Treasurer Jim Chalmer’s Budget strips tax advantages from real assets and shares - meaning the case for fixed income and credit is sharper. Perpetual’s VIVEK PRABHU explains.
- Tax advantage of real assets reduced
- Fixed income and credit case sharpens
- Find out about Perpetual Diversified Income Fund (ASX:DIFF)
TREASURER Jim Chalmers has used his fifth Budget to strip tax advantages from shares and property, strengthening the case for investors to take a fresh look at fixed income and credit, says Perpetual portfolio manager Vivek Prabhu.
The 2026 Budget replaces a 50 per cent capital gains tax discount with cost-base indexation and imposes a 30 per cent minimum tax on real capital gains from 1 July 2027.
Negative gearing on residential property is being limited to new builds, with existing arrangements grandfathered for properties held before Budget night, and a 30 per cent minimum tax on discretionary trust distributions is coming in 2028.
Together, the measures remove a structural tax advantage for shares and property that has shaped Australian asset allocation since 1999, says Prabhu, head of credit and fixed income at Perpetual, and manager of Perpetual’s Diversified Income Fund (ASX:DIFF).
That moves the investment case in favour of income-style assets for the first time in more than a quarter of a century.
“The playing field has been levelled,” says Prabhu.
“It makes fixed income more attractive.
“It means that investors will be focusing on three things when making their investment decisions - liquidity, risk and return.
“They will not be as influenced as in the past by favourable tax treatment for real assets.”
Levelled playing field
Prabhu says the practical effect of the budget changes is to tilt risk-return calculations away from speculative, high growth investments and innovation towards income generating assets.
“It makes income generating assets, like deposits, fixed income and stable high dividend yielding stocks more attractive,” he says.
“With the corollary being that more risky investments such as speculative stocks like small cap mining stocks or high growth tech stocks become less attractive as their risk levels remain unchanged but their after-tax returns diminish.”
Concessional tax treatment has long been designed to encourage business investment in Australia.
Without the concessions, growth investments need to deliver a higher pre-tax return to look as attractive as they did.
“It shakes up that risk-return equation when you’re considering the speculative end of the share market or the high-growth end,” says Prabhu.
Real returns above inflation
Prabhu says fixed income and credit has long been able to deliver attractive, above-inflation returns. Particularly floating rate funds which benefit from the additional income generated as interest rates rise and can act as a good hedge against inflation.
Perpetual’s Diversified Income Fund has delivered net returns above core inflation for 16 of the last 20 financial years, through several rate cycles, he says
“If you’re investing to get a real return after inflation, fixed income can deliver that,” says Prabhu.
“This asset class can meet that need of having an asset, which can offer low capital volatility, regular income and a real return after inflation.”
About Vivek Prabhu and Perpetual Diversified Income Fund
Vivek is Perpetual’s Head of Credit & Fixed Income. He joined Perpetual in 2004 and has more than 30 years of experience in finance, investments, accounting, governance and risk management.
He has managed multi-billion-dollar fixed income, credit and currency portfolios and his role involves credit analysis, trade execution and portfolio construction.
Vivek’s Perpetual Diversified Income Fund (DIF) is designed for investors seeking daily liquidity, reliable income and capital preservation via a portfolio of predominantly high-quality, investment-grade credit securities.
The strategy is now also available as an ASX-listed active ETF (ASX: DIFF). DIFF is a unit class of DIF.
Find out more about ASX-listed Perpetual Diversified Income Fund (ASX:DIFF) here or the managed fund here.
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