Federal Budget Insights

Treasurer Josh Frydenberg has handed down his 2019-20 budget, see what this means for Australia

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Good news day

Good news can be remarkably hard to sell. Every day, there are stories of achievement and progress which pass with little recognition. The prevailing trend is to report mostly on the negative, as a scan of any media headlines will confirm. There is plenty of good news, it just rarely makes the front page.

Treasurer Josh Frydenberg will be hoping for a different outcome with his first, decidedly good news, Federal Budget.

This Budget was always going to be shaped by the political reality of a Federal election only weeks away. An economy which remains in remarkably good shape - notwithstanding some challenges, more on those later - has allowed the Treasurer to claim the first Budget surplus in more than a decade, with room still for big spending in all the expected areas and a centrepiece budget strategy of significant personal income tax cuts.

There is good budget news for middle-income earners, small businesses, regional Australia, pensioners, apprentices, infrastructure, the environment, and even an extra $1 billion for the Australian Taxation Office.

Beyond the big budget announcements, it is sometimes the small changes that go under the radar.

Last year, the Federal Budget heralded real GDP growth would accelerate “to 3 per cent growth in 2018–19 and 2019–20”, bolstered by both favourable domestic and international conditions.

Treasury’s expectations now are that the economy will “grow at around its estimated potential rate of 2¾ per cent in 2019-20 and 2020-21.” Did you spot the subtle shift? In an enterprise as big as the Australian economy, that missing ¼ per cent growth will be noticed. Indeed, without the welcome boost of a resources sector travelling well in both export volumes (especially for iron ore) and price (especially for metallurgical coal), Australia’s economic growth would have been around a further ¼ per cent down. Not all (Budget) heroes wear capes.

The wages picture is similar. Despite an improvement in unemployment sitting happily at five per cent, wages growth remains sluggish, and the expected rebound in wages growth is pushed out another year in Treasury’s projections. Although designed to solve a completely different political equation, the tax cuts announced by the Treasurer will boost household disposable incomes, and will go at least some way towards filling the gap that moribund wages growth otherwise will leave in the real economy.

And what of those challenges?

Last year, the Budget papers boasted Australia was “well placed to benefit from
the global upswing” and “GDP growth in major advanced economies has become increasingly synchronised”. What a difference a year makes.

In a classic Treasury understatement, the Budget papers now dryly observe the “... risks associated with Brexit have become more pronounced in recent months …”, flagging also elevated tensions in the wider global trade landscape. Treasury also points to the softening in domestic property markets, and downside risks to both dwelling investment and household consumption - two of the mainstays of Australia’s economy.

That $7 billion surplus next year is close, but we aren’t there yet.

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Jeremy Thorpe

Chief Economist & Partner, PwC Australia

Tel: +61 (2) 8266 4611

Pete Calleja

Australian Tax Leader, PwC Australia

Tel: +61 2 8266 8837

Lynda Brumm

Principal, PwC Australia

Tel: +61 7 3257 5471

Julie Coates

Managing Partner, Clients & Markets and Financial Services Industry Leader, PwC Australia

Tel: +61 2 8266 2006

Tom Seymour

Managing Partner, Financial Advisory, PwC Australia

Tel: +61 7 3257 8623

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Partner, Consulting, PwC Australia

Tel: +61 (7) 3257 8851

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