$3M Super Tax Back on the Agenda

After the resounding federal election result, the proposed Division 296 tax is back in focus. With legislation now before Parliament, it is time to take a closer look at what it could mean for individuals with super balances above $3 million. The legislation was reintroduced to Parliament in May 2025. If passed, the measure will apply from1 July 2025 and will have important implications for those with total superannuation balances above $3 million. The Division 296 tax proposes an additional 15 per cent tax on the earnings attributed to the portion of a member’s super balance that exceeds $3 million. This would apply on top of the current 15 per cent tax rate in accumulation, effectively doubling the tax rate for some individuals on a portion of their superannuation earnings.

What makes this proposal particularly complex is the method used to calculate these earnings. The tax is based on the year-on-year change in the total superannuation balance, including both realised and unrealised gains. This means members could face a tax bill for increases in asset values, even if those assets are not sold. For example, if your balance grows due to investment gains and finishes the year at $4 million, the earnings linked to the $1 million above the $3 million threshold will be taxed at 30 per cent. That is the usual 15 per cent, plus the additional 15 percent Division 296 tax.

The $3 million threshold is not proposed to be indexed, meaning more people could fall within scope over time due to wage growth, investment performance or inflation. Importantly, this threshold is tested on 30 June each financial year, and even one dollar above will trigger the calculation. There are concerns around fairness and practicality. Defined benefit members, including many politicians and senior public servants, are treated differently, with complex valuation formulas applying instead of real account balances. There is also the issue of liquidity for SMSFs that hold illiquid assets, such as property, which could be taxed on paper gains that cannot easily be accessed.

We caution that clients who may be affected should not panic, but now is the time to start thinking ahead. Strategies such as equalising balances between spouses, managing contributions, and assessing whether super remains the best vehicle for all wealth may be worthwhile. This will very much depend on your structures, circumstances and tax rates outside superannuation. Care should be taken not to act rashly, as recontributing funds to superannuation will not be an option. It is also important not to let the tax tail wag the investment dog. Professional advice will be essential in navigating this changing environment, especially as the legislation progresses and final details are confirmed.

By Vincent O’Neill, Chief Executive Officer

US Yield Curve Steepens as Long-End Rates Reflect Fiscal and Inflation Concerns

The US Treasury yield curve steepened notably through May, with long-end yields rising sharply while short-term rates held relatively steady. The move reflects a combination of weak demand for longer-dated Treasuries, concerns around the fiscal outlook, and evolving expectations around inflation and Federal Reserve policy. The 30-year Treasury yield moved above 5% during the month, and the 10-year approached 4.6%, marking their highest levels in over a year. In contrast, short-term rates remained anchored by Fed policy. The result is a steeper curve, unwinding the deeply inverted shape that had persisted for much of 2023 and early 2024.

One of the key drivers has been a deterioration in the US fiscal outlook. The Congressional Budget Office has projected that recent tax and spending proposals could add close to $4 trillion in new debt over the next decade. “The fiscal outlook has deteriorated markedly,” said Apollo’s Torsten Slok. “It’s not just the size of the deficit, but the trajectory.”

Auction dynamics have also played a role. A recent 20-year Treasury auction met with particularly weak demand, prompting higher yields to clear the market. “That was a wake-up call,” said TD Securities’ Priya Misra, noting the soft bid-to-cover ratio and limited participation from overseas buyers. This bear steepening – where long-term yields rise more than short-term – typically reflects a market that is repricing inflation risk or term premium, rather than shifting its outlook on Fed policy. Citi’s Andrew Hollenhorst noted that markets may be adjusting to the idea of a higher “neutral” interest rate: “The assumption that rates will normalize quickly is being tested.”

For banks and financials, the steeper curve has mixed implications. Higher long-end rates can improve net interest margins, but also put pressure on the market value of fixed income holdings. “You get a short-term gain in profitability butat the cost of capital volatility,” according to Mike Mayo at Wells Fargo. Looking forward, markets will continue to monitor supply pressures from ongoing Treasury issuance and signals from the Fed around its willingness to begin rate cuts. For now, the message from the long end of the curve is clear: concerns around debt, inflation, and duration risk are beginning to reassert themselves.

By Joey Mouracadeh, Senior Investment Director

Is the US Dollar Smile becoming a Frown?

Recent market volatility and shifting investor sentiment have prompted a debate among currency analysts about the future trajectory of the US Dollar (USD), and whether the traditional “Dollar Smile” framework is becoming a “Dollar Frown”. This debate comes as the US government grapples with significant fiscal deficits and policy choices that could impact the USD’s long-held status as the world’s dominant reserve currency.

The conventional “Dollar Smile” theory suggests that the USD tends to strengthen in two distinct economic scenarios: during periods of strong US economic growth(the right side of the smile), driven by foreign investor inflows into US assets, as we saw in late 2024, and during times of global economic stress or recession (the left side of the smile), as investors seek the safety of liquid risk free USD assets like US government bonds. Under this model, the USD would only weaken during a period of stronger global growth as investors diversify portfolios away from US assets.

