Before GovConnex Research is published here, it's sent exclusively to GovConnex Platform subscribers.
What you need to know
Treasurer Jim Chalmers will deliver his first Federal Budget on Tuesday 25th October at 7:30 pm AEDT.
This is the second budget of the year, the first delivered by Josh Frydenberg’s Coalition government on the 29th of March.
The budget comes amidst turbulent global economic conditions.
The ASX 200 is down 10.50% year to date.
Inflation hit 6.8% in August, with September figures to be announced on 26th October.
The Reserve Bank of Australia (RBA) continues to raise interest rates (0.25% to 2.60% so far this year). The RBA next meets on 1st November with another rate rise expected.
Chalmers has warned of a “responsible” budget, stating that “It won’t be fancy. It won’t be flashy. It will be responsible. It will be solid”.
Stage three tax cuts (simplifying the tax bracket from $45,000 to $200,000 at a flat rate of 30%) will remain despite speculation that Labor was preparing to abandon the reform.
The final budget outcome for 2021-22 was released on 28th September showing an underlying cash deficit of $32 billion, or 1.4 % of GDP, significantly better than the $80 billion deficit forecast in March.
The better than expected result is largely due to high commodity prices, particularly iron ore.
This budget is essentially a “mini-budget” held mid-cycle and common amongst new governments to establish a unique economic policy direction.
Labor will watch developments in the United Kingdom as a cautionary tale, with the Truss/Kwarteng “mini-budget” proving detrimental and almost certainly now fatal to the Truss government, a mere 6 weeks into office.
The Expected Announcements
Cost of Living
Chalmers has indicated that the budget will include “responsible” cost of living relief. The government is concerned that further economic stimulus will only worsen inflation, leading to even more of a cost of living squeeze.
Billions of dollars of flood recovery funds will be included in the budget, as the Bureau of Meteorology warns flooding will last for months to come.
Stage three tax cuts will remain, simplifying the tax bracket for those earning between $45,000 - $200,000 to a flat rate of 30%.
The reforms come at a time when bracket creep becomes more of a concern, as inflation pushes more Australians into higher tax brackets.
Updated Treasury costings have shown the 10-year cost of the cuts has blown out from $243 billion to $254 billion.
$15.8 million aimed at increasing female workforce participation.
Expansion of paid parental leave by six weeks to 26 weeks by July 2026.
$10.8 million towards a 12-month inquiry into childcare costs conducted by the ACCC.
The government has not announced any cuts to defence spending, however they have warned of at least a $6.5 billion blowout to existing projects, blaming much of this on the previous Coalition government.
28 projects are running late and 18 projects are running over budget, leaving the potential for the government to make changes to individual projects.
$1.4 billion to the Covid-19 response, including PPE and PCR testing.
$200 million annually to reduce the cost of essential medications by dropping the maximum general co-payment for PBS scripts from $42.50 to $30.
$47.7 million to bulk-billed telehealth psychiatry consultations for rural and regional areas.
$33.6 million to research grants for heart disease and strokes.
$5.4 million for brain cancer research.
$700,000 to research endometriosis.
The National Disability Insurance Scheme (NDIS) is now expected to cost more than $50 billion by 2025-2026. A blowout of $8.8 billion.
$9.6 billion total infrastructure investment across Australia.
$2.57 billion towards Victoria, including $2.2 billion towards the Melbourne Suburban Rail Loop.
$2.5 billion towards the Northern Territory, including $1.5 billion to the Middle Arm Sustainable Development Precinct, aimed at helping emerging clean energy industries.
$1.47 billion towards Queensland including a major upgrade to the Bruce Highway.
$1 billion towards New South Wales, including $300 million for Western Sydney roads.
$685 million towards Tasmania, mostly towards upgrading the Bass Highway, Tasman Highway, and the East and West Tamar Highways.
$670 million towards Western Australia, including an electric bus network for Perth.
$660 million towards South Australia, including upgrades to the Southern Expressway.
An increase in the permanent migration visa cap from 160,000 to 195,000.
$36 million to visa processing over the next nine months.
Post-study working rights for international students increased from two to four years for bachelor degrees, three to five for master’s degrees, and four to six years for PhDs.
An increase in the childcare subsidy for indigenous children from 24 hours a fortnight to 35 hours.
$173.2 million to extend the National Partnership on Northern Territory Remote Aboriginal Investment.
$2.4 billion investment over four years to expand full-fibre access to 1.5 million premises by 2025.
A Future Made in Australia policy to encourage local manufacturing. This includes an emphasis on making Australia a renewable energy superpower and increasing the refining of raw materials as a value add before they are exported.
$15 billion to a National Reconstruction Fund, to help create well-paid jobs, drive regional development, and invest in national sovereign capability. This will also include funds towards hitting Australia’s net-zero by 2050 target.
It is worth noting that government debt is now 45.1% of GDP. As interest rates rise, the cost of servicing this debt increases significantly.
On the flip side, increasing inflation means the cost of repaying the principal is reduced in real terms.
In the United States, should interest rates exceed 8% (a potential scenario given inflationary pressures), the cost of servicing the $31 trillion national debt would exceed all federal tax income, meaning that to maintain a balanced budget all federal taxation would have to be cut — a frightening prospect.
Before you engage. GovConnex.
Subscribe to newsletter
Subscribe to receive the latest insight, research and analysis to your inbox.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.