At the risk of blowing my own trumpet and saying I told you so, the AFR has underlined how last financial year for stocks (and therefore our super) was the best year for returns since the Coronavirus! And that’s despite many headwinds that could have easily-derailed stocks.

But wait, there’s more: with highly respected market players seeing more stock price rises ahead, thanks to the Reserve Bank set to cut rates possibly four times between July and February next year.

For the record, the key market indicator called the S&P/ASX 200 Index was up 10.1%. And that’s before you add in dividends and franking credits. The chart below shows the gains for the year.

S&P/ASX 200 Index

That wasn’t a bad innings when you note the big drop thanks to Donald Trump’s aggressive tariff talk that sent our stock market down over 14% in February to April.

And the AFR quotes Ten Cap portfolio manager Jun Bei Liu, who appeared on my TV show last night to share the same wisdom. This iconic fund manager says she expects at least six more months of a rising market as the RBA’s expected four rate cuts in July, August, November and February, help share prices keep rising.

This is what the respected fund manager Jun Bei Liu said: “Any point in time when the RBA cuts rates, and we’re not in a recession, is a very bullish sign for equity markets, particularly in a market where a lot of the uncertainties, like trade, are already well known.

Soon you will see people deploy capital in a big way into the market. I’m pretty optimistic. I think the market will continue to climb, and for many that are not fully invested, they’ll be forced back in.”

Many of the experts I interview have a similar view as they cite falling rates globally, lower inflation, Artificial Intelligence innovations and Donald Trump’s One Big Beautiful Bill with its lower taxes, as well as deregulation as big helps to stock prices.

But how did our market achieve such a good year for stocks and super, despite the volatility that Donald Trump has brought to investing via his tariffs, all on top of a worrying Middle East war that adds to the existing Ukraine conflict?

Here are the positives or tailwinds for stocks that clearly outweighed the headwinds from cyclone Trump:

1. There has been a win over the persistently high inflation in the US, here and worldwide.
2. Interest rates were cut. This is an historical plus for stocks.
3. Our economy, though slowing, has defiantly kept unemployment down.
4. The Albanese Government and state governments have pumped demand into the economy, often for electoral dividend reasons.
5. The lead from Wall Street has been very positive and big tech companies have ridden a wave of positivity connected to Artificial Intelligence and the expectation that rates would keep falling.
6. The TACO factor that says Trump Always Chickens Out has meant the stock market that first was spooked by the Trump tariffs, now recognises that the President talks tough but then can fall back to a more reasonable compromise.

If anything could derail the current optimism for stocks that have US and local market indexes at all-time high levels, it would be Trump playing hardball on his tariffs with the likes of the EU, Japan, South Korea and so on. The T-day date for his imposition of tariffs globally is July 9 and there are mixed messages from the President and his staff about how hard a date this is.

While only time will tell, right now the market and experts such as Jun Bei Liu are gambling that Trump pluses will outweigh the negatives, aided and abetted by central banks, which should make the price of money fall to help consumers and businesses spend. This kind of action is a big plus for stocks.

Focussing on the local market, the AFR’s Lucas Baird and Joanne Tran pointed to the role that the CBA and other top 20 stocks have played in powering our market higher. Our biggest bank surged 47% over the past year, which defied expert calls that it was likely to fall.

This hasn’t just helped the stock market but also super funds, with SuperRatings expecting the good balanced super funds to beat the long-term average of 7% this year and these funds exposure to the likes of CBA and other top 20 stocks explain these good returns.

Why did CBA do so well?

Try these:

1. The slow cutting of interest rates.
2. Trump’s tariffs and other policies have led to less money going into US markets and CBA is an attractive company for overseas investors.
3. Our low dollar makes the CBA record high prices of late more affordable for foreign share players.
4. It’s the 11^th biggest bank in the world by market capitalisation.
5. It’s seen as one of the safest banks in the world because of Australia’s regulation.
6. The leadership of the CBA has made it a world class company.
7. Trump has created uncertainty and the CBA and our other banks are seen as safe plays in these troubled times.

Right now, analysts from big investment banks and brokerages think the CBA share price will fall by 41.1%. Some think the drop could be more, as the chart below shows.

CBA

I expect a fall in CBA’s share price as four rate cuts kick in, but I think a 15% or 20% drop will bring in bargain hunters, happy to buy one of the best banks in town!

While the fall in CBA’s share price won’t help our market index go higher this financial year, other companies will benefit from falling interest rates. The big miners like BHP and Rio are overdue for a share price comeback, which should help these positive forecasts for the stock market come to fruition.

Only Donald Trump could KO this great story.

Here’s a summary of the big hip pocket changes that start tomorrow.

July 1 is the start of a new financial year that should breed optimism. For a lot of wage earners, pay rises kick off on the first day of the financial year and compulsory superannuation goes up too.

For parents, leave payments also increase.

For bosses in struggling businesses, however, the day brings pressure that will require help from an improving economy, lower interest rates or via some smart pivoting from those in charge.

But it’s not all bad news for bosses.

