The Economy in 2026 - What it might look like

Clarke McEwan Accountants

The economy in 2026 - 6 possible transformations for Australia

By imagining for a few minutes that the year is 2026, we can get a better idea of how the Australian economy might evolve. Here six economists speculate on how the economy might change in the decade after 2016.

INTHEBLACK asked six leading economists to exercise their imaginations and invent a story of what Australia's economic evolution might look like by 2026. They invented economic environments with elements that we can already see, but with huge changes to jobs, businesses, cities and international relations.

Here, then, are six thought-provoking visions of possible economic changes ahead, each addressing a different element of the economy.

Automation, looking back from 2026 - Shane Oliver

In the past decade hundreds of thousands of jobs have disappeared in transport, professional services, manufacturing, government and other sectors as machines have taken over repetitive tasks.

In the past, such transformations occurred over decades, giving displaced businesses and workers time to adjust, and the technologies that have driven the process have given rise to new industries.

Shane Oliver

Shane Oliver

However, AMP Capital Investors chief economist Shane Oliver says the decade to 2026 has been different. The rapid speed of change has been traumatic for many - old jobs have been destroyed at a much faster pace than new ones have been created.

This has caused a growing gulf between those in well-paid jobs, immune to automation, and the rest.

With less disposable income around, economic growth has slowed and social tensions are increasing. There are growing demands for the government to use the tax and welfare systems to even the spread of income, and people are loudly advocating a shift to a four-day week to share jobs.

All is not gloom, however. Cafes, tourism operators, gyms, gene therapy clinics and other personal service providers are prospering, and new jobs and businesses are appearing all the time. Despite this, the period of dislocation has been painful for many.

The workplace, looking back from 2026 - Deborah Cobb-Clark

The plunge in office rents and property prices that began in 2021 shows little sign of letting up as the days of the corporate head office appear increasingly numbered.

Deborah Cobb-Clark

Deborah Cobb-Clark

While a core of employees continue to work in the same physical space, for years now a growing proportion has been taking advantage of advances in communications technology to work from remote locations - homes, shared office spaces and even cafes with dedicated work areas.

University of Sydney professor of economics Deborah Cobb-Clark, who anticipated this development a decade ago in 2016, says this, combined with the increasing automation of many jobs, is transforming the way we live and work.

People have more leisure time as their workload shrinks and an increasing number are freed from having to undertake the daily commute.

The new model of work is changing the structure and purpose of cities. Increasingly, the CBD as a work destination is a relic of the past and the "peak hour" pressure on transport networks is receding. People still flock to cities, but mostly for their amenity and social life rather than work.

Population ageing, looking back from 2026 - Stephen Koukoulas

Having already helped to usher in land taxes in the states, the Federal Government is now facing an even tougher political fight over plans to increase the retirement age to 70 years, introduce death duties and establish a HECS-style scheme for the aged pension.

Stephen Koukoulas

Stephen Koukoulas

Stephen Koukoulas of Market Economics says there is little choice. "It is a matter of dollars and cents," he says. "Community expectations are that the provision of services be held to a high level, and that is very expensive."

The nation's swelling ranks of retirees are driving ever-increasing demands for health care, community services and income support. The burden of this cost is falling on a shrinking share of working-age Australians.

The situation has called for radical solutions, and the government is now contemplating measures that 10 years ago would have been considered unthinkable - including a progressive scale of death duties and a "reverse-HECS" for pensions, under which a means-tested proportion of the welfare payments claimed by recipients are reimbursed to the government from their estate when they die.

"People want a decent level of government-provided services," Koukoulas says, "but without some serious action, there is a real risk of it becoming unaffordable."

Productivity, looking back from 2026 - Mardi Dungey

Australia's biggest economic achievement of the past decade has been to solve the conundrum of chronically low productivity.

Mardi Dungey

Mardi Dungey

By breaking down rigidities in the way work is conceived and structured, University of Tasmania professor of economics and finance Mardi Dungey says the nation has tapped into a rich pool of labour and expertise among those who in the past have been systematically excluded from the workforce, such as those with disabilities and chronic medical conditions.

