2025: The year ahead

An election, a growing deficit, geopolitical instability, looming trade wars, and continued cost of living stress. Sounds like fun, right?

But it’s not all doom and gloom. Australians are resilient and great at acting on opportunity.

Here’s what to look out for in 2025:

• An election
• Lost legislation
• 2025 tax & super changes
• Where to now with interest rates
• Cost of living pressures
• The 'Trump effect'
• New standards for fuel efficient cars
• 'Wage theft' criminalised

An election

With the Prime Minister’s election tour underway, the election announcement must be sitting on the tip of his tongue. The 2025-26 Federal Budget has been brought forward to 25 March 2025, suggesting that an election will be held in either March or May 2025 but no later than 17 May 2025.

As renowned psephologist Antony Green points out, Australia has never had a January or February election. May and March are much more popular months. However, the potential timeline is complicated by the next Western Australian election set for Saturday, 8 March 2025. Two elections in one month are understandably not ideal. February remains a possibility and early electioneering supports this.

The election themes have already been established. Opposition leader Peter Dutton appears to be 'downstreaming' the successful “are you better off than you were four years ago” messaging of the Trump campaign, helped significantly by the increase in the budget deficit by over $21.8bn over the next 4 years revealed in December by the Mid-Year Economic and Fiscal Outlook (MYEFO) 2024-25.

Prime Minister Albanese will be at pains to prove that you are better off with his Government than you would have been under Dutton. Labor also came under fire recently for the 40% uptick in Government advertising spending to $251 million (but not the first Government to do so, the Morrison Government spent $339 million in an election year, $89.3m of which was on the COVID vaccine rollout). The largest single spend in 2023-24 was on defence force recruitment ($61.4m), followed by the Voice Referendum ($26.7m), then controversially the Stage 3 tax cuts ($19.4m) campaign that required taxpayers to do nothing.

Lost legislation

Parliament is scheduled to resume from 4 February 2025 (assuming an election is not called prior). When an election is called, the Houses of Parliament dissolve and any Bills lapse. While the Senate pushed through 32 Bills on the last sitting days of 2024, there are a few anticipated…dreaded… (pick your adjective here), Bills yet to pass.

Zombie tax: Division 296 $3m super tax

Division 296, which imposes a 30% tax rate on future earnings for superannuation balances above $3 million, is proposed to commence from 1 July 2025. The Bill implementing the measure, Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, was divided into two by the Senate to remove the less controversial measures.

Unless there is a concerted effort to negotiate the Bill’s passage through the Senate in February, pundits have their money on this tax disappearing as a bad idea. However, the MYEFO continued to recognise the revenue from the new tax in the budget and the Government, at least at this stage, is not formally backing away from it.

Peter Dutton has vowed to abolish the tax.

No certainty on the $20k instant asset write off threshold

In the 2024-25 Federal Budget, the government announced the extension of the $20,000 instant asset write-off threshold for small business for a further year to 2024-25. The concession enables businesses with an aggregated turnover of less than $10 million to immediately deduct the full cost of eligible depreciating assets costing less than $20,000. Without this measure, the threshold returns to $1,000 for 2024-25…yes, current year.

This concession was removed by amendment from the enabling legislation at the last minute in the final sitting of Parliament of 2024. The intent is to pick it up in 2025 in a new Bill. The removal of this measure is unfortunate, as once again, SMEs now have no confidence about the tax treatment of investments in assets that they might be looking to make, or have made, in the current financial year.

Tightening the definition of fuel-efficient cars, ATO notification periods for refunds and denying deductions for GIC and SIC

The Senate Economics Legislation Committee is due to report on the measures contained in Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024 by 30 January 2025.

Luxury car tax and fuel-efficient cars

Amends the Luxury Car Tax (LCT) rules to:

• Tighten the definition of a fuel-efficient vehicle - reducing the maximum fuel consumption for a car to be considered fuel-efficient for the LCT to 3.5 litres per 100 kilometres from the current 7 litres per 100 kilometres. For car enthusiasts, that gets you a Toyota Yaris (the Lexus UX for example is 4.2 litres per 100 kilometres).
• Align the indexation rates for LCT thresholds. Under this revision, the LCT threshold for the 2024-25 is $80,567 and will be indexed annually using the index number for the motor vehicle purchase sub-group of the CPI. Currently, the LCT uses the threshold from 30 June 2012 and is indexed using the ‘All Groups’ CPI. Of late, motor vehicles have grown at a faster rate than CPI generally.

Deductions denied for interest charges

This measure would prevent deductions being claimed on the general interest charge (GIC) and shortfall interest charge (SIC), incurred in income years starting on or after 1 July 2025.

Extending ATO notification period for retaining BAS refunds

After the ‘TikTok' GST refund scam that saw $1.7 billion paid out in fraudulent refunds and another $2.7bn in fraudulent claims stopped, the time period for the ATO to notify that they are retaining a refund will be extended from 14 days to 30 days.

Future Made: Hydrogen production and critical minerals 

The Future Made in Australia is the Government’s plan for a net zero economy. The Hydrogen Production Tax Incentive and the Critical Minerals Tax Incentive form part of that plan. The Senate Economics Legislation Committee is due to report on the Future Made in Australia (Production Tax Credits and Other Measures) Bill 2024 enacting the incentives on 30 Jan 2025. These incentives seem a long way off with a start date of 1 July 2027.

The hydrogen production tax offset is a new offset that provides a refundable tax offset available at a rate of $2 for a kilogram of eligible hydrogen for companies satisfy the eligibility requirements. It is intended to be available for income years commencing on or after 1 July 2027 and ending before 1 July 2040.

