Australia's FY24 budget: addressing inflation and relief
Treasurer Jim Chalmers to present a critical budget aimed at balancing inflation control with cost-of-living relief, amidst speculations on RBA's next moves.
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Federal treasurer Jim Chalmers will deliver the annual budget for FY24 on Tuesday, May 14, at 7.30pm AEST. This will be the Labor government's third budget since winning power in May 2022.
In financial markets, a key question is whether the budget will contribute to Australia's inflation problem or be part of the solution. Specifically, can the government utilise its strong fiscal position to strike the right balance between providing cost-of-living relief without inflaming sticky inflation? Failure to do so could backfire spectacularly if the budget inflames inflation, and the RBA is forced to raise rates before the next federal elections in 2025.
What is expected from the budget?
A budget surplus
The government is expected to announce a budget surplus of around $12bn this financial year, a significant turnaround from its December update of a deficit of—$1 bn.
The fiscal turnaround has been driven by surging tax revenues from high commodity prices, a tight labour market lifting tax payments and reducing welfare payments, and firmer-than-expected immigration. The budget is then expected to return to a deficit of—$15 bn in the following year.
Key initiatives
- Tax cuts for all Australian taxpayers from July 1st. These tax cuts have already been legislated and are estimated by some to be the equivalent of around three 25 basis points (bp) interest rate cuts.
- Wiping student debts.
- More funding for Child, Health, and aged care.
- Increased defence spending.
- Increased infrastructure spending.
- Increased spending on housing.
- Power bill and rent relief.
- Measures to promote women's economic security.
- Policies to support key industries as part of Future Made in Australia include producing solar panels, rare earths, and other critical minerals, including nickel.
Implications for markets.
Reports in today's media suggest the government expects its cost-of-living relief measures to be announced in the budget, including rent and power bill relief, to help inflation return to the RBA's 2-3% target by Christmas.
We don't necessarily agree with this view as the freeing up of money in one area often emerges elsewhere. Ahead of the budget, the rates market is pricing in 4bp of RBA rate hikes by September, which suggests the rates market isn't buying into the governments rationale either.
ASX 200 30 day interbank futures implied yields curve
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- Source: Tradingview. The figures stated are as of 13 May 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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