AU Federal Budget Release and Its Impact on the Market

As inflation concerns remain front and centre, this week’s budget was a kind of balancing act for the government. There was spending to keep the economy ticking over amid the cost-of-living squeeze. But ongoing price pressures mean measures were also focused on bringing down inflation, which is forecast at 2.75% by the end of 2024-2025. The government also announced a major long-term investment in order to guarantee the country’s economic and strategic future.

The key fiscal headline was that Australia will deliver a second straight surplus in 2023-2024, as the government again brought in more dollars than it spent, to the tune of $9.3bn. However, the country won’t be in the black for long sadly, as that balance quickly turns back into a deficit of over $28bn in 2024-2025.

Key Initiatives

Arguably, the most headline grabbing measure was the announcement that every household will receive a $300 rebate on its energy bills as part of a pitch to ease cost of living pressures. That amounts to a broader rebate program that will cost £3.5bn over three years. Crucially, unlike previous energy related programs, this measure isn’t means-tested so all are entitled to it. Income tax cuts of over $20bn were also announced, which cuts taxes paid by an average of $1,888 a year.

Regarding the housing and rental situation, there were no immediate solutions or blockbuster new initiatives. The Government is increasing how much rental assistance can be received by 10% and sending more money to state and territory governments to build more homes.

Interestingly, there was some focus on migration and international students, in a situation similar to the UK. These students pay higher fees that often help universities compensate for the decline in government funding. However, large numbers of foreign students are putting pressure on the domestic housing market. This means regulations are set to be put in place to cap the intake of international students and build more student accommodation.

Perhaps the centrepiece of this potential pre-election offering was the “Made in Australia” pitch. Essentially, this initiative means tax breaks for businesses to invest in Australia, mainly in renewables, clean energy, and general future technologies. The Albanese government is keen for the country to be a big player in the global move to net zero and is willing to spend over $22bn across the next decade to accelerate investment in these priority industries.

Market Reaction

The stimulative budget has helped AUD, though positive global risk sentiment has undoubtedly spurred an underlying bid in the aussie as well, after it hit four-month highs on Wednesday. This week’s modestly cooler wage growth data should have given some comfort to the RBA as it attempts to bring inflation back to its 2-3% target. Thursday’s softening in the labour figures was also encouraging but will need to be confirmed with a few more months of data for rate cuts to appear on the horizon.

The ASX has been boosted by mining and materials sectors this week, with gold prices breaking to the upside and closing in on record highs. The softer-than-expected US CPI has brought Fed policy easing closer, with the first 25bp rate cut now fully priced in September. 

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