How will the new taxes affect your portfolio

How will the new taxes affect your portfolio? We expect the federal government budget to tax heavily in the first few years and then deliver a surprise income tax cut in the final year before election while corporates get a free run with selected welfare schemes. The tax plan of the government will drive down consumer sentiment in the short to medium term with rising unemployment and cost of living pressures. We expect this to be negative initially to local cyclical stocks related to retail and property with financials, media and consumer service related stocks getting hurt in the medium term. Corporates now looking at M&A to reduce costs further while enjoying solid balance sheets and improving cashflow through multiple years of cost cutting. The falling consumer sentiment will further delay corporate spending to 2015. Stocks with global exposure are the preferred industrial cyclical picks. (Source: Mathan Somasundaram, Baillieu Holst)