Asset Allocation Strategy
Federal Budget: Red is the new black
Wed 12th May, 2021

The latest Federal Budget commits to a continuing focus on supporting the economic recovery by starkly prioritising job creation and enhanced social programs over medium-term budget repair.

This pro-growth and social spending focus delivers minimal improvement to the last year’s assumed deficit profile. Despite significant notional gains in the budget position from a better-than-forecast economy ($104bn over 4 years), the budget spends an additional $96bn (over 4 years) focussed on a combination of short-term household tax cuts for low and middle incomes, and extended business incentives alongside much higher structural spending on aged care, the NDIS and childcare.

The government has clearly framed the budget with an eye to the next election (likely timing between August this year and May next year) with ample near-term stimulus, no tax hikes and plenty of medium-term spending initiatives aimed at neutralising perceived political pressure points.

Overall, the degree of stimulus should be broadly equity market friendly (particularly for the consumer), but the complete absence of any attempt at fiscal repair may put some upward pressure on interest rates (contingent on global influences) and bring forward assumptions on RBA tapering and cash rate hike timing (RBA still guiding to 2024 for the first hike).

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Written by

David Cassidy , Head of Investment Strategy

David is one of Australia’s leading investment strategists.

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