Yahoo Finance All the big bank Budget predictions
The Federal Budget will be released tomorrow evening and even with the Government leaking various schemes that will be included there is still plenty we don’t know.
Here is what the economists at each of the big four banks think will be outlined in tomorrow night's announcement.
The Commonwealth Bank: Focus on Frydenberg’s words
CBA head of Australian economists Gareth Aird said for the most part we’re expecting an improved bottom line as the deficit is reduced, increased spending in child care, aged care, defence, infrastructure, rural and regional Australia, digital and targeted industry support.
Aird said the focus of this budget will be on economic growth, job creation and dropping the unemployment rate.
“That means a combination of more targeted and temporary fiscal support as well as some permanent policy initiatives,” Aird said.
CBA has analysed Treasurer Josh Frydenberg’s comments leading up to the Budget to determine what the focus will be.
In particular, Frydenberg has said the Government’s economic strategy has two phases; the COVID recovery plan and longer term fiscal sustainability.
Fryderberg has said the Government wants to drive the unemployment rate down to where it was prior to the pandemic and then even lower.
“We interpret this as a clear signal from the Government that budget repair will not be part of the May 2021 Budget. Indeed the policy announcements in the Budget will be quite the contrary,” Aird said.
“The Government will now play a more active role in demand management in the economy compared to pre‑COVID.”
Aird said he believes the aim is to continue to use things like tax cuts and increased spending in the short run to push down the unemployment rate.
“This will ultimately help the RBA to achieve its objective of full employment and to meet its inflation target,” Aird said.
“Put another way, both fiscal and monetary will be pulling in the same direction which was not always the case pre‑COVID.”
National Australia Bank: Heavy lifting has already been done
NAB chief economist Alan Oster said the Federal Government has been clear that it plans to spend big in this years’ Budget.
Oster said elevated iron ore prices have given a timely boost to Australia’s bottom line, as has the winding back of JobKeeper in March.
“The fact that the Government doesn't have to pay as much in terms of unemployment benefits is also important, as is the fact that higher employment means higher tax receipts,” Oster said.
“That gives them a lot of money to work with.”
However while there will be a big cash injection, Oster said it probably won’t be as big as last year because a lot of the heavy lifting has already been done.
“Last time, the Government was basically trying to keep the economy afloat; throwing money at it. This time I think what they’re trying to do is improve productivity,” Oster said.
The idea, he says, is to further boost the economy, by reducing any bottlenecks and encouraging businesses to invest.
Measures to improve productivity will likely take various forms, and Oster considers the bolstering of supply chains to be a key priority.
Oster also said he thinks there will be a reduction in red tape, allowing businesses to sidestep some of the more tedious requirements to get their plans over the line.
“It’s a matter of getting the economy to operate more efficiently,” Oster said.
For those sectors still feeling the effects of the pandemic, Oster said more direct assistance might soon be available to minimise any fallout from the winding back of JobKeeper.
“In JobKeeper’s absence, I think they would try and help the CBDs, arts and recreation, and education – any of those areas that are really struggling,” he said.
On the flip side, labour shortages are also an issue for various sectors due to a lack of immigration.
“We’re going to have the lowest population growth for 100 years,” Oster said.
The Government has already indicated it will address this through a focus on upskilling to meet Australia’s particular needs and encouraging high-level talent from overseas.
On the home front, Oster said the recently announced childcare support measures could help mum and dad businesses that juggle long hours, but said it may not be enough.
“I think they’ll need more than that. It might sound a lot, but in terms of an economy that’s a couple of trillion and a deficit that’s going to be $50 billion to $70 billion, $2 billion is nothing.”
However, tax cuts are definitely on the cards. The question is whether or not the Government will extend the Low to Middle Income Tax Offset or bring forward Stage three tax cuts.
“I wouldn’t be surprised if they bring forward personal tax cuts a year or two,” Oster said.
Westpac: Big focus on female dominated industries
Meanwhile, Westpac’s chief economist Bill Evans said a lot of the big spending will be going into the mostly female dominated areas like child care, aged care and education as well as those that have been the most impacted by border closures like tourism and small business.
“The government has already revealed its expenditure plans on the two most pressing issues in the Budget – Child Care and Aged Care, with annual costing at $1.7bn and $2.5bn, respectively,” Evans said.
“The planned expenditure on these two key issues looks low relative to the estimates provided by independent studies. This probably means that the current plans will need to be upgraded in future Budgets.”
Also, when it comes to personal taxes all eyes are still on the Low and Middle Income Tax Offset which Evans also expects will be extended.
“In extending the LMITO for a third year the government will be missing the opportunity to bring forward tax reform. It will be a break of four years when no tax reform will be delivered,” he said.
“LMITO was designed as an interim measure; and its extension is not tax reform and continues double compensation.”
Frydenberg has continued to emphasise the importance of lifting growth in Australia to attain an unemployment roare of 4.5 per cent.
“The reforms to Child Care that will be announced in the Budget are aimed at improving participation in the labour market – lower tax rates also boost participation while increasing disposable incomes and spending power,” Evans said.
“Australians are aspirational and not necessarily opposed to lower tax rates for middle and high income earners.”
“With the Federal election most likely scheduled for around May 2022 and another Budget likely before then we cannot dismiss the possibility of the government extending the LMITO for yet another year – making three years of double compensation.”
ANZ: Spending to be 28 per cent of GDP
Finally, ANZ’s market economist Hayden Dimes and senior economist Felicity Emmett believe spending will remain high.
“In 2021-22 government spending will be contributing less to GDP growth than it was in 2020-21,” they said.
“With spending set to be around 28 per cent of GDP, much higher than the long run average of just under 25 per cent, this will be a very expansionary budget given the state of the cycle.”
Dimes and Emmett said spending an additional 3 per cent of GDP when the economy is growing above trend represents considerably more aggressive fiscal policy than the same commitment amidst a recession.
ANZ believes the budget will represent an expansionary policy when considering the economic backdrop and outlook.
“In December the unemployment rate was forecast to be 7.25 per cent in June 2021 and then fall to 6.25 per cent by June 2022,” they said.
“This budget, however, will be delivered with the unemployment rate at 5.6 per cent and ANZ expects the government to forecast a fall to somewhere close to 5 per cent by the middle of 2022.”
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