The only clearcut plus about July is that historically it’s a good month for stocks. Why? Well, many investors sell losing stocks before July 1 to offset their tax bills on the stocks sold that had a capital gain. That creates a buying opportunity in July.

As the chart below shows, the month is a good one for local share players. Bosses of listed companies should like July because the share price of their companies should rise.

But back to the outlays for employers and the boosts to the bottom lines of others.

Here’s a summary of the big hip pocket changes that start on Tuesday:

1. The minimum wage increases by 3.5% going from $24.10 an hour (or $915.90 a week) to $24.95 an hour (or $948 a week).
2. Award wages also go up by 3.5%, which affects 2.9 million workers.
3. Centrelink indexation payments go up by 2.4%.
4. Superannuation payments rise from 11.5% to 12%.
5. Paid parental leave goes to 24 weeks, or 120 days.
6. Support for students and apprentices, with student loan debts to be cut by 20% and student loan paybacks now will start when incomes reach $67,000 a year.
7. Energy bill relief of another $150 comes along from July 1 for households and about one million small businesses.
8. The Government will pay about 30% of the cost of installing a battery system alongside solar energy for households and businesses. This is the Cheaper Home Batteries program.
9. An aged pension will be more accessible, with changes to the tests for qualifying for a pension.

While many of these changes put pressure on employers and the Government, the latter has more of a role to play. This is because we're seeing signs that the 13 interest rate rises since 2022 have hurt the economy.

Thankfully, inflation is looking under control and the July rate cuts will help households start spending, which businesses need to see. Businesses will like the news that economists such as AMP’s Shane Oliver said on Friday:

“We continue to expect the RBA to cut rates again in July, August, November and February.”

Provided the Trump tariffs don’t KO the outlook for global growth, then lower rates and generous government spending should send the local economy’s growth in the right direction.

And employers will need these pluses to cope with the negatives that July1 is bringing to their bottom lines.

Treasurer Jim Chalmer’s new tax buddy, Assistant Treasurer Daniel Mulino, has said that he wouldn’t “rule out making further changes to Australia’s $4.2 trillion superannuation system”, and has other tax changes in the wings.

The political party famous for breeding aspiration i.e., the Labor Party has a new Assistant Treasurer, who says the upcoming super tax won’t kill aspiration. He’s right because the Government’s jumbo slug on earnings in super over $3 million will mean successful people will aspire to earn money in lower tax alternatives.

But wait there’s more, because Daniel Mulino, this new Labor kid on the ministry block, has told the AFR’s Ronald Mizen that he wouldn’t “rule out making further changes to Australia’s $4.2 trillion superannuation system”.

That’s the kind of warning that aspirational wealth-builders will hear that will result in them asking where else they should put their money that’s better than super.

Of course, while up to the $3 million mark, super is a great investment, the $3 million figure isn’t to be indexed. This means that over time more Australians will be caught in Mulino’s super tax net.

In case you’ve forgotten what Labor wants to do with super, here’s a recap:

Labor wants to raise the tax rate from 15% to 30% on superannuation earnings on balances above $3 million. It also wants to tax unrealised capital gains on assets such as businesses, farms and shares held in self-managed super funds. If you’re in Australian Super or other types of industry funds, you’ll also be hit but the pain will be less apparent because most members in these funds just get their returns sent to them. In stark contrast, SMSF trustees are more hands on and more likely to know when and how they’re slugged by the ATO.

While Mulino says the super tax won’t be anti-aspirational because it only hits those with $3 million in super, I’m not sure he knows how aspiration works.

Right now, those with $2 million in super are worried about what they’ll have to do when their balance gets close to $3 million. They are so aspirational that they’re asking people like me what they should do.

They could get advice to start looking at their principal property as an investment vehicle because it’s capital gains tax free. They could look at investment bonds that are tax free after waiting 10 years. While the creators of these products pay the tax along the way, the effective tax should be less than 30% (the new super tax rate) and there wouldn’t be a tax on unrealised gains.

Right now, while Treasurer Jim Chalmers, Daniel’s partner in this super caper, says 80,000 super players will be affected, number crunchers say over the next 30 years, some 10% of the workforce will be affected.

Mizen makes the point that Mulino is no dummy after getting a PhD in economics from Yale University, (which is where President Donald Trump’s Vice President, J.D. Vance got qualified as a lawyer, but I suspect they were in different political associations on campus).

Mulino also has some big goals. The most immediate ones are:

1. Implement the super changes promised at the election. They weren’t given much prominence, and I guess we can blame Peter Dutton for that!
2. Freeze the excise tax on beer. After these super changes, many Aussies could turn to drink.
3. Ban genetic testing for life insurance policies.

Other areas he wants to fix up are:

4. Stronger financial advice laws.
5. Regulating the crypto sector.
6. Overhaul Apple’s control over the payment’s system.
7. He also wants US tech giants to pay media businesses for using their content, which could put him into a big fight with his fellow Yale alumni, J.D. Vance and his boss Donald Trump.

