Lots of ammo, wrong target: Budget fails to hit its mark

By Cameron Micallef

October 19 2020
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The latest Treasury budget is the right size but is poorly targeted, with the focus on supply when a lack of demand is the real issue, according to an expert.

Nucleus Wealth’s head of investment, Damien Klassen, said the budget should be focused on weak demand, with many of the stimulus packages being put forward unlikely to help the economy.

“The budget has a huge focus on supply-side support. Supply is not the problem! Everyone has spare capacity. Demand is weak and needs help, not supply,” Mr Klassen said.

“Giving money to companies to hire more workers when the existing workers are not at full capacity is not going to help. Giving companies tax credits to buy new equipment doesn’t help if the old equipment is running at 60 per cent capacity.”

He also pointed to the credit to manufacturing though Australia does not produce its own goods anymore.

“$30 billion on company tax incentives and another $1.5 billion on a Modern Manufacturing Strategy is a noble endeavour. But that money is going to buy Chinese, Japanese and US robots. I’m sure those countries will be grateful for the demand. Australian taxpayer-funded stimulus payments should really be targeted to support Australian jobs.”

Mr Klassen also pointed to the fiscal cliff with government support greatly changing during the next quarter.

“The drop off in spending is really, really large from Q3 to Q4. In Q3, government (and superannuation drawdown) support was over $100 billion. In Q4 it looks like being almost 70 per cent lower. Q1 of 2021 will be 70 per cent lower than Q4.”

“COVID is looking increasingly like a marathon. Australia came out of the gates sprinting; we’ve now dropped to slow to a walk. In three months, it will be a crawl,” he said.

Finally, he pointed to large sectors of Australia’s economy, including tourism, education and migration, which will be unlikely to return quickly.

“This budget didn’t tick many boxes. Don’t get me wrong, the fiscal cannon is large enough to help. There is enough ammunition loaded into the cannon. But it has been pointed in the wrong direction. Which means it will likely need to be fired again within the next 12 months,” Mr Klassen concluded.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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