By relaxing time constraints and instead conceiving jobs in terms of outcomes, the nation has opened up a swathe of opportunities for those who might take longer to complete a task, but can deliver results at least the equal of able-bodied workers.

Innovations like e-lancing and a more sophisticated approach to measuring production, particularly in the services, have helped drive the transformation.

Deflation, looking back from 2026 - Nicholas Gruen

Almost 20 years on from the global financial crisis, the Australian economy, like that of much of the developed world, continues to struggle to get out of second gear.

While Australia's record of 35 years of unbroken growth is remarkable, Lateral Economics principal Nicholas Gruen says there is little to celebrate from the last 10 years. The dark cloud of economic stagnation that settled over Europe in the wake of the GFC has spread Down Under.

Nicholas Gruen

Nicholas Gruen

The tough medicine policies forced on Europe's debtor nations (Italy, Spain, Greece) by Germany stoked deflationary forces that quelled growth there, and a similar dynamic has gripped Australia. Central banks around the world, including in Australia, have struggled in vain to lift the inflation rate.

Most workers have not had a real pay rise in years, and housing costs are claiming an increasing share of income, leaving fewer dollars left over for shopping and personal services. In turn, soft turnover has given firms little reason to hire more staff or make substantial investments.

In the past decade, annual growth has averaged 2.5 to 3 per cent, rather than 3 to 3.75 per cent. The result, says Gruen, has been to make the country 5 per cent poorer than it would otherwise have been.

Instead of acting to break out of this rut, successive governments have been complacent. "Now our unemployment rate is higher than the United Kingdom and the US, and there is no sense of urgency, or that something is seriously wrong," says Gruen. "It is a story of the great Australian complacency."

China's hard landing, looking back from 2026 - Saul Eslake

In the decade since 2016 the country has endured slowing population growth, a continued decline in the terms of trade and productivity, and an end to booming house prices. Yet the biggest shock has come from the liquidity crisis that crippled China's financial system.

Saul Eslake

Saul Eslake

The warning signs were already appearing in the middle of the last decade, says independent economist Saul Eslake, when the country's banking system developed some of the worrying characteristics of the American banking system before the global financial crisis hit.

"The GFC was not primarily caused by a huge increase in bad mortgage loans, but by a wholesale run on funds tied up in securities," Eslake said at the time.

"China's banking system has taken on some of that character. China's banking system has become much more dependent on the types of funding [securities] that brought down the Western banking system [in the GFC]," he adds.

The Asian country's massive foreign exchange reserves, worth around US$3 trillion, were of little help in what became a solvency crisis. For Australia, whose trade dependency on one nation was greater than at any time since the 1950s, the economic consequences have been severe.

