The Budget this week has created a diverse opinion as to who the beneficiaries are; it appears it’s everybody and nobody. As is customary for all budgets, praise is thin.
- There isn’t much meaningful for retirees other than there’s a 12-month extension on the deeming rate discount when calculating the age pension, but this only likely benefits around 10% of people 65 years old or over, and the benefit is not huge.
- For pre-retirees, there is a tax cut from July 1 which definitely helps households but really only offsets the significant bracket creep that has accelerated in recent years. They have extended the $20,000 instant asset write off for small business owners, which is a positive to encourage people to invest back in their businesses.
- The $300 household energy bill rebate is not likely to cover the recent increases in power and essentially artificially papers over the inflation numbers for a 3-month period without actually bringing down the cost to produce power.
The economic criticism has 3 main themes:
1. How can the government spend so much money and not add to the inflation burden?
2. Are we getting value for our level of indebtedness?
3. Did we go too far with immigration?
- Regarding inflation, enough economists and people around the RBA have warned about the need to reduce government spending that has clearly been ignored. Treasury may be clever enough to find ways to spend without adding inflation, but why take the risk? The mortgage belt is already haemorrhaging. Why gamble with their houses?
- Regarding the level of debt, I thought the level of spending during covid lockdowns was obscene but necessary. In a post covid world, where the government has never had so much income (big thanks to mining), and productivity is in decline, why are we not paying down debt asap that will otherwise just become a tighter noose for our children? The government plans to spend around $110 billion more in 24/25 than when we were supplementing covid lockdowns in 21/22. Why? It seems completely unnecessary. AND why is our gross national debt going up by more than $200 billion in the next 4 years?
- On immigration, we massively increased immigration in recent years but let’s not forget that we clearly needed those people; mostly we’ve added to the worker base but unemployment hasn’t risen markedly, so immigration had been important. Sadly, we’ve not been able to manage the distribution of those people effectively and we don’t have the housing nor infrastructure (particularly in the big cities) to cope. Again, large amounts of taxpayer funded infrastructure has to be brought forward in response but trying to deliver everything, everywhere, all at once is an expensive way to go!
Equity markets liked the sugar hit of additional spending and saw the extra distribution of funds as a tailwind, particularly for big miners and retail.
Somewhat perversely, the investment market today went up further on news of rising unemployment. Last time I checked rising unemployment is bad news but the market is looking for anything that will accelerate the lowering of interest rates.
In summary, everybody gets a small win but nobody is actually winning… Why? Because someone has to pay for the gross debt, adjectivally and literally.
