While fiscal spending when the outlook is soft can be a good buffer to slower economic growth, we believe governments must work towards surpluses to cushion against shocks and long-term fiscal pressures.
The quality of spending and recipients of tax cuts also matter for the future of the economy. Surplus projections can be maintained if wasteful spending is removed and replaced with measures that encourage work, saving, investing or innovation.
‘Congestion-busting’ infrastructure announcements seem likely although the federal government may choose to save these for election campaigning - which could start soon for a likely May 11 poll.
Infrastructure spending – whether direct, through grants to states or off-balance sheet – will be worth analysing in both the budget and the election campaign.
Needless to say ANZ Research would not support projects that prioritise marginal seat vote winning over enhancing the economy’s productive potential.
The other one
The federal opposition’s budget reply speech is on April 4. If - as polls predict - it wins the coming election, fiscal policy is unlikely to change dramatically but personal income tax cuts would likely skew to low- and middle-income earners.
In principle, this plan could be more stimulatory for the economy than the government one. Low-income earners are likely to have a higher propensity to spend than wealthier cohorts.
ANZ Research does not expect fiscal changes to cause rating agencies to revise any AAA stable credit rating for Australia, regardless of the election outcome.
Cherelle Murphy is a Senior Economist at ANZ