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Economics & Markets

Pre-federal budget commentary

By Diana Mousina
Economist - Investment Strategy & Dynamic Markets Sydney Australia

We expect this year’s budget to look and feel like a pre-election year budget. Here, Senior Economist Diana Mousina shares expectations for the upcoming budget.

Our overall expectation for this year’s budget is that it will look and feel like a pre-election year budget. What that means is it will have plenty of good news for the household hip pocket.

The government has more cash to splash this year because the economy has been performing better than expected.

The labour market has been a lot stronger, which has brought in higher levels of household taxes and company tax revenue has also been rising quite steadily, ahead of government projections.

Jobs growth is running at 3.0 percent over the past year and tax revenue to February was some $4.8 billion dollars higher than forecast in December.

This means the government has additional money to enable it to cut household taxes, which will boost sentiment before the Federal election next year.

The government has been signalling for some time that personal income tax cuts are on the cards for households crunched by rising accommodation costs and stagnant wage growth.

The stronger than expected economy means it can also continue with its promise to get the budget back to surplus by 2021.

The major winners from this year’s budget are probably going to be households in the lower to middle income range of the spectrum because that is likely to be where the government is going to target the largest tax cuts.

Larger companies are also expected to benefit because the government is likely to continue with its focus to cut the corporate tax rate from 30 to 25 percent over the next few years.

Keep in mind that the government has already announced that small businesses will receive a tax cut in last year’s budget, so small businesses have already been positively impacted over the past year.

The group that is likely to benefit the least from the upcoming budget is higher income tax households because it’s unlikely that they will receive a direct income tax cut. However, this group will be positively impacted if the Medicare surcharge is postponed.

The Medicare surcharge, due to begin on the 1st of July this year, had been forecast to raise $8.2 billion over the forward estimates and this money was going to be used to fund the national disability insurance scheme.

The surcharge of 0.5 percent would have been shared among all Australians earning more than $21,655.

However, the Labor party last year said it would only support a Medicare surcharge for workers in the top two tax brackets – people earning more than $87,000.

Now that the Medicare surcharge seems likely to be postponed again, we should expect some kind of announcement about how the NDIS will be funded going forward, most likely from the better than expected fiscal results. We also expect other healthcare announcements.

We think that other key parts of the budget are going to be around more infrastructure spending. It’s likely there will be an announcement about a Melbourne Airport rail link and some other spending around Queensland as well.

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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.


This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.

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