Australia’s budget risks changing governments

It was a budget that essentially dealt with temporary measures that were to last beyond the federal election. Fair.

As expected, the impact on financial markets was negligible. Equity futures and the Australian dollar trade in line with their international counterparts.

The big complaint and the big disappointment.

It is important to capture the reaction of voters.

The big claim has been unemployment hitting historic lows. Although the government claims all the credit for this achievement, it is really about the continued shortage of foreign workers and the usual army of backpackers. Also the complete stop of immigration. All have combined to create opportunities for unemployed Australians. A further drop to 3.75% would be welcome, already claimed as an achievement by the government, but there is the prospect of unemployment stabilizing and rising as travel resumes.

It is nevertheless a very welcome result which also benefited from substantial stimulus measures during Covid.

The two biggest disappointments of the federal budget were the halving of the fuel excise tax, the low 22 cents back into the pockets of voters, and just one month’s relief for recipients of the welfare.

The fuel tax should be completely abolished. It is a regressive tax that disproportionately affects hard-working families. The levy has only been halved for six months because the Treasury thinks oil prices will go down?

It was an opportunity for at least the slightest sign of real economic reform that the country so badly needed. We are entering at least a full year of runaway inflation.

The fuel tax should be permanently abolished. We are talking about energy supply to allow people to have access to employment, to exercise their work, to access education and health care on an equal footing. It is a taxation purely intended for politicians to balance their spreadsheets rather than having an economic or common sense rationale.

For those still struggling in our society, they received the most payouts, just $250 and only once. For just one month? Already struggling with rising energy and food prices, many are on welfare and desperate for additional help. What have they been given is recognition that prices are only higher for a month? It is an abuse of the less powerful. A pure showcase of care.

The focus here has been on what are likely to be the main topics of interest to voters. Employment prospects remain strong, but inflation will continue to reduce real wages. Instead of a bold reform, we only received touch-ups around the edges. And temporary too. The further assertion that these increases in the cost of living are transitory is indeed a rather encouraging proposition.

What matters most to financial markets is whether this election budget will actually save the coalition government. It wouldn’t seem so. At some point, the markets will have to price a change of government.

A risk still poorly appreciated. The view remains that equities and the currency could come under pressure ahead of and after the federal election, likely in mid-May, followed by another reassuring government rally.