What's Ahead in 2025

The past few years have been marked by significant instability, but 2025 brings hope for greater certainty. While challenges remain, we outline the key changes and challenges shaping the year ahead.

Political Landscape: An Election Year

Prepare for political messages to flood your social media, voicemail, and television. Expect the opposition to question whether you’re better off, while the incumbents highlight their achievements.

The 2025–26 Federal Budget has been brought forward to 25 March 2025, signaling an election likely to take place in March or May, but no later than 17 May 2025.

Legislation in limbo

The Senate passed 32 bills on the final sitting day of 2024, including seven directly impacting businesses and the financial interests of Australians. However, two significant measures remain unresolved:

$3 Million Super Tax Proposal

The proposed Division 296 tax aims to introduce a 30% tax on earnings for superannuation balances above $3 million, starting 1 July 2025. The bill is stalled in the Senate, and it’s unlikely to pass before the election. If left unaddressed by the next government, the proposal may lapse entirely.

$20,000 instant asset write-off for small business
Initially announced in the 2024–25 Federal Budget, the $20,000 instant asset write-off extension for small businesses was removed at the last minute during Parliament’s final sitting. Without this extension, the threshold reverts to $1,000, leaving SMEs uncertain about the tax treatment of current and planned investments.

Tax and Superannuation Updates

• Foreign Resident Property Sales
  Starting 1 January 2025, changes to foreign resident capital gains withholding will take effect:
  • The threshold for withholding will be removed.
  • The withholding rate will increase from 12.5% to 15%.
  • These reforms will apply to all property sales by foreign residents, regardless of value, for acquisitions made from 1 January 2025.
• Superannuation Guarantee Increase
  On 1 July 2025, the Superannuation Guarantee (SG) rate will rise from 11.5% to 12%, completing the legislated increases.
• Superannuation on Paid Parental Leave
  From 1 July 2025, superannuation contributions will be paid on Paid Parental Leave (PPL) payments. This means eligible parents will receive an additional 12% of their PPL payments as contributions to their superannuation funds.

Economic Landscape

• Interest Rates
  RBA Governor Michele Bullock has noted easing headline inflation, but the Reserve Bank remains cautious. While inflation is trending down, further stability is needed before rate cuts are considered. Predictions for cuts vary: Commbank suggests February 2025, ANZ and Westpac indicate May, and NAB forecasts June.
• Cost of Living Pressures
  Personal income tax cuts and energy subsidies introduced in 2024 provided some relief, but discretionary spending increased by just 0.1% in the September quarter. Rising mortgage costs continue to squeeze households, and Australia’s economy grew by only 0.8% through 2024 – the slowest pace since 2020, heavily reliant on government spending.

International Influences: The ‘Trump Effect’

President-elect Trump will take office on 20 January 2025, with his administration controlling the presidency, Senate, and House. Proposed tariffs on Mexico, Canada, and China could lead to a trade war, which may indirectly impact Australia.

China, Australia’s largest trading partner, accounted for 26% of Australia’s goods and services trade in 2023. A slowdown in the Chinese economy would have far-reaching implications for Australia and the region. The Australian dollar has already fallen to around 64 US cents in anticipation of these changes.

Key Regulatory Updates

• Fuel Efficiency Standards
  From 1 January 2025, new CO2 reduction targets for vehicle manufacturers will come into effect. Companies exceeding their targets will earn credits, while those failing to meet them must either rectify within two years or face penalties.
• Wage Theft Criminalised
  From 1 January 2025, intentional underpayment of workers will become a criminal offence. Employers found guilty may face fines of up to three times the underpayment amount or $7.825 million.

Looking Ahead to 2025

2025 brings a mix of opportunities and challenges, from potential tax and superannuation changes to economic pressures and global influences. Staying informed and prepared is essential.

If you’re uncertain about how these developments may affect your personal or business finances, contact the team at Modoras. We’re here to help you make sense of the changes and plan for a prosperous 2025.

Get in touch today.