One thing’s for sure: Daniel Mulino will be a Member of Parliament who won’t go unnoticed. While his party has recruited a smart guy, he could prove to be a financial threat to a lot of aspirational wealth-builders.

As a student, he clearly was aspirational but that doesn’t mean he’s an expert of sowing the seeds of aspiration into others. Only time will tell.

One final point. While the 30% tax on super earnings over $3 million can be dealt with by smart financial advisers and educated super trustees/members, the tax on unrealised gains makes Labor a real worry in terms of what it might cook up for super going forward.

The big question is this: will they take this taxing on unrealised gains to other assets, such as properties and other valuable assets?

It’s rate cut time again in July and even the hardnosed Reserve Bank board members know many Australians have copped high interest rate pain. Now it must be the gain that comes when the price we pay for loans come down. However, it does raise the new question that goes: Should it be a half a percent cut?

If forced to bet, I’d put my money on 0.25% but I think a 0.5% cut would be wiser. Such a move would not only help inflation fall faster by lowering costs to businesses, but also it would speed up economic growth for an economy that recorded a per capita recession in the March quarter.

When the growth number for the three months to the end of March came in at a low 0.2%, making the year’s number only 1.3%, this is what CBA economist Stephen Wu said: “The Aussie economy stalled at the beginning of 2025, barely growing, as consumers stayed stubbornly frugal, government spending sputtered, and extreme weather events weighed on exports. Aussie households and businesses remain cautious – as reflected in recent sentiment surveys – because of global trade uncertainty.”

Given the fall in jobs not created in May and weaker-than-expected retail numbers in March and April, there’s an argument that the economy needs a big shot in the arm that a surprise 0.5% cut could deliver.

After looking at the May Consumer Price Index figure released yesterday, which had headline inflation at 2.1% and underlying inflation at 2.4%, CBA’s Harry Ottey told us the following: “Commonwealth Bank (CBA) Group economists now expect the RBA to deliver further 25 basis point rate cuts in July and August for an end year cash rate of 3.35%.”

This doesn’t make my call for a 0.5% cut on July 8 so outlandish, given CBA economists are tipping two rate cuts in a row over July to August. If our economy is potentially as weak as the economists at the nation’s biggest bank claim (remember the CBA has the best window on what’s happening to Australian households because it’s the biggest lender in the country), then why not do a ‘shock and awe’ jumbo rate cut?

Unfortunately, the Reserve Bank interest rate setting board hasn’t been selected for their adventurous spirit and will probably argue that they need to keep their powder dry in case the Middle East truce doesn’t last and hostilities recommence and oil prices head towards US$150 a barrel.

I’ve said it before and I’ll say it again, former PM Paul Keating has often said that “the RBA is invariably late to the party” when it comes to cutting rates. In 2020, when even the Covid threat was huge for the economy, he said the Bank was having another of its “dalliances with indolence”.

And he didn’t miss them with this spray: "The problem about central banks, and this is true of the Reserve Bank of Australia - it has become a sort of deity, where lesser mortals might inquire, however respectfully, what the exalted priests might be thinking or have in mind for their prosperity or the country at large.

"The only difference between the deity and those to be governed is that the governor and his deputies do not wear clerical collars and black suits. But that is the only difference in their comport and attitude."

Let’s pray the RBA has some divine intervention and comes up with a miraculous big rate cut in two weeks time.

Wall Street spiked higher on the words of the legendary song by The Cars titled Let The Good Times Roll, with the human curveball Donald Trump’s declaration that an Israel-Iran truce is a goer. While the US President can be known for ‘gilding the lily’ for pure deal-making reasons, big investors in the Big Apple and beyond have bought this very good news.

Let’s pray that Donald is on the money. If he is, our investments and super will be in the money too.

The Dow Jones finished up 507 points (or 1.19%), the S&P 500 went up 1.11%, while the tech-heavy Nasdaq added a big 1.43% (or 281.56 points). And our market will open in the green and is bound for a good day at the office.

But more importantly, for those who pay scant regard for what goes on in the ‘unreal’ (though very important) world of high finance, the headlines scream that “oil prices tanked”. That’s great news for future inflation and how many interest rate cuts lie ahead for the US, Australia and the global economy.

If this truce talk is more than talk and becomes a reality, then next year, which I thought could be a year to go more defensive and less exposed to stocks, could be another great one for shareholders. However, it’s crucial for stocks that this Trump truce has to be the truth. Furthermore, the Trump tariffs due to kick-off on July 9 must end up looking reasonable and manageable for the companies and countries hardest hit by these taxes on trade.

If the President pulls those two threats to stocks off, then the good times will roll, helped by lower interest rates and taxes in the US, along with Trump’s promised deregulation and the power of Artificial Intelligence. Together, these would create profit opportunities that will send stock prices higher.

If you need more proof of the ‘threat’ of good times on the horizon, just look at oil prices, which were down more than 6% overnight.

