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Diary: On a Shoestring Budget

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2023-05-07

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For Australian markets, this week is all about the 2023-24 federal budget to be delivered Tuesday night.

It will be dominated by cost-of-living relief measures, and policy shifts to try and start funding changes to the structural spending deficits emerging in this and future budgets in areas such as defence, NDIS, health and aged care and social welfare.

An awful lot of measures have already been leaked or announced so it is hard to see anything unknown and dramatic emerging.

Already we have seen an overhaul of the Petroleum Resource Rent Tax confirmed at the weekend by Treasurer Jim Chalmers.

Other key features are likely to include:

• Small (in size) cost of living measures for low to middle income workers (with energy, medicine bill relief & possibly more rental assistance) and a modest increase in Jobseeker for over 55s;


• The expected a ramp up in defence spending on missiles and submarines which has already been outlined.


• Increased spending on aged care partly flowing from the 15% pay rise for aged care workers which will cost $14 billion over four years;


• We will see a combination of tax increases (a further cut to tax concessions and maybe a wind back of the Stage 3 tax cuts, although that will not be decided on for a year) with possible spending savings (like limiting growth in the NDIS, increasing deeming rates to limit pension payments & cutting middle class welfare);


• Expect some measures to help boost housing affordability – including tax changes to encourage build-to-rent housing;


• Net immigration of 400,000 this financial year up from a forecast of 235,000 in the October Budget, taking population growth above 2% for the first time in 14 years - which helped convince the Reserve Bank to lift the cash rate this week.

The 2022-23 budget deficit will be much lower (and could be a small surplus) and forecasts for the next four years will be lower than previously stated because of higher commodity prices and stronger personal tax collections in the short term and stronger population growth, somewhat higher bulk commodity price assumptions and budget savings longer term resulting in improved budget balances.

The AMP’s chief economist Shane Oliver says that with March budget data showing a small surplus over the past 12 months it’s likely the budget balance for 2022-23 will show a small surplus possibly around $2 billion (compared to a $36.9 billion deficit projected in the October Budget).

"Some of this improvement will carry into 2023-24 where we expect a deficit of $25 billion (down from $44 billion forecast in October) with a 2024-25 deficit of $40 billion,” Dr Oliver wrote at the weekend.

Tax increase designed to reduce the structural budget deficit (with a starting estimate of $50 billion or 2% of GDP).

2023-24 GDP growth forecast may be revised down to around 1% from 1.5% - the RBA’s forecast is around 1.25%.

Before the budget there’s building approvals today, March quarter retail sales data tomorrow and the NAB business survey for April will be released today.

Among corporates, Westpac announces its 2022-23 interim results today and the Commonwealth Bank provides a third quarter update on Wednesday (when it will be buried by budget reaction).

CSR releases its 2022-23 results this week, as does Eclipx and Orica releases its interim results on Thursday and GrainCorp on Friday. News Corp and REA both report on Friday morning (Thursday in the US).

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In the US, the April Consumer Price Index data on Wednesday (US time) will dominate, especially after last week’s 0.25% rate rise from the Fed.

Economists see no change at 5% for the headline rate, thanks to a rise in petrol prices but core inflation is forecast to ease to 5.4%.

But if it is higher or the core reading rises from the current level of 5.6%, then those worries about rate rises and recession will be quick to re-emerge.

The US earnings season continues with interest on Wednesday’s report from Fox Corporation after its record, $US787.5 million defamation settlement last month with Dominion Voting Systems. New York Times Co releases its March figures mid-week.

83% of S&P 500 companies have reported so far with 78% surprising on the upside which is far better than in the December quarter and above the long-term norm. The average beat is running at 7%, according to FactSet.

Companies from the US and elsewhere will report - there will be the major trading houses from Japan (in which Berkshire Hathaway is a big shareholder) led by Mitsubishi and Itochu, Toyota and Honda, Walt Disney in the US, Occidental Petroleum, PayPal and Bayer from Germany.

Shane Oliver wrote at the weekend that "consensus earnings expectations growth expectations for the quarter have risen from -6.2%yoy to -3.2%yoy, implying an actual rise in earnings in the quarter itself – but expect some renewed slowing ahead as growth and inflation slows. Non-US earnings growth is running around 10%yoy and beating consensus by around 14%."

In Europe, the Bank of England is expected to hike rates by another 0.25% to 4.5% on Thursday and there will be an estimate of first quarter economic growth as well.

In Asia, Chinese April trade data tomorrow will be watched closely for signs of lower export growth of an annual 11% from March’s 14.8% and an improvement in imports to flat year on year from the 1.4% drop in March.

Dr Oliver says Chinese CPI inflation on Thursday is expected to slow further to an annual rate of 0.2% (down from 0.7% in March) which is on the cusp of deflation which will continue in producer prices with a drop of 3.1% forecast.

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