29th September, 2022
After almost a decade in opposition, the ALP will be delivering its first Federal Budget on 25 October. Here’s what businesses might expect.
Prime Minister Anthony Albanese has taken office in the wake of a pandemic that necessitated a lot of government borrowing and spending, both in Australia and around the world.
In turn, inflationary pressures have shot upwards, forcing central banks to raise interest rates.
The challenge facing Treasurer Dr Jim Chalmers – and his international counterparts – is sticking a ‘soft landing’ and avoiding a recession.
If Chalmers manages to bring inflation under control to start repaying the debt Australia accrued during 2020-2021 without crashing the economy, both business owners and their workers will benefit.
On the other hand, a hard landing – that is, a recession – will result in a rocky road ahead for many.
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The ALP went to the last Federal Election with a policy platform designed to win favour among both business leaders and the public in general.
In the lead-up to the election, Albanese unveiled a suite of policies dubbed a ‘Better Deal for Small Business’.
He also assured corporate Australia that the ALP had no plans to impose higher taxes or excessive regulation and that the party’s agenda – cheap and reliable energy, more training and education, affordable childcare, and investments in productivity-enhancing infrastructure – would benefit the business community.
Given these promises, it’s unlikely Chalmers will attempt to balance the Budget by raising taxes, either on business owners or their employees.
Instead, Chalmers is insisting this will be a “bread and butter” Federal Budget for FY22-23 that provides “responsible cost-of-living relief” through measures such as expanded childcare subsidies and cheaper prescription medicines.
Consumers with more money in their pockets is good for small businesses, but the question remains whether these relief measures will be enough against the increases to rent, food and fuel many Australians are facing.
And while Chalmers states he’s inherited a Budget “bursting with waste and rorts”, little has been said about what the ALP intends to outline in the March Budget.
As a result, with global economic pressures and a tight domestic fiscal environment, while there is no reason to suspect there will be measures that disadvantage small businesses, we’re unlikely to see a Budget brimming with expenditure either.
There’s been no lack of attention paid to the nation’s economic challenges by either the media, the Government or the Opposition, and we can expect the situation to continue well beyond the Budget announcement.
In particular, rising interest rates have been the subject of regular scrutiny – the question is how much can a single Budget do to address its underlying causes, or ameliorate its effects?
Many Australians would recall a time when interest rates were much higher than they are now and it seems somewhat unlikely we could ever get back to the 17 percent figure experienced in the early 90s.
Conversely, significantly higher real estate values mean people are today borrowing multiples more than they were 30 years ago, making even small changes to rates much more impactful.
For example, if a couple with a $800,000 mortgage goes from paying three percent to five percent interest, that translates to another $16,000 a year in mortgage payments, resulting in less money spent at local businesses – restaurants, cafés, bottle shops, pubs, hairdressers, gyms and travel agents – all of which are reliant on readily available discretionary spending.
The trick for the Treasurer here will be to avoid delivering measures that exacerbate inflationary pressure, ruling out a big “cash splash”, while still making sure Australia’s most vulnerable have the resources they need to get by.
And, even if the Government manages to balance these priorities, the question of how high and how sustained interest rate rises become remains mostly in the hands of the RBA’s decisions regarding the cash rate, as well as how things play out in international markets.
Although that doesn’t mean we should be bracing for impact just yet, with a recent KPMG report concluding “the economy is weathering the inflation storm for now” and forecasting Australia’s inflation rate will be 6.4 percent and its growth rate 3.6 percent for 2022.
It was only 2019 that the previous Government announced we were on track to realise a surplus of $11 billion in 2021 – but it wasn’t to be.
The optimism, as we know, didn’t age well and the 2020-21 Budget Outcome wound up delivering a $161 billion deficit instead.
Now, in 2022, Chalmers has regularly touted the large amount of debt the new Government has inherited, alongside the many economic challenges we continue to face.
But there are also some positive aspects of our current economic situation that shouldn’t be dismissed.
For instance, Australia’s unemployment rate is the lowest it has been in half a century and that means many more Australians are paying income tax rather than claiming welfare payments.
High commodity prices are also a mixed blessing: while rising fuel and energy costs will remain in the spotlight with the standard fuel excise being reinstated, they also mean Australia’s economy has been benefitting from plenty of export income for the resources we supply.
And, when combined with what the Treasurer described in a recent statement as “delays in projects and payments”, this year’s underlying cash deficit is just $32 billion for 2021-22.
The debt situation might also be not quite as dire as it sounds, with Chalmers’ “trillion dollars of debt” figure based on a forecast net debt peak of $981 billion, to be achieved in 2024-2025.
When it comes to spending, debt and deficit, these are large numbers we’re dealing with, but perhaps the situation is best summarised by a recent, joint statement from Treasurer Chalmers and the Minister for Finance Katy Gallagher.
“Australians are under no illusions about the enormity of the economic challenges ahead of us.
“But despite all that is stacked against us, Australians have every reason to be optimistic about the future.”
In short, business owners probably can’t expect to look forward to a sugar hit style of Budget when it arrives this October, but with a dash of good luck and a strong dose of prudent financial management from the new Government, we might all hope to avoid the worst of a potential recession over the next 12 months.
If this can be achieved, the Australian economy and the business community will be well positioned to succeed at a time when many others around the world are falling behind.