US-based Jon Brager, a portfolio manager at Palmer Square Capital Management, summed it up succinctly for CNBC: “The key event for the market was how quick and limited the US involvement was, as well as the ‘weak’ response from Iran, which was essentially a choreographed fireworks display for domestic consumption.

“So even if the ceasefire results in occasional flare ups, the market has decided this risk is now in the rearview mirror and the focus probably returns to tariffs and fiscal policy.”

Of course, the things driving this new round of optimism could turn on a dime (as the Yanks love to say), but that’s investing life under Donald J. Trump.

Sure, he could come up with something to spook stock markets. However, my positivity about that insult that says he can be a TACO guy is a plus not a negative for stocks. This Trump Always Chickens Out slight on Trump really means he talks and can act tough, as we saw with his bombing of Iran over the weekend. However, he is willing to back off to get a better deal.

And surely that’s a good thing. If this ‘deal’ kills Israel-Iran hostilities and the latter’s preoccupation with nuclear playthings, then I’m glad Trump is a TACO guy.

George Bernard Shaw once told us “Nothing is ever accomplished by a reasonable man”, a line suggesting that significant change often comes from those willing to push boundaries rather than conform to existing norms.

The quote from this Irish playwright and critic underlines that people like Donald Trump can be valuable, sometimes.

 

Just when the world media was predicting Donald Trump’s bombing of Iran over the weekend was going to lead to petrol prices spiking, surges in power bills and inflation that could KO interest rate cuts or even a global recession, overnight Iran played the ‘nice enemy’ with a less-than-shock-and-awe response! Wall Street lapped it up, with all three most-watched share market indexes up, not down.

Never wanting to be a killjoy media type, I still have to ask this important question — how long will Iran’s supreme leader Ayatollah Khamenei play the forgive-and-forget recipient of US bombs?

For the sake of the local economy and the material lives of everyone in a global economy, calmer heads and even peace in the Middle East are needed. If that happens, it will be a coup for Donald Trump, but we can’t be Pollyannas and hope that the Iranians are now seeing the world with different glasses following the weekend's hostilities.

As we say to our clients in the wealth-building game: “Hope is not a strategy.” So, it makes sense to contain your optimism over Iran’s response, because it will be exactly this that determines what happens to stock markets, your super, your power bills, your home loan interest rates and maybe even your job.

For the sake of being prepared, let’s look at the worst-case scenarios of this attack on Iranian nuclear facilities, which the SMH says led the Iranian Parliament to vote to close the Strait of Hormuz, where 20% of the world’s oil supply ships through:

1. Petrol prices at $2.50 a litre.
2. Gas prices rise as oil prices go higher, which means our gas bills spike.
3. Higher gas prices hit electricity suppliers, so light and power bills rise.
4. As contracts to buy gas are long term in nature, a big rise in price can keep power bills high for a longer time than you’d expect.
5. This could raise inflation rates and then slow down interest rate cuts.
6. The combined effects of higher energy costs and fewer rate cuts than have been expected could create a global recession and job losses locally.
7. On the good side, the RBA will need to give us more rate cuts than expected if they think the Middle East crisis is a recession-maker.

“The global oil price has risen to more than US$80 ($124) a barrel, up from US$65 a fortnight ago,” the SMH’s Michael Foley and Frances Howe reported. “However, NRMA spokesperson Peter Khoury said prices were unlikely to hit the highs of 2022, when it took a range of factors to drive oil to US$133 a barrel.”

That’s when Russian oil was hit with sanctions because of the Ukraine invasion and the end of Covid implications for global supplies and inflation.

So, what’s the good news overnight that helped the Dow close up over 300 points?

This is how CNBC saw Monday’s trading on Wall Street: “Stocks rose, and crude prices tumbled Monday as investors breathed a sigh of relief that Iran’s response to the US attacks over the weekend was more restrained than expected.”

According to reports that the New York Stock Exchange traders have looked at, the news that Iran’s armed forces had attacked an American base in Qatar following the US attacks on Fordo, Isfahan and Natanz over the weekend, and rated that as not as bad as we were expecting.

While there is also speculation that the President might have exaggerated the impact of his bombers on Iran, Jamie Cox, managing director of US-based Harris Financial Group, summed up the current market feeling:

“Markets only care about oil supply shocks, so as long as they stay at bay, we’ll see markets sharply higher,” he told CNBC. “Regardless of whether the President oversold the effectiveness of the strikes or not, the nuclear program in Iran was set back decades.”

Ultimately, we’re in the hands of Iran’s response to the bombings over the weekend. It could easily get seriously worse and oil prices would rise and stock prices and your super balance would fall.

However, there’s a view that Iran’s actual military strength (which has been overrated by the Iranian leadership, combined with the recent attacks from the US and Israel, along with the country’s lack of committed allies) could mean that the response from the leaders in Tehran might result in the worst-case scenario that media outlets were predicting yesterday.

Let’s hope that view is on the money for lives in the Middle East, our investments and our hip pockets.

When you threaten the fuel that powers our economies and our lives, there are huge consequences.

