What to make of last night’s budget

What do I think about last night’s federal budget?

I’m glad you asked.

You didn’t? Well, that’s awkward, but read on, anyway!

Last night’s budget was, well, an anticlimax as far as budgets go.

They’re usually full of bluster and big announcements:

“Mr Speaker, this government realises the [X] is important, so tonight we’re announcing [$X] to fix it”

Often it’s a laundry list of politically and ideologically targeted promises, designed to tell us how good the government is, and why we should be happy they’re in power.

If I were a betting man, I’d reckon that’ll happen more, as the government’s term rolls on.

But this one was… different.

Yes, there were some big and welcome announcements – primarily funding for early childhood education, money to lower the cost of PBS medicines and extra weeks of paid parental leave – but they were essentially just the make-good of pre-election promises.

Those are sensible, responsible and help those who need it, as well as helping the country (more childcare places should help more parents rejoin the workforce, for example).

But there was precious little else.

The affordable housing ‘announcement’ is largely just a commitment to use the ‘big stick’ of government to get others – including States and Super Funds – to deliver on one of the government’s policy preferences, with a target of 1 million new affordable homes. Whether this amounts to anything, or is just political sleight-of-hand, we’ll find out, in time. But, as I said yesterday, without meaningful policies on what, where and how (including the impact on the natural and built environments, and the ability of infrastructure to cope), consider me sceptical.

Speaking of yesterday… in this space, I shared a list of other things I’d have liked the Treasurer’s speech to include, but I wasn’t exactly surprised that none of them made the cut.

There was no rollback of Stage 3 tax cuts for high-income earners (though he left the door wide open on that one), no sovereign wealth fund, and the early childhood funding didn’t go far enough (I argue it should be universal and free, just like primary and secondary school education).

There was nothing for productivity and job creation (a few token announcements – red meat to the base – on ‘making stuff here’, but nothing meaningful to improve our economic competitiveness).

And there was nothing serious done to rein in what is a structural budget deficit (an inherited problem, to be fair, and one that neither side of politics has seriously addressed).

In fact, perhaps the most notable part of this budget was not the announcements, but the Treasury forecasts.

Power costs are forecast to rise by up to 50% over the next two years.

It’s going to take two years until real wages start to grow again (in other words, inflation is going to be higher than wages growth between now and then).

Economic growth will slow to 1.5% next financial year.

And unemployment is expected to tick up.

Which, in aggregate, is why the Treasurer felt constrained – he simply couldn’t justify spending more money and adding to inflationary pressures.

The result? A ‘nip and tuck’ budget.

A little extra spending here, a little spending cut there, but overall no big moves.

It was, in short, boring and sensible.

It’s hard to blame the Treasurer for that – he’s inherited the role at a time when ‘boring and sensible’ is required.

Which, given Australian politics at the moment, is to be commended.

I’m not sure what others might have been tempted to do, playing for votes, ideology, or both (and I’m not just talking about the LNP – both those on the left and the right of the current government might have been tempted to do other things, and I’m sure Government ministers were begging for more money for their portfolios too!).

So he deserves a lot of credit for doing the right thing.

And, of course, the usual suspects are making the usual criticisms – partly political and partly ideological. Either he did too much, or not enough, depending on who you ask.

Would others have done better, overall? Maybe. Probably not. And Treasurers never quite get enough credit for doing the right thing. It’s just expected.

But he did duck the harder issues.

As I said, the deficit didn’t get addressed. And there was little to no support for lower-income earners and welfare recipients who are going to be hardest hit by rising prices and rising rates.

It was a solid, responsible budget. A 7.5 / 10 effort.

To use a cricket analogy, the Treasurer played a Test Match opener’s innings – he played with a straight bat, didn’t take any risks, and took the shine off the new ball.

This budget is perhaps most notable for how unbudget it was – nothing to scare the horses, and not much in the way of big-ticket spending or reform.

But there is still a lot of work left to do.

—

Given my day job, I should highlight a couple of additional elements for investors:

The government has confirmed that Bitcoin (CRYPTO: BTC) is to be taxed as an asset, rather than currency. And that any central bank digital currency assets would be considered ‘foreign currencies’ for tax purposes.

Disappointingly, the Treasurer announced that companies can no longer stream excess franking credits to shareholders using off-market buybacks at below-market prices. Given the principle of not having ‘double taxation’ of dividends, The change means companies will no longer be able to use those buybacks to distribute excess franking credits, leaving them largely ‘stranded’ on company balance sheets.

But not much of note in this area, either. Just like the rest of the budget.

Fool on!

The post What to make of last night’s budget appeared first on The Motley Fool Australia.

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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin. The Motley Fool Australia has positions in and has recommended Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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