The new Federal Labor government has handed down their first budget with an improved fiscal position for the current year, but with mounting challenges in the period ahead.
The Albanese government has warned of “hard days to come”, meaning the likelihood of tax increases and spending cuts in the period ahead, with debt and deficit forecasts over the next decade now expected to be worse than thought just six months ago; due to costs in relation to the National Disability Insurance Scheme, rising debt payments, and weaker productivity.
There is an improvement in the cash balance amounting to $42 billion in 2022-23 and the government now expects a further improvement of $12 billion in 2023-24, both compared to previous forecasts. The improvement came via soaring commodity prices (royalties) and a booming jobs market (tax revenue), both of which are unlikely to be repeated.
Budget deficits will continue through to 2032-33, but the government doesn’t expect them to exceed more than 2% of GDP from 2024-25.
The Treasurer all but abandoned Labor’s pre-election pledge to reduce power prices by $275 a year by 2025 but gave notice that the government was planning a broad range of regulatory interventions in the energy market. They refrained from using those interventions now to avoid adding further inflationary pressures.
Overall, a reasonable budget in terms of what was required, but an uninspiring one with the forward period in mind.
Forecasts from budget papers included:
Some of the winners and losers from the budget include:
As we have reached the end of another financial year, we wanted to send a reminder about income distributions.
The Australian equity market (as measured by the S&P/ASX 200) started the year off much like the previous finished, although most of the steam had been taken out of the rally with January producing a solid +1.20% return. February was much more muted with the uncertainty of an imminent reporting season hanging over the market however with better-than-expected results, coupled with softer-than-expected domestic inflation data, March provided some highlights as Australian shares hit new record highs. The quarter ended on a high with March producing +3.27% closing the quarter off with an attractive +5.53%.
The Australian equity market (as measured by the S&P/ASX 200) started the December quarter the same way the September quarter ended, with a sea of red as stubbornly high inflation and rising bond yields placed pressure on current and forward-looking company earnings. November and December came roaring back as positive inflation data (i.e. lower inflation numbers) and sudden falls in bond yields created an air of optimism and the potential end of central bank tightening. The share market closed at near record highs.