Sensible Budget
Treasurer Jim Chalmers delivered a solid and sensible Federal Budget this week.
There will be targeted cost of living relief which will mechanically reduce inflation ahead.
Although year-on-year inflation is expected to be a tick above 3 per cent in FY2024, in reality the conversation will switch away from inflation risks over the coming months, and focus will switch to measures such as 3-month and then 6-month annualised inflation figures being back down at the target range.
Source: Treasury, Budget Papers
The Aussie Federal Budget is expected to deliver a small surplus this year - an almost unbelievable turnaround over the past couple of years, following some eye-watering pandemic deficits.
And given that commodity price forecasts often prove to be so conservative, such as for iron ore prices, the figures could yet remain in the black for a while to come.
It's been a powerful combination of record employment, a half-century low in the unemployment rate, and sky-high commodity prices driving a massive boom in revenues.
Inflationary Budget?
Some economists argued that Chalmers could've or should've banked a larger Budget surplus, and that the targeted relief to reduce inflation will result in more spending and thus inflation elsewhere in the economy.
Ex-RBA economist Isaac Gross calculated that the inflationary impact of the Budget was essentially three-fifths of stuff all, and overall this was borne out by financial markets.
Bond yields fell a little on the day, and the Aussie dollar barely budged.
Overseas migration is expected to be a record 400,000 for the 2023 financial year, with another thumping 315,000 forecast for FY2024, and another 260,000 in FY20225.
Overall, it looks as though Australia will experience record population growth of close to 1,500,000 over a 3-year period, putting enormous pressure on capital city infrastructure and housing, at a time when builder and developers have been going bust as the fastest rate in more than 40 years.
Source: Treasury, Budget Papers
Housing and other measures
For the housing market, there will be some rent relief for those most in need, and the expected tax incentives were announced to promote institutions pouring funds into the Build to Rent sector.
We could see up to 150,000 new BTR units delivered over the next decade, about two-thirds of which will likely be in Melbourne.
The units will offer a guaranteed lease period of at least three years for those seeking security of tenure, though current experience suggests that rents will be around 25 per cent more expensive than what's currently available on the open market.
There were announcements relating to instant asset write-offs for small businesses, and welcome support for veterans and victims of domestic violence.
The wrap
Summing up, this was a sensible Budget with nothing too unexpected revealed on the night.
Arguably it was a plan for historically big spending over the next few years, following on from an enormous revenue windfall, but it's unlikely that this will be too inflationary given the huge salvo of interest rate increases already delivered (remember the lags!), and a domestic economy already in a 'consumer recession'.
Retail volumes fell again in the March quarter, suggesting that the Aussie economy is already flirting with a per capita recession (there's a massive population growth tailwind behind these figures):
Looking ahead, futures markets see interest rates falling over the next few years as the risk of inflation naturally subsides over the coming months.
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You can find far more detailed and sophisticated Budget analysis from James Foster here.
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Amy Lunardi and Owen Rask talk property buying risks on the Australian Property Podcast here.
Or you can watch on Youtube here: