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We have summarised the key points from the 2022-2023 budget regarding the Australian Economy.
Last night the Treasurer, Josh Frydenberg delivered the Federal Government's final budget before the upcoming election, which is expected to be announced any day now.
The budget has all the hallmarks of a pre-election budget with significant cash giveaways for low to middle-income earners, as well as increased spending for infrastructure, particularly in regional Australia, defence and health. This budget also comes at a time when Australia is posting strong economic performance as it emerges from 2 years of the pandemic with historically low unemployment. However, there remains significant uncertainty as international supply chains remain stretched. The pandemic still remains a problem in many parts of the world and a war in Europe is causing ongoing shortages, together with increased commodity prices, all providing fuel for inflation and interest rate rises in the near future.
The Government has at least listened to middle Australia who are suffering from increased prices for groceries and fuel, by providing up to $8b in cash through direct cash payments, tax offsets and a substantial reduction in the fuel excise for 6 months. The Coalition is hoping that this will be enough to return them to Government over the coming months.
However, the budget comes with risks, a stimulus at a time of near-record employment of 4% and falling, GDP growth of 3.5% and record household cash reserves, which could mean that inflation and interest rate increases could damage the economy in the longer term.
Australia’s economic performance over the last year has shown significant improvement on forecasts 12 months ago, with the budget deficit for 21/22 some $20b lower than the original forecast at $79.8b. The Government's peak debt is now expected to be $865b in the 25/26 year, peaking 12months earlier and over $100b better than expected.
The budget is predicated on economic conditions remaining strong, however, the budget will remain in deficit for the foreseeable future relying on economic growth to reduce debt relative to GDP, with no planned budget surplus in the near future, debt will have to grow, even if more slowly.
Although the budget again provides missed opportunities with respect to tax and productivity reform, we expect business conditions to remain relatively good although a tight labour market will provide challenges for many businesses. The Government has provided additional funding to improve skills education in the medium-term however in the short-term skilled labour will be in short supply requiring business to take innovative approaches to attract and retain their workforce.
Finally, this is an optimistic budget timed for an election providing significant stimulus to an already strong economy. It will be interesting to see if inflation and interest rates can be kept under control.
If you have any questions or concerns about the proposals from the Federal budget announcements, please contact your Ulton Advisor to discuss.
Want to learn more about the other announcements from the 2022 budget? Click on the links below to go through to the specific summary or view the entire budget summary here.
Source
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