However, some analysts, notably George Saravelos at Deutsche Bank, suggest that a “Dollar Fiscal Frown” may now be a more accurate representation of the USD’s future behaviour. In this alternative framework, the USD loses value when the US faces either a fiscal crisis or a recession. A fiscal position perceived as too stimulatory for US growth (i.e. larger government budget deficits and higher debt levels) can lead to a decline in both US government bonds and the USD as we have observed in recent weeks. Conversely, a fiscal stance that tightens the budget too quickly could trigger a recession and rate cuts from the US Federal Reserve, also leading to a weaker USD. Unlike the Dollar Smile, the Dollar Frown theory suggests the USD weakens during both growth slowdowns and upswings.

This shift in perspective is closely linked to concerns about the sustainability of the US fiscal position and its implications for the US Dollar’s “exorbitant privilege.” Historically, the US has enjoyed this privilege due to the USD’s role as the primary global reserve currency. This status has allowed the US to finance large external deficits with relative ease, as foreign central banks purchase US government bonds to use as foreign currency reserves. Benefits include lower borrowing costs for the US government, corporations, and households, and income from seigniorage (the profit from issuing currency such as notes and coins). In a “normal” year, this net financial benefit is estimated to be US$40 – 70 billion, or 0.3% – 0.5% of US GDP.

However, the size of recent US fiscal deficits and rising government debt, coupled with policy uncertainty, is making investors nervous. The willingness of investors to lend to the US government is being questioned as the market reassesses its appetite to fund US deficits. Some argue that the large proportion of US debt owned by foreigners creates a significant responsibility that could constrain future US policy autonomy. The US may be more willing to give up its strong currency and lower borrowing costs and also reduce its attractiveness as an investment destination in favour of domestic economic goals like job creation and growth.

While the USD remains the word’s dominant reserve currency on several key measures, including its share of official foreign exchange reserves, use in foreign exchange transactions, and pricing of global commodities, its role is facing challenges. The recent depreciation of the USD despite rising US bond yields, which theory suggests would typically lead to USD strength, has been attributed by some to investor concerns about the US policy outlook and confidence in the currency. The potential for competitive devaluation by other countries, especially against the Chinese Renminbi, persists amidst trade tensions. Although a rapid replacement for the USD is unlikely given the lack of a clear rival and the inertia in currency usage, the uncertainty about US government policy and budget deficits could lead to greater exchange rate volatility.

The debate surrounding the “Dollar Frown” highlights the potential risks posed by the US fiscal situation and policy direction to the USD’s strength and its long-standing “exorbitant privilege”. While the USD’s dominance is not expected to end soon, the current environment suggests a period of increased uncertainty and potential volatility, where the traditional rules governing the USD’s movement may no longer fully apply.

By Nick Ryder, Chief Investment Officer

Healthscope on Life Support

Australia’s second largest private hospital operator, Healthscope, has entered receivership with McGrathNicol appointed to take charge of the business this week as it seeks to find a new owner or owners for the hospital group. This dramatic development follows years of financial challenges and marks the end of Brookfield Asset Management’s tumultuous ownership. Private equity owner Brookfield’s exit and the subsequent move into receivership will most likely have significant repercussions for a range of stakeholders, including Healthscope’s lenders, major landlords and the private equity giant itself.

Brookfield acquired Healthscope for $5.7 billion in 2019, just before the COVID-19 pandemic hit. The acquisition was partly funded by selling the hospital properties and New Zealand assets, leaving the company with a substantial debt load and high rent obligations. Brookfield recently bowed out of running the business, letting its lenders take control in a bid to enable a “solvent restructure” but which subsequently saw the appointment of receivers. Brookfield and its co-investors are now facing a loss of around $2 billion in equity, with the investment effectively becoming worthless. This loss is being cited as potentially the biggest private equity wipeout in Australia’s history.

The syndicate of around 20 lenders, owed about $1.4 billion to $1.6 billion, ultimately voted for receivership after rejecting alternative proposals. This group includes major Australian banks, private credit funds and distressed debt hedge funds. Sources indicate a split among lenders; British hedge fund Polus and US-based Canyon Partners, who hold large portions of the debt, favoured receivership and asset sales to maximise short term returns. In contrast, the top four Australian banks, holding around 15% of the debt, were more sympathetic to avoiding an official insolvency event due to potential reputational damage and a desire to prevent disruption to hospitals, staff, and patients. The debt has been trading at distressed prices, as low as 30 to 50 cents on the dollar, suggesting lenders are sceptical of obtaining full repayment. Original lenders could potentially face losses as high as $1 billion.

Healthscope’s collapse was exacerbated by several factors, including the impact of COVID-19 which stopped elective surgeries, then followed by few surgeries post pandemic with an increased proportion of cheaper day surgeries. The business was also impacted by higher staff costs, driven by wage demands and staff shortages, and what Brookfield claimed were insufficient payments from health insurers to cover procedure costs.

