Last week’s Federal Budget received a mixed response by economists and media commentators – a combination of big spending whilst also a focus on reducing the budget deficits, a delicate balancing act, and one that also clearly has the upcoming federal election in May very much in mind.
A stronger-than-expected economy, a record number of people in employment (with the forecast for unemployment to fall below four percent – a 50-year record), and a massive spike in commodity prices – partly due to the war in Ukraine – has seen the revenue dollars pouring in. However, at the same time the treasurer is spending tens of billions of dollars across the board, including an $8.6 billion support package for households facing cost of living pressures.
Wage growth has been slow relative to the rise in the cost of living, with rising rents and the housing affordability combined with the increased cost of filling up our vehicles has put households under pressure. This may well be the one factor that halts the Reserve Bank from raising the cash rates. Once they see better wage outcomes, we can expect to see increasing interest rates to temper any resultant inflationary pressures.
Looking at the Federal Budget at a glance – here is a summary of some of the key forecasts:
- Budget deficit of $78 billion in 2022/23
- Commonwealth net debt to rise to $714.9 billion (31.1 percent of GDP) in 2022/23
- Economic growth to rise by 3.5 percent in 2022/23
- Unemployment rate of 3.75 percent in 2022/23
- Inflation as measured by CPI to be 3.0 percent in 2022/23
- Wages to rise by 3.25 percent in 2022/23
COST OF LIVING
- $420 cost of living tax offset for low- and middle-income earners, and a $250 cost of living payment for pensioners, welfare recipients, veterans, and concession card holders
- Halving petrol and diesel excise for six months, delivering a saving of $300 for the average household
- From July 1, the PBS Safety Net threshold to be reduced for general and concessional patients lowering out-of-pocket costs for medicines for 2.4 million people.
- Support for small businesses to adopt digital technology and train and upskill employees with new tax incentives
- $2.8 billion for apprentices and $2.2 billion to support Australian industries and universities to develop innovative companies and products
- National Housing Finance and Investment Corporation to get a $2 billion top-up to support 10,000 more affordable homes