Invest
Budget could be $200bn better off despite stimulus spending
A near record-high rebound in employment, business profits recovering and asset price booms are predicted to see Australia’s budget rebound by $200 billion even with an increase in government spending, an industry expert has revealed.
Budget could be $200bn better off despite stimulus spending
A near record-high rebound in employment, business profits recovering and asset price booms are predicted to see Australia’s budget rebound by $200 billion even with an increase in government spending, an industry expert has revealed.
With the budget predicted to be a tax sweetener for voters ahead of a federal election, analysis by UBS has revealed that it is unlikely to have an impact on Australia’s bottom line.
UBS economist George Tharenou predicts a more rapid than expected decline in JobSeeker recipients, led by a rise in employment and strong commodity prices which are leading to a faster than expected recovery.
“If the momentum continues for the rest of 2020-21, the deficit will be up to $50 billion smaller than expected. However, we allow for a conservative forecast and new policies, so we forecast the budget will present a $35 billion improvement,” Mr Tharenou said.
The economist pointed to the strong employment-to-population ratio, which is nearing record highs, as well as a business profits and asset prices boom, which Mr Tharenou opined has limited the long-term impact of the economic downturn.
“Hence, it’s plausible the budget will project a return to balance in 24/25, with a cumulative improvement of $200 billion across the profile,” he said.
Westpac chief economist Bill Evans agrees, highlighting 2021 will be a big year for stimulus despite Australia’s stronger than expected job figures.
“The labour market needs to remain “tight” for some time before the upward pressure builds on wages. So, while the unemployment rate might now be forecast to reach 4.5 per cent by mid-2023, it is still 0.5 per cent away from even reaching full employment and those ‘tight’ conditions,” Mr Evans said.
He noted that policymakers will be looking for strong wage growth before they look to reduce stimulus, but pointed out this is unlikely until the second half in 2024.
“There may well be pockets of wage pressure in 2022 as closed borders squeeze labour supply in some sectors.
“Policymakers are likely to look through those short-term pressures both on wages and, arguably, prices until borders reopen and labour supply is re-established. It is for these reasons that we think monetary policy in 2021 will remain fully committed to stimulus,” Mr Evans explained.
The big four bank’s economist believes strong iron ore prices and improvements in labour markets will lead to a stronger budget position, with the government likely to capitalise on its improving starting point for the deficits in 2020-21 and 2021-22.
“That will provide ample scope to initiate policies to sustain strong support for the economy, the economist predicts.
“Initiatives around personal tax, child care, aged care, energy and education should see significant boosts to spending in the federal budget on May 11,” Mr Evans concluded.
RELATED ARTICLES
-
Australia’s spending surprise raises the odds of a February rate move — here’s how to protect margin and momentum
-
Australia’s inflation cools to 3.4% — why the RBA’s next move still isn’t a lay‑up for business
-
Inflation cools to 3.4% — but the RBA’s reaction function keeps businesses on a knife-edge
About the author
About the author
Economy
Australia’s spending surprise raises the odds of a February rate move — here’s how to protect margin and momentum
Household outlays are running hotter than economists expected, with the latest ABS readings showing broad-based gains across services and goods. That resilience is exactly the kind of demand impulse ...Read more
Economy
Australia’s inflation cools to 3.4% — why the RBA’s next move still isn’t a lay‑up for business
Headline inflation easing is good optics; balance sheets feel something different. With year‑on‑year CPI down to 3.4% in November from 3.8%, hopes for rate relief are rising — but policymakers remain ...Read more
Economy
Inflation cools to 3.4% — but the RBA’s reaction function keeps businesses on a knife-edge
Australia’s headline CPI edged down to 3.4% year-on-year in November, from 3.8%, easing immediate pressure but not eliminating the risk of further tightening. With services inflation sticky and ...Read more
Economy
Higher-for-longer, not higher forever: How Australia’s inflation ‘surprise’ is rewriting CFO playbooks for 2026
Australia’s latest inflation pulse eased but didn’t budge bank outlooks: near‑term rate cuts are still a long shot, with some houses flagging upside risk. That steadier‑for‑longer cash rate is pushing ...Read more
Economy
Australia's inflation illusion: the real challenge lies in pricing power and productivity
Headline inflation has cooled to 3.4% year-on-year, but the Reserve Bank’s caution—and a still‑hot housing backdrop—mean the rate threat hasn’t left the room. For boards, the next few quarters are ...Read more
Economy
When house prices lift, tills ring: A case study in turning Australia’s wealth effect into growth
Australia’s latest upswing in household wealth, anchored by higher dwelling values, is more than a feel‑good statistic—it is a profit and planning signal. The ABS notes property’s centrality to ...Read more
Economy
RBA's hawkish stance reflects inflation concerns, State Street economist comments
In a recent statement, the Reserve Bank of Australia (RBA) has signaled a hawkish stance on interest rates, drawing insights from financial experts about the implications for Australia's economic ...Read more
Economy
Navigating the inflation maze: How CFOs can outsmart economic hurdles in Australia
Fresh inflation data have cooled expectations of near-term rate cuts in Australia, intensifying pressure on margins, capital allocation and demand. Rather than wait for monetary relief that may not ...Read more
Economy
Australia’s spending surprise raises the odds of a February rate move — here’s how to protect margin and momentum
Household outlays are running hotter than economists expected, with the latest ABS readings showing broad-based gains across services and goods. That resilience is exactly the kind of demand impulse ...Read more
Economy
Australia’s inflation cools to 3.4% — why the RBA’s next move still isn’t a lay‑up for business
Headline inflation easing is good optics; balance sheets feel something different. With year‑on‑year CPI down to 3.4% in November from 3.8%, hopes for rate relief are rising — but policymakers remain ...Read more
Economy
Inflation cools to 3.4% — but the RBA’s reaction function keeps businesses on a knife-edge
Australia’s headline CPI edged down to 3.4% year-on-year in November, from 3.8%, easing immediate pressure but not eliminating the risk of further tightening. With services inflation sticky and ...Read more
Economy
Higher-for-longer, not higher forever: How Australia’s inflation ‘surprise’ is rewriting CFO playbooks for 2026
Australia’s latest inflation pulse eased but didn’t budge bank outlooks: near‑term rate cuts are still a long shot, with some houses flagging upside risk. That steadier‑for‑longer cash rate is pushing ...Read more
Economy
Australia's inflation illusion: the real challenge lies in pricing power and productivity
Headline inflation has cooled to 3.4% year-on-year, but the Reserve Bank’s caution—and a still‑hot housing backdrop—mean the rate threat hasn’t left the room. For boards, the next few quarters are ...Read more
Economy
When house prices lift, tills ring: A case study in turning Australia’s wealth effect into growth
Australia’s latest upswing in household wealth, anchored by higher dwelling values, is more than a feel‑good statistic—it is a profit and planning signal. The ABS notes property’s centrality to ...Read more
Economy
RBA's hawkish stance reflects inflation concerns, State Street economist comments
In a recent statement, the Reserve Bank of Australia (RBA) has signaled a hawkish stance on interest rates, drawing insights from financial experts about the implications for Australia's economic ...Read more
Economy
Navigating the inflation maze: How CFOs can outsmart economic hurdles in Australia
Fresh inflation data have cooled expectations of near-term rate cuts in Australia, intensifying pressure on margins, capital allocation and demand. Rather than wait for monetary relief that may not ...Read more
