FEDERAL BUDGET 2019: reaching peak budget

This budget is largely as advertised. 

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It contains some support for the household sector which is appropriate given the commodity price boost we’ve seen in the last year or so has benefited primarily the corporate sector and the government and bypassed the household sector. 

"While the focus will probably be on tax cuts, I think the main issues are more strategic than that.”

It contains some pretty credible economic forecasts particularly for the next year or so - and importantly returns the budget to surplus.

While the focus will probably be on tax cuts, I think the main issues are more strategic than that. In many ways, this is peak budget and that represents a few forces.

Some of the structural changes occurring in Australia are starting to impact the budget more forcefully, particularly demographic changes. The Parliamentary Budget Office has released some updated estimates of how significant that drag will be, particularly over the next decade.

And the political dynamic around that issue has become more interesting with voters over 50 now accounting for nearly half the voting public.

There's also a dawning sense that some of the “new normal” economic outcomes globally - structurally lower interest rates, structurally lower income growth and structurally lower GDP growth - are starting to be manifested more forcefully in Australia yet the longer term budget projections are still based off an economic profile which takes averages over the last few decades. So that's going to bring some pressure to the budget over the next few years as well.

While the focus will probably be on tax cuts, it's this idea of peak budget which is the most significant.

What we're likely to see now is rather than positive surprises in the budget being saved - to be passed through the bottom line - they're going to be spent. That brings a negative symmetry to the budget we haven't seen before.

Watch the video above to learn more.

You can read bluenotes’ full coverage of #Budget2019 HERE.

Richard Yetsenga is Chief Economist at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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