While President Trump’s decision to go all out to depower Iran and its nuclear aspirations could have long-term world implications for global safety, it has endangered our immediate super fund balances, and will hit our hip pockets as oil prices spike higher as a consequence.

Over the past two weeks, since Israel has been attacking the nuclear operations of its enemies, Brent Crude has gone 10% higher and the Trump bombings is bound to push the price of oil over US$100 a barrel. Over the month, the price of oil is up 21% and hit a high last week of US$79.04 a barrel.

The Strait of Hormuz, pictured full of vessels below, lets oil carriers into the open sea. If it’s blocked, then the price spike could become a gusher that will spook global financial markets.

And, you'll feel the hit to your hip pocket far beyond the petrol pump. A spike in oil prices will hit:

1. Future inflation rates.
2. How many interest rate cuts we get.
3. How far the stock market falls.
4. Your super balance.
5. And the global recession threat that could take away your job or KO your business profits.

Just like the world nowadays, economics is a very interdependent force. When you threaten the fuel that powers our economies and our lives, there are huge consequences.

If you need a history lesson in Middle East wars and what happens to oil prices, Cecile LeFort summed it up for the AFR. “For investors, the US bombings of critical Iranian nuclear sites in Fordow, Natanz and Isfahan are uncomfortable reminders of the drawn-out war in Iraq,” she wrote. “Brent crude hit a record US$147.50 at the peak of that conflict, in July 2008, as the fall of Saddam Hussein gave way to unrelenting violence.”

On oil prices in the near future, the ‘guessing’ economists at Deutsche Bank have tipped oil will go to US$120 a barrel. But that was before the weekend bombings, so you have to expect it will go higher.

On interest rates, the inflation effects of oil over US$100 a barrel will worry the Reserve Bank (RBA) and possibly delay future rate cuts. I suspect they’ll do the July cut and then watch how the oil price and other effects of this war play out.

If the RBA expects a global slowdown, then we might see more rate cuts than have been expected. And they could come faster than we expect, too.

Ultimately, the oil price impact on inflation will be crucial, and so will the negotiations between Iran’s Ayatollah Ali Khamenei and Donald Trump.

These are two strong-willed guys who don’t have a great grasp on what the world really wants them to do, which is to create peace and get out of our social and wealth-building lives.

By the way, history shows stock markets react very negatively to events like the bombings of Iran but within 12 months share prices rebound. However, whenever a geopolitical crisis pushes oil prices to prolonged and spectacular highs, the market rebound is slower, and the fall of the market is deeper.

While I’d like to be positive about all this, history simply doesn’t let me!

This is a story that will break your heart. Yeah, right!

Apparently, the CEOs of our top companies haven’t seen their pay spike skywards recently but what they still get will shock the average Australian. It will also shock those who have invested their money in companies that have failed, share price-wise.

For example, look at Victor Herrero of Lovisa whose total pay packet for a year (wages and other payments) was...wait for it...$39.55 million. Let’s look at his company’s share price to see if he did a good job.

Here’s one year showing where the share price fell 10%:

Lovisa (LOV)

However, Lovisa’s five-year story shows that Victor hasn’t been a complete plonker.

Yep, Lovisa’s share price has been up from $6.54 to $29.71, which was a 318% gain!

Then again, since August last year, the share price has fallen from $37.48 to $29.71 (or 20%), which would make a normal person ask: “How come?” when they see Victor’s take home pay.

Here's what these CEOs have pocketed over the past year:

While I know these bosses work hard and have helped build wealth for shareholders and super fund members, their pay would shock normal people. And the shock is justified.

However, Australia isn’t the leader in overpayments for company bosses. The AFR looked at the average payments to these CEOs compared to what an ordinary worker is paid. It shows other countries are ‘madder’ than us. “The average is now 55 times the earnings of an average worker, down from 71 times in 2014,” Patrick Durkin and Lucas Baird reported. “Chief executive pay in the United States reached 348 times that of the median workers; among those running companies in the FTSE 100 Index, it is 78 times the average pay in the United Kingdom.”

These revelations came from research commissioned by the Australian Council of Superannuation Investors (ASCI). The grunt work was done by the governance advisory business called Ownership Matters.

Local pay packets have been contained, believe it or not, because of law changes 16 years ago. “Australian investors and boards have used the changes to termination payments laws in 2009 to drive down the cost of CEO departures,” Ed John of ASCI said. Since that time shareholders have to approve any termination payments exceeding a year of pay, which means shareholders can ‘get even’ with hopeless CEOs whose share price has had a shocker.

Under the two-strikes rule, boards face a spill if they suffer shareholder votes of more than 25% against executive pay proposals at two consecutive annual general meetings, but often the ‘rank and file’ shareholder is denied the get-even right by big fund managers, who hold lots of shares and who green light silly pay rises for top executives at public companies.

The AFR says the golden parachute exit payment for many CEOs has been reduced because of the law change but the numbers still show some ordinary performers still get overpaid. “The fall in termination payments for ASX 100 chief executives – from $33.52 million last year to $8.38 million – was also due to the number of payouts falling from 17 to six,” the AFR writers revealed. “Only one, a $2.07 million payment to former Fortescue chief executive Fiona Hick, was above $2 million this year.

