Federal Treasurer Jim Chalmers delivered his first Budget to Parliament only five months after the Labour Party won the federal election. Inheriting an economy at close to full employment, high inflation and having watched the events of the UK post their mini-budget, most would have been expecting very few bold announcements to be made. In economic terms, the budget respects the balancing act the government needs to observe. Looking forward while the immediate FY23 fiscal estimates have improved, the outlook beyond this is for a more prolonged underlying budget deficit. With rising interest rates globally, it is expected growth will slow, inflation will remain above the RBA’s band for some time and unemployment will rise. To add to this the government will, like everyone else will have a significantly higher cost of servicing its debt at a time when government debt is at record levels.
Looking from a high level, sector beneficiaries from the government budget will be those that gain from housing investment, increased childcare subsidies, increasing penetration of EVs and additional funding for GPs. On the flipside the cutbacks on infrastructure spending is reasonably significant.
Going into more detail looking at implications for listed equities sectors include:
- Strengthening Medicare (Healthcare positive): The Government has set aside $750m for the Strengthening Medicare Fund to provide better access and care for patients. Delivery of the Fund will be informed by the Strengthening Medicare Taskforce, which will provide recommendations by the end of the year. GPs will be assisted to enhance digital health capability. While the finer details of this policy are unknown at this point, the policy should assist more people getting access to GPs and ultimately driving more people into the healthcare system which has been lagging since Covid.
- Cut to PBS general co-payment (Pharmaceutical positive): The Government is reducing the maximum co-payment individuals need to pay under the PBS from $42.50 to $30 per script, a 29% reduction from 1 January 2023. This should limit people delaying getting medicines, aiding demand for pharmacies and supporting the wholesalers.
- Public Hospitals miss out on further funding (Neutral/positive): States and territories have missed out on an extension of the additional hospital funding that had been made available at the outset of the Covid-19 pandemic. The extra funding, which was worth an extra $808mn in 2022-23, runs out in December. This may put greater pressure on the public system and push more people to the private system.
- Increased support for social and affordable housing (Builders positive): Though a newly announced $350m support is not material to total housing construction of ~200k per annum: an accord with state governments will support total additional 4k houses per annum, on top of previously announced 6k per annum from the Housing Australia Super Fund.
- DES (Disability Employment Services) is extended for two years (Positive). Greater funding for NDIS/labour market assistance to job seekers:
- The Government will provide $19.4m over four years from 2022–23 to extend the Disability Employment Services programme for two years to 30 June 2025.
- Total funding for the NDIS will reach $166.6bn over four years—an increase of $8.8bn. In FY26, the NDIS funding is 12% higher under a Labor Government vs the prior Liberal Government.
- Under Employment Services, funding for labour market assistance for job seekers is estimated to be 2-3% higher under the Labor Government vs the prior Liberal Government.
- Near term transport infrastructure expenditure reduced 20% (Negative): A ‘reprofiling to align with the industry and market conditions’. With a significant number of large infrastructure project seeing their budgets rise significantly, it is understandable that the government has made an easy win in taking pressure off a sector which already is seeing a very tight labour market conditions.
Looking outside the investible equities market sectors, there was a obvious narrative to attempt to increase the size of participation in the workforce. Treasury research suggests that women reduce their hours in paid work by ~35% across the first 5 years after the arrival of their children, while men’s paid hours worked drop only in the first month. This leads to an overall reduction in labour force participation. Consequently, by providing greater access to childcare, Treasury estimates that the subsidy will increase the hours worked by women by 1.4 million per week, which is the same as 37k full-time workers in FY24.
One of the major pre-election promises of the ALP was an increase in the child-care subsidy. From July 2023, childcare subsidy rates will increase for all eligible families with annual incomes less than $530k, which would cover around 96% of families. The maximum subsidy rate will increase from 85% currently to 90% next year for a family with one child. The scheme is expected to cost $4.7bn over 4 years. To add to this they have announced an extension of paid parental leave. The increase in paid-parental leave will cost $AU531.6mn over four years, starting in FY23. Each year from July 2024 to July 2026, the paid parental leave will increase by 2 weeks, with a total increase of 6 weeks to 26 weeks by FY27.
Behind the numbers, choices of where and how to spend money were spread across important initiatives aimed at addressing some structural drivers of our inflation problem – energy, housing and the labour force – while leaning in to support Australians hit hardest by tough times. In a year of global uncertainty, confounded by the most significant geopolitical threats we have experienced this century, this patient budget is bland enough not to cause any headaches for the RBA and inflation. Although from a political perspective it does nothing to make their task easier with the dropping of some election promises for energy subsidies and retaining of the income tax cut calendar set by the coalition. But the ALP will hope with having time on their side until the next election, these issues wont be at the front of mind for voters.
The challenge going forward will be the impact from lower GDP growth forecasts. The May 2023 Budget may be the last Budget where the government can look forward to meaningful positive commodity price benefits in FY24. Another potential challenge may be the decision to fund around $20bn of climate change mitigation policies off-budget for reasons that are not clear. To add to this how will the government address the increasing claim of the NDIS, aged care and healthcare on the budget. Great effort at reform is needed. The rising share of the budget claimed by social and human services reflects the demands of a wealthy, ageing population, but it is not sustainable.
The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.