The attached note takes a look at the 2019-20 Australian Budget. The key points are as follows:
- The 2019-20 Budget “delivers” the long-awaited surplus and increased fiscal stimulus mainly via tax cuts/offsets.
- The main risk is that the revenue boost is not sustained & the budget continues to have relatively optimistic assumptions regarding wages growth.
- The impact on the RBA and shares is likely minimal as the fiscal stimulus in the Budget is modest.
The 2019-20 Budget had three aims: to cement the Government’s fiscal credentials by delivering the long-awaited return to budget surplus; to provide fiscal stimulus to an ailing economy, and to help get the Government re-elected. It looks on track for the first thanks to a revenue windfall, this has provided room for fiscal stimulus and of course, time will tell whether it makes a difference in the May election. Of course, while whoever wins the election will provide stimulus next financial year its timing and precise makeup won’t really be known for some time which makes the Budget a bit academic.
Key budget measures:
The goodies include:
- Income tax cuts from July focussed on low to middle-income earners of an additional $10 a week (following last year’s announced tax cut of around $10/week) which is mainly achieved by doubling the Low & Middle-Income Tax Offset.
- More generous tax stimulus in later years especially for higher income earners (which builds on the tax changes announced in last year’s budget), starting in 2022 with an expansion in the 19% rate tax bracket and a reduction in the 32.5% rate to 30% in 2024.
- Expansion of the small business instant asset write off by $5,000 to $30,000 until 2020 (which is also now extended to medium-sized businesses) and a drop in small business company tax to 25% earlier than expected.
- A $75 to $125 cash payment to 3.9 million pensioners and other welfare recipients.
- Greater flexibility for 65 & 66-year-olds to top up their super.
- Spending on energy efficiency measures including an equity injection of $1.4bn on the Snowy Hydro project.
- An extra $25bn in infrastructure spending over the next decade including $2bn for a rail from Geelong to Melbourne, and a large allocation to NSW transport projects.