“Still, it was rare for chief executives not to be paid their bonus. Among the 142 CEOs in the study eligible for a bonus, only five received no money. The median bonus was paid out at just under 66 per cent of the maximum.”

Great CEOs should be rewarded but some poor performers have been over-rewarded for decades. For example, Mineral Resources (MIN) managing director Chris Ellison’s was paid $1.6 million but the AFR reports that his take-home pay, calculated by ACSI, reached $14.75 million. Chris is a major shareholder and had a shocker personally and company-wise. Look at what happened to the share price.

Mineral Resources

The share price was great until May last year. It has fallen 63% but Chris still gets over $14 million! Those shareholders who backed Chris and his past performance would be pretty MAD at what he takes home, and they’d be justified in being so.

As my dear grandmother used to jokingly say: “Them that’s got, git!”

With a huge election win tucked under its belt, Labor is about to uncover big tax reforms.

Does Treasurer Jim Chalmers have the intestinal fortitude to make the reforms that are really needed, like a 15% GST, a reduction in income taxes and a tax system that can compete with the rest of the world?

Let’s take a look.

Spurred on by an electorate quietly baulking at Donald Trump’s silly tariffs, the Albanese Labor team won a landslide victory. But now we learn from Treasurer Jim Chalmers that he’s vowing to use this election win to make big tax reforms.

Apart from what he could be cooking up to take money from successful people, the other question is whether the Albanese Government would have secured such a big majority without keeping quiet what they really wanted to do on tax.

At least the Howard Government had to honesty tell the electorate before the 1998 poll that they would implement a GST if they won. That frankness cost them 18 seats in the House of Representatives.

So, the real test for a Treasurer who’s showing the guts to even mention tax reform, will be this: does he have the intestinal fortitude to make the reforms that are really needed?

Much needed reforms include a 15% GST, significant cuts in income tax and making our tax system competitive with other, lower-taxed Western economies that we compare ourselves to nowadays on the world stage.

And in case you’re not trained to pick out the wily ways of clever politicians, Dr Jim is telling us his tax reform agenda isn’t just about fairness but about boosting productivity and repairing the budget’s growing deficit.

He was honest in reminding us that defence and so-called “care economy” spending would hit the budget going forward, and net-zero climate demands don’t help reduce government spending. Also, early childhood education is a growing expense for future governments.

For now, let’s preview what he flagged “to be upfront” about, as he said at the National Press Club yesterday:
1. He’ll use the upcoming business roundtable conference on productivity to get consensus on any changes;
2. He disagrees with increasing the GST but isn’t closed to the idea. At least, that’s what he said;
3. He wants tax reform to boost productivity;
4. He’s looking at taxing the resources sector more heavily;
5. Taxing electric vehicle (EV) drivers for using roads based on the kilometres they drive, and,
6. He’s still backing taxes on unrealised gains for trustee’s super fund balances over $3 million.

On the related subject of productivity, The Australian reported that “the Treasurer named priorities including regulation to support artificial intelligence, faster approvals for homes and major products”, and "cutting red tape without lowering standards.

“Tax reform is bigger than just managing the difficult balance between spending and collecting…it's actually about encouraging investment, lowering the personal tax burden and increasing the rewards from work," he wisely said.

Ultimately, this upcoming productivity roundtable will be used to find reforms that will hopefully pull off the double play of fixing the budget deficit and increasing productivity at the same time. But in fact, if the Federal and State Governments worked in sync, and say killed the greatest productivity-killer tax of all – that is, the payroll tax, which taxes growing successful companies when they create jobs - then we’d know the Treasurer’s desire for productivity was fair dinkum.

And this team of productivity-killers - Federal and State governments - would show demonstrate their actual commitment to boost productivity that pumps up growth and income (so more taxes are received!). That would seriously reduce red tape.

I’ve been in business for over three decades. I can’t recall any reduction in red tape over that time. I know I pay more and more for doing work for the various government departments at all levels.

Nowadays we’re all doing work for the likes of Telstra by paying bills online, which defies an intelligent person’s capabilities. When failure to pay online because you can’t answer all the security questions, you opt for a phone payment. When you fail those ‘security’ questions there to protect the person paying the bill (what is this all about, you’re paying the bill?!), then you’re transferred to an operator (hopefully human). You’re then told by the best telco in the country that the wait will be, wait for it, one hour! You hang up! And then your phones are cut off for not paying the bill.

Big businesses are chasing productivity by killing the productivity of other people and other businesses by having everything so automated that you can’t get through!

Guess which politician knows or even cares about this? I’d say there’s no answer to this question!

Whether this sale of Santos - announced yesterday - is approved by our Foreign Investment Review Board (FIRB) headed up by Treasurer Jim Chalmers is all speculation at this point. The bottom line is that this deal will only get the thumbs up if it becomes a plus for gas supply and gas bills here in Australia.

