The Federal Budget is one of the few opportunities left for the Morrison Government to turn things around as it lags 10 points in opinion polls, so we got what we expected from Treasurer Josh Frydenberg in last night’s announcement – short-term hip pocket relief, a renewed interest in cost-of-living pressures for working Australians and measures that skirt close to overcooking an economy in which inflation is already tipping 3%.
All this came the day before Shane Warne’s memorial service at the Melbourne Cricket Ground, so how much of it the public will remember over the next week is anyone’s guess.
On the cost-of-living front, there was a one-off cash payment of $250 to social security recipients.
The government’s calculation is that such payments play well with the electorate. But these sugar hits can be counterproductive, placing pressure on inflation, which in turn threatens to ramp up the cost of living far beyond the cost of a week’s groceries for a mid-sized family.
In the same vein, low- and middle-income earners were wooed with the low-and-middle-income tax offset (LMITO) increased by $420, up to a maximum of $1,500, for 2021-22.
“The increased LMITO will bring relief to many Australians within months,” said CPA Australia general manager external affairs Dr Jane Rennie.
But she added: “Temporary support measures have a way of outstaying their welcome; we’re pleased the government is signalling that this is the final year for the LMITO.”
Fuel excise trigger pulled
Pundits tipped that cutting the fuel excise would be low-hanging fruit that Frydenberg would not be able to resist plucking from the tree – and so it proved. The costly measure involves cutting the excise in half for six months, with a price tag of $5.6 billion, but it was too good to resist.
The problem with such a move is that its efficacy is linked to global fuel prices, which as we’ve seen in recent weeks are volatile.
“We hope the impact of this cut is not wiped out by large increases in international oil markets,” Dr Rennie said.
“This Budget’s focus on temporary measures to alleviate rising costs-of-living such as cutting the fuel excise, cost of living tax offsets and one-off payments will be welcomed by many,” says Committee for Economic Development of Australia (CEDA) chief economist Jarrod Ball.
“But the Budget has only taken modest steps to permanently lift the capacity of households to navigate the growing pressures on the economy.
“With growing inflationary pressures and interest rate rises on the horizon, cost-of-living pressures will not dissipate any time soon and these measures do not provide a long-term solution.”
Workforce participation is key
Workforce participation, underpinned by equitable caregiving arrangements, was recognised by the government as key to economic growth and most commentators welcomed the expansion of paid parental leave measures, particularly for the non-primary care giver and for single parents.
Money was also directed towards child care, with an extra $1.7 billion spend in the critical sector,and $1.6 billion for universal preschool access. But the extra 15,000 aged care training places made available fall short of last year’s allocation and were widely seen as insufficient to meet basic standards of care in the sector.
Business expense tax break killed off
Business leaders might well be wondering what the Budget means for them. Well, the pandemic-busting business expense tax break was a casualty of the sudden interest in household expenses.
The $27 billion full expensing plan, which allowed companies with a turnover of up to $5 billion to deduct the full cost of certain capital assets, was extended in last year’s budget to cover more than 3.5 million businesses and about $200 billion worth of investment.
But this year the COVID-recovery initiative was absent from the Budget, along with loss carry-back rules.
The main sweetener for business in this Budget is the Technology Investment Boost, which gives businesses with an annual turnover of less than $50 million the ability to deduct an extra 20% of the cost of expenses that support their digital uptake. Businesses will be able to claim the additional deduction on up to $100,000 of expenditure a year.
There will be a similar tax break for small businesses to fund digital training and upskilling for staff. The Skills and Training Boost gives a small business that spends $100 on training employees a $120 tax deduction.
Fiscal responsibility
Economic sustainability was not a key concern of this election year budget. The debt and deficit mantra the government so often repeated in the early years of its term has come back to haunt it, with cumulative deficits of more than $200 billion across the forward estimates.
“This disconnect will now have to be addressed while sustainably managing Australia’s larger debt burden, during a period of global volatility, ageing and increasing frequency of natural disasters,” said Ball.
Australian Petroleum Production and Exploration Association (APPEA) CEO Andrew McConville recognised the need for the government to focus on inflationary pressures, cost of living and housing affordability. “However, there are some practical changes that would have further cemented Australia’s role as an energy leader by helping to attract global capital and capitalise on our competitive advantage,” he said.
“We would like to have seen temporary investment allowances announced previously to be expanded in scope and be made a permanent feature of the taxation landscape as part of a longer-term reset of investment policy. This would have complemented our own investments and benefited the economy more broadly.
“Incentivising investment can stimulate growth in capital availability, wage, and GDP in the same way as a company tax cut, while also raising national income.
“We will continue to work with whoever is in government to get the settings right to ensure Australia is best placed to maximise our competitive advantages in energy security and decarbonisation.”
On the market
The ASX is set to open higher today, though this appears unlinked to the budget, which contains few shocks or surprises. Instead, markets have been buoyed by positive signs from Europe and hopes for a Russia-Ukraine peace deal on the horizon.
ASX futures were up 56 points to 7,503 this morning. For the rest of the world, life went on as normal, relatively speaking, with consumer confidence up in the US. The Dow Jones Industrial Average finishing 338.30 points higher, up 1%, while the Nasdaq Composite, which fell into a bear market earlier this year, jumped 1.8%.
China’s renewed pandemic lockdown has put downward pressure on some commodities, including fuel – down 2% on Tuesday – and iron ore, which is now hovering at US$150.31 per tonne, having fallen more than 10% since the start of the month.
Base metal prices fell by as much as 4.9% yesterday, with aluminium taking the biggest hit. Lead, up 0.5%, and tin, up 0.1%, both bucked the trend.