By Clarke McEwan July 2, 2025
Where are things at? Australian superannuation funds currently have about $400 billion invested in the US and tax concessions are currently available under existing tax treaties. This could change. A new bill, backed by the Trump administration and recently passed through the House of Representatives proposes higher taxes on countries seen to be discriminating against US businesses, including Australia. If the bill becomes law, Australian super funds could face higher taxes on US investments, directly affecting the long-term returns of super funds. The implications Even if you don’t have direct investments in the US, this matters. If your business is tied to superannuation funds or if you rely on consistent super returns for your retirement planning, changes like these can add pressure. It also adds a layer of uncertainty for Aussie businesses operating globally. As trade tensions rise and tax rules shift, doing business internationally becomes more complex and potentially more costly. Tax experts say these changes could override existing treaties between the US and Australia. And they’re not just aimed at big corporates, any individual or entity with US exposure could potentially be affected in some way. What’s being done? Industry groups including the Financial Services Council are calling on the Australian Government to step in and protect Australian investors through diplomatic and trade channels. Major super funds have already met with US lawmakers, reminding them that Australia is a significant source of capital for US markets and that strong partnerships go both ways. That said, this legislation is still working its way through Congress and faces pushback even from some Republicans. But as one US political expert said, ‘Bills that looked doomed have passed before.’ We live in hope but it’s not over yet. What can you do? Using John Howard’s barometer, for now we’re at the be alert but not alarmed stage. If you’re managing a business, planning your retirement, or investing overseas, this is a reminder of how global politics can impact your bottom line. Here’s what we recommend: • Stay informed. Tax rules can change quickly • Ensure your retirement planning is flexible enough to adjust if needed or talk to us to help you • Talk to us if you’ve got exposure to US investments, but you might need some input from a US tax specialist. There’s undoubtedly a bit to consider in the world of tax / finance at the moment, the environment’s changing at pace. You’re not alone in this though, as always please reach out if you have any questions and concerns. We’re here to help.
By Clarke McEwan July 2, 2025
Is there a shift away from trusts? In recent years, we have noticed a slight trend of businesses transitioning from trust structures to corporate entities. This shift is largely due to increasing scrutiny on how trusts are used and the growing complexities involved in managing trusts, particularly when it comes to documentation and compliance requirements. Trustees and directors of trustee companies are realising that they need to devote more time and resources to ensure compliance with evolving and complex regulations. One of the primary challenges in utilising trusts for business purposes is the need for timely and accurate decision making. Trustees are normally required to make decisions about distributions by the end of the financial year to prevent the profits of the trust from being taxed at penalty rates. This timing can be problematic as it might not align with the availability of complete financial information, especially for businesses that are actively trading. This can lead to difficulties in making informed decisions regarding the distribution of trust income and to achieve optimal tax outcomes. The ATO has also intensified its focus on trust arrangements, especially when it comes to the use of integrity rules which have formed part of the tax system for many years, but haven’t tended to be applied all that often. The risk of making mistakes and being detected is probably higher than ever before. All’s not lost (we’re here to help) While the landscape around trusts is evolving and the scrutiny is high, this doesn’t mean that trust structures don’t still have their place. With the right support (support that we can provide in conjunction with other experts) trusts can still offer advantages that other structures can’t. They can still be a useful platform for passive investment activities, estate planning and as part of a business structure. This isn’t the time to give up on trusts. But it is important to seek advice before setting up a trust to make sure it is the most appropriate option and to fully understand the advantages, disadvantages and practical issues that will need to be managed when using a trust structure.
By Clarke McEwan July 2, 2025
Finfluencers: bad tax advice could cost you Relying on this advice could not only leave you out of pocket but also expose you to ATO penalties, fines or in the worst case scenario - prosecution. What’s the problem? Many finfluencers make money by promoting financial products on behalf of companies, which means that they don’t necessarily have your best interests in mind when sharing information or insights. Finfluencers aren’t always qualified to provide advice on tax or financial products. You just can’t expect to receive solid, reliable or tailored guidance. Unfortunately, we’re seeing some influences share tax hacks that are either completely false or apply only in extremely limited situations. The ATO and some of the accounting professional bodies have sounded the alarm on some recent false claims, including: • Claiming your pet as a work related guard dog • Writing off luxury handbags as laptop bags • Deducting fuel costs without any documentation • Trying to claim swimwear as a work uniform These kinds of suggestions might sound plausible but following them could get you into serious trouble. The ATO uses sophisticated data matching tools to detect suspicious or inflated claims. If your deductions don’t meet the legal criteria, this could trigger an audit and if mistakes are found, the consequences can include: • An increased tax liability • Interest charges • Fines • A criminal record and in the most serious cases, imprisonment. Here’s how to stay safe and tax smart: • If it sounds too good to be true, it probably is. Dodgy deduction tips on social media are best ignored, at least until they can be verified. • Stick to trusted sources. For official tax guidance, visit ato.gov.au. • Don’t risk your business or personal reputation for a quick deduction. If you aren’t sure, please reach out to us and we can help you stay compliant, no filters or hashtags!
By Clarke McEwan July 2, 2025
What are the interest charges? There are two main types of interest that are charged by the ATO. These are: • General Interest Charge (GIC) : This applies when you pay your tax liability late. The ATO applies GIC to encourage tax liabilities to be paid on time and ensure taxpayers who pay late don’t have an unfair advantage over taxpayers who pay on time. GIC is calculated on a daily compounding basis on the overdue amount. The GIC annual rate for the July – September 2025 quarter is 10.78%. • Shortfall Interest Charge (SIC) : This is applied when there is a shortfall in tax paid because of an amendment or correction to your tax assessment. SIC is also calculated on a daily compounding basis. The SIC annual rate for the July – September 2025 quarter is 6.78%. The ATO applies SIC to the tax shortfall amount for the period between when it would have been due and when the assessment is corrected. What’s changing? Historically, both GIC and SIC amounts could be claimed as a deduction. This has meant that the net after-tax cost of the interest charges has been reduced for taxpayers who have a positive income tax liability for the relevant income year. However, the Government has passed legislation to ensure that GIC and SIC amounts incurred on or after 1 July 2025 are no longer deductible, even if the interest relates to a tax debt that arose before this date. As these interest charges are no longer deductible, this means that the after-tax impact of the charges is higher for many taxpayers. The impact becomes greater as your tax rate increases. For example, let’s take a look at two individuals who have the same level of tax debt owed to the ATO and the same level of tax debt owed to the ATO and the same GIC liability of $1,000 for a particular income year: • Sally is a high income earner and subject to a 45% marginal tax rate (ignoring the Medicare levy). Under the old rules the net cost of the interest charge was only $550 because she could claim a deduction for the GIC amount and this reduced her income tax liability by $450. Under the new rules no deduction is available and the full cost to Sally will be $1,000. • Adam is subject to a 30% marginal tax rate (again, ignoring the Medicare levy). Under the old rules the net cost of the interest charge was $700 because he could reduce his income tax liability by $300 by claiming a deduction for the GIC amount. As with Sally, under the new rules no deduction is available for the GIC and the full cost to Adam is $1,000. What can I do to minimise the impact of this change? The simple answer is to pay down ATO debt as quickly as possible. As you can see, the GIC rate is relatively high and continues to accrue on a daily basis until the debt is paid off. The faster you can pay off that debt, the lower the interest charges that will accrue. If you can’t afford to pay off your ATO debt in the short term then you might want to explore other options, including whether you would be better off borrowing money from another source at a lower interest rate to pay off the ATO debt. In some cases it is possible to claim a deduction for interest accruing on a loan that is used to pay tax debts, although this is normally only possible if the debt arose from business activities. It isn’t normally possible to claim a deduction for interest accruing on a loan that is used to pay a tax debt that arose from investment or employment activities. While the ATO will sometimes allow taxpayers to enter into a payment plan so that tax debts can be paid through instalments, tax debts that are subject to a payment plan still accrue GIC. On a more proactive basis, a better option is to plan ahead to ensure that upcoming tax payments can be made on time. This will sometimes mean setting aside funds regularly for tax instalments, GST, PAYG withholding and other amounts that need to be paid to the ATO. Keeping these amounts separate will help to ensure you’re ready when the ATO bill arrives. If you're currently carrying tax debt or need help staying ahead of your obligations, we're here to help. Let’s work together on a strategy that keeps you compliant and protects your bottom line.
By Clarke McEwan July 2, 2025