While the potential sale of Santos to a foreign-owned company is good news for long-suffering shareholders of the oil and gas business, it could be bad news for those Australians with big power bills, who could now face the problems of a poor gas supply! Think summer without air-conditioning or winter without heating. Or, if these threats are averted, think even bigger power bills!

For those not across the deal, here it is in a nutshell:

1. Along with others, the Abu Dhabi National Oil Company (ADNOC), a subsidiary of the energy investment company XRG and US private equity firm Carlyle, want to buy Santos.
2. They’re offering $36 billion or $8.89 a share, which is 28% better than its current share price.
3. They say they want to increase Australia’s supply of gas.
4. The Santos board approves the deal.
5. However, it has to be given the OK from the Foreign Investment Review Board (FIRB).
6. The South Australian government (Santos was founded in South Australia) aren’t doing somersaults over the deal.

This offer comes as Santos has recently passed a hurdle for a $3.6 billion Narrabri Gas Project in northern NSW. However, this offer has raised doubts over whether this important new source of gas will be delayed or if it would actually happen, if Santos becomes foreign owned.

That hurdle was beaten when a Native Title Tribunal ruled in favour of granting land leases to Santos, despite opposition from traditional owners and environmental groups. Supporters of the deal say ADNOC will have the deep pockets to make the Narrabri project happen and experts say their huge supply of funding could be a winning play to get the OK from the FIRB.

Interestingly, this deal could actually help us gain mor control over our domestic supply of gas.

“XRG is interested in the major LNG oil assets, they’re not interested in the relatively smaller domestic assets – that includes Cooper Basin, Moomba, Narrabri and Dorado,” MST Financial energy analyst Saul Kavonic told the Daily Telegraph’s Giuseppi Tauriello. “From a FIRB approval perspective, it might be easier to get the approval for this deal if XRG agree that they will not own these domestic assets, so they’ll spin it out to a non-foreign government owned entity.”

This is all speculation. The bottom line is that the FIRB is chaired by the Treasurer Jim Chalmers, and this deal will only get the thumbs up if it becomes a plus for gas supply and gas bills here in Australia.

You see, the Australian Energy Market Operator has warned that the east coast has a potential supply problem and Tauriello reports that “Narrabri could meet up to half of NSW’s gas needs, according to Santos, which has committed to reserving all production from the field for the domestic market.”

Without doubt, if this potential Santos sale delivers better supplies of gas to the east coast and power bill rises are contained, then this would be a political win for the Albanese Government. And if it can’t wrangle a good deal from XRG and ADNOC, then the Treasurer will claim the sale was a terrible one for controlling our supply of gas.

The FIRB considerations on this deal constitute a really big deal and could drive Santos shareholders nuts waiting for the final decision.

The Reserve Bank is the public institution that can make or break businesses, the wealth dreams of investors along with the hopes and bottom lines of mortgage holders. Our big bank is being dragged out of its century of secrecy, with its new interest rate setting board to reveal how the vote on what happens to what we pay for borrowing money was made.

The best-selling book The Secret (written by Aussie Rhonda Byrne) sold over 30 million copies. Based on the pseudoscientific belief of the law of attraction, which claims that thoughts can change a person's life directly, it was translated into 50 languages. This book does have some parallels with the RBA.

You see, economics isn’t a real science. It’s what academics call a ‘social’ science because society (i.e. people) isn’t predictable. Like many aspects of science, there’s always a degree of mystery about how collective decisions about money and demand, etc. by a population are made. It was no surprise that our central bank kept its cards close to its chest when it cut, raised or kept interest rates unchanged.

Unlike the Bank of England and the Federal Reserve in the USA, the RBA didn’t reveal much about its decisions. Economists, trained for ‘guessing’ the economy, were recruited by banks, the media and money websites to ‘guess’ what would happen at each meeting of the old Reserve Bank board.

When I was a younger participant in the media, I used to commit to economic surveys on what the RBA would do. Eventually I decided too many dumb decisions by previous boards meant I knew I wasn’t qualified to ‘guess’ what these often ‘weirdly selected’ people would decide. I excused myself from such surveys by arguing I was trained as an academic economist to say what the RBA should do, rather than speculating what they would do.

Now, because of reforms championed by Treasurer Jim Chalmers, there are three boards that run the many jobs the RBA does. And here are those three jobs:

1. There’s an interest rate setting board that most Aussies care about for obvious reasons as it will impact the rates on their loans and savings deposits.
2. A governance board for the organisational affairs and operations of the RBA, including delivery of banking services, note issuance and payments operations.
3. The Payment Systems board.

What I like is that the new interest rate (or Monetary Policy) Board will do a ‘show-and-tell’ after every decision, so we’ll know how the board voted when rates either change or don’t change. Recently, we saw something new from the RBA after the May 0.25% cut in the official cash rate of interest: there actually was debate about whether the reduction should have been a quarter or half a percent!

