BUDGET 24-25: spent or saved?

There is no change to ANZ Research’s growth, inflation, or monetary policy forecasts as a result of the 2024-25 Australian federal budget.

The fiscal environment is, though, the most contested it has been in some years, suggesting whatever was handed down in this budget was likely to generate plenty of commentary.

There is broad recognition excess demand is part of the reason inflation is proving to be sticky. But both inflation and monetary policy impact indiscriminately. This means there are calls both for fiscal repair to reduce inflation, and cost of living support to help ameliorate its effects.

In responding to that context this budget includes one year of improved budget outcomes and three years of deteriorating outcomes.

It also includes improved economic parameters that have again helped the budget numbers overall, but policy decisions have been about twice as large in the other direction.

The inflation forecast has been helped both by measures like the household energy bill rebate, which is likely to be temporary, and lower wage growth, which will have more sustained effects.

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Notwithstanding all the moving parts in this budget, one key issue is how households will respond to the cost-of-living relief. How much will be spent vs saved? Every household receives electricity relief, every taxpayer receives a tax cut, there is also support for renters and students, those who buy medicines, and those on JobSeeker.

Consumer confidence readings are likely to be the best guide to how much support the budget measures might provide to spending in the economy. ANZ Research will be watching the weekly ANZ-Roy Morgan readings with interest.

There is so much in this budget that I suspect it will take some days, if not longer, for the full impacts to be properly assessed.

There are many demands for budgetary attention: infrastructure, aged care, domestic manufacturing, those with disabilities, women’s historic under-representation in the budget, First Nations disadvantage, the climate transition, housing, defence, cost of living pressures, to name some.

All of these have credible claims for funding, and all receive attention in this budget, but the budget doesn’t fully articulate how these could best be prioritised over time and benefits assessed against each other. These demands for spending will feature in the next budget.