2022 Budget Update
Federal Treasurer Josh Frydenberg delivered the 2022 Budget last night in what can be best be described as a bi-polar outcome with plenty of spending to try and wrestle back the polls given with Coalition’s recent weak showing, along with plenty of fiscal responsibility to try and bring deficits back under control after the last two years of extraordinary spending. A balancing act between supporting the pace of economic growth, trying not to add to any further inflationary pressures, whilst getting back to the Coalitions’ roots of fiscal responsibility.
The budget focuses on one-off cash payments and support (tax rebates and offsets) to try and support households suffering from significant costs increases (food, energy, housing), with the backdrop of interest rate hikes coming, whilst keeping some powder dry fiscally so as to promote the government’s economic credentials and appeal to their traditional voter base. Of the $114.6 billion in extra revenue and savings over 4 years that have appeared since the last budget update in December, this budget only spends 27% of it. Still a reasonable sum, but it could have been a lot more.
The deficit this financial year has been revised down by almost $20 billion to $79.8 billion, but the budget will stay in deficit for at least the next decade due to the rising costs of aged care, defence, and the National Disability Insurance Scheme (NDIS). According to their forecasts, gross debt will peak at 44.9% of GDP (economic output) or $1.12 trillion in 2024-25. The government has also used fairly conservative commodity price estimates, which means the government could bank significantly more revenue than they are expecting if current commodity spot prices remain elevated.
The government expects inflation to fall from 4.25% this year to 3% next year and 2.3% the year after. They also expect wages growth to rise to 3.25% next year which will see a small real wage increase (ie. net of inflation), with expectations the unemployment rate will fall to 50-year low of 3.75% whilst they keep a lid on migration.
Overall, a reasonable budget announcement that splashes enough cash (“temporary and targeted” in the words of the Treasurer) to support household consumption and give the Coalition a fighting chance to retain their leadership whilst not making it significantly harder for the Reserve Bank of Australia as they begin to remove stimulus to ensure inflation does not get too far out of control
Key measures / announcements included:
- $8.6 billion “cost of living” package – slashes petrol tax by 22 cents per litre for 6 months, gives 10 million low and middle-income earners a one-off bonus tax rebate of $420, and hands $250 cheques to 6 million pensioners and welfare recipients
- Covid business tax breaks – were not extended with many to end now whilst the temporary expensing measure for businesses will end 30 June 2023.
- NDIS costs rising – to $35.8 billion next year before rising to $46.1 billion by 2025-26, exceeding the cost of Medicare.
- Nationals – secured up to $34 billion for regional Australia in return for their support for net zero emissions by 2050.
- Further support for tradies and apprentices – another $2.8 billion to solve for skills shortages taking the total dedicated to tradies and apprentices to more than $8 billion since the pandemic began.
- Migration cap – kept at 160,000 people this year, but to rebound to 235,000 people in 2025-26.
A list of Budget Winners & Losers is as follows:
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