Page 6 - FWP Wealth Adviser newsletter - June 2025: Issue112

ISSUE 112
MAY 2025

This dynamic has real consequences for wealth creation. of capitalism, and Amartya Sen, who emphasised the role of
Persistently high inflation erodes purchasing power and can individual agency in economic development. Both perspec-
force central banks to keep interest rates elevated, increas- tives highlight the importance of values-thrift, responsibili-
ing borrowing costs for households and businesses. As Saul ty, and community-in fostering resilience and prosperity.
Eslake notes, the sharp decline in real household disposable
income per capita since 2021 reflects the combined impact Navigating Uncertainty:
of inflation and stagnant wage growth, undermining materi- Practical Strategies for Advisers and Investors
al living standards for many Australians. In the face of economic volatility and shifting policy
Internationally, the risks of unchecked government settings, advisers and investors must prioritise resilience. As
spending are well documented. The European debt crises of Shane Oliver of AMP notes, “There are always opportunities
the 2010s, for example, demonstrated how fiscal profligacy in periods of volatility for those who remain disciplined and
can undermine investor confidence and trigger painful diversified.” This advice is particularly relevant as financial
austerity measures. In contrast, countries that have pursued markets respond to the prospect of continued fiscal expan-
credible fiscal consolidation-such as Germany in the early sion or, alternatively, a return to tighter budget controls.
2010s-have generally enjoyed lower borrowing costs and
more stable economic growth (OECD, 2022). Key strategies for navigating uncertainty include:
For investors and advisers, the lesson is clear: fiscal • Diversification: Spreading investments across asset class-
discipline at the national level supports a stable investment es and geographies reduces exposure to specific risks and
environment, while excessive spending can fuel volatility enhances long-term stability (Vanguard, 2024).
and reduce long-term returns. • Risk Management: Maintaining liquidity and managing
debt levels are essential in an environment of higher
Reclaiming Menzies’ Values: The Role of interest rates and uncertain inflation trajectories.
Philosophy in Economic and Social Resilience • Long-term Perspective: Avoiding short-term market
Beyond the technicalities of fiscal policy, Australia’s noise and focusing on fundamental value creation helps
economic resilience is deeply rooted in its political and investors weather policy shifts and economic cycles.
philosophical traditions. The call for a return to Menzies’ • Adapting to Policy Change: Monitor government policy
values-“grounded in the dignity of the individual, the closely, as shifts in fiscal stance, taxation, or regulation
importance of the family, and the value of thrift”-resonates can have material impacts on sectors such as infrastruc-
in today’s uncertain climate. These principles, articulated by ture, housing, and financial services.
Sir Robert Menzies and championed by the Liberal Party’s
founding generation, emphasise personal responsibility, For example, Labor’s support for renewable energy and
prudent management, and the centrality of community. institutional build-to-rent housing may benefit infrastruc-
As the Menzies Research Centre notes, “A strong econo- ture and ESG-aligned sectors but could also increase public
my is the foundation of a country’s resilience and strategic borrowing and inflationary pressures in the medium term.
weight. Our strong and flexible economy has served us Conversely, the Liberal Party’s focus on small business and
well…helped Australia to achieve almost three decades of tax incentives may spur consumer spending but reduce
uninterrupted economic growth, despite many external fiscal space for new investment.
shocks, including the Asian Financial Crisis and the GFC”. Recent research from Morningstar and the OECD under-
This resilience was not accidental; it was built on policies scores the importance of resilience in portfolio construction,
that encouraged private enterprise, rewarded thrift, and particularly in periods of elevated inflation and policy
invested in skills, training, and education. uncertainty. Maintaining a disciplined, evidence-based
The tension between individual responsibility and collec- approach to asset allocation can help investors preserve
tive action remains at the heart of Australia’s policy debates. wealth and seize opportunities as they arise.
While Labor’s recent budgets have emphasised targeted
investment in renewables, housing, and social services, Conclusion: Towards a Balanced Future-
critics argue that such measures risk crowding out private Integrating Values, Discipline, and Opportunity
initiative and increasing the tax burden on future gener- Australia’s future prosperity depends on its ability to bal-
ations5. Conversely, the Liberal platform’s focus on fiscal ance reform with resilience. The lessons of the past-whether
restraint and support for small business seeks to empower the long boom under Menzies or the rapid policy responses
individuals and families to build wealth independently. to the pandemic underscore the need for both visionary
Philosophically, this debate echoes the work of thinkers leadership and fiscal discipline. As the 2025 election
like Max Weber, who linked the “Protestant ethic” to the rise demonstrates, the choices made by policymakers, advisers,

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