The Critical Minerals Production Tax Incentive is another new tax offset focussed on minerals that are, “essential to modern technologies, economies and national security.” There are currently 31 of these minerals on the government’s list. The amount of the offset for an eligible company is equal to 10% of the eligible expenditure of the company and is intended to be available for income years that start on or after 1 July 2027, and end on or before 30 June 2040.

What about financial advice reform?

There has been more speculation than actual reform for financial advice. 2024 saw the introduction of tranche 1 of QAR, but tranche #2 is more complex, much promised but yet to deliver. Treasury’s Regulatory Initiatives Grid, states that consultation on the exposure draft legislation to enact tranche 2 is expected in quarter 1 of 2025. In December, the Assistant Treasurer and Minister for Financial Services announced the Government’s intention for tranche #2 via a ‘fact sheet’ but no details are available on how these reforms will be enacted:

• create a new class of adviser to provide safe and simple advice to more Australians, such as choosing an insurance policy or basic questions about retirement;
• modernise the best interests duty by providing legal clarity that will allow advice on single or limited scope issues if this meets the client’s needs;
• remove the safe harbour steps so advisers can focus on their client’s needs – though well intentioned, the safe harbour steps have become interpreted to mean financial advice must always be comprehensive, even if that is not in the client’s interests;
• reform statements of advice so they help consumers make informed decisions;
• clarify the rules on what advice topics can be paid for through superannuation, including through collectively charged arrangements; and
• allow superannuation funds to provide helpful ‘nudges’ to drive greater member engagement at key life stages.

2025 tax & super changes

Clearance certificates required for all Australian property sales

From 1 January 2025, all Australian residents (for tax purposes) selling or disposing of Australian real property (land and buildings) must have a clearance certificate and give it to the purchaser at, or before settlement.

If a clearance certificate is not provided, 15% of the sales price (or market value if not at arm’s length) will need to be withheld (up from 12.5%).

Previously, clearance certificates were only required where the value of the property is $750,000 or more.

For foreign resident vendors, the withholding is made available as a credit against any tax liability. The vendor only receives any refund due after their next income tax return is processed at tax time.

Superannuation rate increases to 12%

The Superannuation Guarantee (SG) rate will rise from 11.5% to 12% on 1 July 2025 - the final legislated increase.

Super on Paid Parental Leave

From 1 July 2025, superannuation will be paid on Paid Parental Leave payments. Eligible parents will receive an additional payment based on the superannuation guarantee (i.e. 12% of their PPL payments), as a contribution to their superannuation fund.

Where to now with interest rates?

At the last Reserve Bank Board (RBA) meeting, RBA governor Michele Bullock recognised the easing of headline inflation from 5.4% to 2.8% over the year to September 2024 but suggested that the economy still has some way to go before inflation is sustainably within the 2% to 3% target range. The RBA appears wary of volatility and wants to see inflation sustainably trending down before making any move. Commbank is predicting a February 2025 rate cut, ANZ and Westpac May 2025, and NAB June 2025.

But, with the Australian dollar dropping off the back of a potential US trade war with China, interest rate cuts might be some way off.

Official interest rates are currently 4.35%. The RBA meets again on 17 Feb 2024 with the next update on 18 Feb 2024.

Cost of living pressures

The National Accounts released in early December took economists by surprise with living standards growing by a mere 0.2% in the September quarter – the expectation was much higher. Discretionary spending only increased by 0.1%.

The personal income tax cuts that came into effect from 1 July 2024 helped households, as did energy subsidies, but the impact is still working its way through the system. At the same time, mortgage costs continue to rise as past increases continue to impact.

Through the year, Australia’s economy grew 0.8%, the lowest rate since the COVID-19 affected December quarter 2020. Economic activity in the Australian economy right now is heavily dependent on Government spending.

Slow and steady is the expectation for 2025.

The ‘Trump effect’

President-elect Trump will recite his oath of office on 20 January 2025. The Trump administration will hold the presidency, Senate, and the House.

For Australia, the question is the likely impact of some of President-elect Trump’s stated policy objectives including the imposition of tariffs. On social media, Trump has said:

• “…as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders.”
• “…we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America.” This in response to claims that China is responsible for massive amounts of drugs, in particular Fentanyl being sent into the US.

The issue for Australia is the secondary impact of a trade war. China is Australia's largest two-way trading partner, accounting for 26% of our goods and services trade with the world in 2023. A slowdown in the Chinese economy impacts Australia and the region generally.

New standards for fuel efficient cars

New standards for vehicle manufacturers come into effect from 1 January 2025. Vehicle manufacturers will have a set average CO₂ target for all new cars they produce, which they must meet or beat. The target will be reduced over time and car companies must provide more choices of fuel-efficient, low or zero emissions vehicles.

Suppliers can still sell any type of vehicle they choose but with more fuel-efficient models offsetting any less efficient models. If suppliers meet or beat their target, they'll receive credits. If they don’t, they will have two years to either trade credits with a different supplier, or generate credits themselves, before a penalty becomes payable.

'Wage theft' criminalised

As of 1 January 2025, the intentional underpayment of workers will be criminalised.

Employers will commit an offence if:

• they’re required to pay an amount to an employee (such as wages), or on behalf of or for the benefit of an employee (such as superannuation) under the Fair Work Act, or an industrial instrument; and
• they intentionally engage in conduct that results in their failure to pay those amounts to or for the employee on or before the day they’re due to be paid.

Employers convicted of wage theft face fines of up to 3 times the amount of the underpayment and $7.825 million.   

See the Fair Work Ombudsman for further details.