That was helpful information, not only about what the board debated but why some members were in favour of a bigger cut. You see, the views of board members on the size of the cut would’ve been driven by their assessment of the state of the economy. While the half percenters didn’t get up, it gave economists the clue that if the economy looks sicker after the May cut, then a July cut was a good chance.

In fact, the weak economic growth number for the March quarter of 0.2% has done exactly that. As a consequence, the majority of economists surveyed have switched from a July cut rather than the once-held August cut.

So, who are our interest rate deciders? Let me list them and their claim to fame:

1. Governor/Chair of the RBA, Michele Bullock.
2. Deputy Governor/Chair Andrew Hauser, a UK economist.
3. Marnie Baker, ex-CEO of Bendigo Bank.
4. Renee Fry-McKibbin, a smart ANU economist.
5. Ian Harper, one of Australia’s brightest economists.
6. Carolyn Hewson, former top investment banker.
7. Steve Kennedy, the country’s Treasury Secretary.
8. Ian Ross, former union leader and President of the Fair Work Commission.
9. Alison Watkins, former CEO of Coca-Cola Amatil.

While this is a good collection of smart people, ultimately, they’ll be assessed on the quality of their decisions. So far, they’ve made the right decision to cut in May. July will be a crucial test.

You have to hope that this new team will do better than many of their predecessors who made some terrible decisions and didn’t have the guts to gang up on the Governor when bad judgements were forced on the board.

While I won’t name names, there have been plenty of mistakes made by RBA leaders who were too cautious, but I do like reminding people of what Paul Keating said of the Bank in the past: "When a real crisis is upon us, the RBA is invariably late to the party”.  Keating told us this on numerous occasions and I totally agree with him on this, which isn’t always the case

Great news for interest rate worriers, with the July rate cut looking like it’s already banked! However, Trump’s actions going forward will be vital for future cuts.

A survey by the Daily Telegraph’s Giuseppe Tauriello found “most economists are predicting the Reserve Bank of Australia (RBA) will cut the official cash rate by 25 basis points to 3.6 per cent when it meets on July 7-8, with most

expecting at least one additional cut before the end of the year and potentially another at the beginning of 2026.”

This was the prevailing view until last week’s weak economic growth number showed real GDP grew by only 0.2% for the March quarter and 1.3% for the year. Actually, we went into a per capita recession, which happens when we divide the people in Australia into what has been made in terms of the value of goods and services produced.

Concerns that the next reading of GDP could be negative means a fourth cut is possible, which would take the cash rate down to 2.85%. Consequently, your mortgage rate should be down 1.5% from the highs we saw in 2024.

This is where the world’s new economics buddy called Donald Trump has a role to play in our material future. “The future of US President Donald Trump’s controversial tariffs policy looms as the single factor that could determine how deep the RBA cuts and, ultimately, how much borrowers can expect to save on their home loans,” Tauriello has concluded after talking to local economists. “AMP chief economist Shane Oliver had been expecting three more rate cuts by February but following the release of weak growth figures last week, suggested a fourth cut could plunge the cash rate down to 2.85 per cent by early next year.”

That means if your lender does the right thing and passes the cuts on, then falls in monthly repayments for the average borrower with a $650,000 mortgage will be around $400 a month, or more than $600 from the recent peak before the RBA made its first cut in February.

A borrower with a $1 million loan would save about $600 a month from current payments, while someone with a $400,000 loan would pocket an extra $250 a month.

These rate cuts would help the economy recover, grow more strongly, create more jobs and help stock prices cope with the impacts of Trump’s policies that could both lower global trade and growth, as well as raise inflation.

Saul Eslake, former chief economist at ANZ and now an independent commentator and consultant, told Tauriello that Trump will be the chief determinant of how many cuts you’ll get.

“It really depends on whether you think Trump will succeed in blowing up the world

economy,” Eslake said. “If he does succeed in blowing up the world economy through the combination of tariffs and ludicrous fiscal policy, and perhaps also by assaults on the independence of the Federal Reserve, then the cash rate could drop to two-point-something.”

However, if the TACO theory applies and the Trump Always Chickens Out insult proves again to be true, then Eslake would expect a better world economy and maybe only two rate cuts ahead for Aussie borrowers.

Remember this: if the worst-case scenario prevails and four rate cuts happen, then we could end up in a recession, lots of Australians would lose jobs and businesses would go broke or see a collapse of profits. And share prices would slump taking our super down with them.

Right now, four out of five economists surveyed think we’ll see a July 8 rate cut by 0.25% from the RBA. Most expect three in total, but if Trump wraps up reasonable trade deals with key players such as China, the European Union and the likes of Japan and South Korea sooner than has been expected, then the global economy could outperform current predictions.

I know many interest rate sufferers would prefer a mad Trump, with the bigger interest rate cut implications. Call me an economist, but I prefer a two- or three-rate cut future, with less unemployment and a stronger economy, higher share prices and bigger superannuation balances.

Since November 2024, when Donald J. Trump became leader of the free world, all our economic fortunes are tied to what this guy dreams up daily!

God bless America and God save our jobs, our businesses and our bank balances!