The 2024 Federal Budget is an optimistic document. It makes a lot of promises that likely won’t be achieved and makes several moves that could have potentially devastating flow on effects. Here are four notable issues with the Budget.
1. The Budget IS expansionary.
Spending is up $24 billion since the mid-year budget statement, courtesy of NDIS spending (+$14.5 billion) and $9.5 billion in new spending. The Budget claims savings of $14 billion from compliance measures for the NDIS, but how much of those savings will be realised is doubtful. To that, the States have also added about $9 billion. And that is before the Stage 3 tax cuts.
The Government has stated that this new spending and the tax cuts (or some portions – the wording is vague) will not add to demand/inflationary pressures in the economy. Economists are not buying that message and this is making the task tough for the Reserve Bank.
2. The CPI strategy is openly targeted at interest rate reductions.
Energy rebates (including from the States), rental assistance increases, and medicine price measures will subtract 0.75% off CPI to June 2024, taking it to 3.5% (4.25% otherwise), and 0.5% off the CPI to June 2025, taking it to 2.75% (3.25% otherwise).
While the RBA will be focused on underlying inflation (which takes out these subsidies) and may not acquiesce to the Government’s desire for rate cuts, the Government (sorry, Treasury) states that the “cash rate is assumed to gradually ease from around the middle of 2025 to reach 3.6% by mid-2026.” That is, it is factoring in three 0.25% rate cuts, although clearly hoping it starts before the middle of 2025.
A lot is hanging on this. Let’s see what happens to underlying inflation, but it won’t be helped by the expansionary impact of the Budget.
3. Net Overseas Migration Numbers are up only slightly
The Government has tightened up on international student numbers and this has allowed for only a small upward revision to expected NOM to 395,000 for 2023-24 (from 377,000 in December estimates) and 260,000 (from 248,000) for 2024-25. There is pressure on universities to invest more in student housing if they want more international students. However, the Budget does mollify the universities by announcing a target for 80% of the population to undertake tertiary studies (university or TAFE)!
4. The promise for 1.2 million houses over the next 5 years was confirmed – but no-one believes it.
The Government is sticking with the big number because it’s a big target, despite its own Housing Council having just come out and said that only 910,000 will be built. It will fall short by about 290,000 – and factoring in correct numbers for demolitions, the shortfall is more likely to 360,000.
Some minor new measures are introduced (the usual extra apprenticeships, etc), but it’s not anywhere near enough to make an impression on the shortfall. However, there is no upping the target for 40,000 social housing, which is factored into the Housing Council’s 910,000 estimate, and which itself is already ambitious.
Budget economic forecasts have no growth in housing in 2024-25 (from low point in 2023-24) and then (just) 6.5% growth in 2025-26, presumably on the back of demand boosted by the interest rate reductions. This scenario is consistent with at best 900,000 new houses.
Budget Paper 1 can be found in full here
