The Treasurer’s controversial Budget will be put under the microscope today by Senators and the RBA boss. Will Dr Jim get a thumbs up or down as the economy slides?
Today the Governor of the Reserve Bank will face off with Senators of different political parties to give the central bank’s view on Dr Jim Chalmers’ Budget. It comes a day after we learnt that the Australian economy has been slowed down to worryingly low levels, which could lead to a rude politician asking if the RBA is again “late to the party” in hiking interest rates in March as petrol prices were hitting the roof?
Sure, it’s Michele Bullock’s job as the RBA boss is to give a respectful score card rating on the Budget but you have to hope that she is totally honest about the state of the economy and the appropriateness of Jim’s effort to KO the tax concessions and deductions that have driven real estate investments in this country, ever since government got out of the business of providing public housing.
Anyone who has driven through the streets of inner-city Melbourne and seen the buildings that now house residents where social workers need police protection, can understand why the knucklehead politicians of the past handed over the job of providing places for people to buy or rent to the private sector.
And that sector needed tax incentives to put their money on the line and if those same underwhelming politicians actually moved heaven and hell to increase the supply of housing, the now criticized property investors would be seen as being positive contributors to providing more rentable homes at lower rents. Meanwhile, there would be more first homebuyers in properties bought at lower prices.
But this is a story that our political masters choose to ignore and do precious little to change all of that.
Of course, that’s a story for another day, with yesterday’s economic growth numbers not looking great and suggesting that rate rises from the RBA should be taken off the table.
Here’s a summary of what we learnt about the economy with March quarter National Accounts on show:
- The growth for the quarter was a low 0.3%.
- The annual growth number was 2.5%, which looks OK, but this has been helped by a stronger economy, which was enjoying three interest rate cuts until 2026 brought three rate rises and petrol price surges.
- The Iran war has created a negative trade shock — the first trade deficit since 2017 — which is not good for a big export-selling country like Australia.
- Government spending dropped in the quarter to 0.2% growth, which is the slowest since September 2022.
- And the combined impact of the rate rises in February and March, on top of the petrol price spike has slowed consumption from households to a low 0.5% growth.
Now remember, this is the story up until the end of March and the RBA was so out of touch with this slowing economy, that it gave us another kick below the hip pocket belt with a rate rise in May! So, given these numbers and the fact unemployment is rising, up from 4.3% to 4.5% over March to April, while business and consumer confidence levels are at Covid lockdown levels, you don’t have to be an economist to argue that rate rises should be over.
All of this pretty ugly picture of the economy also makes the good economic sense of the Fair Work Commission hiking of the minimum wage by 4.75% look okay from a social point of view, but economically it doesn’t help the RBA get on board with keeping rates on hold or even thinking about a cut some time this year!
Call me an economist, but I’m looking forward to the politicians getting their time with Ms Bullock today and you have to hope that they do their best to get her objective assessment of the appropriateness of the Budget, given how the economy is doing.
This is only guesswork but given the analysis from economists that the impact of the proposed Budget changes on negative gearing and the capital gains tax (CGT) discount, it’s hard to believe that it will help business investment.
The fund manager, Geoff Wilson, who is championing a petition to get the Treasurer to drop his CGT change for businesses investing in growth, thinks the economy is worryingly slow and this Budget does not help that problem, which means the RBA should be cutting rates ASAP.
Yesterday, the Treasurer cheered the good business investment numbers in the National Accounts but a lot of that was data centre investment and anyway that investment happened under the more generous 50% CGT discount that the Treasurer is taking away!
I hope we see fireworks at this Senate Economics Legislation Committee today, which should come from politicians who are really trying to see if the Budget is going to be a plus or a negative for the economy, which in turn will impact on the RBA’s rate changes.
Personally, I think the negative impact of the Budget on an already weakening economy should help the RBA keep rates on hold June 16 and after that rate cuts should be seriously considered.
Unlike the RBA, I hate being late to a party!
