordability Assessment – What can you realistically afford in your current circumstances?
Rate Options – Is fixed or variable going to fit into your financial strategy more appropriately?
Ownership Structure – Under whose name will the property be purchased? Will guarantors be involved?
Essential Loan Features – What do you really need from your loan? Is an offset facility necessary?
Contingency Planning – What will happen if your circumstances were to change? What will happen if interest rates rise?
Principle + Interest vs Interest Only – What is more suitable for your circumstances?

Act Now!

If your current mortgage does not have a “5” in front, call us to arrange a mortgage review with our broker.

Don’t overlook your end of year tax planning

And, as we rapidly approach the fourth quarter of the 24-25 financial year, we want to ensure that you are fully prepared for any tax implications and opportunities. It’s the perfect time to review your financial activities, including concessional super contributions and co-contributions to super, to maximise your benefits and minimise your liabilities.

Please remember to direct all your end-of-tax-year queries to tax@financialdecisions.com.au. Our team is ready to provide you with the support and guidance necessary to navigate through this critical period effectively.

We also encourage you to consider the following as we close the financial year:

Review your investment strategies. Is it time to crystalise asset sales or prepay investment interest?
Confirm that you have taken advantage of all the tax deductions and credits available to you: work from home, work related travel expenses, income protection, donations
Ensure that your records are up-to-date and accurately reflect your financial transactions for the year.

Our commitment to you extends beyond just tax planning. We are here to support your overall financial well-being. Do not hesitate to reach out with any concerns or requests for clarification.

Tax Reminder

Just a friendly reminder that your 23-24 return is due for lodgement by May 2025. Please immediately forward all necessary documentation so that we have adequate time to properly assess the work before it is submitted. As you know, failure to lodge on time may attract penalties from the ATO.

Your Financial Decisions adviser is happy to help you or your loved ones if you would like to explore opportunities to optimise your portfolio, minimise your tax and maximise your capital growth potential. Please call us on (02) 9997 4647.

Can you claim a UK state pension?

An extraordinary, yet largely untapped resource exists for anybody who has worked three years or more in the UK: the state pension.

Thanks to an unusual provision in UK law, Australians who have worked in the UK for at least three years may be eligible to claim a state pension that can provide them with extra income from the age of 67 onwards.

Few people know that they can purchase additional years of National Insurance contributions from the UK government to maximise this pension entitlement. National Insurance is a system of contributions paid by UK workers and employers, as well as self-employed people, to fund various social security benefits, including the pension.

To qualify for any UK state pension, you must have at least 10 years of National Insurance contributions. These do not have to be years of UK work, and in many cases, time spent working in Australia can count towards this 10-year requirement.

To receive the full state pension, you need 35 years of National Insurance contributions. If you have fewer than 35 years, your pension amount will simply be reduced proportionally.

If you have gaps in your National Insurance contributions, you can make voluntary payments directly to His Majesty’s Revenue & Customs (HMRC), which is similar to the Australian Taxation Office. You can pay for as many years as you choose or can afford, helping you get as close to 35 years as possible.

There’s a time sensitive aspect to this opportunity. Under current UK legislation, individuals can buy back up to 18 past years of National Insurance contributions for the years 2006 to now. But this offer will soon expire.

Applications must be submitted to HMRC by 5 April 2025 to buy back the full 18 years of past National Insurance contributions. After that date, the maximum number of past years you can purchase will drop to just six.

Visit https://www.gov.uk/new-state-pension for more information.

Disclaimer: This publication has been compiled by Financial Decisions (AFSL/ACL Number 341678). Past performance is not a reliable indicator of future performance. While every effort has been taken to ensure that the assumptions on which the outlooks given in this publication are based on reasonable data, the outlooks may be based on incorrect assumptions or may not take into account known or unknown risk and uncertainties. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information and any advice in this publication do not take into account your personal objectives, financial situation or needs. Therefore you should consider its appropriateness having regard to these factors before acting on it. While the information contained in this publication is based on information obtained from sources believed to be reliable, it has not been independently verified. To the maximum extent permitted by law: (a) no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up-to-date or fit for any purpose; and (b) Financial Decisions nor its employees are in any way liable to you (including for negligence) in respect of any reliance upon such information or advice. March 2025

Contact: Financial Decisions PO Box 484 Mona Vale NSW 1660, T 02 9997 4647