Yahoo Lifestyle Federal Budget 2024: The major reason Aussies shouldn't just be asking 'what's in it for me?'
Cost of living relief has been at the centre of the budget, but what we really need to make sure is that inflation is coming down.
From the big-picture macroeconomic perspective, Treasurer Jim Chalmers has delivered a solid economic policy prescription. Some of the heat should be taken out of inflation, helping with household cost of living pressures whilst continuing the job of repairing the budget.
Rather than an assessment of “what’s in it for me”, an examination the overall economic effect of the budget is important. That's because the whole economic effect impacts all of us in terms of inflation, employment and financial stability.
This is where the range of measures to lower inflation and ease cost-of-living pressures are significant.
Find out how the 2024 Federal Budget will impact you by following Yahoo Finance’s coverage here.
A continuation of the electricity and rental rebates figure large in the cost of living debate.
The electricity rebate impacts every household and many small businesses. For consumers, its structure is progressive in that people on the lowest incomes, pensions, benefits or fixed incomes receive the same subsidy as a millionaire. This means that is it more helpful to low income earners than the rich.
In simple terms, when the electricity bill comes in through 2024-25, for every household the out of pocket costs will be lower.
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The rent subsidy is more targeted, as it provides a rebate for renters – not home owners or those still paying a mortgage.
These two policies will lower the consumer price index – inflation in other words.
This is the reason why the Reserve Bank of Australia (RBA) inflation forecast of just a week ago, for annual inflation to hit 3.8 per cent by the end of 2024, is out of date. This is not a criticism of the RBA – when its forecasts were prepared, it was unaware of the measures outlined in the budget.
Treasury, with full knowledge of all of the measures and policy changes in the budget, is forecasting inflation to drop to 2.75 per cent by the end of 2024, a rate that if delivered would slam the door shut on any speculation about interest rate hikes and open the door for interest rate cuts.
That said, it will be the bigger economic picture on economic growth, unemployment, wages and inflation that will sway the RBA on interest rate settings.
The two budget surpluses to date have seen a scaling back in the growth of government debt.
The budget is forecasting net government debt to hover around 18 to 22 per cent of GDP, well below the peak of 28.4 per cent of GDP in the pandemic year of 2020-21 but materially low on any international comparison.
The budget is likely to see the credit rating agencies maintain Australia’s sovereign debt rating at triple-A, the highest reading possible. This is important for financial stability which will bias government borrowing costs lower and will allow foreign investors to activity participate in the Australian economy.
Could there be a third surplus next year?
Current Treasury forecasts point to a return to a budget deficit of $28 billion in FY2024-25 which is 1.0 per cent of GDP.
Based on the current economic forecasts of weak growth and rising unemployment, a small deficit next financial year is appropriate. After two unexpected surpluses, there is a need to put a floor under the economy as it slows to limit the risks of the unemployment rate hitting or exceeding 5 per cent.
Hence the deficit.
But if there is any upside to the Treasury forecasts, especially for commodity prices, household spending and even the labour market, the budget deficit will be lower. That said, a move to a third surplus looks difficult to achieve.
What is ahead?
With the budget out of the way, all eyes will return to growth, unemployment and inflation. Developments on these fronts will feed into RBA decisions on interest rates with the budget helping, at the margin, to build a case for rate cuts later this year and into 2025.
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