How does it work? While we are waiting to see whether the measure will become law, let’s assume for the moment that the Government passes legislation which is consistent with the Government’s announcements to date. If so: • If your TSB is over $3 million at 30 June, a portion of your annual superannuation earnings above that threshold will be taxed at an additional 15%. • The tax is assessed to you personally and can be paid from your super or your own funds. • Superannuation earnings for this purpose reflect the increase in your net super balance for the year, adjusted for certain contributions (eg, inheritance via death benefit pension) and withdrawals. • Some exclusions apply: children on super pensions, structured settlements (personal injury), and the deceased. It is important to remember that your TSB is the aggregate of all Australian superannuation interests (including balances with APRA funds, SMSFs and defined benefit schemes) held at the end of the income year. If the start date is 1 July 2025, then the first test date will be 30 June 2026. An individual’s TSB at this date, and each following 30 June, will determine whether they will have a Division 296 tax liability for that income year. Only where the individual has a TSB on 30 June in excess of $3 million will they have a Division 296 tax liability for that income year. Examples Sam’s account • 30 June super balance: $4 million. • Annual growth: $120,000. • Portion above $3m: ($4m–$3m)/$4m = 25% • Taxable earnings: $120,000 x 25% = $30,000 • Extra tax: $30,000 x 15% = $4,500 Lisa’s inheritance • Lisa’s balance rises from $2m to $4.5m after receiving a death benefit pension. • Only new investment growth (not the transferred amount) is taxed as earnings, but a total balance over $3m means she may still have a liability. What can you do? • Review your super fund liquidity and cashflow planning for future tax payments • Ensure your asset valuations are up to date • Estimate your combined super balances and plan for any large transactions • Document asset values, especially for SMSF members • Seek tailored professional advice before making any changes While we are waiting to see whether the legislation passes through Parliament and whether any significant amendments or adjustments are made to the proposed measures, if you have any questions or concerns around this in the meantime, reach out – we’re here to help.
Leveraging Xero for Medical Practices: The Importance of Monthly Bank Reconciliation
By Clarke McEwan June 12, 2025
Leveraging Xero for Medical Practices: The Importance of Monthly Bank Reconciliation In the evolving world of financial management, the use of cloud-based accounting software like Xero has transformed how businesses, including medical practices, handle their finances. For healthcare providers in Australia, maintaining accurate financial records is crucial, not only for compliance but also for ensuring business efficiency and growth. One of the fundamental accounting processes that support this is regular bank reconciliation. Why Choose Xero for Your Medical Practice? Xero is a user-friendly, cloud-based accounting software designed to simplify day-to-day financial operations. Here are some key reasons why medical practices are increasingly adopting Xero: Streamlined Billing and Invoicing : Xero allows for easy creation and management of invoices, ensuring that patients are billed correctly and efficiently. Real-Time Financial Overview : With Xero, you can access your financial data anytime, anywhere, providing you with a real-time snapshot of your practice's financial health. Integration with Other Systems : Xero integrates seamlessly with a plethora of healthcare management systems, reducing manual data entry and enabling smooth workflow. Efficient Payroll Handling : Automate payroll processing within your practice, helping you manage employee payments and relevant compliance efficiently. The Significance of Regular Bank Reconciliation Bank reconciliation is the process of aligning the records in your practice's accounting system with the corresponding information on your bank statement to ensure both sets of records are accurate. Here’s why doing this every month is vital: 1. Error Detection and Correction Bank reconciliation allows you to spot any discrepancies between your records and the bank's data. This includes identifying double payments, missed transactions, or bank errors that could cost your practice a significant amount if left unchecked. 2. Fraud Prevention By regularly reconciling your accounts, you create an opportunity to detect early signs of fraudulent activity or unauthorized transactions, safeguarding your practice’s funds. 3. Cash Flow Management Accurate reconciliation ensures that your cash flow statement reflects the true financial state of your practice, helping you plan for any financial commitments and investments with confidence. 4. Compliance and Reporting Regular reconciliation ensures your financial statements are accurate, facilitating smoother tax filing and adherence to Australian financial regulations. 5. Financial Decision-Making When reconciled correctly, your financial data becomes a reliable foundation for making strategic business decisions, such as expanding your practice or acquiring new equipment. Incorporating Xero into Your Routine To maximize the benefits of Xero for your medical practice: Schedule Monthly Reconciliation : Set aside dedicated time each month to complete your bank reconciliations without fail. Leverage Automation : Use Xero’s bank feeds to automate transaction imports, which makes the matching and reconciliation process quicker and more efficient. Stay Informed : Regularly review reports generated by Xero to keep abreast of your practice’s financial performance and trends. Consult with Professionals : Collaborate with your accountant or financial advisor to ensure that your reconciliation processes are optimized and aligned with best practices. In conclusion, adopting Xero and maintaining regular bank reconciliations in your medical practice are not merely about staying compliant; they are essential components of robust financial management. They ensure your practice operates smoothly and is prepared for growth, making them indispensable tools in today’s healthcare landscape. Discover how our accounting services can further enhance your financial management processes. Get in touch with us today for tailored solutions to meet the unique needs of your medical practice. To arrange a no obligation meeting please use the link here
More Posts