Budget 2024 – The Good, The Bad and The Ugly

The phrase on every working Australian’s lips at the moment is “cost of living crisis”. But I’m sorry to say, if you were hoping for the Government’s Budget 2024-25 to solve the crisis you will be disappointed.?

My take is that there were three key points to come out of the Budget, and they can be summed up as The Good, The Bad and The Ugly.?

The Good?

I would label the Stage 3 Tax Cuts as a good thing, because workers in every tax bracket will pay less income tax. This means more money in household budgets, which eases pressure on mortgage holders.??

For example, a person earning the average Australian salary of around $80,000 a year will now receive a tax cut of $1,679.??

Of course, we already knew about this measure, because it was announced back in February. It is also fair to note that the original tax cuts promised by the Liberal Government would have seen bigger reductions for those earning between $120,000 - $200,000, so these people are slightly less better off under the 2024-25 Budget.?

The Bad?

Now let’s turn to the negative. The Treasurer said in his speech last night that one of the Government’s main priorities was “building more homes for Australians”.?

The Government pledged a further $6.2 billion in housing support, in addition to measures already announced that aim to build 1.2 million new homes by July 2029.??

But the allocation of funding is almost all towards future-focused initiatives, including training more construction workers, building infrastructure, improving transport, etc. The other measures are geared towards helping lower income earners and the disadvantaged to secure housing. Which is important and should be applauded, but ultimately ignores the “average” Australian family.??

None of the housing measures address the current (and very real) housing issues facing everyday Australians. There are no rent rise caps, no policies to force vacant properties to be let, no new assistance for first home buyers and no talk of any change to negative gearing.??

The Ugly?

“Help with the cost of living” is the headline the Treasurer has used to describe the Budget.??

But, most economists have predicted the measures in the 2024-25 will do little to put downward pressure on inflation.?

Why does this matter? Well, compared to the rest of the world, Australians have the world’s highest household debt. This means our current high interest rates are contributing significantly to the cost of living challenges Australian consumers are facing. If inflation remains high, the RBA is unlikely to reduce rates. There is even the potential to increase them.??

What’s In It for Mortgage Holders??

If you have a mortgage, you should brace yourself for the reality that interest rates will not decrease this calendar year.??

To offset that news, you could view the tax cuts as the equivalent of 3 x .25 basis point interest rate cuts over the year.??

You will also receive an energy rebate of $300, spread over the course of 4 quarters.?

What’s In It for First Home Buyers??

There is a little bit of good news for younger Australians/recent graduates in that the Government is proposing to cap the indexation of HELP to the lowest of either the Consumer Price Index or the Wage Price Index. This will be back-dated to mid-2023 so indexation will effectively be cut in half. This will help first home buyers by increasing their borrowing capacity.?

What’s In It for Business Owners??

The Instant Asset Write-Off measure is set to continue, allowing small businesses with annual turnover of less than $10 million will be able to immediately deduct eligible assets costing less than $20,000 until 30 June 2025.?

Eligible businesses will also receive energy bill relief of $325.?

But, if consumer spending continues to slow this is likely to knock on to businesses.??

The Bottom Line?

The reality of any Federal budget is that it will take time for the effects to flow on. Whether consumers will respond positively to yesterday’s announcements is unclear. Yes, there is some discussion of help with the cost of living crisis. But the inflation problem still isn’t solved.??

Right now business sentiment is neutral, but consumer sentiment is negative – the 2024-25 Budget doesn’t seem to help much with either of these.?