Crucially, the high rent costs associated with the property sale and leaseback arrangement became unsustainable, soaring to around 70% of earnings before interest, tax, depreciation and amortisation which had fallen after the pandemic. Healthscope had previously defaulted on its rent payments to its major landlords, including HMC Capital’s HealthCo Healthcare and Wellness REIT and Northwest Healthcare Properties REIT, which are now also under significant pressure. The owners of the properties are expected to need to revalue the hospital properties and will likely be asked to reduce rents which Healthscope’s chief executive described as “out of the market”.

Despite the parent entity’s receivership, Healthscope has stated that the operational business, which runs the hospitals, is not in receivership. All 37 of its hospitals are intended to remain open and operating normally. To ensure this stability and provide confidence during the sale process, Commonwealth Bank has agreed to provide $100 million in new funding, classified as super senior debt, with Westpac also providing working capital. Healthscope currently has $110 million cash on hand.

McGrathNicol and administrator Korda Mentha have been appointed to manage the sale process with significant interest from potential buyers, including industry players like Ramsay Health Care, St Vincent’s, and Epworth Healthcare, as well as financial groups. However, the future of all hospitals is uncertain, particularly smaller facilities, as only six of Healthscope’s 37 facilities were reportedly profitable. The situation creates uncertainty for the 18,000 to 19,000-strongworkforce and patients, although the government has indicated it will not bailout the group but expects the sale process to maintain the integrity of the hospital network.

The collapse of Healthscope has also raised questions about whether private equity funds are appropriate owners of essential services businesses such as hospitals. The private equity playbook of applying significant financial leverage (through high debt as well as the sale and lease back of properties), adopting a three to five year holding period, combined with aggressive profit margin expansion (often through cost cutting) may not be compatible with demands of other stakeholders such as providing high quality patient care, staff retention and longer term financial viability.

By Nick Ryder, Chief Investment Officer

Big Banks Exploring the Concept of Stablecoins?

In May 2025 the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins) cleared a key vote in the Senate. This now has U.S. banking giants JPMorgan, Bank of America, Citigroup, and Wells Fargo entertaining the idea of entering the digital currency space by collaborating on the development of their very own stablecoin. A stablecoin isa type of digital currency that has its value pegged to another asset such as US dollars, or Gold, allowing it to maintain a stable price. In the world of cryptocurrencies the purpose of a stablecoin is to remove the need for individuals to hold regular fiat currency. Instead of holding regular dollars, individuals can hold a stablecoin and use that to purchase assets, completely foregoing the traditional regulated financial system. These banking giants on the other hand, are aiming to establish a stablecoin that would be operated with strict regulatory oversight, leveraging the public’s confidence in their long-standing regulatory compliance and governance structures, areas where existing crypto projects often fall short.

While regulation in this space has been slow to adapt historically, the banks are confident that their adherence to existing financial laws will give them a leg up against competitors. The hope is to deliver a stablecoin that financial institutions, businesses, and even regulators can embrace, avoiding many of the legal and reputational issues that have plagued private crypto firms over the last decade. The bank-backed stablecoin could be used for a range of applications such as peer-to-peer transactions, corporate payments, international settlements, all while being integrated into the existing banking ecosystem. This move represents a convergence between traditional finance and decentralised finance as the banks look to modernise and digitise their systems using blockchain technology, whilst adhering to current regulatory frameworks.

The development of a stablecoin backed by the banks should give investors a certain degree of comfort on who is ultimately in custody of their assets, which has long been the criticism of crypto backed projects/exchanges. This concern has been warranted however, given the collapse of various stablecoins and exchanges in recent years (i.e. Terra/Luna and FTXin 2022). It is important to remember that although these large regulated financial institutions are moving into this space, they themselves will now face the added complexities and scrutiny that comes when dealing with blockchain-based technology, which will undoubtedly increase over time as the industry faces an ever changing regulatory landscape, particularly under the current US administration which has major plans to revamp the entire industry.

The development of a stablecoin backed by the banks should give investors a certain degree of comfort on who is ultimately in custody of their assets, which has long been the criticism of crypto backed projects/exchanges. This concern has been warranted however, given the collapse of various stablecoins and exchanges in recent years (i.e. Terra/Luna and FTXin 2022). It is important to remember that although these large regulated financial institutions are moving into this space, they themselves will now face the added complexities and scrutiny that comes when dealing with blockchain-based technology, which will undoubtedly increase over time as the industry faces an ever changing regulatory landscape, particularly under the current US administration which has major plans to revamp the entire industry.

By Joseph Nakhoul, Investment Research Analyst

SB Talks Special Edition: A Conversation with Former RBA Governor Ian Macfarlane

In this special episode, Stanford Brown CEO Vincent O’Neill sits down with former Reserve Bank of Australia Governor Ian Macfarlane AC, an important member of the Stanford Brown Investment Committee.

Together, they cover:

• The shockwaves of Trump’s April 2 “Liberation Day” tariff announcement
• Why the bond market has become the key check on US presidential power
• The inflation vs recession debate – or are we staring at stagflation?
• Risks to the US dollar’s global standing

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