For the first time in over a decade, Australia’s national budget will see a surplus delivered in 2020 (+$7.1bn projected).
However, lets also understand the context within which the budget has been delivered, and the fanfare around the headline $302bn in tax cuts, since it is entirely likely that we will see the formal election campaign commenced as soon as this weekend.
Of the $302bn in tax-cuts touted, $144bn were previously announced in the 2019 Federal Budget a year ago, and only about $20bn will find their way into tax-payer’s pockets in the coming 4-years.
The most significant impact from personal tax-cuts begins to land in FY2023 and then again in FY2025.
As a guide for financial markets reaction to the Budget, investors this morning moved marginally further in favour of interest rate cuts before the end of 2019, indicating little faith in the potential for the government handouts to prevent further weakening in the already softening economy.
Beyond the personal tax cuts, the government announced an expansion to their national infrastructure plans, taking the planned spend from $75bn to $100bn (positive for Downer) and also made additional room in the healthcare budget to match Labor’s plans to remove the freeze on Medicare rebate indexation as well as an expansion of funding for the Pharmaceutical Benefits Scheme (PBS) and imaging services.
The Federal Opposition Leader is traditionally given the chance to respond to the Budget in Parliament on Thursday night, and this will be an interesting event since Labor are unlikely to challenge any of the immediate tax cuts afforded in the Budget, only the tax cuts set for deeper into the coming decade
This has the potential to neuter much of the Government’s attempt to win over voters with very near-term cash handouts.
In terms of the assumptions underlying the Budget, the government forecast economic growth of 2.75% in the coming year, and unemployment to remain near its cyclical trough currently at 5.0%.
With
forward indicators of employment already on the slide, there is certainly some
risk to current assumptions on employment and personal tax take.
From the July 1st 2020,
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